New York recently enacted an adult-use marijuana law that many industry experts believe has the most robust provisions yet for including minorities, women, war veterans and struggling farmers in the state’s newest industry.
But when the recreational marijuana market launches in 12 to 18 months, will New York be on the path toward becoming the industry’s new gold standard for social equity?
Or will it fall short of its lofty aspirations as so many other social equity programs across the country have?
“This is really the strongest bill we’ve seen among all the states taking social equity into consideration,” Brandon Kurtzman, a partner in Vicente Sederberg’s Boston law office, said during a recent VS webinar discussing the new law.
Steve Hawkins, executive director of Marijuana Policy Project, agreed.
He noted key provisions such as social equity licensing goals and community reinvestment go further than Illinois, previously recognized as the gold standard but now bogged down in legal challenges. (See chart.)
The state’s adult-use market is projected to reach $2.5 billion in annual sales within five years of operation.
In the meantime, experts caution that new market entrants must wait to see how New York’s provisions are implemented through regulations and rules, and how the licensing process plays out.
New York “has the same challenges we’ve seen elsewhere in making sure it becomes a reality,” Hawkins said.
Here are key elements of New York’s Marijuana Regulation and Taxation Act:
- The law states a goal to award 50% of all adult-use licenses to social and economic equity applicants. Experts predict that priority could be given for microbusiness and delivery licenses.
- 40% of the tax revenues generated by adult-use sales would be funneled into communities disadvantaged by the war on drugs.
- Existing medical marijuana operators would be required to pay a one-time “special licensing fee” to convert three of their MMJ dispensaries to dual medical-recreational stores. That fee, though not specified in the law, would help fund social equity programs.
- Financial support would be provided to social equity applicants including low- or no-interest loans, fee reductions or waivers, and assistance in preparing applications and operating a business.
- Microbusinesses would be allowed to form vertical operations, helping them achieve economies of scale. Other businesses, except for existing MMJ operators, would be prohibited from vertical integration.
- Social equity licensees would be prohibited from selling or transferring their licenses within the first three years after they are issued.
The New York law may seem great on paper, but Amber Littlejohn, executive director of the Minority Cannabis Business Association, has concerns.
“The top line concern is that there is a lot of language that has been left to the regulatory process,” Littlejohn said.
“A lot of the language is aspirational but transferring that into actual results has been proven challenging” across the country, she said.
“How do we get there when no one has come even remotely close?”
Rules will be key
“I think everybody had the best intentions with Illinois,” Hawkins said. “It’s easy to say applicants have to come from communities and people impacted” by the war on drugs.
“But it’s hard to hit the nail on the head. Hopefully it’s an iterative process, and New York will learn from the problems Illinois had.”
In Illinois, a round to issue 75 retail licenses sparked numerous legal challenges by social equity applicants and, almost a year later, the process remains frozen and mired in controversy.
Meanwhile, existing MMJ businesses, many of them multistate operators, have a tight grip on the booming adult-use market in Illinois.
In New York’s new law, social equity applicants are defined as individuals from “communities disproportionately impacted by the enforcement of cannabis prohibition,” as well as minority- and women-owned businesses, disabled veterans and financially distressed farmers.
But what constitutes a community disproportionately impacted by marijuana prohibition?
It’s important to see how the rules will define that, Charlie Alovisetti, the chair of Vicente Sederberg’s corporate department, said during the recent VS webinar.
“Are they going to give specific ZIP codes (of communities disproportionately impacted)?” he asked. “Will you have to have lived in that area for a certain period of time?”
Littlejohn said not enough money has been invested in research to determine exactly which communities have been most harmed by marijuana prohibition.
“You want to create social equity definitions and programs that are most likely to yield” benefits to the most impacted communities, she said.
“Without data, it’s hard to get close to that,” she said.
Littlejohn and others also expressed other concerns about the New York measure’s implementation:
- How are social equity applicants going to have the money to enter the market in the early stages if programs such as low- and zero-interest loans rely on tax revenues generated by adult-use sales?
- How are social equity applicants going to compete with existing MSOs, which not only enjoy economies of scale because of vertical operations but also financial depth? Littlejohn cited the recent case of Green Thumb Industries receiving local tax incentives for a $50 million cultivation facility buildout in New York.
- How are microbusinesses going to be defined? Will there be sensible canopy regulations so they can compete?
Hawkins said his broad observation about New York is that the plan reflects how state legislative debates have shifted from a focus on law enforcement and public safety to social equity.
Littlejohn said that New York’s new law also comes at an important juncture in that one can look at how social equity programs in other states such as Illinois and California have fallen short.
She said her organization is conducting a comprehensive review of existing social equity programs so it can better inform lawmakers on what works and under what circumstances.
New York may offer certain advantages to accomplishing its social equity goals, experts said.
“I’m hoping New York is creative, it being the epicenter of complex financing,” Littlejohn said. “So hopefully some of that collective knowledge is put toward unique financial solutions that are going to support minority businesses.”
But, she added, it is time for everyone in the marijuana industry – especially MSOs – to collectively reflect on how to improve social equity programs “and how they can be doing more.”
“Just partnering with social equity applicants is not fixing the problem” when overarching barriers remain, she said.
- Access to capital.
- Market oligopolies.
- The “giant chasm of resources between MSOs and everyone else.”
Without solving those issues, Littlejohn said, “we can keep creating these social equity programs that sound and look good, and we will continue to have the same results.”
Jeff Smith can be reached at [email protected].