Despite a shaky rollout, the New York cannabis market is starting to hit its stride. However, problems persist with a massive licensing scheme coming to a head this week. Omnium Health Inc., a Long Island-based cannabis manufacturer, is facing significant penalties after being accused of allowing unlicensed pot businesses to set up shop within its facility. The case is having a ripple effect in the New York market, with some retailers left in the lurch after millions of dollars in merchandise were banned from sale.
The New York Office of Cannabis Management (OCM) says Omnium rented its license and space to illicit operators, allowing for unregulated products to flow into the legal industry. The practice, called reverse licensing, is permitted in some states, but is banned in New York.
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In a press release, state officials argued the scheme “violated core principles of [New York’s] regulatory framework” and is a “blatant breach of the licensing rules.”
“Reverse licensing has no place in New York’s market,” said James Rogers, Trade Practices Bureau Director, in the release. “This kind of cheating robs compliant businesses of their right to compete in a fair market.”
Omnium investigation sees ripple effect
The OCM began looking into Omnium earlier this year. At that time, major players like Stiiizy and Mfused were caught up in the investigation (both companies have since moved their manufacturing). Officials claimed they could not confirm the cannabis extracts used in the licensed brands’ products were created compliantly, leading to millions of dollars of products being quarantined. This means the merchandise had to be locked in a retailer’s vault, unable to be sold or returned.
Nicole Lucien, owner of Lex + Bliss dispensary, told The New York Times the embargo set her business back as $50,000 worth of merchandise sat unsold.
“It is a big burden on the business owner to have to keep those items in house, to not only secure them but to also not be able to return them for a credit or refund,” Lucien said.
According to The New York Times, consumers purchased $65 million worth of product from 17 different brands manufactured at Omnium between January and August. This accounted for just over six percent of regulated sales in the state.
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“Many stores will face significant challenges…”
The OCM has filed charges against Omnium, threatening to revoke its license and charge millions in fines. They are also requesting the company recall roughly $30 million worth of cannabis products distributed to licensed dispensaries across the state.
Vanessa Yee-Chan, owner of Alta Dispensary, told GreenState that retailers have yet to receive guidance on a potential recall. She said retailers who have large amounts of merchandise produced at Omnium could encounter serious obstacles if the recall goes through.
“The most challenging aspect, in my opinion, is for stores that have recently purchased Omnium products, especially at a high volume, and either haven’t paid the invoices or are relying on sales to cover those costs,” Yee-Chan said. “If a recall is issued, which I anticipate it will be, many stores will face significant challenges in covering the lost revenue.”
Yee-Chan said that during the recall earlier this year, Omnium did take back products and issue refunds in some cases. This time, the stakes are far higher.
“One major concern is that if we request a refund and the license is subsequently revoked, we may not be able to recover those funds,” she noted. “I would caution other retailers to prepare for this possibility, as we currently have no guidance from state regulators.”
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Omnium did not immediately respond to a request for comment.
As retailers wait to see how the Omnium case will unfold, many could be left in the lurch. While officials cannot prove that any questionable products are unsafe for use, consumers have a right to be concerned. The controversy is yet another example of regulated marijuana markets struggling to find their footing on a path to ensure that items sold are fit for consumption and licensed operators are set up for success.
