Welcome to another edition of Cultivated.

It was great to see many of you last week at the Luxury Meets Cannabis Conference in Hudson Yards, where I moderated a panel about the New York cannabis scene — from farm, to brand, to retail — with Melany Dobson of Hudson Cannabis, Ghita Tazi of 1906, Arana Hankin-Biggers of the Union Square Travel Agency, and Jes Feuer of Etain Health.

Apologies for the delay on this edition. I’ve been dealing with a few issues migrating some old lists over, but I hope to have that all sorted now!

Okay, so what’s happening?

In a now-yearly tradition, The Wall Street Journal reports that the number of workers in the US testing positive for cannabis use has reached a 25-year high.

As Taylor Swift once famously said: It’s me, hi, I’m the problem, it’s me.

And as a quick aside: Give me more feedback! What else do you want to see in this newsletter? What stories am I missing? Who should I talk to that I might not know?

This newsletter is mine as much as it’s yours, help me make it better.

Alright, let’s get to it. But first, a word from our sponsor.1

-Jeremy

Sponsored: How has your portfolio weathered the recent market volatility?

If you are interested in finding an alternative strategy to your traditional public investment options, consider MJ REIT. The strategy is focused on providing stability and above-market income, derived through monthly distributions.

To learn more, visit www.mj-reit.com or email [email protected].

💡What’s the big deal?

Cultivated exclusive: I got my hands on some survey data on New York’s cannabis consumers, courtesy of NuggMD, a telehealth platform for medical cannabis patients.

NuggMD’s team will be updating the survey periodically and sharing the data exclusively with me.

I’ll report on some key insights which should be useful to both policymakers trying to develop regulations as well as businesses who want to better understand their customers.

Let’s take a look at some interesting results:

• 70.8% and 72.8% of respondents say price and convenience, respectively, are the two most important factors when deciding where to buy cannabis.

• Only 42.4% say knowing that the dispensary is licensed by the state is important.

• 50.5% say they never shop at unlicensed dispensaries.

• 46.7% say they trust their shop only sells to people 21 and over.

• 42.7% say they trust that their products are accurately labeled.

And, of the survey respondents who shop at “gray” market or illicit cannabis shops:

• 61% of these respondents say they trust that the products are tested for contaminants.

  • 22% say they don’t trust these products but can’t shop elsewhere.

• 44.5% say they trust that the products are accurately labeled — at least enough that they aren’t concerned.

• 40.4% say they trust that their products are tested for contaminants — at least enough that they’re not concerned.

A quick note on methodology:

The normal survey caveats apply.

The study’s sample size is 349 and anonymized, which is a good sample to draw some useful anecdotal conclusions but obviously far from a scientific study. It’s a mix of patients and recreational consumers, so it’s not a perfect representation of New York’s cannabis consuming population.

Over 72% of respondents had a medical cannabis card, meaning they may not represent the average consumer. They’re overwhelmingly male (64.5%) and over 75% of them purchase cannabis more than twice a month.

A full 35.4% of them consume cannabis more than three times a day, while 15% consume less than once per day.

🌿 Jer’s take

I want to be careful here from drawing too many conclusions around a study of 349 people in a state as populous as New York, and I’ll wait until we can firm up more results with a larger sample, but NuggMD’s study is quite useful.

For one, New York’s cannabis consuming population — both patients and recreational users — deserve better.

They deserve to shop at stores they trust, they deserve to have them within a reasonable distance of their homes, and they deserve products that are accurately labeled and clean from pesticides, heavy metals, and other contaminants.

That’s a major value proposition of legalization in the first place: Giving consumers access to safe products.

There’s a level of misplaced trust on the consumer’s part, NuggMD CMO Alex Milligan told me in an interview earlier this month.

“Every street corner has numerous places you can shop for unlicensed cannabis,” Milligan told me. “You start to ask yourself, is that really the right way for folks to access the product?”

Milligan said they wanted to understand if consumers knew if the products they were buying weren’t accurately labeled and tested, and whether they could discern any consequences from that.

Some consumers are buying products shipped illegally across state lines from California or Colorado where they have been rigorously tested, Milligan said.

But it comes down to luck as to whether they’re buying a tested product or a knock-off, because the illicit shops don’t care — and the state doesn’t have oversight.

Yet, 61% of people surveyed that purchase products, either knowingly or unknowingly, at these illicit cannabis shops say they trust that their products are safe.

That’s misplaced trust. These illicit shops don’t have testing requirements. It’s the jurisdictions where they were illegally sent from.

