Emergency NY Update, Unknown Impact of Cannabis Rescheduling & IP Protection ft. Jon Purow

Emergency NY Update, Unknown Impact of Cannabis Rescheduling & IP Protection ft. Jon Purow

Jon Purow: That's a reaction specifically to this lawsuit that's going to ultimately, probably imminently, kill the entire Conditional Adult-Use Retail Dispensary program. Bryan Fields: What's up, guys? Welcome back to another episode of Dime. I'm Bryan Fields, and with me as always is Kellan Finney. This week we've got a very special guest, Jon Purow, AKA Potty the Smoker Man and the daytime superhero at Greenspoon Marder. Thanks for taking the time — how are you doing today? Jon Purow: Oh yeah, that was one of the pop-ins from my podcast. I'm Potty the Smoker Man, here to chew up some weed news — spinach — for you. Bryan Fields: Stoner spinach, huh? Jon Purow: Yeah, that's from — we're podcast brothers, we've got that podcast bond, right? We feed our podcast complexes, so we've got that in common. Ever since I saw you guys in the same room at Benzinga doing one of the best interviews I've ever seen, with Brady Cobb, I've been happy to sit in this chair, so thank you for having me. I'm a partner working out of the New York and New Jersey offices of Greenspoon Marder — they're OGs in the cannabis game, in it since 2014, representing everyone from the biggest publicly traded MSOs down to single-state licensed applicants. My focus is regulatory work in the New York/New Jersey area where I live, extending to other states, and by training I'm an IP guy — the cannabis brand dude. I deal constantly with the Patent and Trademark Office, protecting brands in this idiosyncratic industry, and I add value by connecting clients with processors or manufacturers in other states and structuring creative licensing deals to help them expand. That's the stuff I geek out over. Soon I'll be relaunching my podcast — news recaps and interviews with people like Nancy Whiteman and other MSO execs. The new name, first announced here, is 'Highly Informed': the news recap segment will be 'Highly Informed: Rehash' and the interviews will be 'Highly Informed: Dope Discourse.' It's a little bittersweet because ChatGPT actually came up with the name — my buddy Brad Racino from NY Cannabis Insider told me to stop trying to come up with another name with 'CANN' in it and just ask ChatGPT, so I asked it for 40 pot-pun podcast names and one blew away the rest. Guys, thanks for having me — I'm really excited about this. Bryan Fields: Yeah, we're excited to dive into a bunch of topics, and given that we're recording on September 12th, it's critical to talk about New York, because the state just changed some rules and regs that Kellan and I haven't even had a chance to fully process. John, you're the guy here in New York — tell us what just happened. Jon Purow: All right, the 10,000-foot overview of how we got to such a fakakta — my favorite Yiddish word, meaning 'messed up' — place in the New York market. New York undeniably had unequal enforcement of drug laws that devastated certain communities, so the legislation aimed to hand out licenses to people affected by the war on drugs, veterans, and women-owned businesses. But people forget the capital is upstate, not New York City — and upstate is where the hemp growers and farmers are, who bet the farm on hemp and got crushed when the CBD market crashed. After the MRTA was passed, the state created a conditional cultivator and processor program letting those hemp farmers cross over and get the first adult-use harvest — unfortunately outdoors. This created what I call 'Farmageddon': roughly $800 million worth of the first grow coming down the pipeline with nowhere to sell it, because setting up a retail market takes time even though you want decriminalization to take effect immediately — especially when 94% of people arrested for marijuana possession in NYC in 2021 were Black and brown. In that gap, an estimated 1,500 illicit stores popped up selling legitimate product diverted from California, Oklahoma, and elsewhere, plus high-end counterfeits, badly hurting legacy operators trying to come in from the cold. So the Office of Cannabis Management created the Conditional Adult-Use Retail Dispensary (CAURD) program to give the farmers somewhere to sell — but a lawsuit now argues CAURD violates the plain language of the MRTA. Regulators kept changing CAURD's rules after the application window closed, which is unusual and opened them up to legal risk, and now this growing season is wrapping up with the state heading into 'Farmageddon Part Two.' Kellan Finney: Quick question — the state knew these farms were shifting to high-THC cultivation and had seen other states launch before. There's data out there on foot traffic and how much inventory a store can move weekly. Did anyone actually model X farms producing Y cannabis needing Z stores to distribute it? It seems like New York had