As New York Prepares For Its First Recreational Cannabis Dispensaries, Equity is Top of Mind

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As New York Prepares For Its First Recreational Cannabis Dispensaries, Equity is Top of Mind

Story by Oscar Perry Abello

Published on Aug 23, 2022

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Past, present and future converged for several hours last week inside the colorful atrium of The Point Community Development Corporation in the South Bronx, where about 70 locals filled the room to learn about New York State’s first wave of recreational cannabis dispensary licenses.

The past included marijuana-related convictions for 400,000 New Yorkers, records that the state has expunged automatically as New York has moved to legalize cannabis. Those records are no longer available for potential employers, landlords or others to use to discriminate against this disproportionately Black and Latinx population. Many more never lived to see the day. But the pain and the memories of all those New Yorkers as well as their family members have come up again and again whenever officials have held these informational presentations across the state.

The present included local bar and restaurant owners Alfredo Angueira and Junior Martinez, Bronx natives who have spent the past several years preparing for this moment. They’ve visited cultivators and processors upstate to establish business relationships. They’ve spent time and resources building a brand and a cannabis business model focused on hiring formerly incarcerated people, in partnership with multiple-convicted former drug dealer Coss Marte, now a successful entrepreneur in his own right. Their cannabis brand is called Conbud, named after Marte’s previous successful physical fitness business Conbody.

And the future, the reason everybody was in the room last week: This Thursday, New York State will open up the application window for the first 100-150 adult-use retail dispensary licenses, available exclusively to applicants who can prove they’ve previously had cannabis-related criminal records or have family members who can do so.

Angueira and his business partners are among the prime candidates who are excited to apply. And, in a move that surprised some including Angueira and Martinez, the state is even taking the step to secure and build out turnkey locations it will assign to the first 100-150 licensed adult-use retail dispensaries across New York State.

“It makes it a little more difficult planning a business, not knowing what location it’s going to be,” Angueira says. Applicants will be asked to rank their preferences for location, and state officials will assign storefronts based on application scores.

“If it was up to us, our preference would be a building [in the South Bronx] that we purchased some time ago, but they threw a curveball and said we’re not going to be able to use our own location. Other than that Times Square is definitely number one for us, or the Lower East Side or 14th Street or 34th street or Tribeca. There’s really no number two, maybe downtown Brooklyn.”

State officials say the storefront plan is a response to the anticipated difficulties of accessing capital for startup cannabis businesses, as well as the uber-competitive real estate market. Each dispensary owner will get a 10-year lease for their location. The spaces won’t be free — each dispensary’s monthly lease payment will be structured to include market-rate rent as well as repaying the funds used for the buildout. The state expects the first of these spaces to open their doors this fall, in time to start buying and selling the product that it allowed cultivators across the state to plant this past spring.

An informational session about New York's new recreational cannabis dispensary licenses. (Photo by Oscar Perry Abello)

Learning from others’ mistakes

As New York’s landmark Marijuana Regulation and Taxation Act, or MRTA, began to take shape over the past few years, everyone from the grassroots to policymakers had seen the mistakes made by other states in the first and second waves of legalization — Colorado, Washington State, California— who made no significant efforts at creating social equity programs until it was too late. Second wave states like Massachusetts and Illinois have so far made flawed efforts at social equity programs that they’re now trying to fix.

The result of those failures has been cannabis industries dominated by a relatively small number of “MSOs” — multi-state operators — that come in with deep pockets and established ties to investors if they need more cash up front to get started in a new state.

In New York, the Start SMART Coalition (SMART stands for “sensible marijuana access through regulated trade”) spent years drafting and working with the co-sponsors of the MRTA legislation to make sure that the bill would take the lessons learned from other states that have already legalized.

Their aim was to “really try to move the dial forward and establish a new national model in terms of legalization framework that was centered in racial and economic justice,” says Melissa Moore, civil systems reform director at the Drug Policy Alliance, a lead convener of the coalition.

MRTA passed on March 31, 2021. At a structural level, the law establishes a tiered industry for adult-use recreational cannabis, with nine licenses across various stages of the supply chain — from cultivation to nurseries, processing, wholesale distribution, retail dispensaries, delivery and onsite consumption. To guard against the vertical integration across the supply chain, which MSOs tend to pursue, there are strict limits on holding licenses for different stages.

There is no cap on the eventual number of adult-use recreational cannabis licenses across the supply chain, unlike in other states where such caps have induced a mad-rush for licenses that privileged those with the resources to respond more quickly. In addition, the MRTA also instituted a goal of 50% of all adult-use recreational cannabis licenses statewide going to social equity applicants, giving those applications priority over time, although the monitoring and implementation mechanisms for that goal haven’t yet been fleshed out.

Only two of the nine MRTA cannabis licenses allow for vertical integration — the microbusiness license that allows for integration “from seed to sale” to final consumer, and the cooperative license that permits all stages from cultivation to wholesaling but not retail sales direct to consumers. The Cannabis Control Board has not yet determined a business size limit for microbusinesses. The MRTA does limit cooperative licenses to businesses “organized under cooperative principles, including but not limited to being democratically controlled by the members themselves, on the basis of one vote per member.”

