What Is a New York Cannabis License Really Worth?

Evaluating the True Value of Cannabis Dispensary Licenses in New York State

In the rapidly evolving cannabis industry, the question of how much a dispensary license is worth in New York State has become a hot topic. Over the past week, numerous dispensary license holders and representatives have inquired about the price tags that my clients are willing to pay in cash for additional retail licenses in the state. This surge in interest has highlighted the complexities of valuing these licenses, with factors such as market demand, operational expertise, and regulatory challenges all playing crucial roles.

The Importance of Operational Expertise in Cannabis Retail

My clients are a team of experienced operators who have already demonstrated their ability to successfully manage a cannabis retail store. They provide high-quality customer service, maintain a well-curated menu of cannabis products, and stay up-to-date with the latest offerings. However, running a profitable dispensary in New York requires more than just operational know-how. It demands a multi-faceted approach that includes:

• Vendor Relationships: Paying suppliers on time is essential for maintaining a steady inventory of products.
• Building a Loyal Team: A skilled and efficient staff can make or break the success of a dispensary.
• Consistent Revenue Generation: Running a profitable business requires a daily focus on generating income.
• Market Understanding: Knowing the specific needs and preferences of your local customer base is critical.

Several groups have already adopted a multi-location strategy, using a proven formula to expand their footprint. For example, USTA, which operates three dispensaries in New York City, and FlynnStoned, a Syracuse-based group, have successfully scaled up their operations by leveraging consistent customer service, sound business practices, and effective product management.

Dispensary License Value: A Tale of Two Perspectives

The debate over the value of a New York cannabis dispensary license has split the industry into two camps. On one hand, many believe that a retail license is a golden ticket to financial success. This view aligns with the optimistic narrative promoted by the New York Office of Cannabis Management (OCM), suggesting that holding a license opens the door to immense profitability.

On the other hand, the more pragmatic perspective is that a license’s value is conditional on several key factors, including:

1. Location Control: Securing a prime retail location and understanding the local market dynamics are critical.
2. Operational Expertise: Having a team with experience in running cannabis dispensaries is vital to success.
3. Financial Resources: Building out a well-equipped store requires substantial financial investment.
4. Meeting Deadlines: Dispensary operators must meet regulatory timelines and open their stores within the 12-month provisional license period.
5. Profitability: A license only holds value if the dispensary can become operational and profitable.

In reality, the price of a license is determined by what a buyer is willing to pay for it, and there is significant variation in how these licenses are valued.

Hard Data on License Valuations

A recent report, using data from Poseidon, sheds light on the current value of cannabis retail licenses across different markets. According to the report, the value of a dispensary license depends on the maturity of the market, the type of license, and supply-demand dynamics.

In New York, the current market value for a retail license is approximately $250,000, with an asking price of $1.3 million. However, it’s important to note that few, if any, transactions reach that $1.3 million figure in an all-cash deal. By comparison, in neighboring New Jersey, the selling value for a dispensary license is slightly higher at $280,000, with an asking price of $1.7 million.

The discrepancy between these numbers illustrates the differences in market conditions between New York and New Jersey. New Jersey’s cannabis industry is currently selling more product at higher price points, resulting in larger profit margins for retailers. This makes licenses in that state more valuable, as store owners can expect greater returns on their investment.

The Impact of License Supply on Market Value

One of the key factors driving the fluctuating value of cannabis licenses in New York is the supply of licenses issued by the OCM. As more licenses are granted, the market becomes increasingly saturated, driving down the value of existing licenses. Every month, new licenses are issued to hopeful applicants who have paid their $1,000 fee, further diluting the pool of dispensaries.

While some believe that the market will eventually plateau, much like the liquor store industry, where both chains and independent stores coexist successfully, others are less optimistic. Cannabis is not the same as alcohol, and the regulatory and operational complexities of running a dispensary make it a much more challenging endeavor.

Challenges Facing New York’s Licensing Process

The OCM has faced criticism for its handling of the licensing process, with some industry insiders arguing that the market is already oversaturated with distribution licenses. Over 300 distribution licenses have been granted to businesses transitioning from medical to adult-use cannabis, allowing these companies to deliver their own products to stores. This creates competition not only among dispensaries but also among distributors.

Despite assurances from the OCM that they are balancing the supply of licenses with the demand from consumers, many in the industry remain unconvinced. The sheer number of licenses being issued, combined with the regulatory complexities of opening a dispensary, means that many license holders may never open their stores or turn a profit.

The Future of Dispensary Licenses in New York

As the cannabis market in New York continues to mature, the value of dispensary licenses will be shaped by a combination of market conditions, regulatory decisions, and operational expertise. For now, the open market selling value of a license remains significantly lower than many sellers’ expectations, with most deals falling short of the high asking prices.

However, for those who can successfully navigate the complex landscape of cannabis retail, there is still a significant opportunity for growth and profitability. The key to success lies in securing the right location, assembling a skilled team, and building a business model that can adapt to the changing regulatory environment.

As more licenses are issued, and the market becomes more competitive, only those operators with a clear vision and the financial resources to execute it will thrive in New York’s cannabis industry.