all the puzzle pieces to plan this properly. Jon Purow: I love that question — it's such a logical framework, and I keep asking why regulators repeat the same avoidable mistakes. Some mistakes happen because of political incentives like touting tax revenue, but repeating mistakes that hurt the market is different. Specifically, New York's regulator was half-staffed while all this was coming at them, and writing regulations and building application infrastructure takes time. So their whole focus became getting as many stores open as possible to move as much product as possible — which is why the model expanded from retail-only to also allowing delivery and on-site consumption for full adult-use retailers. But oversupply broadly is a real problem in this industry. Look at Canada, the first big global test case: they licensed just a handful of Licensed Producers who got billion-dollar valuations — one hired me for U.S. trademark work — and now those same companies burn over a million pounds of overproduced weed every year. I wish they'd lean into that and make it a 4/20 event rather than something shareholders dread. It reminds me of a story I covered where Colombian police torched a massive indoor grow in a city, and the wind gave entire neighborhoods contact highs. On oversupply specifically, we have enough data from BDSA and others to model this better. When Maryland was legalizing legislatively, regulators compared themselves to Massachusetts, which has similar population and licensed about 7 million square feet of canopy but is now oversupplied and tanking — Maryland's original proposal allowed for 30 million square feet, and even after scaling back, they ended up allowing a lot of canopy, letting existing operators keep outsized grows. Why keep repeating this? Some would say let the free market decide — that's the counterpoint, and some mature markets like Michigan and Massachusetts are seeing record sales even amid price crashes, with happy consumers. But that's problematic in an industry meant to help right past wrongs — if you build in oversupply from the start, it may help compete with the illicit market on price, but it can hurt the social equity operators you're trying to uplift. I interviewed Peter Tosh's daughter about how the war on drugs took her brother from his kids — you can't fully right those wrongs, but you shouldn't structure a market that undermines the people it's meant to help either. I don't think regulators alone can crack social equity, so I try to rally industry leaders to do something ourselves — discounted tech licensing for equity operators, big companies committing to hire from reentry programs, etc. It's disturbing that social equity programs meant to help these communities can end up commoditizing them instead. One interesting thing New York did get right in its draft regs was a clawback provision: if a cultivator doesn't hit something like 50% of their licensed tier's maximum canopy, they can get bumped down a tier — rare forethought about oversupply. New York regulators clearly believed they were building something special, but that ambition created a lot of unintended consequences. Bryan Fields: It seems like the original intent was reasonable, but execution ran into real challenges — especially real estate, and how expensive and difficult it is for funds to finance locations to support a market they're essentially building artificially. It's like they doubled down on protecting their investment in the license program by punting on certain issues. But my question is: they just announced that retail applications with secured locations will be fast-tracked — shouldn't that have been built into the regs from the start, given how critical real estate is? Jon Purow: That fast-tracking is specifically a reaction to the lawsuit that's likely to imminently kill the CAURD program. Of the 463 CAURD licenses issued over time, a judge ruled that licensees who'd invested heavily in reliance on their license get an exception to the injunction, so they squeak through before CAURD potentially gets shut down. There are 23 open today, OCM is processing roughly 30 more after a botched earlier submission, putting us around 53, plus a handful of others who might qualify — but out of an original goal that grew from 150 to 300 to 463 licenses, I'm betting only around 90 total ever open. The other roughly 370 CAURD licensees will likely have to wait for the full adult-use retail licensing round, expected to open around October 4th — confirmed again today at the Cannabis Control Board meeting. New York is essentially replicating New Jersey's provisional license model, meaning the real bottleneck becomes municipal approval — can you get a mayor on the phone, or do you have enough clout in New York City — which favors real estate developers with capital over other applicants. The application window is 60 days starting October 4th for