Cannabis Social Equity Coalition - NYS

Tremaine Wright

Chair, Cannabis Control Board

W. Averell Harriman

State Office Building Campus

Building 9

Albany, NY 12226

Dear Chair Wright,

The Marijuana Regulation and Taxation Act (MRTA) assigns several critical duties and powers¹ to the members of the Cannabis Control Board (CCB). Among all the duties assigned to members of the CCB, one stands out as the most important: establishing the rules and regulations that govern the implementation of the MRTA. While virtually all the other duties and powers assigned to members of the CCB can be allocated to the Office of Cannabis Management (OCM) for implementation, the rulemaking authority invested in the members of the CCB is prohibited from being assigned to OCM, or any other agency. As stated in Article 2, Section 10, Subdivision 23, “With the exception of promulgating rules and regulations, the board shall have the power to delegate any function, powers and duties as provided for in this section to the executive director of the office of cannabis management.”

The CCB’s authority is clear. Only members of the CCB can make official and formally put into effect the rules and regulations that govern the implementation of the MRTA. Indeed, only members of the CCB have the legal authority to give the regulations the force of law.

With the authority to make official the rules and regulations that govern the implementation of the MRTA also comes the authority to refrain from promulgating rules and regulations that the members determine do not comport with the goals and intent of the MRTA. Members of the CCB have the final say on whether the rules and regulations accurately reflect the MRTA.

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^​1 Some examples of the duties and powers of the CCB are the following: Issue any registration, licenses or permits Enter into contracts, memoranda of understanding, and agreements as deemed appropriate to effectuate policy Advise the office of cannabis management and/or urban development corporation in making low-interest or zero-interest loans to qualified social and economic equity applicants Draft and provide for public comment and issue regulations, declaratory rulings, guidance and industry advisories Approve the office's social and economic equity plan.

It is for this reason the undersigned are asking that you exercise your rulemaking authority and vote no to the Revised Regulations when presented to you for final approval by OCM if they contain a provision that allows the eleven (11) big medical marijuana companies (otherwise known as Registered Organizations or ROs) to enter the market on December 29, 2023, as is currently contained in the regulations. The MRTA states at Article 4, Section 63, Subdivision 1-a that the CCB has the authority to determine the “timing and the manner in which registered organizations may be granted such authority” to dispense adult-use cannabis from their dispensaries. We are asking you to exercise this authority and delay the eleven (11) big medical marijuana companies from entering the cannabis market at the end of the year. A failure to delay their entry into the market amounts to allowing the eleven (11) big medical marijuana companies to enter the market at the same time as small, social equity license holders. Such an outcome would force small social equity operators at every license level to compete directly with the more experienced, publicly traded medical marijuana companies who already have a significant advantage over all new operators.

All but one of the eleven (11) big medical marijuana companies were licensed in 2015, giving them more than a seven (7) year head start over all new applicants. Nine (9) out of the eleven (11) ROs are publicly traded companies with access to substantial resources. All the ROs are vertically integrated, giving them complete control of the supply chain. This advantage allows them the ability to minimize losses and maximize profits. The ROs only pay 7% tax compared to 13% tax required of all other license holders. The ROs are not subject to the THC Potency Tax on their product sold at their dispensaries. (On the significant advantages enjoyed by New York’s medical marijuana companies, also see: Governor Transition To Smooth NY Cannabis Roll-Out, Viridian Capital Advisors, August 10, 2021)

In addition, the stated policy of the ROs on entering the adult-use market is to dominate the market by saturating it with highly potent indoor grow cannabis and reducing its price below market value. This strategy is designed to drive out unlicensed operators and capture a large share of the market. They refer to this as the Absorption Strategy. (See two reports: MPG Report… and CSEC – Medical Marijuana Study by MPG Report). However, the unintended consequence of this strategy is that it also drives out small, licensed operators who are unable to reduce their prices below market value and cover cost. Unlike the big publicly traded ROs who have access to unlimited revenue, small, licensed operators cannot remain in business if they are not able to cover their costs.

As has occurred in other states that have allowed the big medical marijuana companies to enter the market either before or at the same time as small social equity operators, the tremendous advantage ROs have over the social equity population coupled with their mandate to dominate and control the market will lead to the failure of small social equity operators in New York. This runs counter to the promises made by Governor Hochul, other elected officials, and senior executives from OCM and the Dormitory Authority of the State of New York (DASNY). In press releases and public statements, the dominate narrative has been small local operators will be allowed to gain a foothold in the market before the big Multi-State Operators (MSO) are allowed to enter the market. Allowing small social equity operators to fail also runs counter to the goal and intent as well as the spirit of the MRTA. Allowing the eleven (11) big medical marijuana companies to enter the market at the same time as small local social equity operators will guarantee the failure of New York’s social equity program, as has occurred in virtually every other state.

