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Hanan Kolko Quoted in Capital New York, “Dozens Expected to Bid to Grow Medical Marijuana”

Media Source: Capital New York

Hanan_B_KolkoNearly three dozen companies are expected to submit bids Friday for one of five available licenses to grow medical marijuana in New York.

After months of heated negotiations, the state Legislature passed a law in June 2014 legalizing non-smokable forms of marijuana to treat a limited number of medical conditions. Advocates have long said the law, considered one of the most restrictive among the 23 states that have legalized some form of the drug, is so narrow that it will likely be unworkable for the companies.

But that hasn’t stopped the dozens of bidders that have spent months attempting to secure one of the licenses: They’ve hired lobbyists to help navigate the maze of tax laws associated with selling a semi-legal substance, negotiated agreements with labor unions and launched campaigns to win support for their proposed facilities in the communities where they hope to grow the drug.

Novice growers hoping to use New York as a way to gain experience in the medical marijuana field are unlikely to succeed. The state’s strict regulations favor more established players—those with the kind of capital and experience necessary to quickly grow marijuana.
The state has said licenses will likely be awarded next month and that the dispensaries will become operational in January.

“For better or for worse, it’s not going to allow mom-and-pop operators to operate,” said Hanan Kolko, an attorney with the law firm Meyer, Suozzi, English and Klein who advises clients on legal issues surrounding medical marijuana.

“Applicants are going to need to be professional. They need to operate under strict timelines. They need to be able to address the issue of diversion,’ Kolko said, referring to the need to prevent the drug from being illegally diverted for other uses.

Bidders ‘need to have a production facility, they need to have four leases for dispensing facilities, they need to comply with security requirements,” Kolko said. “All of this means you’ve got to be a pro. This isn’t something you can do just because you used to smoke a lot of weed in college.”

The state’s regulations and tight timeframe also mean bidders must have a lot of money in hand. While a state-mandated license fee costs just $10,000, bidders will have to pay the state a $200,000 deposit, which will be refunded if they are not selected. They will must prove they have the real estate and facilities needed to begin their operation or else post a $2 million bond.

“Just to use round numbers, it’s a $10 million exercise. It will cost you a lot more if you’re attempting this for the first time. It’s not a trivial expense,” said Andrei Bogolubov, executive vice president of PalliaTech, a Long Island company bidding for a license.

Even some of the experienced growers that have the money and expertise say the state’s timeframe is so tight, it borders on impractical.

“We really don’t see how anyone can do it. We sat there and we thought about it,” Bogolubov said.

Roughly 30 companies have announced plans to bid for a license and industry experts and lobbyists say several more major marijuana companies are planning to announce their applications by Friday’s deadline.

Most of the companies that have publicly declared they will seek a license are located upstate and many are in rural areas. That’s because under New York’s law, the facilities cannot be located in neighboring or contiguous counties. It’s a rule designed to ensure some degree of geographic variety among the five manufacturers who are expected to provide enough marijuana to serve all the state’s potential patients across hundreds of miles.

The state will allow just 20 dispensaries and there are no plans to increase that number. In New York, that could mean hours of driving for residents hoping to access the drug. By contrast, Illinois recently approved 52 dispensaries for its medical marijuana program.

For the companies that are awarded a license, challenges remain.

New York’s law is scheduled to sunset after seven years. The companies also face an untested, largely unknown market in New York and won’t even know how much they can sell their product for. Unlike other states, New York’s health department will set the drug’s price. Not to be ignored is the fact the federal government still classifies marijuana as a Schedule 1 drug, despite some congressional efforts to relax the law and growing public support for legalized medical and recreational marijuana.

And what happens if a president is elected in 2016 who opposes the use of marijuana for medicinal purposes?

Kolko said its possible medical marijuana programs could be shut down.

“That’s a real live risk that makes this industry unlike any other,” he said.