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Riese funds joint ventures as Cuomo backs cannabis

Dennis Riese has soured on the food trade and developed a taste for marijuana.

The chairman and CEO of The Riese Organization – which at its height was Manhattan’s biggest restaurant operator – has been shrinking his restaurant business in the face of rising wages and stricter labor laws which, coupled with an altered retail landscape, has made slim pickings of profits.

DENNIS RIESE

Instead, Riese said he is looking to the future and has diversified into the cannabis sector with an investment in Loudpack, a California company looking to grow its brand as more US states legalize recreational cannabis use.

Cash rich following the sale of a development site on the corner of 34th and Third Avenue for $80 million and another scooped up by senior housing developer Welltower up for $115 million, Riese is also backing publicly-traded players such as Canopy Growth, Aurora Cannabis Inc. and Tilray, which are pushing into the sector as it looks to garner mainstream status.

“These are large players in the growing cannabis business and they are public companies,” said Riese. “I would be very excited to see legalized cannabis come to New York City. As a retailer, I believe it is going to be one of the new things that, when we look back in ten years’ time, we’ll see how e-commerce hurt retail, but I think cannabis stores will be one of the things that actually thrives in the new landscape.”

At its height, The Riese Organization controlled over 300 restaurants – nearly half of them franchises, as well as landmarks such as Longchamp’s and Schrafft’s – and owned much of the prime real estate where they sat. The company was credited with creating the food court concept as it clustered eateries such as Lindy’s, Roy Rogers and TGI Fridays on corners of Broadway, Times Square and Madison Square Garden pulling in over $300 million in annual sales.

According to Riese, a perfect storm of changing tastes, online disruptors, employment legislation and government bureaucracy hit the casual dining sector hard. “It has become extremely difficult to make a profit in restaurants and I foresee a future that will make it even more difficult,” he said. “There are more regulations, higher minimum wages, stricter labor laws and overheads are increasing as profit margins shrink. All these things cost an owner a lot of money, whether it’s a small or large operation.

“I have chosen to wind down my restaurant business and it has been my preference to invest in real estate. I have also personally invested in a private company that’s been in the cannabis business for a long time and has established brands in the California market and was seeking to raise money to grow their company a result of the ongoing movement towards legalization. I also have invested in several public companies by buying stock in the market where there are some large companies that are growing at fast rate.”

Indeed both Aurora Cannabis and Flora California Prime, Inc. could be primed to anchor a new $200 million Hemp Industrial Park in Buffalo, NY, that was announced Monday.

The Buffalo Urban Development Corporation (BUDC) approved the $1.9 million sale of a 42-acre site in the Buffalo Lakeside Commerce Park to Flora, which has operations throughout California and offices in Buffalo. Designated New York State Build-Now Shovel Ready Certified Site, Flora said the campus will be one of the largest of its kind in the nation, with 1.25-million s/f of buildable space anchored by a high-tech cannabis factory to support its cultivation, manufacturing and distribution needs in New York State.

Flora is expected to begin construction following approval from the New York State Legislature of Governor Andrew M. Cuomo’s anticipated recreational marijuana legislation. Cuomo has been pushing to legalize recreational marijuana that he believes could generate more than $1.7 billion in annual sales.

“With Flora’s investment at Buffalo Lakeside Commerce Park, Buffalo stands at the forefront of the legal cannabis industry that is growing statewide and internationally,” said Buffalo Mayor Byron Brown. “Flora’s investment will benefit our area by increasing job opportunities, adding to our tax base and strengthening the institutions that partner will flora on research and development.”

The Buffalo project is a joint venture between Flora and Zephyr Investors, a San Diego real estate company led by Buffalo native Brad Termini, co-founder and board director of Flora.

The campus is expected to create up to 1,000 jobs and SUNY Erie College has agreed to participate and is developing curriculum to train the local workforce in the cannabis industry. “SUNY Erie has a strong commitment to creating innovative training programs that provide the region’s workforce with the necessary skills to meet the demands of local industry,” said SUNY Erie President Dan Hocoy, Ph.D. “We look forward to working in partnership with Flora, Zephyr and the City of Buffalo to lead development and training in Western New York for what promises to be a burgeoning new industry.”

The state also granted a license to Canopy Growth to process and produce hemp at the new industrial park. Depending on Board approval of a specific site, the company said it intends to invest between $100 million and $150 million in its New York operations, capable of producing tons of hemp extract on an annual basis.
The companies hailed U.S. Senator Charles E. Schumer who was instrumental in the passage of the Farm Bill, legislation that includes the Hemp Farming Act that could help unlock industrial hemp’s full potential as an agricultural commodity across upstate New York by removing hemp from a federal list of controlled substances.

The bill also empowers states to be the principal regulators of hemp, allows hemp researchers to apply for federal grants from the U.S. Department of Agriculture and makes hemp farmers eligible to apply for crop insurance.

Most importantly, Schumer said the provision would allow for New York’s agricultural community to grow industrial hemp as an agricultural commodity if they so choose, allowing New York growers more flexibility
“The bill makes further investments to help Upstate New York dairy farmers, boosts the rapidly-growing organic sector, builds on New York’s burgeoning industrial hemp industry, expands rural broadband, strengthens crop insurance, and protects our most vulnerable hungry families and seniors from harmful cuts,” said Schumer.

Canopy Growth said it will source hemp exclusively from American farmers for its American operations once up and running.

“Canopy Growth was founded to drive innovation within the cannabis and hemp industries. In New York we see an opportunity to create products that improve people’s lives,” said Bruce Linton, chairman and co-CEO, Canopy Growth. “In the process, we will create jobs in an exciting, highly profitable new industry. I applaud the political leadership at the federal and state level that has allowed today’s announcement to become reality.”

Riese, meanwhile, said he doesn’t expect to see pot shops popping up throughout New York any time soon. Noting that even after approving medical marijuana in 2014, New York authorized only a handful of dispensaries to sell non-smokable forms of cannabis, he said, “It remains to be seen what laws they will enact to regulate it. Some states have capped the number of licenses they have given out and in others there is no cap.

“Mayor de Blasio has said he supports legalization and that he doesn’t want to see big companies reaping all the benefits but to encourage mom and pops to open around to. Perhaps that’s the way to do it.”

In December, Mayor Bill de Blasio endorsed “the safe and fair legalization of cannabis in New York” and released a Task Force report on Cannabis Legalization, which called for  public health-focused regulations that empowered of local government to “prevent corporate greed, foster small businesses and meet the demands of New York City communities.”

“I have been convinced that we can establish a regulatory framework that keeps our streets safe, rights the wrongs of the past, and gives economic opportunity to communities hit hardest by the war on drugs,” he said. “I support legalization because we’ve developed a path forward that will help make our City fairer. I look forward to working with the State as to make this a reality.”

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