Delaying the ROs will Delay Much Needed Revenue to Fund the Social Equity Program

Some have argued that delaying the ROs from entering New York’s adult-use cannabis market would delay money that can be used to fund zero-interest and low-interest loans and fund the incubator program. They note that in Article 20-C, Section 99-ii, Subdivision 3-c, the MRTA states that a one-time licensing fee will be assessed to ROs to fund zero-interest and low-interest loans and the incubator program.

In our view, the funds made available from fees obtained from the ROs are wholly inadequate and is far less beneficial than allowing the social equity population to gain an early foothold in the cannabis market—while the demand for legal cannabis is high and the supply is low. Moreover, the limited funds made available from fees paid by the ROs can be easily obtained by the Governor from state funds and quickly made available to the social equity population.

In the revised regulations, OCM reduced the initial fee it was requesting from ROs for admission into the adult-use market. The $20 million upfront fee that was initially requested in the first version of the regulations has been reduced to $5 million upfront, $5 million six months later and the remaining $10 million due by December 31, 2033, ten (10) years from now. The remaining $10 million is paid provided New York’s aggregate cannabis retail and wholesale revenues are $20 billion or more. Otherwise, the remaining $10 million is waived. As a result, half as much revenue will be initially available to fund zero-interest and low-interest loans and the incubator program from the fees paid by the ROs.

In our view, allowing the social equity population to enter the market without having to compete with the highly experienced and well-funded ROs outweighs the benefit they may receive from the limited funds that will now be made available from fees obtained from the ROs. Early entry into the cannabis market would allow social equity operators to benefit from the first-mover advantage. Social equity operators will be operating in an environment where the demand for legal cannabis is high and the supply is low, enabling them to quickly accumulate a large amount of revenue, gain invaluable experience, build customer loyalty, and establish the strategic partnerships needed to be competitive. All this will likely occur in an environment unincumbered by the dominating presence of the ROs.

As noted, the one-time fee assessed to the ROs can be made available by Governor Hochul through state funds. These funds, in turn, can be repaid when the ROs pose less of a threat to social equity operators and are allowed to enter the market. As previously suggested (see Open Letter to Governor Hochul), the Governor can fast-forward anticipated revenue (in this case the fees from the ROs) by borrowing from the tobacco master settlement agreement, issuing cannabis bonds, or obtaining revenue from the state’s general funds. This revenue can be paid back with interest once it is safe to allow the ROs to enter the market.

ROs’ Entry into the Market will Reduce the Number of Illegal Operators

It is claimed that the ROs’ entry into the cannabis market will reduce the number of illegal operators. What we know from our research in other states is that the ROs’ entry into the market has the unintended consequence of driving out small licensed social equity operators.

The ROs’ stated strategy for driving out illegal operators is to saturate the market with highly potent cannabis and lower the price of this product below market value. This, they argue, will attract customers away from the illegal market and drive illegal operators out of business. The ROs call this the Absorption Strategy.

What we have seen in other states where this strategy has been deployed is that it has the unintended consequence of driving out small social equity operators who are not able to lower their prices below market value and cover their cost. Unlike ROs who are largely publicly traded companies with access to an unlimited revenue, small social equity operators unable to cover their cost are eventually forced out of business. (See two articles: Medical Marijuana Saturating Market and Will NY’s Medical Marijuana Operators Supply First Round Dispensaries)

The Law Requires that the Initial License Application Period be Open to All Applicants at the Same Time

Finally, it is argued that the law clearly states that “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.” (See Article 2, Section 19) Therefore, members of the cannabis control board do not have the legal authority to delay the ROs from applying for and receiving a dispensary license at the same time as the social equity population. If for the sake of argument we accept this to be true, allowing ROs to apply for and receive a dispensary license at the same time as all others does not preclude members of the cannabis control board from limiting the number of dispensary licenses the ROs can apply for and the number of dispensaries where the ROs can sell their product, particularly if these limitations are imposed in furtherance of social equity goals.

Accordingly, we recommend only allowing the ROs to apply for and open one dispensary per year over the next three years and only allow them to sell their products out of their dispensaries for three years. After three years, permit them to sell their products wholesale to other license dispensaries.

The law that gives the ROs the right to enter the market at the same time as all others does not also give the ROs the right to destabilize New York’s cannabis market by saturating the market with highly potent undervalued product, driving out small licensed operators. Nor does it give the ROs the right to undermine the social equity goals of the MRTA. As the only entity with the legal authority to formally put into effect the rules and regulations that govern the implementation of the MRTA, you have the legal authority and the responsibility to enact policy that ensures the implementation of the MRTA is managed in ways that is orderly and comport with the social equity goals of the MRTA.

Conclusion

Anyone who has taken the time to study the failure of social equity programs in other states knows that the single biggest threat to the survival of a social equity program is allowing the ROs/MSOs to enter the market, with no limitations, before or at the same time as the social equity population. Their access to unlimited resources and expert knowledge coupled with their obligation as publicly traded companies to dominate the market and increase market share has made it impossible for small social equity operators to effectively compete with ROs/MSOs or be sustainable in the long run.

