PBN summit: R.I. cannabis industry to face interstate competition, but ‘we’re really ready’

BENJAMIN L. RACKLIFFE, second from right, partner at Pannone Lopes Devereaux & O'Gara LLC discusses the issues surrounding Rhode Island's move to legalized recreational marijuana during Providence Business News' Business of Cannabis Summit at Crowne Plaza Providence-Warwick on Thursday. Also on the panel is, from left, Kelly Wishart, chief operating officer at Coastline EAP/RISAS; Matthew Santacroce, interim deputy director of the R.I. Department of Business Regulation; state Sen. Joshua Miller; and Kristyn Glennon, vice president, Bank Secrecy Act/Anti Money Laundering compliance officer at BayCoast Bank. PBN PHOTO/MIKE SKORSKI

WARWICK – By the end of the year, Rhode Island officials expect seven retail outlets will have begun selling recreational cannabis, said Matthew Santacroce, acting deputy director of the R.I. Department of Business Regulation, and nine in operation by the second quarter of 2023.

And more will follow across the state, noted R.I. Sen. Josh Miller, who expects most communities to authorize recreational sales.

But while legalized recreational cannabis sales are new to Rhode Island, they’re nothing new in Massachusetts or Connecticut. This competitive landscape, alongside some still-nebulous policies, presents Ocean State cultivators and retailers with unique industry challenges, leaders said at the Providence Business News’ 2022 Business of Cannabis Summit on Thursday.

The event, held at the Crowne Plaza Providence-Warwick, included two panel discussions focused on Rhode Island’s emerging cannabis industry and discussed challenges and opportunities facing cannabis businesses within the state.

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The state established an opt-out system for individual municipalities to say no to recreational cannabis sales, with cities and towns automatically eligible for sales unless they decided to put the question on the November ballot for residents. Thirty-one municipalities are putting the question to their residents – a number that Miller said officials didn’t expect, but one that he suspects municipal leaders gravitated to for the “political cover of not deciding it on their own.”

Miller expects that the vast majority of these communities will authorize sales in November.

“We feel that at the end of the day, there might be three or four communities that oppose it,” Miller said, “but I think it will be widespread.”

Cities and towns have a financial incentive to legalize sales, as they collect 3% of sales tax revenue from marijuana establishments within their jurisdictions.

Rhode Island cannabis businesses will face challenges such as competition with neighboring Massachusetts and Connecticut, where legalized recreational sales began in 2018 and 2021, respectively.

This means that Rhode Island sellers and their partners will have to put in extra work to remind consumers that they’re an option, and in some cases, will have to tempt customers away from out-of-state brands that have already established a loyal following, panelists said.

“It’s going to take a lot of work from the cultivators in Rhode Island to develop a brand, get the people back here and keep people in,” said Dr. Jonathan Martin, co-founder of PureVita Labs in West Warwick.

PBN’s 2022 Business of Cannabis Summit attracted about 200 attendees to the event held at the Crowne Plaza Providence-Warwick. /PBN PHOTO

But Rhode Island has a few factors working in its favor, said Benjamin L. Rackliffe, a partner at Pannone Lopes Devereaux & O’Gara LLC, including its later entry into the market. The Ocean State was the 19th in the country to legalize recreational sales but lagged in the region.

“Massachusetts had the demand but lacked the supply, and it obviously has an effect on pricing and availability of products,” Rackliffe said. “We’re in a unique position where we’re really ready to meet the demands of adult use.”

Rhode Island’s cannabis industry will also benefit from the state’s decision to immediately transition into sales, Rackliffe said, while other states had more regulatory measures beforehand.

Santacroce also noted that while legal recreational cannabis use is new, the substance has long been present either through unregulated or out-of-state sales, which gave Rhode Island time and preparation for the legalized marketplace.

“We know basically what demand is going to look like,” Santacroce said. “Marijuana use is not new here, it will not be new on Dec. 21st, and it won’t be new in 2023. “What I hope we can achieve is to bring that demand more obviously … into the regulated market.”

The state’s small size lends itself well to innovation and connections between people in the industry, said Dr. Seth Bock, founder and CEO of Greenleaf Compassion Center. But what Bock refers to as “the cannabis bubble” has started to burst somewhat due to factors such as market saturation and pricing wars, he said. And as time goes on, the state may face more competition from international producers, which will drive down prices.

Regardless, Bock expects high cannabis prices will “inevitably change” – welcome news for consumers but a development that will require adaptation from cultivators and business owners.

“The prices are going to go way down eventually,” Bock said, noting that the large, long-established unregulated cannabis market also proves a challenge to higher-priced, legal cannabis.

Rhode Island businesses will also face challenges that states around the nation that have already legalized cannabis deal with, such as the barriers that arise from the substance still being illegal at the federal level, said Krystyn Glennon, vice president and Bank Secrecy Act/Anti Money Laundering compliance officer at BayCoast Bank

For banks specifically, federal cannabis laws can interfere with lending and premiums, she noted, and credit companies Visa and MasterCard have placed restrictions on using credit cards for cannabis-related business.

To navigate these issues, banks must establish strong boards and resources to pull from, Glennon said, while maintaining a strong relationship with the state.

“Banks that start to get into [the industry] have to partner with government, have to partner with the [R.I. Cannabis Control Commission] and [the DBR],” Glennon said.

While some regulations will be determined by the state’s new Cannabis Control Commission, other policies, such as how to identify and handle cannabis use in the workplace, will be up for municipalities and employers to decide.

The panels also included Kelly Wishart, chief operating officer at Coastline EAP/RISAS; Spencer Blier, founder and CEO at cultivator Mammoth Inc.; and Michael Budziszek, professor at Johnson & Wales University.

Jacquelyn Voghel is a PBN Staff Writer. You may reach her at Voghel@PBN.com.

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