The potential of New York’s adult-use cannabis market has had out-of-state operators champing at the bit to get their pieces of the pie, but the state’s regulators designed the program to protect the market opportunity for residents and keep large multistate operators out.
But a new license – the Adult-use Processor Type 3 Branding License – opens the door for some of those out-of-state operators, so long as they can work with other authorized licensees.
What is a Type 3 license?
The Type 3 license allows brands to enter into white-label agreements with duly licensed cannabis processors in the state to manufacture products. It also doesn’t require the license holder to have a physical location in the state.
What it doesn’t authorize is any direct plant-touching activity on the part of the Type 3 licensee.
It does, however, capture True Parties of Interest (TPI) information, so that the New York Office of Cannabis Management “can better regulate cannabis brand activity.” The agency also said this also ensures that the cannabis brand licensee will “adhere to all regulations pertaining to undue influence and control, ownership limits and tier violations.”
The OCM told Green Market Report that it has received 204 Type 3 license applications, some of which have resulted in licensure already, though the agency did not say how many. There is no limit to the number of these licenses it could issue.
“The launch of the Processor Type 3 Branding License marks another significant step in the growth of New York’s legal cannabis industry. This license creates new opportunities for cannabis brands to develop and distribute products in partnership with licensed processors while ensuring compliance with our state’s strict regulations on ownership, control and undue influence,” OCM Press Secretary Taylor Randi Lee said in a statement.
“By maintaining transparency around brand ownership and business relationships, the Office of Cannabis Management is reinforcing our commitment to an equitable and well-regulated market that prioritizes consumer safety and industry integrity.”
How the Type 3 License works
With a Type 3 license, an established edible brand from out of state could sign an agreement with an edible producer in the state to product and sell the products in New York.
For example, fictional company THC Brownie in Massachusetts wants to sell its products in New York. It signs an agreement with NY Brownies under the Type 3 license. THC Brownie would provide the intellectual property, such as recipes and standard operating procedures for production, to NY Brownies, and NY Brownies would then make and distribute THC Brownie in the state,
The arrangement is not unlike a bottling manufacturer that can make and package numerous brands of sodas within the same production line.
Jason A. Little, who heads the cannabis practice team at Uniondale, New York-based Farrell Fritz, said, “We have 476-ish or so brands currently in New York. Now that we are getting retailers online and we have the medical folks kicking into about 12% of the sales, you’re starting to see the need and want for brand variation. As a result, this makes perfect sense.”
Consumers would have the chance to buy products they know from other states, but they would be produced by New Yorkers. It also gives processors a chance to increase their business by making someone else’s products.
“You have folks who have done this, who have created a noticeable brand, that is recognized, that is good, et cetera, and now they have an ability to get that into the New York market,” Little added. “And OCM can still say it’s regulated via the all-inclusive New York goal upfront by requiring that type one or type two processors are within New York. Our New York companies are the ones ultimately manufacturing and selling this.”
The license also opens opportunities for people with good ideas but without the operational know-how. For example, Little said a cultivator could use this type of license to get a specific strain into the market.
“He could theoretically use this type of license to get this brand out to a company who has the ability to manufacture it and market it to the masses,” he said. “He doesn’t have either the will or the infrastructure to be able to do it, but folks who are manufacturing now may have that. So it provides that stepping stone for creators of intellectual property to get that intellectual property into the market via type one or type two processing.”
[[{“value”:”The Type 3 license could open the door for out-of-state brands to enter the New York market.
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