Medical marijuana business in New York is a bust so far - The Buffalo News
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Medical marijuana business in New York is a bust so far

The state health commissioner last year declared New York’s medical marijuana program a success.

But the five companies that the state selected in 2015 to get marijuana into the hands of people suffering from debilitating and sometimes terminal diseases such as cancer,  AIDS and multiple sclerosis tell a different story.

“Our company is not close to break-even yet,’’ said Ari Hoffnung, president of Vireo Health of New York, which has a marijuana-growing facility in Fulton County and dispenses its products in two downstate and two upstate locations. “And based on my understanding, no one has made a dime here in New York.’’

If other states were a guide, New York should be preparing for at least 200,000 patients enrolled in the program, the industry estimates.

But since medical marijuana went on the market in New York State a little over a year ago, just over 14,000 patients have enrolled to buy the drug at one of the 20 dispensaries scattered around the state.

Only half of those are regular customers. Many stopped taking the drug because of high costs, distances they must travel to get it or because they died, industry executives say.

Fewer than 900 doctors signed on to certify patients to use the drug.

“There are two things the program is lacking: physicians and patients,’’ said Sen. Diane Savino, author of the bill that opened up medical marijuana treatment in New York State.

Now, while the five companies producing medical marijuana struggle to stay alive for lack of customers, the Cuomo administration wants to add five more grow-and-distribution licenses.

At the same time, the administration is not opening up a new bidding process. Instead, the Cuomo administration is turning to five companies – from the original 43 bidders – that lost in the application process two years ago. All of this is worrying the companies still trying to stay afloat.

“Every single one of them is financially struggling,’’ Savino said.

Erie County’s supplier

Medical marijuana has been dispensed in New York since January 2016, a year and a half after Gov. Andrew Cuomo signed the Compassionate Care Act. By statute, medical marijuana cannot be smoked, but is most often ingested as liquid drops placed under the tongue or through a vapor process via a device that looks like an e-cigarette.

Patients in Western New York can purchase the drug at a dispensary in Amherst run by PharmaCannis or a facility in Williamsville owned by MedMen, which bought out another company following financial troubles. Patients need certification for the program, but only 45 doctors and nurse practitioners in Erie County have applied and been approved to do that.

PharmaCannis grows and processes marijuana into a drug at a huge greenhouse facility in Hamptonburgh in Orange County.

Marijuana being grown in $30 million PharmaCannis facility in Orange County. (Tom Precious/Buffalo News)

Marijuana plants fill some rooms, with each plant bar-coded and totaling 7,532 on a recent day. Computer-assisted controls alert workers if temperatures vary beyond safe levels, and the plants range in height from a few inches to the 6-foot plus “mother” plants, whose shoots are cut to make new plants.

In one room of the facility, a conveyor belt moves hundreds of soiled-filled pots to workers who place younger plants into them. In nearby rooms, lab technicians sit amid monitors, glassware and machines that separate oils from the plants. A syrup-colored liquid fills a lab jar, and that liquid is what patients purchase if they are enrolled in New York’s medical marijuana program.

Security is tight. Guards, some retired from the New York City Police force, view dozens of camera screens capturing seemingly every spot within the 172,000-square-foot facility. Other cameras follow drivers delivering the finished products and feed back images to a security room at the grow facility. Everywhere in the greenhouse, the air is laced with the sweet, powerful smell of fresh marijuana.

But that scene is part illusion. Nothing grows in one large area – an acre – of the facility.

There are no containers, no growing tables, no special lighting, no water tubing systems hanging from above. The empty space in one large room could fit the contents of a mid-size house. Even the plant’s main office area is largely vacant.

Empty area of $30 million Orange County marijuana growing facility is testimony to difficulties facing the medical marijuana industry in New York. (Tom Precious/Buffalo News)

The empty area gives a clue to an industry facing troubles,

So is the company’s New York operation operating in the black?

“No, we’re not,’’ said Jeremy Unruh, general counsel of Illinois-based PharmaCannis. “If by profit you mean are we making more each month than we spend? No.”

‘Terrified’ of new growers

PharmaCannis said it sells the drug to 100 patients each week in Erie County, and that is much stronger than sales at its other three dispensaries in Onondaga, Albany and Bronx counties. About about 75 percent of its Amherst patients are repeat customers.

As he showed off his company’s $30 million growing facility in Orange County, Unruh offered up a mix of excitement and worry.

New York needs to let the current program work through its growing pains, Unruh said. Companies like his can help, he said, but the state needs to take the lead in persuading more doctors to enroll in the program, which advocates say can offer patients more effective, cheaper and less addictive alternatives than opioids.

The Cuomo administration’s plan to grant five more licenses to produce and sell medical marijuana – a decision is expected by July 1 – troubles him.

If that happens, the models that the five companies used when deciding to open New York facilities “will get blown up,’’ Unruh said.

“I hate to complain about economics because this is and ought to be about patients,’’ Unruh said. “But we’re terrified they’re going to allow new production operations.’’

