A Fourth of July reflection on New York’s cannabis industry

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Happy Fourth of July to the New York Cannabis Industry.

No Fourth of July column is complete without acknowledgement of our nation’s veterans. Personally, I cannot imagine the range of emotions that our state’s disabled vets feel on holidays like July Fourth. In particular, in the cannabis industry, our disabled veterans need their voices to be heard above the other groups clamoring for consideration in licensing, and jockeying for seats on the Cannabis Control Board. I wish I could find the words to express, first my gratitude to the men and women who served in our military, and then the dismay over how they, as a group, are treated.

While you are celebrating (or not) this July Fourth, reflect on the fact that the early colonists were sent from England with hemp seeds to support the shipping industry in the New World. British colonists were required by law to grow hemp. The laws that criminalized hemp and cannabis did not really take hold until the 20th century.

But to be honest, not a lot of people in the New York cannabis scene are feeling in touch with their rights to life, liberty, and the pursuit of happiness this July Fourth.

The vast majority of the residents of New York can’t buy legal marijuana because there are still only 11 state-licensed storefront locations, and another five delivery-only operations; 16 retailers in all to serve the fourth most populous state in the country. This is a major problem for medical patients, whose day-to-day quality of life is intertwined with how much THC they are able to ingest.

By comparison, there are approximately 11,000 unlicensed dispensaries scattered across the state. The 1,000:1 ratio provides a ready answer to the question, “Why buy legal?” Only 12 of the state’s 62 counties have licensed retail stores for adult use marijuana. If you are in one of the 50 remaining counties, you can’t buy legal without committing to a drive of several hours, a flight, or an Amtrak ride. So – seriously – why buy legal?

The Office of Cannabis Management (OCM) conducted raids on unlicensed retail shops between June 6 and 13, 2023. There were other raids conducted by the New York State Department of Taxation and Finance, in partnership with local law enforcement officials. Eventually, if they are really pursuing enforcement against unlicensed businesses, the state will also need to address the issue of an estimated 22,000 or so unlicensed cannabis delivery services, as well as baked goods, gummy manufacturers, preroll makers, and cultivators. (Or is it that the most offensive thing about the unlicensed retail shops is their garishness, while the aesthetics of the other businesses remain out of sight?)

Hearings are underway, with results still pending. Due process only happens in due time.

One thing I am grateful for this July Fourth is that the War on Drugs is over. I can’t imagine what the OCM agents’ jackets would look like if that war were still a thing! Can’t wait to see the governor wear her NYS OCM Enforcement jacket to a scene or a presser!

Like it or not – this is our cannabis industry. Or maybe we should be calling it Chicago’s cannabis industry, since Chicago Atlantic, a private real estate investment trust (REIT), made a $150 million investment into the state’s social equity fund. In case you are not familiar with REITs, think back to the days of mortgage-backed securities, and their role in the 2008 financial crisis.

But this is 2023, and things have changed since the 2008 financial crisis. Chicago Atlantic proudly boasts the motto, “We search for investment possibilities where risk is fundamentally mispriced.”

Go ahead – click on the hyperlink above. I’m really not making this stuff up. The branding is problematic, through and through.

The New York State cannabis social equity fund is now added to Chicago Atlantic’s list of debt-based assets whose risk is “fundamentally mispriced.” Granted – that mispricing can roll either up or down. But the phrasing is unsettling, particularly when you realize it’s a debt-based REIT, lending money to a state fund, so that they can lend money to justice-involved entrepreneurs who need to fund loans of around $1.1 million that can only be used for buildouts of locations that they did not pick with work done by contractors they did not choose.

If it all gets to be too overwhelming, the CAURD licensees can turn in the keys and walk away. How many defaults will we see in two years? I shudder to consider. How many defaults can the state fund sustain and still make its payments to Chicago Atlantic? We honestly don’t know. We don’t know the terms of the agreement that the state has made with Chicago Atlantic to understand the repayment structure. (Transparency, or measurement of risk tolerance, is not really a thing in NY cannabis.)

Alas, lest Assembly Leader Crystal Peoples-Stokes accuses me of whining, let me say the following positive remarks about the New York State cannabis industry on this July 4.

First, we have never had a better chance to right the wrongs of prior decades. The MRTA prioritized social equity. As evidenced in the US Supreme Court’s decision last week on affirmative action, the very fact that New York, as a legislative body, recognizes that entire groups of people have experienced discrimination and disparagement differentiates our state leaders from other men and women in positions of power in the country.

Second, we have every reason to believe that by September 2023, applications for social equity and general applicants will open. Smart, motivated people are busy poring through the regulations to submit comments before the July 31, 2023, deadline.

Meanwhile, state licensed dispensaries owned by CAURD licensees continue to be opened at a rate of about two-to-three per month.

Early next year, the state’s cannabis tax revenues will likely increase when the Registered Organizations (ROs) are allowed to open to adult-use sales. Many cite this as a devastating concession made by the state. Remember that the “T” in MRTA stands for “taxation.” Note that in Maryland, where adult-use cannabis was approved by voters in November 2022, medical dispensaries were allowed to open to adult-use sales on July 1, 2023. New York’s MRTA originally meant to stave off the entry of the medical dispensaries into the adult-use space for the first three years of the industry. Even if you disagree with allowing the big guys into the adult-use market, the NY cannabis tax revenues desperately need to be funded, if for no other reason than to support the almost $70-million budget of the Office of Cannabis Management. Phrased differently: we need the tax from the ROs in order to keep OCM afloat!

Finally, this July Fourth, I celebrate that public awareness of the benefits of cannabis is at an all-time high. The proliferation of shops with the neon pot leaves has helped light up discussions about marijuana use, even among people who have no desire to participate in the industry as business owners.

The Declaration of Independence, first presented to the Continental Congress on July 4, 1776, did not place women in the category of humans that were considered equal. Men who were not white Europeans did not get fair treatment in that era either; at the time of its writing, slavery was still considered acceptable. Even in 1789, when the US Constitution was signed, the three-fifths compromise meant that a man of color was not counted as an entire person in the census. (Women of any color were not counted at all. People from Asia did not arrive until the mid-1800s.) And in our nation’s founding and expansion, the devastation that we brought to the native nations is something that we rarely, as a nation, pause to contemplate and to hold ourselves accountable for.

Like the Declaration of Independence, our New York cannabis scene is far from perfect. We move forward, a day at a time, towards an ideal of social equity, opportunity, and public benefit derived from the efforts of private enterprise.

But we keep going. I suppose Sen. Mitch McConnell would say that we “persist.” To borrow a phrase from the Declaration of Independence, I hold this truth to be self-evident: there is nothing that is wrong in the New York cannabis scene that we, as zealous advocates of our respective ideals, cannot make right.