July 19, 2023
Cannabis Social Equity Coalition - NYS
The Imminent Demise of New York’s Cannabis Social Equity Program
- The reversal of an earlier decision to delay the ROs from entering New York’s adult-use, recreational cannabis market for three (3) years,
- The creation of a racially bifurcated cannabis licensing system in New York,
- The approval of a Social and Economic Equity Plan that is devoid of any credible strategy for achieving the nine (9) social equity goals mandated in the Marijuana Regulation and Taxation Act (MRTA).
This assertion is based on empirical evidence from states that have allowed the ROs early entry into their cannabis market (see two articles: Medical Marijuana Saturating Market and Will NY’s Medical Marijuana Operators Supply First Round Dispensaries) and on the ROs’ documented strategy for capturing the New York cannabis market – the Absorption Strategy (see two reports: MPG Report… and CSEC – Medical Marijuana Study by MPG Report).
The rationale given by OCM for reversing its initial decision is that the ROs will open much needed dispensaries that will provide an outlet for the stockpile of cannabis currently accumulating in the warehouses of conditional cultivators and at risk of spoiling, and that the ROs will generate the tax revenue needed to support New York’s social equity program. While this may be true, all the evidence shows that allowing ROs early entry into the market will also make it impossible for social equity license holders to compete with the ROs and be sustainable in the cannabis market. This follows because the market capture and absorption strategy employed by the ROs entail saturating the market with highly potent, indoor grown cannabis and selling it at an extremely low price in order to drive out unlicensed, illegal operators. What the data show is that this strategy also drives out small cultivators who cannot feasibly sell their product at the low price, nor can they produce cannabis products that can compete with the highly potent indoor grown cannabis produced by the ROs.
Allowing the ROs to enter the market at the same time as small local license holders will take away from small local farmers and dispensary owners the first-mover-advantage. They will be denied access to the market when the demand for safe regulated cannabis is high and supply is low. They will also be denied the time in the market, unincumbered by the dominating presence of the ROs, to gain the experience, customer loyalty and the strategic partnerships needed to be competitive with the highly funded and experienced ROs and other Multi-State Operators (MSO).
Created a Racially Bifurcated Cannabis Licensing System in New York
The current cannabis licensing system is racially bifurcated. The least lucrative/profitable retail side, consisting of dispensary, on-site-consumption, and delivery licenses, is populated by Black and Brown, justice involved individuals. Of the 251 CAURD licenses awarded, approximately 70% were awarded to Black and Brown applicants. The most lucrative/profitable supply side, consisting of cultivation1, processing and distribution licenses, is populated by hemp farmers who are overwhelmingly White. Of the 288 conditional cultivator licenses awarded, 97% were awarded to White applicants. Of the 40 processor licenses awarded, 99% were awarded to White applicants. Assigning the least profitable licenses to the social equity population makes them more vulnerable to downturns in the cannabis market. When you couple that with the policy decision made by OCM to not cap the number of dispensary licenses, effectively reducing its worth, and with the fact that the 280E federal tax code effects dispensary license holders more than cultivation, processing and distribution license holders that occupy the supply side of the licensing system, it becomes evident that social equity license holders are less likely to succeed than supply side license holders and obtain the generational wealth promoted by cannabis policy makers.
The current configuration has led to questions about whether the current licensing regime is consistent with the spirit, letter and intent of the MRTA, which is, in part, to redress the harm done to individuals and communities adversely impacted by the unequal enforcement of marijuana drug laws, providing a pathway to generational wealth.
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1 Our reference to profitable supply-side hemp cultivators do not include small, distressed farmers who are part of the social equity population, as defined in the MRTA. Profitable supply-side hemp cultivators are large hemp cultivators who were awarded an Adult-Use Conditional Cultivation (AUCC) license. They include, for example, Hudson Hemp, a 390 acre hemp farm owned by Abby Rockefeller the daughter of David Rockefeller or Cherry Hill Growers, a 419 acre hemp farm bought by the publicly traded company, Virtual Medical International, on May, 2021 or Scotch Valley Ranch Hemp, a 965 acre hemp farm that received an AUCC license.
Approved a Social and Economic Equity Plan that is Devoid of any Credible Strategy for Achieving the Nine (9) Social Equity Goals Mandated in the Marijuana Regulation and Taxation Act (MRTA)
The Social and Economic Equity Plan is the instrument specifically charged with seeing to it that social justice, including, but not limited to, restorative justice, is afforded to individuals and communities disproportionally impacted by the enforcement of cannabis laws. Section 87 of the MRTA mandates the creation of a Social and Economic Equity Plan that establishes a blueprint, a framework, a strategy for achieving the following nine (9) social equity goals, specifically designed to uplift and prioritize the social equity population:
1) awarding 50% of adult-use cannabis licenses,
2) prioritizing consideration of applications from social equity applicants,
3) giving extra priority to individuals and their family who have a prior marijuana conviction,
4) promoting racial, ethnic, and gender diversity,
5) promoting diversity in commerce, ownership, employment, and opportunities,
6) reducing the barriers to entry and sustainability in the cannabis market:
a) financing, b) real estate, c) timing in the market
d) training and technical assistance, e) unlicensed operators
7) implementing the incubator program,
8) ensuring applicants receive zero-interest and low-interest loans,
9) awarding additional registered organizations (medical marijuana licenses) to individuals from impacted communities.
