New York Senators say they now know what’s wrong with the state’s Cannabis Industry. What will they do next?
New York State Senate Subcommittee on Cannabis Reevaluates Enforcement and Social Equity Investment Fund Amid Slow Market Rollout.
After hearing from state cannabis regulators, law enforcement leaders and adult-use licensees, members of the New York State Senate Subcommittee on Cannabis are now taking a fresh look at enforcement, New York’s cannabis social equity investment fund and other key issues affecting the rollout of the state’s legal weed market.
“I just think it’s somewhat in disarray,” state Sen. Joe Griffo said of the rollout after the marathon hearing.
Regulators at the hearing “indicated there are challenges,” Griffo told NY Cannabis Insider. “I see them as problems and they’re problems that need to be confronted and addressed.”
Griffo, a Central New York Republican who voted against legalizing cannabis in 2021, told NY Cannabis Insider that the hearing left him wondering if the Office of Cannabis Management is properly structured, and whether the agency has the resources it needs to carry out the duties the Marijuana Regulation and Taxation Act requires.
OCM officials seem to have difficulty communicating with municipal officials, especially regarding enforcement of illegal shops, Griffo said. The hearing left him wondering if OCM needs more enforcement power, but also whether legislation could help solve many of regulators’ problems.
“The Office of Cannabis Management seems still to be in flux to a certain extent, and I don’t know that many of the questions that were raised were adequately addressed,” Griffo said, adding that he thinks there have been both communication and coordination issues at play.
During the Oct. 30 hearing, New York City Sheriff Anthony Miranda told senators that unlicensed shops have multiplied across New York amid the state’s slow marijuana retail rollout. As many stakeholders have worried that grey market shops could undermine the legal market, Miranda said many consumers at illegal shops assume the stores are licensed.
“The lack of licensing, oversight and control not only creates health and safety concerns, but it … undermines the legal industry,” Miranda said.
Enforcement issues were top of mind for Sen. Pamela Helming (R, Canandaigua) following the hearing. Focusing on shutting down illegal shops would ensure public safety in addition to protecting small licensed businesses and local cultivators, said Helming, who also voted against passing the MRTA in 2021.
“It is astounding the number of illegal shops that are operating in New York State without consequence, ignoring our laws, not paying taxes, and putting our young people and our communities at risk,” Helming told NY Cannabis Insider.
The tax implications of Illicit shops certainly present a problem, Amanda Hiller, acting commissioner and general counsel of the state Department of Taxation and Finance, said during the hearing. New York has collected $8.6 million in legal cannabis retail taxes and $4.3 million in distribution taxes this year, Hiller said. She estimated that the amount of uncollected taxes from illegal smoke shops is probably in the millions.
A few days after the hearing, Sen. Liz Krueger (D, Manhattan) pointed to enforcement of illicit cannabis shops as a key issue that needs attention. During the hearing, Krueger pointed out that unlicensed smoke shops are engaging in felonious behavior including possessing larger-than-legal quantities of weed and selling to underage kids.
In a statement to NY Cannabis Insider, Krueger said police should do more undercover buys to prove felony conduct by smoke shops. She also said district attorneys should go after these stores by filing and processing rapid evictions to their commercial landlords, and Gov. Kathy Hochul should sign an LLC transparency law that would make illegal shops easier to track.
Beyond enforcement, Krueger said the state needs to explore options to help small farmers who grew crops they were unable to sell. Additionally, the state needs to look into loans being offered to Conditional Adult-Use Retail Dispensary licensees, she said.
Sen. Michelle Hinchey (D, Kingston) also expressed concern about farmers during the hearing. She later told NY Cannabis Insider that she wants to create a “Recompense Fund” for licensed cultivators, which would help alleviate losses incurred by farmers who have “been hit twice due to the CBD price collapse, and now a languishing cannabis market rollout.
“Our farmers are sitting on a cannabis oversupply that is losing value by the day …. This situation is undeniably an agricultural emergency, and establishing a cannabis relief fund for our struggling farmers should, without a doubt, be part of the solution,” Hinchey said.
During the state Senate hearing last week, Eli Northrup, policy director of The Bronx Defenders’ Bronx Cannabis Hub – which has been helping people apply for CAURD licenses – brought up alleged troubling practices by private equity firm Chicago Atlantic, the sole lender to the Dormitory Authority of the State of New York’s Cannabis Social Equity Investment Fund.
Senators expressed shock when Northrup said Chicago Atlantic is negotiating loan agreements directly with CAURD licensees, speaking to licensees without the presence of counsel and engaging in high-pressure tactics.
Coss Marte, CEO of Manhattan CAURD dispensary CONBUD, told senators he’s hearing about CAURDs taking loans between $1.5 and $1.7 million with a 13% interest rate to be paid back in 10 years.
“It’s setting you up for failure,” said Marte, who self-funded his store with business partners. “I wish I would have gotten the DASNY contract, because I could have built everybody’s dispensary for a third of the price,” he joked.
During the hearing, Krueger said Chicago Atlantic’s direct involvement goes beyond what she thought their role as an investor into the fund included. She said she doesn’t understand why the company is negotiating with CAURD licensees.
“We need an investigation of the DASNY/private equity deals, which appear to be predatory and exploitative of CAURD licensees,” Krueger said in a statement to NY Cannabis Insider this week.
Sen. Gustavo Rivera (D, Bronx), also told NY Cannabis Insider that he was troubled by what he heard regarding the alleged conduct by Chicago Atlantic.
After hearing anecdotes of Chicago Atlantic representatives directly negotiating with CAURD licensees with high-pressure tactics, Rivera told NY Cannabis Insider that this is especially problematic, since many of these stakeholders are already victims of banking discrimination.
“Their accounts shed light on the challenges faced within the social equity financing landscape,” Rivera said. “It is incumbent upon us to collaborate and ensure that private financiers do not exploit community members.”
Rivera also said the legislature should look at codifying the CAURD program into law, in light of multiple lawsuits that have kept hundreds of these businesses from opening.
