This post was originally published on this site.
Join NY Cannabis Insider for its next industry meetup in Buffalo on May 14, 2024. Tickets available now.
Several publicly backed funds meant to bolster mom and pop cannabis stores across the New York supply chain have either failed to meet their goals or are delayed in getting off the ground, according to interviews and documents reviewed by NY Cannabis Insider.
In New York City, a $20 million fund run by the New York City Economic Development Corporation is behind on its target to disburse money by the first quarter of 2024. The state’s Dormitory Authority has only bankrolled a fraction of the 150 stores it planned to fund with a separate statewide pot of money. And the same agency has yet to dole out any microbusiness loans it promised would be available to licensees almost a year ago.
Because cannabis is federally illegal, banks do not issue small business loans to cannabis companies, making access to capital one of the largest roadblocks for small operators entering the marketplace. The state of capital markets nationwide along with high interest rates and the rocky start to New York’s market have dimmed prospective investment.
“Some of it was just bad luck, but we hit the market at a very bad time, and the slow roll out didn’t help,” said Peter Su, a cannabis banking expert. “It’s hard to raise money and capital right now … a slow rollout combined with the illegal market, that’s a real concern for investors.”
“All of it is combining into a perfect storm,” Su added.
According to documents, New York City’s $20 million fund was supposed to have a fund administrator and money available for disbursement by the first quarter of this year.
To date, neither the money nor the administrator have been established.
“We are limited in terms of what we can share as we are currently in the midst of an active procurement,” said a spokesperson for the NYC Economic Development Corporation. “However, our goal is to name a fund administrator, and make monies available to borrowers, in the coming months.”
The DASNY fund, which has only matched 24 retailers to locations – well below the initial 150 estimated – pivoted their model from exclusively providing build outs after many applicants did not want to accept the steep costs and murky contracts. In a private meeting with license holders last June, DASNY announced a $100,000 micro-loan at a 5% interest rate for those who opted out of a full-fledged store build out.
To date, no applicants have been able to access the loan.
“Due to court-ordered injunctions that until recently had paused CAURD licensing, no micro-loans have yet been issued,” said a DASNY spokesperson in a statement to NY Cannabis Insider.
Trade associations for retailers say the lack of funding has slowed down store owners’ ability to open dispensaries, even if they do already hold a license – further hampering the pace of the market. Over 300 stores were expected to be open by this point, but only 100 have opened as of last week.
“The investor confidence is extremely low and our members are in desperate need of capital,” said Britni Tantalo, president of the New York Cannabis Retail Association and co-founder of Flower City Dispensary, which is awaiting a retail license. “It’s important that we remind the community and we remind the regulators and investors that we are still in an infant stage here.”
According to Tantalo, the lack of investor confidence has led to more predatory financing as people with access to capital are looking for outsized returns for their investment in a wobbly market.
“When you have a bunch of people who need a bunch of money, you are going to get a bunch of sharks,” said Tantalo. “That’s what has happened.”
More broadly, capital markets across the country have seen a draw down as interest rates have risen — making cash harder to secure at low rates. While capital markets can impact how larger investors may want to deploy cash, the state’s slow roll out along with the illicit shops have also contributed to a loss in investor confidence.
“There is no question there has been a border capital crunch, but the money is still out there, ” said Zach Gordon, founder of Red Five, a financial service firm that represents a number of cannabis companies across multiple states. “But some of the regulatory uncertainty and the proverbial bad taste in the mouth –– that has had a major impact as well.”
“It’s not 2019 anymore,” said Gordon. “The excitement, while not completely gone – it’s nowhere near where it was before.”
In 2018, the state’s comptroller’s office estimated New York’s cannabis market would reach around $3.1 billion and according to Gordon, “You don’t have to do complex calculations to figure out if you have x percent of that type of (multi-billion dollar) market, you’re in a good place.”
“That was what a lot of the excitement was about, a lot of promise that New York would become the cannabis capital of the world,” said Gordon. “And just the execution hasn’t met those expectations.”
The lack of funding isn’t exclusive to cannabis. While there are more obstacles to opening a cannabis business, such as federal banking law, in practice the new stores coming online are more like start-ups, according to Su.
“It’s not a cannabis specific thing, it’s a start-up thing … no start-ups can get capital,” said Su. “The idea that this is somehow specific to cannabis is a myth.”
While the public-private funds have faltered, their importance hasn’t lost steam among industry stakeholders and experts. Due to the constraints around cannabis and federal banking laws, public-private partnerships are instrumental in propping up start-up style models.
“Ideas like what DASNY did, what New York City is trying to do, is the right way to go,” said Su, comparing the funds to the early days of the U.S. Small Business Administration, which provides educational and financial assistance to companies.
“Ideas of public and private partnership, that is exactly what the SBA was for,” said Su. “What cannabis is missing is an SBA.”