New York could be a $6 billion market in just two years

Whitney Economics’ new report, focused exclusively on the New York market, strongly suggests that the state’s cannabis market will hit $6 billion in two years. Despite a difficult launch, New York now has more than 200 licensed stores open and is poised to deliver just under a billion in sales for 2024. That’s a 236% increase over 2023.

And the state is just getting warmed up.

If the number of retail operators continues to grow and legal participation increases, Beau Whitney, the firm’s founder, expects sales to exceed $1.3 billion annually by 2025 and $3.3 billion by 2027.

Based on national metrics, Whitney estimated that New York has a total addressable market (TAM) of $5.95 billion. However, that estimate may be low, because New Yorkers have higher consumption patterns than other states. In addition, the TAM does not include additional demand of $500 million- $750 million that could be derived from the 62.2 million tourists that visit New York each year.

“New York state has the potential to be not only the nation’s leader in cannabis production and sales revenue, but more importantly, can be the epicenter of the global cannabis industry the same way Wall Street is with finance,” Whitney said. “Our research gives the governor and OCM guidance in how to insure that happens and the state doesn’t make the same mistakes other legal markets have in spreading too quickly.”

Store potentials

The report found that average revenue per store in the state is increasing as more consumers make the switch from the illicit market to the licensed market. The state is reporting roughly $20 million per week in sales and with 205 stores open, which puts the average sales per store at $5.1 million. At that level, New York stores ranked 16th out of the 38 states with some form of legal access.

“Generally, New York retailers require between $2.6 million and $7.6 million per year in revenue to remain viable ($2.6 million in rural areas, $5.4 million in suburban areas, and $7.6 million in high-density urban areas),” Whitney wrote.

Of course, everything is more expensive in New York and that includes the operation of cannabis stores. That means that New York retailers really need to bring in revenue of $3.4 million on average to be viable; if the store is in the city, it will need to be even higher.

The report stresses that New York stores with revenue below these levels won’t necessarily fail, but profitability becomes more challenging. That brings the temptation to divert products or adopt other illicit methods to keep the business alive.

License needs

The report also tackled the difficult question of how many licenses are the sweet spot for cannabis in a state. Too many and prices crash and stores fail. Too few and prices remain elevated, driving consumers to the illicit market.

Whitney determined that to satisfy 75% of the total market, New York would need 1,230 retail licenses. He wrote that the theoretical maximum of retail licenses in New York is 1,600-1,700, depending on the number of full-time employees a retailer has on staff and the location of the operation.

However, issuing licenses hasn’t translated into operating stores in the state just yet. The New York Office of Cannabis Management reported that, as of Oct. 2, there are 823 active or in-process retail dispensary licenses, of which only 205 have opened.

Further compounding the store openings, many licensees lack the money to make stores operational. Hundreds of CAURD applicants could see their licenses expire before they can get the funding necessary to build out their operations.

Unlicensed Operators

The biggest ongoing threat to the growth of the state’s market is the proliferation of unlicensed stores , which can sell products at lower price points and don’t have to remit various taxes and fees.

The state and New York City both undertook crackdown efforts earlier this year, which appeared to result in consumers shifting to licensed stores as sales quickly went up. However, a judge recently ruled that the city’s effort did not follow the law, which means some of the stores could reopen.

The effect of unlicensed operators has been dramatic. Whitney wrote that the legal participation by consumers in mid-2024 was 15%, whereas other states on average would be at a minimum of 40%-45% by this time in their ramp-up.

Keys to success

Whitney shared some thoughts about how New York can become the market leader in the industry. He stressed that the illicit market has to be addressed aggressively, and policies for operators need to be designed to compete with the illicit market.

In addition, license issuance needs to increase sooner rather than later, and the effort needs to have sensitivity to where they are issued.

Another suggestion is to establish publicly available data on dashboards to assess pricing in the market for raw materials and retail products and to monitor the inputs going into processors in addition to the output.

“This will help both regulators to assess potential diversion and help operators make informed data-driven decisions,” Whitney wrote.

He also suggested developing dashboards to provide additional clarity on supply and demand at different levels of licensure as well as to summarize the total monthly revenues in the retail channel.

Finally, Whitney added that the state should develop a campaign to educate and articulate the opportunities in the processing and product manufacturing sectors.

“The Whitney Economics study confirms what we’re seeing in New York’s cannabis market – controlled growth is essential for sustainability. States like Oregon and California have shown that over-licensing leads to market collapse,” said Kimberly Tanami, CEO of HPI Canna Inc. and vice president of the Empire Cannabis Manufacturer’s Alliance. “We can’t afford to make the same mistake if we want our social equity programs and small businesses to thrive.”

She added: “Without a healthy retail sector, the entire industry is at risk, and ultimately, the success of New York’s cannabis market, along with the well-being of all stakeholders, rests on regulators carefully maintaining this balance between growth and sustainability.”