cultivators, processors, distributors, microbusinesses, and retail, but the state said applicants who already have secured property will be reviewed early, which mainly benefits CAURD holders but also lets well-capitalized players jump the line. The biggest limitation now is real estate — especially on Long Island, where so many towns opted out, creating congestion in the towns that didn't, given required distances between dispensaries. Regulators tried to plan for opt-outs with a December 2021 deadline but didn't anticipate towns using restrictive zoning to effectively bar entry anyway. I have a Long Island client stuck in a two-step: find a property, it falls through, find another, get ready to sign, then the CAURD court case freezes everything and I tell him not to sign — now, with the possibility of a CAURD exception or the new licensing window opening soon, I'm telling him to sign and cut the check. It's wild how much this affects real people and real money in real time. Kellan Finney: We're not the first state to do this — Colorado has 575 recreational dispensaries with about 5 million people, while New York, with four times that population, is currently planning for only a couple hundred licenses, meaning even at full CAURD rollout it would have fewer dispensaries than Colorado. And illicit stores in New York City have grown from an estimated 1,500 to more like 8,000. Given all that, what's your forecast for when New York becomes a fully legal market with essentially no illicit dispensaries on the corner — I know it'll never hit zero, but what's a realistic benchmark, three years? Jon Purow: I'd say five to ten years, and of all the states, I think New York is most likely to end up like California, where lenient decriminalization and tiny penalties make operating a fake-licensed storefront a viable business model — get a slap on the wrist, reopen under a new name, repeat, as long as sales cover fines and rent. I expect that pattern in New York too, to some extent. That's why I want to push thought leadership on designing better systems — I did this as secretary of the Cannabis Beverage Association around model beverage regulations, since beverages will be key for on-site consumption and destigmatizing cannabis. My approach: raise taxes gradually, start low, and compete on price. And if cannabis gets rescheduled to Schedule III, the biggest practical impact is that 280E no longer applies, letting operators deduct normal business expenses — potentially up to a 30% profitability boost for an industry currently getting crushed, which also helps it compete with the illicit market on price. Bryan Fields: Are you for rescheduling, or do you think cannabis should be fully de-scheduled? Jon Purow: Obviously I'd prefer de-scheduling, but rescheduling is still the biggest thing that's happened to this industry. It's not done yet, and honestly I don't think Biden personally prioritizes this — maybe psychologically given Hunter's history and his own age — but politically, with reelection next year, conservatives like Mitch McConnell aren't going to hand Democrats a win before a consequential election, so the executive branch saw an opportunity for a unilateral win here. Beyond the industry benefits, rescheduling massively opens up research — we've only really studied three to five cannabinoids out of an estimated 140-plus, not even counting flavonoids and terpenes. One flavonoid wiped out pancreatic cancer in a rat colony, and there's now a full Harvard study on it. It's a long way from when, due to a historical quirk, the University of Mississippi was the only U.S. institution allowed to research cannabis, using weed far weaker than what people actually consume today. Bryan Fields: With more research comes more IP, and with IP comes infringement risk. There aren't many cannabis IP lawsuits today given federal scheduling — but if it moves to Schedule III, do you expect more litigation? Jon Purow: I don't think much changes practically. There's paranoia that moving from 'no accepted medical value' — which wasn't fully true, since Epidiolex was already carved out, reducing seizures in kids by 80% using CBD from the plant — to an actual medical research pathway means the FDA will suddenly crack down on the adult-use market. It won't; this is about loosening restrictions, not tightening them. Jeff Sessions was attorney general and never went after state adult-use programs. The real story is which companies pursue the FDA medical pathway, potentially earning federal trademark protection like Marinol (Schedule III, like ketamine) — something currently unavailable for anything plant-touching. Beyond Schedule III, two other huge federal developments matter: first, SAFE Banking may have its best shot ever at passing the Senate, even with Mitch McConnell not being 'quite himself' right now — we thought we had it during the lame-duck session, with Cory Booker's social equity provisions being the main