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February 17, 2022

Production constraints could plague recreational cannabis rollout

HBJ PHOTO | STEVE LASCHEVER Curaleaf employees monitor a harvest.
By By Sam Bonacci, Special to the Hartford Business Journal

Retail cannabis sales are scheduled to begin in Connecticut by the end of the year. But the state’s license process could leave recreational production to the four current medical producers, at least early on, resulting in demand outstripping supply and high prices that could last for years, according to one industry observer.

Jay Czarkowski, a licensing expert and founding partner of Canna Advisors, has been involved with the cannabis industry since opening a Colorado retail location in 2009 and operating his own grow operations. In 2012, he worked to help his first client, Advanced Grow Labs, obtain its Connecticut medical marijuana production license and he’s been consulting ever since.

He said he is not a fan of how Connecticut is preparing for adult-use sales.

“There is going to be a massive shortage. There is no way those four producers are going to be able to keep up with demand. And what is that going to do? It is going to jack the prices up,” Czarkowski said.

Czarkowski’s concerns center around the cultivation license rollout and potential production issues. With how the process is structured, some production license applications will not be reviewed until May, leaving potential new entrants into the market little time to get up and running by the end of the year, if the industry launches in 2022.

But state officials say they don’t have concerns about supply issues.

“We do not anticipate a supply shortage at this point,” said Kaitlyn Krasselt, communications director for the state Department of Consumer Protection, which regulates the cannabis industry. “We are working with the producers to monitor the availability of product for the medical and adult-use market.”

Currently, medical marijuana cultivators can apply for an expanded license — with all four expected to do so — that will allow them to serve both the recreational and medical markets.

Krasselt said producers seeking to convert their license to allow for adult-use sales will have to submit a plan that outlines how they will ensure sufficient product is available to continue to serve the medical market, while also expanding to serve the recreational market.

Harvest time

In addition to the current medical marijuana producers, other new entrants will be allowed to produce cannabis for the recreational market.

For example, social equity applicants, who are entrepreneurs who live in areas disproportionately impacted (DIA) by the war on drugs, can currently apply for micro cultivator licenses without having to enter a lottery.

Other production licenses, like for general applicant micro-cultivators and product manufacturers, will be doled out after a 90-day application window. Micro-cultivators can already apply for a license now, while product manufacturer applications open in March. 

The application period for production licenses is occurring at the same time as retail licenses. In an ideal world, said Czarkowski, production licenses would be distributed a year ahead of retail licenses, to give producers more time to get up and running. That wasn’t possible in Connecticut, which only legalized recreational cannabis use last summer. 

“It takes a while to build and grow. You have to get the plants going,” he said. “Typically it is a year-plus from when these new micro or cultivation licenses might see a harvest. I have seen it in all of these states, there are going to be lines around the block.”

The four existing medical marijuana producers are going to have an opportunity to capture market share at a greatly inflated price before additional cultivators can come online, he said.

The law detailing adult-use cannabis does include a safeguard designed to ensure a certain level of production. Before retail sales can begin, 250,000 square feet of grow and production space must be operational in the state.

However, said Czarkowski, this is a low threshold and has likely already been met by the four existing growers that have been preparing for expansion into the recreational market. And this amount of growing and production space does not ensure there will be enough supply, or room to stockpile enough product ahead of time, he said.

Ultimately, if supply constraints lead to high prices it could drive customers to other states, or the black market, said Czarkowski.

“If Connecticut messes this up and there is not enough supply and things are expensive people are going to go elsewhere,” he said.

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