NY's failed Cannabis rollout: The state dropped the ball setting up legal market
In the two years since New York legalized adult-use cannabis, the state Office of Cannabis Management (OCM) has licensed 66 retailers in the state, but just five have opened their doors to the public.
Meanwhile, from the five boroughs to Albany to Buffalo and everywhere in between, there are countless illegal shops selling unregulated cannabis out of storefronts and mobile dispensaries.
The agency in charge of fostering a robust legal cannabis industry in New York has mismanaged key components of the program’s rollout and, as a result, entrepreneurship is being needlessly stifled.
But it didn’t have to be this way.
The primary source of the state’s long road to bring adult-use cannabis legalization to scale is OCM’s creation of the Conditional Adult-Use Retail Dispensary (CAURD) license, which prioritizes only a small percentage of the individuals impacted by the war on drugs in the application process. Though seemingly well-intentioned, the state’s delay in awarding these licenses to a broader group of individuals has cost everyone, from potential dispensary operators to consumers.
Better partnerships create better results. Together with our customers, we create better results for a better future.
In fact, in its zeal to use this historic opportunity to boost equity by focusing on justice-involved individuals, the state is leaving out countless Black and Brown entrepreneurs without drug convictions as well as women seeking a foothold in this booming industry.
Moreover, the New York Social Equity Cannabis Investment Fund and the state Dormitory Authority — a $200 million fund to support equity entrepreneurs as they get a foothold in the market — has been a total failure so far. Though it was meant to provide CAURD license holders with capital to open dispensaries, there are significant conflicts of interest as well as business arrangements that disadvantage borrowers.
For example, loan terms include repayment with 10% interest over 10 years, in addition to the cost of doing business. Further, business owners are forced to sublease their dispensaries from the Fund — meaning the licensee will pay rent to the Fund and the Fund will pay rent to the dispensary’s ultimate landlord.
As one of the program participants told me recently, “[the Fund] would essentially own our business. Let’s say we defaulted on our payments — would they kick us out of our dispensary? We don’t know. Those terms were not made clear.”
Adding insult to injury, this Fund has still not been funded, despite a deadline in December 2022.
As a result? The gray market operators have sprung up to fill the vacuum. The unregulated cannabis they sell is untested, untaxed, and oftentimes unsafe for consumers. One report revealed the presence of E. coli, salmonella, and pesticides in various products, among other concerning data points.
And now, New Yorkers are fighting back, as a coalition that includes the state’s most credible and successful medical marijuana companies — as well as small would-be business owners — has sued the state.
The lawsuit, filed in state court in Albany this month, arguing that state cannabis regulators exceeded their legal authority when they opened the initial application pool in August only to people with past pot convictions or their relatives, instead of everyone.
The failure of a promising industry before it can even get off its feet should worry everyone. After California, New York has the potential to become the nation’s second-largest legal cannabis market, with projections showing our state could grow to an estimated $4.2 billion market within just five years.
We can’t afford to miss this opportunity, which is why before the Legislature wraps up this year’s session they must take a sincere look at enhancing OCM’s funding to allow for a faster review of license applications and retail store openings. Further, OCM itself must create a pool of licenses set aside to provide for the development of viable minority owned and social equity businesses that have not been impacted in the justice system.
The state can also support smaller cannabis entrepreneurs by offering free legal services and resources, mentorship, and providing assistance in securing critical equipment, supply agreements and product collaboration. Finally, OCM has to start cracking down on the illicit dispensaries that threaten to impede the legal and regulated market from flourishing.
A legal cannabis industry will bring thousands of jobs to New York, create hundreds of new businesses, and raise an estimated $650 million in annual tax revenue, but not at the current pace or with the present onerous rules.
There is a way forward, but those in charge need to reexamine how the policies they’ve built are hurting — not helping — this budding industry.