Democratic sticking point, until McConnell caught wind of it. Ironically, McConnell reportedly had no idea he'd inadvertently legalized unregulated psychoactive hemp cannabinoids by giving Kentucky hemp farmers a win in the Farm Bill — he doesn't know about Delta-8. Second, the 2023 Farm Bill is the last real chance to address hemp-derived psychoactive cannabinoids federally. The state-licensed market is squeezed between the illicit market and this hemp-derived Delta-8/Delta-9 market that emerged when CBD crashed, letting sellers avoid 280E and licensing costs and sell in any convenience store. Recent DEA crackdown activity stems partly from studies suggesting THC-O may cause lung damage similar to the 2018 EVALI vaping crisis, prompting waves of state Delta-8 bans and a DEA move to redefine 'synthetically derived' in ways that would eliminate THC-O and more. Because lawmakers don't fully understand this space, whatever the 2023 Farm Bill lands on will create major business and trademark opportunities — I'm already gaming out scenarios. If I were an MSO bleeding money, I'd lobby hard to close that hemp loophole, but ironically some big beverage brands that got crushed in California have instead leaned into hemp-derived cannabinoids to ship nationally and raise brand visibility beyond their own dispensaries — a form of hedging. Bottom line: 280E reform is the single biggest thing that's happened to this industry, but the 2023 Farm Bill's long-term impact will be huge too. Kellan Finney: Quick hypothetical — say Delta-9 THC specifically gets rescheduled to Schedule III, like Marinol. If I'm Marinol's manufacturer, I spent a lot developing that formulation and want to protect that market. If I'm a small, vertically integrated mom-and-pop shop in Colorado making an essentially identical Delta-9-only gel pill, am I at risk of patent infringement once things are descheduled and the Farm Bill closes these loopholes? Jon Purow: I don't think you're at real risk, though I see the logic. IP law never fully catches up with technology, but it's built around limited monopolies meant to incentivize innovation without stifling it. On the patent side today, you can protect strains and specific innovations — there was a well-known GQ article around 2017 about Biotech Institute, a mysterious entity registering strains and plant patents with expensive attorneys, fueling fears of patent trolls suing over common strain names. But patent law requires novelty over prior art, and in cannabis most prior art lives in the illicit market, which complicates enforcement. On trademarks, you generally can't claim a generic strain name like 'AK-47' — you need a distinct, protectable brand instead. Conceptually, I'm not worried about a company pursuing the FDA/Schedule III pathway purely to wipe out the state-licensed market — their upside is a drug patent or federal trademark, not becoming a bad-faith bully knocking out competitors. What I do expect is more acquisitions of smaller cannabinoid-research companies by big pharma, similar to GW Pharma and Epidiolex being acquired by Jazz Pharmaceuticals for roughly six billion dollars — especially companies showing efficacy data around cancers or neurodegenerative disease using cannabinoids like CBN or CBG. Bryan Fields: What about trade secrets — say a company has a proprietary extraction or cultivation method, and infringers essentially dare them to enforce it. Does rescheduling change the incentive to actually enforce, and could that raise the value of these patents? Jon Purow: There's some risk of a traditional patent troll seeing opportunity here, but this industry is uniquely complex and heavily regulated, layered with hemp-derived products, the illicit market, and social equity concerns — so any competitive edge is valuable. Technology that produces the best product is a real advantage, but patents have a limited life and generally must be pursued within a year of public disclosure. So: protect technology now, and pursue trademarks for brands too, since brand equity signals quality and real value. Kellan Finney: There are two parts to this, though — first, can you even pursue patent infringement claims while cannabis remains federally illegal? And second, how would you actually know someone's infringing on a proprietary formulation or method, and determine when it's worth pursuing? Jon Purow: That's exactly why you'd bring in someone like me early — the sooner I'm involved, the more value I add, because I help clients choose brands that are actually protectable, which is incredibly hard given how crowded this industry is across 50 different state markets plus a nationwide hemp-derived market. I've had clients with great vape technology that climbed the charts everywhere, but whose brand name referenced a flower and ran into infringement issues in nearly every state — we went through six alternative names before finding one clearable. Trade secrets