The existing companies all could shut down today and still have an eight-month supply on hand, said one industry insider, who spoke on the condition of anonymity.

“Any of the five organizations could alone supply the entire market as it exists today,” said Hoffnung, the Vireo Health executive who also is president of a trade group representing the five licensed companies.

“It’s going to be financial devastation not only for the existing operators but eventually for the new ones,” he said of the state’s plan to double the number of licensees. “What they’re doing is instead of creating more patient access, they’re creating more supply, and that supply is not needed in any way, shape or form.”

Not your  corner drugstore

Those who support expanding the medical marijuana program say more players will get the drug to more qualified patients and thus help bring down the sky-high prices for some consumers. The drug can cost many regular users $400 a month, and no insurance covers it.

“The program exists to get medicine to patients. The best way to do that is open it up and let people do more manufacturing and dispensing as opposed to just dispensing,” said Robert Bellafiore, a spokesman for the ValleyAgriceuticals, one of the five companies in line for a new license.

“The more manufacturers, the better chance of more effective medicine that people may want than what is currently on the market,’’ he said.

The marijuana dispensaries are not like the corner drugstore.

Patients often are limited to purchasing only the strains of the drug made by the company that owns both the grow facility and the dispensing site, though recently steps were taken to allow the companies to wholesale their products to each other.

Given the variety of strains and ways to take in the drug, patients could find marijuana more effective for their health conditions at one dispensary rather than another. Some companies don’t sell the drug in a pill format, some do.

The concerns that the five present licensees raised new grow-and-distribution companies are “self-serving,” the Cuomo administration says. Adding more licensees, the administration says, will not only get the drug into more areas and lower prices but also give consumers more choices of marijuana strains.

Economics 101
Additional grower/distributors present a problem for the existing five license holders, and that is Economics 101: supplies already far outpace demand.

The five companies now producing medical marijuana have cut production or are sitting on huge stockpiles.

At PharmaCannis, $40 million worth of cannabis sits in a vault waiting to be processed into its final form while three-quarters of a metric ton of cannabis hang on wires in drying rooms waiting to be processed. Production is running at 10 percent capacity after cutting production in half because inventory was backing up.

Flooding the market with new supplies of the drug will exacerbate financial hardships the fledgling industry faces in New York, the companies say.

Advocates of the program say the health department has taken helpful steps, such as allowing nurse practitioners to certify patients to take the drug. The health department also expanded the original list of 10 diseases and ailments to now include chronic pain.

Instead of adding new grow facilities, the existing licensees say, New York should more aggressively attract physicians to participate and put dispensaries in more locations.

Savino, the Staten Island senator who sponsored the legislation, said she is pushing the Cuomo administration to award new “retail license” dispensaries, but to bar the five existing grower/dispensary firms from owning them. She said the administration does not understand how the medical marijuana marketplace works and that adding new growers while supplies exceed demand is “a big mistake.”

Marijuana companies say they are not arguing more licenses should never be issued to grow and sell marijuana.

“No one is making any money here. Twenty percent of us have already failed,’’ said Hoffnung, president of Vireo Health, referring to one of the original licensees that sold out to a California company because of financial problems.

Selecting new licensees
The Cuomo administration is pushing ahead with the five new licenses but says a new bidding process is not needed. That would delay getting the drug into the hands of more qualified patients. Moreover, administration officials say the five new license holders are being vetted to ensure claims they made two years ago, such as their financial conditions, still hold.

The 2015 selection process was not without some controversy.

One of those companies now vying to get a license, Valley Agriceuticals, last year sued the health department in State Supreme Court in Albany, claiming that the agency ran the original application process “under the cover of darkness.’’ It accused the health department of awarding the first five licenses “based on political considerations” or because “their applications indicated that they were working with large or politically popular contractors.’’

The court papers did not provide names, but some of the winning firms hired lobbyists with close ties to the Cuomo administration.

Health Department spokeswoman Jill Montag said the 2015 application process was transparent and used objective criteria to judge the 43 interested companies.

“Any statement that implies factors outside this process affected the scoring of applications is patently false,’’ she said, though she said the agency would not comment on the ValleyAgriceuticals lawsuit.

In August, the health department recommended five additional marijuana licenses be awarded. And soon after that, a lawyer for ValleyAgriceuticals, which had placed eighth in the first selection process, wrote a state judge and said the department’s new position “could resolve” the company’s lawsuit.

A couple of months later, the state said it was working with the five companies that scored sixth through 10 in the earlier process to award them marijuana licenses.

On Nov. 29, ValleyAgriceuticals dropped its lawsuit.

Bellafiore, the spokesman for the company, said the state made no promises to give ValleyAgriceuticals a marijuana license if it dropped the lawsuit.

“No, Valley decided it was better to look forward to competing for a new license rather than worry about the previous round. There were no guarantees of any sort,’’ he said.

Montag did not directly answer a question about the state’s signing off on paperwork to end Valley’s litigation.

 

 

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