Consequently, the undersigned implore you to be on the right side of history. Your vote on this issue will determine whether our children and grandchildren look back on this moment in history and say: “Like bootlegging and the numbers game, once again our leaders failed to secure us a meaningful place in an industry we are in large part responsible for creating.”

The undersigned, along with over 320 people who signed a Change.org petition entitled: Petition to Thwart ROs from Entering NY Cannabis Prematurely! (you can view the petition at: https://chng.it/wj8S9PQB2W), Teamsters Local Union 118 who in a letter to the Cannabis Farmers Alliance joined them in requesting that the MSOs/ROs not be allowed to enter New York’s adult-use cannabis market for three (3) years, and along with a significant but yet unknown number of people who during the 45 day comment period requested that OCM delay the ROs from entering the market at the same time as the social equity population, beseech you to courageously exercise the authority invested in you. Vote no if the revised regulations presented to you by OCM for final approval allow the eleven (11) medical marijuana companies to enter the market on December 29, 2023, essentially at the same time as social equity operators. Alternatively, vote no if the revised regulations allow the medical marijuana companies to enter the market at the end of the year but do not include the limitations outlined above.

Sincerely,

Mika’il Deveaux, Ph.D., Chairman, Cannabis Social Equity Coalition – NYS

Jane MacKillop, Dean, School of Continuing & Professional Education, Lehman College

Charles King, CEO, Housing Works

Joseph E. Calderone, Co-Founder and Board Member, Cannabis Farmers Alliance (CFA)

Patrice Edwards, Director, Bronx Cannabis Hub, Project of the Bronx Defenders

Tiffany Waters, Co-Founder, CEO, NYS Cannabis Connect

Jumaane Hughes, Co-Founder, COO, NYS Cannabis Connect

Nicole Ricci, President, NY Small Farma, Ltd

Kavita Pawria-Sanchez, CEO, CannaBronx

Pilar DeJesus, Founder, All that Jive NYC

Jeremy Rivera, Executive Director, New York CAURD Coalition

Jeffrey Garcia, President, Latino Cannabis Association

Justin Merkle, CEO Star_Lite 420, Licensed AUCC and Co-Founder, Cannabis Farmers Alliance (CFA) Penny Monge & Shana Gonzalez, CAURD License Holders, Quality Roots

Tess Anna Interlicchia, CEO, Grateful Valley Farm, Licensed AUCC and Co-Founder and Board Member of Cannabis Farmers Alliance (CFA)

Omar Rabadi, CAURD License Holder, Omar D. Rabadi

Marv Morales, Licensed AUCC

Ruddy Santana, CAURD License Holder, Suufi Cannabis

Mark Graham, MA, Executive Director, The Redemption Center, Inc

Dan Morena, CAURD License Holder, Actualize

Lance Feurtado, President, CEO, King of Kings

Kiah Nyame, Ed.D., Chairman, Cannabis Social Equity Coalition - Rochester

Nicole & Christopher Lucien, CAURD License Holders, Weedish

Rev. Dr. James A. Lewis, III, Ph.D., Chairman, Cannabis Social Equity Coalition – Buffalo

Andres Agudelo, CFO, Holistic Holdings llc

Chrishenna Turner, Sustainable Stoners

Sonya Ferguson, President, Kelly Street Bloc Association

Fernando Lendof, Managing Member, Erudito Herbals, LLC

Alexander Harowicz, Co-Founder and CEO, Staack Technologies Inc.

Steven Berry, President, Steve Berr LLC

Angel A Figueroa, Owner, Gratitude Buds Dispensary

Rachel Graff, President, Stoned Love NYC

Garth Boland Jr., Co-Founder, Vice President, Delta 9 Excelsior Corp

Beck Hickey, Co-Founder, Mary Says NY

Cameron Nichols, inTegridy Farms LLC

Michael Casacci, Member, Cannabis Farmers Alliance (CFA)

Jayson Tantalo, VP Operations, New York CAURD Coalition

Reginald Fluellen, Ph.D., Senior Consultant, Cannabis Social Equity Coalition - NYS

Jeanette Miller

Annette Fernandez

Gregory VanRoten

Matthew Cucinella

Michael Rodriguez

Sarah Knight

Christina Nunez

Stacey Stlouis

Richard Merino

Melissa Gellert

Annika Hansteen-Izora

Jonnea Herman

Charmaine Amey

Isaiah Canady

Skyler Davis

Monie Seto

Nathan Lerch

Nikia B Withers

Shannon Flam

Charles LaRose

Dyaami Dorazio

Cecilia Cortes

Mili Bonilla

Christopher Paez

Sheila Garcia

Beverly Emers

Damian Lazares

Henry Brown

Shaquanna Thomas

Kelvin Medina

Daniel Davis

Anthony Alegrete

Shelley Miller

JaLoni Owens

Rainey Cruz

Alexander Ortecho

Ingrid Walton

Edward Glickman

Samara Jordan

Keeshone Mclaurin

June Woods

Ryan Lepore

Henry Obispo

Rebekah M. Silva

Daquane Mays