are hugely valuable too: patents expire, but trade secrets — like Colonel Sanders' eleven herbs and spices — can last forever and even be quietly tweaked, the way Doritos doesn't taste like it used to. Extraction methods and recipes can be protected as trade secrets, but you must treat them as such consistently — template contracts, best practices, spending a little upfront. That protects assets that matter enormously to investors: showing you locked down your IP and national trademarks early means, when they cut a check to expand into eight new states, you won't run into someone who already owns your name there. Bryan Fields: Cool, let's do a quick rapid fire. Maryland versus Missouri — sales five years from now, which is bigger? Jon Purow: Comes down to population — Missouri. Bryan Fields: Under-the-radar market that will shock people? Jon Purow: Louisiana. Bryan Fields: True or false — interstate commerce starts sometime in 2024? Jon Purow: You're a funny guy — no. Bryan Fields: True or false — New York's market matures by 2034? Jon Purow: Yes. Bryan Fields: True or false — New York gets studied at Harvard Business School as a what-not-to-do case? Jon Purow: I'll go with no, based on my earlier sarcastic answer. Bryan Fields: What's one statistic about the cannabis industry that would shock people? Jon Purow: The potential heavy-metal content in certain unregulated vapes — small hardware with a direct air path from a battery heated to 450 degrees straight into your lungs. I've now seen multiple news stories about cannabis users testing with elevated heavy metal levels. I don't think that gets enough attention, and it's a real selling point for the better vape hardware companies. Bryan Fields: When you started in cannabis, what did you get right, and what did you get wrong? Jon Purow: What I got right was enthusiasm and being 'in it for the right reasons' — coming to terms with my own white privilege as a college kid who used cannabis with few consequences while others' lives were ruined for the same thing. What I got wrong was underestimating how many things politicians and regulators could keep getting wrong without learning, whether from politics or industry specifics. Bryan Fields: Prediction time — as public companies show more interest in cannabis, do you predict a surge in patent acquisitions by 2030, and if so, in which areas? Jon Purow: Anywhere there's a clear capitalist efficiency gain in production — faster pre-roll manufacturing tech, or micro-encapsulation that shrinks absorption time to two minutes with consistent effects — that value gets snapped up. Remember, we're at the tip of the iceberg on money flowing into this industry: alcohol, tobacco, and pharma will all come in unless explicitly barred, and probably even then. We're also at the tip of the iceberg on the medical good this industry can do. Kellan Finney: I think there'll be a huge IP surge too, not confined to cannabis specifically — innovations from this industry will apply broadly elsewhere. Bryan and I were actually talking with an executive at a large vape pen company who just won a patent case related to heating and cooling a liquid, and that kind of patent has applications well beyond cannabis. By 2030, I expect cannabis-developed technologies to bleed into other industries. Jon Purow: Let me amend my answer — that's a great point. I think we'll actually see more patents specifically in the pharmaceutical and medical realm, because the endocannabinoid system — one of the most recently discovered systems in the body — is also the most widely distributed, tied theoretically to homeostasis, which explains cannabis's wide range of effects across an incredibly genetically diverse plant. Throw in fungi too — we've lost decades of research on cannabinoids and psychedelics, and now researchers are using AI to sequence cannabis and diverse fungi genetics. When it's not busy inspiring shows like 'The Last of Us,' that research holds enormous medical potential, physical as well as mental. I think the number of new drugs that come out of this will be mind-boggling. Kellan Finney: I agree. What do you think, Bryan? Bryan Fields: I think Jon's exactly right — investing a little upfront makes a massive difference down the road, and companies that set aside resources for that will be hugely rewarded, because we're heading into an IP war. I hope our listeners are already retaining someone like you, Jon, to position them for the future. For listeners who want to find an IP attorney, where can they reach you? Jon Purow: Through the Greenspoon Marder website, and my podcast will be relaunching soon. You don't need to memorize a complicated domain — just remember: John, J-O-N, dot Purow, P-U-R-O-W, at G-M like 'good morning,' law dot com. Always happy to have a conversation. Bryan Fields: We'll link that up in the show notes. Thanks for taking the time — this was fun. Jon Purow: Yeah, it was awesome.