“What I’m really waiting on at this point are the draft regulations for the microbusiness licenses, for cooperatives and for delivery, because I think those are actually going to be the licenses that are probably the most applicable to a lot of the folks who are in the legacy space who we want to bridge in,” Moore says.

In the room last week was Wanda Salaman, executive director of Mothers on the Move. Attendees erupted in applause when someone thanked her for spreading word about the event. After years of advocacy around legalization, she’s now helping to organize worker-owned cooperatives to join the nascent New York recreational cannabis industry.

“We want to create wealth in our community and we know one of the best ways for us to create wealth is to create worker-owned cooperatives,” Salaman says.

After covering costs of licensing and administration, the MRTA mandates that 100% of the tax revenues from cannabis be dedicated to community benefit — 20% to drug treatment and public education around substance abuse, 40% to public schools through the state lottery fund, and 40% to a new “Community Reinvestment Grant Fund” that promises support for a variety of efforts from job training to youth programs and even community banking. Former New York Gov. Andrew Cuomo had tried to legalize recreational cannabis without dedicating any tax revenues for community benefit.

“It’s been years of going toe to toe with multiple governors and mayors across the state to actually get the MRTA over the finish line pretty true to form,” Moore says.

And the organizing work isn’t done, as the state continues to invite public comment on the draft regulations for the full set of cannabis licenses. Some advocates are concerned that the state is now moving too fast, given the challenges of organizing under the long tail of the Covid-19 pandemic and the crises it continues to feed, including evictions.

“Our social equity applicants are becoming homeless,” says Pilar DeJesus, a paralegal at legal aid group TakeRoot Justice, who worked on drafting the MRTA. “Evictions in housing court right now are 200,000-plus, mostly in these communities that have been the most impacted. That’s the ripple effect.”

A proliferation of smoke shops have popped up across New York City over the past several years in anticipation of New York legalizing recreational cannabis. Some of these smoke shops as well as bodegas have already begun selling cannabis products. (Photo by Oscar Perry Abello)

Location, location, location

On top of all that, there’s still the relative lack of access to capital for starting up a business among the Black and Latinx populations most affected, let alone for those with a criminal record, let alone for those with a criminal record trying to get into a new industry that is still federally prohibited. That makes it nearly impossible for banks and many other sources of capital to get involved at all.

The competition is already starting to gain a foothold, as bodegas, smoke shops and other small retailers around New York have already been selling cannabis products without a license, since it is already legal for adults 21 and over to possess a small amount of cannabis product for personal use.

“Across the country, social equity initiatives have failed primarily for two reasons – one is lack of access to capital in this marketplace for social equity applicants,” says Reuben McDaniel III, a member of the New York State Cannabis Control Board, which is responsible for approving the comprehensive regulatory framework for New York’s cannabis industry. “But even funding doesn’t solve the full problem. Because in New York City specifically but also around the state, just getting contractors, getting things built out, getting the quality that you need and navigating various systems, takes time, takes money, takes expertise that almost definitionally social equity applicants will not have.”

Formerly the head of an investment bank founded by Atlanta’s first Black mayor, McDaniel’s primary job today is serving as president and CEO of the Dormitory Authority of the State of New York (DASNY). DASNY serves as the state’s public finance and construction authority. It finances, designs and builds projects on behalf of public universities, public hospital systems, public housing authorities, local libraries, homeless shelters, substance abuse treatment centers and even parks departments across the state. It has one of the strongest records of any public agency with regard to contract or sub-contractor dollars that go to Minority- and Women-owned Business Enterprises, or MWBEs — 36.9% of the agency’s procurement dollars went to MWBEs in 2021, according to McDaniel.

Heeding calls from potential social equity applicants, McDaniel put his investment banking background and DASNY’s experience and networks to work. His agency embarked on what he calls a “very quantitative approach” to determining the best potential locations around the state. Using mathematical and geo-mapping models, he says, DASNY’s team of internal experts and external consultants looked at other states where successful cannabis dispensaries have been located based on co-tenants, demographics of the population, and traffic flow. They also accounted for where New Yorkers have bought medicinal cannabis legally.

That approach came up with a starting point of 10,000 possible locations, from which DASNY’s team selected 265 locations to begin making inquiries through commercial real estate brokers. In an urban area, a location could mean a three or four-block radius, while in suburban areas locations were around a quarter mile in radius. One pattern they noticed across urban or suburban locations was trying to locate along evening commute pathways — for example, along outbound sides of streets or highways going outward from an urban or downtown area.

“It makes logical sense for people to buy cannabis on the way home from work, not on the way to work,” McDaniel says.”

Within each “location,” DASNY has been shopping around for retail spaces with around 3,000-4,000 square feet, with the proper zoning and certificates of occupancy, and also satisfying rules like New York’s infamous 200-foot rule, mostly known for barring alcohol-serving establishments from being on the same street and within 200 feet of a school or church. State officials have told advocates that about a third of the locations are expected to be in Manhattan, another third in one of NYC’s outer boroughs, and the remaining third across the rest of the state.

“The science has done its work, so now we’re in the art stage,” McDaniel says.

