The rolling hills of Berkshire County on the western edge of Massachusetts are home to a number of cannabis companies that have been the closest place New Yorkers can legally purchase marijuana for more than four years.
During that time, the Massachusetts stores have seen a healthy portion of their customer base shopping from across the New York border. How will this customer demographic and revenue base change when New York becomes the 16th state in the country to legalize recreational marijuana?
Berkshire pharmacies shouldn’t fear competition from across the border – at least not for now, said Erik Williams, chief operating officer of Canna Provisions in Lee. “I think it will be another solid year and a half, almost two years after opening the first store, before there is competition on product selection.”
This is because New York has yet to build the infrastructure to meet the huge demand for legal marijuana. Building an entire industry from scratch takes time. As in any other state that legally sells marijuana, all cannabis sold in New York must be grown in its own state in accordance with federal regulations that prohibit the movement of controlled substances between states.
“It’s not like you can call the factory and order things,” Williams said. “Things have to grow, things have to be processed, things have to be built.”
And long before pharmacies in Berkshire started selling legal weed, the area was an established tourist destination – an award that gives Massachusetts a competitive advantage over the fairly rural New York counties that are bordering on, say pharmacy owners there.
Williams estimates that approximately 25 percent of Canna Provisions customers present New York State ID. This is not surprising as western Massachusetts is packed with seasonal homes and an out-of-state tourist destination.
Although Massachusetts cannabis is intended to be bought and consumed within the state, there are few ways to enforce it, Williams said. “This is how border towns have functioned forever across the northeast. I don’t know about you, but I don’t have an alarm to go off when I cross the border. “
How this cross-border interaction will evolve as the New York cannabis industry matures is what makes the market so fascinating.
Taxes could shape competition
In another twist, a lower sales tax in New York could potentially lure Massachusetts residents to New York to buy their marijuana. New York sales tax is 13 percent on cannabis products. Massachusetts sales tax is currently 17 percent and local city sales tax is 3 percent.
Consumers who live near the border where two recreational use states meet may begin a cost analysis of where to buy their marijuana. Not necessarily if the difference is minimal, however.
“The same problem will occur in New York and New Jersey,” said Matt Karnes, founder of cannabis advisory firm Greenwave Advisors. (New Jersey is taxed based on the weight of marijuana compared to the price itself.) “Does it make sense to drive over a bridge or into a tunnel just to save a few dollars?”
Border states can agree on cooperation. In order for economies of scale to grow quickly to meet demand, cross-border collaboration could lower the cost of the ban, Karnes said.
“I wouldn’t be surprised if we saw some sort of cooperation agreement between New York, New Jersey, maybe Pennsylvania” – which is currently only a medical marijuana state – “a three-state cooperative for international trade.”
Cannabis drinks and food products can differentiate the market
Currently, the focus of Massachusetts producers is on finding ways to specialize in recreational marijuana products and provide unique cannabis consumption opportunities for customers.
At one point, Hash Oil Vape Pens weren’t as ubiquitous as they are today. Finding the next vape pen type product could be huge for a cannabis company. With the growth of government industry, market segmentation has allowed various companies to focus on innovations that attract new customers.
Erik Williams, chief operating officer of Canna Provisions, a drugstore in Lee, Massachusetts, estimates that a quarter of his company’s business comes from New Yorkers.
For example, Canna Provisions has just launched a curated line of marijuana strains from Massachusetts-born and famous cultivator Greg “Chemdog” Krzanowski called Smash Hits. The hope is that this exclusive line of unique marijuana flowers (buds) will appeal to customers with unique taste profiles rather than just gaining price advantages on similar products sold in other stores.
It is this kind of effort to create exclusivity for certain items that business owners bet on to differentiate pharmacies and manufacturers and create brand identity among buyers in a rapidly crowded market.
“The biggest new category we’ve been working on is infused drinks, and I think this will be hugely popular,” said Brandon Pollock, co-founder and CEO of Theory Wellness in Great Barrington. “There’s a company that just got permission to start making infused ice cream, so you’re going to see a ton of fun niche opportunities for entrepreneurs.”
New York’s legalization is a boon to the industry as it encourages new entrepreneurs by being “the most progressive cannabis reform law passed in the country,” Pollock said.
Forty percent of the tax revenue from cannabis sales is diverted back into an equity program designed to economically integrate black people and communities into the burgeoning legal cannabis industry, which have been disproportionately affected by drug policy in the past.
While the neighboring states will both be in the cannabis market, sources told Times Union: Hudson Valley that it’s big enough to provide opportunity for new business owners in Massachusetts and New York – and that multiple states can take advantage of the tax breaks.
Massachusetts has benefited from being one of the earliest recreational states on the east coast, and it’s been a “money cow” for localities for over four years, said Berkshire Fourth District Representative Smitty Pignatelli.
Massachusetts’ ruling that provides a local option to add an additional three percent of taxes on legal marijuana allowed certain communities to accept the growth of cannabis retail stores. Pignatelli isn’t concerned that NY legalization will weigh on the local market in Berkshire County.
“It won’t hurt our business too much because the same people who come here to buy cannabis are the same people who come here to see James Taylor on July 4th,” said Rep. Pignatelli.
“We have no problem doing New York, but the better cannabis is in the Berkshires.”