On April 9th, musical artist Earl “DMX” Simmons passed away, leaving behind a rich legacy as songwriter, musician, and actor. Born in White Plains, NY, DMX released a total of 8 albums, 24 videos, and 46 singles (including five #1 Billboard 200 hits), selling almost 75 million records over his lifetime. This compares quite favorably to our track record of unreleased (but we swear popular) singles as a member of a college cover band. Beyond music, DMX also appeared in over ten movies and several TV shows. Apart from this success as an entertainer, DMX had a difficult personal life – struggling with drug addiction, a fractured family, and run-ins with life enforcement.
It seems a fitting tribute, then, that his native New York took a major step forward recently in reforming its laws on drug policy and enforcement by passing a bill legalizing recreational cannabis use. DMX quite nicely captured this sentiment in his immortal Ruff Ryders Anthem: “Stop, Drop, Shut ‘Em Down, Open Up Shop…”
New York is now the 15th state plus D.C. to legalize adult use cannabis, meaning approximately 40% of the U.S. population is now in states where cannabis is recreationally legal. With its large population base, New York will become the second largest cannabis market in the U.S. to California, with estimates of approximately $1.9 billion in annual retail sales, $350M in annual tax revenue, and 60,000 new jobs upon full implementation. While the devil is in the details regarding the speed and success of these highly regulated state rollouts, we are optimistic for the Empire State.
Currently, there are ten licensed operators in New York, including several large “multi-state operators” (MSOs), such as Curaleaf, Green Thumb, Cresco, and Acreage. These incumbents (which currently can hold up to four dispensary licenses and are required to be vertically integrated) may acquire up to four additional licenses (including three for retail). All new entrants will be capped at three retail licenses and, interestingly, are prohibited from vertical integration. The New York rules also include an “opt out” provision for cities and towns, which can effectively ban cannabis stores from their localities and majorly slowdown state-wide sales (like we’ve seen in California). Lastly, New York is on the high end for taxation, planning 9% state and 4% local plus 3 cents per milligram of THC. This is on par with the punitively high 15% state tax in California.
Much like other states, the new cannabis rules are as much about social equity and criminal justice reform as they are about tax revenue and new markets. The New York rules will reduce penalties for possession and sale as well as provide for automatic expungement or resentencing for anyone with a previous cannabis conviction that would now be legal. This is particularly important in New York as African American and Hispanic residents combined made up 94% of cannabis-related arrests by the police in 2020, despite making up only 26% of the total cannabis usage. The New York bill also includes a guaranteed allocation of licenses for social equity applicants plus other supportive measures, like community reinvestment funds and small business loan programs.
As we process these seismic changes to the nation’s attitude toward drugs and criminal justice, we can’t help but look to the past and wonder about individuals like DMX, who struggled early on with both the effects of illegal drug addiction and criminalization. How would their lives have been different with such rules and protections? So, while we jam out on Spotfiy to DMX’s mega hits like “Party Up”, let’s take a moment to reflect on the legacy of what’s behind us and, most importantly, look forward to a brighter future ahead.
Thanks for tuning in, and until our next update, please stay safe and healthy.
Mike, Kip, and Austin
Co-Managers, Presidio View Capital