Within the five NYC boroughs, McDaniel says his agency is striving for a mix between the obviously lucrative locations like Times Square and less obvious locations in other boroughs and neighborhoods where justice-involved individuals might still live today.

Under the state’s plan for these initial retail dispensary licenses, applicants will be able to rank their top five regions — picking from each of the five boroughs, Long Island, or one of eight other regions covering the rest of the state. But successful applicants won’t know their exact assigned location by address until the state tells them.

Accounting for history

Applicants for this initial set of 100-150 retail dispensary licenses must be able to provide documentation that they have owned and operated a business profitably for at least two consecutive years. And it doesn’t have to be recent – as long as the documentation is there, it can be a business that the applicant owned and operated years or decades ago. State officials say it also doesn’t have to be a very lucrative business, just a profitable one. Still, this requirement has been contentious, as many social equity applicants aren’t able to produce such documentation even if they had been operating very profitably for decades in the illicit cannabis industry.

But state officials have insisted the profitable business requirement only applies to this initial limited set of licenses, known as Conditional Adult-Use Retail Dispensary (CAURD) licenses, which the state’s Office of Cannabis Management created out of its discretionary authority under the MRTA. Applications for full adult-use retail dispensary licenses will be open some time in the next few months, after the regulations for those licenses are finalized. State officials say the profitable business requirement will not apply to full adult-use retail dispensary licenses. CAURD licenses will convert to full adult-use dispensary licenses after a four-year probationary period.

The state says CAURD license application scores will be based on multiple factors, including the length of time in business, or whether the business they’ve operated has any similarity to a future dispensary, like some type of retail or direct customer service. The location of the applicant’s arrest is also a key factor. Preference will be given for applicants whose arrests occurred “in an area that has been negatively impacted by over policing and mass incarceration, or has historically low median household incomes.”

In the Bronx last week, a 36 year-old prospective CAURD applicant from Brooklyn, posed an important clarifying question to state officials: What if someone got arrested in a neighborhood that has since gentrified and is no longer considered over-policed or low-income? State officials responded that they will indeed take into give preference for arrests that occured in impacted neighborhoods in the 1980s or 1990s, which may no longer be categorized as such.

The state will rank CAURD applications by score and dole out turnkey retail dispensary locations starting with each application’s first preference unless there are no available locations left in the region stated as first preference. Those applications that miss out on their first preference will then get a chance for an open spot at their second preference and so on.

About 70 locals filled an atrium in the South Bronx to learn about the state's new recreational cannabis dispensary licenses. (Photo by Oscar Perry Abello)

Funding the future

The state has reason to be conservative in whom it selects for these CAURD licenses, as well as being strategic about the locations: It expects the $200 million it’s putting into the build-outs to be repaid. Just $50 million of that is coming from the state itself. The other $150 million is coming from private investors that the state is courting now through Social Equity Impact Ventures, a Black-led investment firm that DASNY has subcontracted out to manage the $200 million New York Social Equity Cannabis Investment Fund.

Technically, it’s the New York Social Equity Cannabis Investment Fund that is leasing up to 150 retail spaces from landlords across the state, paying for the build-outs and subletting to the dispensary owners. The monthly payments to the fund will cover market-rate rents and payments to investors. If things don’t work out, dispensary owners will not be on the hook to lose inventory or other personal assets to compensate the fund’s investors. But CAURD license holders will be tied to their locations and cannot sell or sublet those storefronts or licenses for at least four years after opening.

“We’ll have all the point-of-sale systems, all the security systems, an allowance for branding, design and signage and all those things, all that will be included in the package,” McDaniel says. “Our expectation is these locations will work, but there’s a possibility that a location just doesn’t work for whatever reason. Out of 150, we might not get them all right. In that instance, we would move a licensee to a different location. But if for whatever reason, the license holder just is not doing well at this site, and they decide they want to move, we’ll allow them to take their license after the four year probationary period and move another social equity applicant into that space on the same lease terms as before.”

The state’s plan for these initial dispensary licenses came as a slight curveball for Angueira and Martinez. The pair had already bought a building in the South Bronx they have been planning to use for their cannabis business. It’s right around the corner from Beatstro, their hip-hop themed restaurant.

Angueira and Martinez say they approached state officials about offering up their building for themselves or to lease out as part of the program. So far DASNY has not yet taken them up on the offer, though their building is located along an increasingly popular nightlife corridor in the Bronx. The state says it is still in active negotiations with potential landlords across the state for turnkey retail dispensary sites.

“We didn’t buy that building for shits and giggles,” Angueira says. “We’ve been prepared, we’ve been laying the groundwork, figuring out how this works.”

For now, Angueira and his business partners plan to apply later for a full cannabis license at their Bronx location. But they are confident enough in their CAURD application strength to go for a lucrative Manhattan location.

If the state wants to hand them the keys to a storefront, they want that storefront to be the most lucrative possible other than the building they already secured for themselves. And maybe more importantly, they don’t want to be left behind even just a few months, which could jeopardize all the groundwork they’ve laid so far.

“It’s a first-to-market game,” Angueira says.

Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.

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