Why Is Nobody Investing in New York's Brand-New Medical-Weed Industry?

It turns out the so-called “green rush” that was expected in the wake of New York's legalization of medical marijuana may not be much of a rush after all.

Since the New York State Department of Health in July selected five winning companies to receive the coveted licenses to grow medical cannabis, investors have been scouting opportunities for green. Based on data from other states, cannabis industry consulting firm GreenWave Advisors has predicted that medical marijuana sales in New York could exceed $240 million in the first year. But the state’s heavy restrictions on the medical marijuana program make investment opportunities pale in comparison to places like California or Colorado.

“Most New Yorkers don’t really have that much opportunity to invest in the cannabis industry as far as touching the plant,” says Eddie Miller, CEO of InvestInCannabis.com, which educates investors about the risks and opportunities in the cannabis industry. The companies licensed to grow cannabis are already financed, he adds. “The actual potential investment in the cannabis sector in New York is small because the market will be small."

Some believe it could take up to two or three years before the growers start to turn a profit, which experts say is keeping investors away. Charles Smith, an attorney who represents clients in the cannabis industry, says it's going to be an uphill climb early on for the five companies that were awarded licenses. "It's not as if everybody who opens these businesses is becoming a millionaire overnight, mainly because of a lot of the regulatory issues. Financially, it's not a super opportunity," he says.

Right now the five companies — Bloomfield Industries Inc., Columbia Care NY LLC, Empire State Health Solutions, Etain LLC, and PharmaCann LLC — are getting ready to grow medical marijuana to be sold from twenty dispensaries throughout New York, with prices set by the state. The program allows growers to manufacture only five strains of cannabis medicine to treat patients who suffer from ten types of ailments — including AIDS and cancer, but excluding PTSD, diabetes, glaucoma, insomnia, and several others that are often treated with marijuana products.

Many doctors, however, are reluctant to recommend medical marijuana to patients who do qualify for treatment under the Compassionate Care Act. According to a Crain's New York report in July, a phone survey conducted by MarijuanaDoctors.com found that only one in 500 physicians across the state was willing to write a medical marijuana recommendation to a qualifying patient. While hundreds of doctors support the Compassionate Care Act and believe in marijuana’s medicinal value, many are concerned about its federal classification as a Schedule I drug, which places it in the same category as heroin. Also, many physicians associated with hospitals that receive federal grant dollars are not allowed to participate in the medical marijuana program, Miller says.

In a state with a population of nearly 20 million, only between 50,000 and 150,000 New Yorkers are expected to qualify as patients under the Compassionate Care Act. And that figure gets further reduced by the small number of doctors willing to recommend marijuana. Miller says that until the New York legislature liberalizes its restrictions, or until marijuana laws get changed at the federal level, the market in New York will be minuscule.

“Since New York is the financial capital of the country, investors here are looking elsewhere to actually utilize their capital,” says Miller. For example, native New Yorker Paul Warshaw, founder of the medical marijuana delivery application GreenRush.com, moved to San Francisco to launch his business.

Still, New Yorkers do have opportunities to invest in technology and infrastructure to support the cannabis industry, not only in New York, but around the country, or even around the globe. Greenhouse architecture, marijuana grow lights, vaporizer pens (like electronic cigarettes), inventory tracking technology, and patient data systems are a few of the many applications that provide investment opportunities for the five companies to begin operating. The dispensaries are due to be stocked and open starting in January. "It's probably going to be easier in the long run making money servicing the industry," says Alan Brochstein, founder of both New Cannabis Ventures and 420 Investor. Companies that help growers lower production costs or stay compliant under the Compassionate Care Act have a lot to gain. But for the growers themselves, before the list of treatable conditions is expanded, he says, it's going to be difficult early on.

"You're not making money tomorrow morning," says Golan Vaknin, CEO and founder of three cannabis technology companies, including ESEV Research and Development. But now, of the 43 companies that applied for a license to grow marijuana, the 38 that lost may be looking for other investment opportunities in New York, says Vaknin.

"In the gold rush the people who made the money were not the people who were looking for the gold, but the people who were supplying the shovels," says Vaknin. "I don't want to go and grow weed, but I want to supply the shovel."

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