Until there are more cannabis shops open in more areas of the state, offering safe, tested products, consumers will continue to be duped — and it may, unfortunately, be only a matter of time until someone gets sick.

While it’s true that these are problems that may be solved over time as regulators get more shops open, speed still matters.

From a harm reduction standpoint, getting more safe, tested products into the hands of consumers should be paramount.

Patients and consumers aren’t going to wait until there are more stores open.

📈 Market moves

What happened: Cannabis companies paid a whopping $1.8 billion in excess taxes in 2022 compared to normal businesses, according to a new report from Whitney Economics.

That number is set hit $2.1 billion this year, according to the analysis.

Why it matters: Cannabis companies have a much heavier tax burden than businesses of comparable size for one key reason:

• They’re unable to deduct ordinary business expenses like payroll or office supplies because of a section of the federal tax code called 280E, which prohibits companies and individuals that traffic Schedule I or II drugs, like cannabis, from these deductions.2

🌿 Jer’s take

While the industry wants 280E gone as part of the SAFE Banking Act3 or broader reform, the federal government probably likes the extra chunk of change lining its pocket.

The extra tax eats into the already slim margins the industry deals with because of declining wholesale cannabis prices. I’m no economist, but cannabis is a commodity, people — cultivation is not a high-margin business, especially at scale.

Moving cannabis off of the Controlled Substances Act, or even to Schedule III, would immediately get rid of the problem.

Plus, smaller cannabis businesses operate mostly in cash and are forced to pay a penalty for doing their taxes in cash.

It’s much harder than you might think making money from growing and selling weed.

Here’s a good thread about that from Twitter’s very own TheWeedCFO, who will remain anonymous for the purposes of this newsletter.

Other stuff happens:

What happened: Cannabis giant Curaleaf reported its first-quarter earnings last Thursday. The company reported a $54.4 million loss on $336.5 million in revenue.

The company highlighted adjusted EBITDA of $73.2 million.

A quick aside: Cannabis companies continue to use “adjusted EBITDA” to report their quarterly earnings. Adjusted EBITDA often makes a company’s results look better by reducing expenses along with other adjustments.

Adjusted EBITDA is non-GAAP, meaning it’s not standard practice across industries.

It’s not necessarily misleading, but it’s important to look at the total earnings statement to put the numbers in context.

Careful now, I’m in business school.4 

And more:

• The Canadian government is raking in cannabis profits and taxes — to the tune of $1.5 billion, MJBizDaily’s Matt Lamers reports.

  • Lamers noted on Twitter that the Canadian government is the country’s most profitable cannabis operation, while the industry itself struggles.

• Green Thumb Industry’s union woes continue: The Illinois cannabis giant is facing 10 federal complaints filed by the union with the National Labor Relations board, Green Market Report’s John Schroyer writes.

🗣️ Quote of the week

“New York has been the most robust cannabis market in the US for years. Not since 2020, but for years. It’s a work in progress, and we’re trying to wrap our heads around the problem.”

-Tremaine Wright, the Chairwoman of the New York State Cannabis Control Board, at the Luxury Meets Cannabis Conference last week.

🌿 Jer’s take

Cannabis regulators have their hands full with illicit, or “gray market” cannabis shops and delivery services all over the city.

While regulators could always be doing better, they’re not going to be able to wave a wand and make the problem go away. It’s going to take some sophisticated problem-solving.

New York City is a tough place to regulate pretty much anything, and the persistent illicit cannabis market is no different.

It’s 2023 and we still dump our trash directly on the sidewalk. The city can’t even get restaurants to put their trash in rat-proof bins, which crowded places around the world have used for years.

Cleaning up the city’s cannabis market is arguably a lot more complex than the trash problem. It’s going to take time.

Deep breaths, everyone. 

🧪 Science & research

What happened: A new study in the journal Health Economics found that while legalized cannabis is associated with a slight uptick in cannabis use, it’s also associated with a decrease in tobacco use.

Why it matters: Tobacco use, whether vaping or old-school combustion, is a public health bogeyman.

There’s now consequential evidence that cannabis can help, though the effect size is small. And, it’s important to note that while cannabis is generally safer than cigarettes, cannabis use is far from harmless.

More studies:

• The use of medical cannabis is associated with significant improvements in quality of life for patients with conditions like chronic pain and insomnia, according to a new study published by the American Medical Association, Marijuana Moment reports.

🌿 Jer’s take

If states are the laboratories of democracy, then cannabis is a perfect test subject.

Researchers can see, in real-time, the effects of different cannabis policies on measurable outcomes like opioid abuse or teen use. They can also see how subtle changes in these policies effect populations in neighboring states when they choose to legalize and write new regulations.

There are probably a million or more Phd theses waiting to happen about legalization.

Policy has to be developed carefully in order to minimize risk and maximize benefit.

It all depends on what the desired outcome of legalization is: Is it to stimulate the economy and create jobs? Is it to reduce teen use and promote public health? Reform the criminal justice system?

Let’s do more research, and let’s make the federal debate around legalization more robust — on both sides.

🫠 On the contrary

Depending on where you lie on the political spectrum, The New York Times’ Ross Douthat is either known for insightful analysis about the biggest issues, or quasi-religious moralizing.

His new column on cannabis legalization falls into the latter camp:

🌿 Jer’s take

The column starts with a superficial survey of the literature purporting to show the risks of widespread legalization.

Cultivated readers will remember my discussion last week of the Danish study linking schizophrenia to cannabis use disorder. That paper, as many have pointed out, suffers from a causation/correlation problem.5 

I’m probably not quantitatively qualified enough to reject the paper’s methods, so I asked people smarter than myself. They agree that while the findings could be useful when properly contextualized, they are far from definitive.

It’s not settled science, and it shouldn’t be used to argue for or against legalization until more research is done.

The same could be said for another piece of evidence Douthat cited: A recent paper purporting to show a small uptick in opioid-related deaths in states with legal cannabis.

The paper’s authors themselves state that while the uptick is statistically present — it’s probably due to illicit, deadly fentanyl making its way into the opioid supply and not a direct result of cannabis use as Douthat seems to claim.

The authors’ real conclusion is that the uptick in the illicit fentanyl might override the “small positive effects” of cannabis consumption on reducing opioid use.

So, Douthat takes one paper where experts agree the science is useful but far from settled, and then cites another paper that doesn’t exactly say what he thinks it says.

He then bundles cannabis legalization, along with casinos and social media, as spreading “degradation.” Hm.

That’s his smoking gun.

And look, it’s just easy to cherrypick studies that show the pros of cannabis legalization as the cons.

Here’s a peer-reviewed study that shows a decrease in opioid use following cannabis legalization.

I’m not saying one study is better than the other. I’m saying that the debate is clearly ongoing and we need more research to draw definitive conclusions on either side.

We’re not quite ready to draw lines in the sand, so to speak.

You can make a fair, careful argument on both sides, and that’s part of what makes the issue so alive and intellectually fascinating, in my humble opinion.

But Douthat’s column doesn’t do that. It’s weak. I’d call on The New York Times opinion editors to do a bit more editing next time.

Let’s take a look at a different editorial, from the Los Angeles Times:

Of course, we don’t want kids eating cannabis gummies.

That was one of the key arguments for legalization in the first place — my high school dealers, often high school kids themselves, never asked for my ID.

At the same time, the problem of children eating cannabis gummies is quite overblown, similar to the hand-wringing about New York City’s pups eating discarded joints on the sidewalk.

Yes, there has been a small uptick in emergency center calls over kids consumer cannabis, but it’s relatively small, and most kids are just fine the next day.

And do I, as an adult man, want my weed to taste like sour patch kids? Not really, and most people I know don’t.

But it’s generally illegal products that rip off brand trademarks, not legal ones.

Most legal edibles already come in adult flavors. Does “tart cherry” seem like something a six-year old would scream to get their hands on?

Plus, the child-proof packages on legal products are pretty hard to deal with! I’ve had to use a hammer and a screwdriver to get some tins open after a long day of work, and remember, I’m a 30-year-old man.

Ultimately, the proposed bill in California ultimately won’t change much but may make some of the worriers happy.

A lot of these problems, I hate to say it, are solved by more responsible parenting, not new regulations.

Keep your stash in a drawer away from your kids, and we won’t have to deal with another 3,000 Fox News-affiliate articles in October of kids accidentally eating Halloween candy laced with weed.

Now, I’m not sure I’d go as far as Honeybee Collective co-founder Chris Becker’s take on this, but he’s a smart guy and he’s got a point.

It costs a lot for small businesses to comply with onerous childproofing regulations.

That’s money that could go to making safe, regulated products cheaper than unregulated products, instead of solving a problem that’s not really a big issue to begin with.

📚 What I’m reading (and listening too)

My friend Sam Reisman and fellow cannabis reporter at Law360 has a new podcast out exploring the decriminalization — and the looming pharmaceuticalization — of psychedelic drugs. Give it a listen and tell Sam he did a great job.

Marijuana-infused aphrodisiacs emerge as new love drug in New York (The New York Post)

Slow cannabis market ‘the product of a choice’ says state weed czar (City and State NY)