The Social and Economic Equity Plan approved by the Cannabis Control Board did not provide a clearly articulated strategy to achieve eight (8) of the nine (9) social equity goals outlined in Section 87 of the Cannabis Law. (See: Review of New York’s Social and Economic Equity Plan.) Of the nine (9) social equity goals, only one (1)—implementing an incubator program—did the author provide a strategy for achieving this social equity goal. What is missing in this Social and Economic Equity Plan is a strategy for awarding 50% of the licenses to social equity applicants (which was not mentioned a single time in the Social and Economic Equity Plan), giving extra priority to individuals with a marijuana conviction licenses in license categories other than retail dispensaries, registering additional medical marijuana companies to individuals representative of communities disproportionately impacted by cannabis prohibition, prioritizing applications of applicants who are from communities disproportionately impacted by the enforcement of cannabis prohibition and who are women-owned business, distressed farmers and service-disabled veterans, eliminating barriers to the cannabis market and ensuring applicants receive zero-interest and low-interest loans. None of these social equity goals were sufficiently addressed in this Social and Economic Equity Plan, if addressed at all. While this plan acknowledges these social equity goals and promises to develop a strategy to achieve them, any clearly discernable strategy for eight (8) of these nine (9) goals is absent from this plan.
New York State is presented with this Social and Economic Equity Plan at a time when the social equity population is already at a severe disadvantage. For example, no money was budgeted for social equity during this year’s legislative session. Regulators have decided to allow the ROs to enter the market as soon as the regulations are finalized, competing directly with the social equity license holders at every license level. Regulators have created a racially bifurcated licensing system that relegates those most adversely impacted by marijuana prohibition to the least lucrative segment of the licensing system. Moreover, the cannabis regulations that codifies this two-tier, racially bifurcated system have been revised and released for public comment by OCM and will, by all accounts, soon be finalized. These regulations do not have the benefit of being informed by, incorporating provisions from a Social and Economic Equity Plan that actively promotes participation of individuals and communities adversely impacted by marijuana prohibition, as required by the MRTA.
As Governor, What You Can Do to Put the Social Equity Program on Track for Success
Fast-Track anticipated cannabis tax revenue to fund the following:
- Acquisition and renovation of dispensaries, cultivation, and processing facilities,
- Zero-interest and low-interest loans to license holders,
- The development of an incubator, capacity building, technical assistance program.
The funds can come from the tobacco master settlement agreement, issuing cannabis bonds, or from the state general funds. Once taxes from the sale of cannabis are raised, the funds used to fast-track these activities can be returned, with interest.
Fast tracking funds would allow regulators to delay the ROs from entering the market for three (3) years, as initially planned. Small local license holders would, as a result, retain the first-mover-advantage. They will have the ability to enter the market early, opening up scores of retail outlets that will enable the current stockpile of cannabis to reach the general public. Early entry will enable them to gain the necessary experience, resources and foothold in New York’s cannabis market to be sustainable and competitive without the burden of competing, from day one, with the eleven (11) heavily funded and highly experienced ROs.
Dismantle the racially bifurcated cannabis licensing system in New York
We urge you, as Governor, to dismantle the racially bifurcated cannabis licensing system. As Governor, you can accomplish this by:
- Demanding that fifty percent (50%) of all license categories are awarded to social equity applicants,
- Demanding that OCM, in consultation with the Chief Equity Officer, issue eleven (11) new registered organization licenses to individuals from communities disproportionately impacted by marijuana prohibition,
- Capping the number of dispensary licenses that will be issued,
- Eliminating the 280E tax code at the city level,
- Demanding the creation of a pathway to the more lucrative cultivation, processing and distribution licenses to individuals who are members of a group that has been historically underrepresented in farm ownership, local urban farmers and legacy growers,
- Demanding the creation of a pathway to dispensary, on-site consumption lounge and delivery licenses for justice involved youth,
- Incentivizing cities and urban municipalities to develop zoning policies that will utilize commercial and industrial areas and city owned property for environmentally sustainable indoor cultivation and processing facilities and setting aside some of that space for the social equity population.
Reject the Social and Economic Equity Plan that is devoid of any credible strategy for achieving the nine (9) social equity goals mandated in the Marijuana Regulation and Taxation Act (MRTA)
We urge you, as Governor, to move the office and the reporting requirement of the Chief Equity Officers out of the Office of Cannabis Management (OCM) and place it in the Cannabis Control Board (CCB). Or create a separate office for the Chief Equity Officer and have that person report to the Cannabis Control Board. Since the CCB is responsible for selecting the Chief Equity Officer and the role of the Chief Equity Officer is to ensure that the regulations produced by OCM conform with the social equity goals of the MRTA, this office should be within the CCB and supervised by the CCB board members. Currently, it resides in OCM and is supervised by them, creating a potential conflict of interest.
Finally, reject the current Social and Economic Equity Plan and demand it be replaced with one that is consistent with the social equity requirements of the MRTA.
A Short Window of Opportunity
Taking the steps outlined above would represent, in no uncertain terms, the leadership necessary to put New York’s cannabis social equity program on track for success. But the window of opportunity is quickly closing.
By the end of July, the forty-five (45) day public comment period for the revised regulations from OCM will close. Left unchanged, the revised regulations will codify the ROs immediate access to New York’s cannabis market, allowing them to implement an absorption strategy that has been documented to lead to the failure of small local license holders. If left unchanged, the revised regulations will amplify the racially bifurcated licensing system currently in place by giving the 288 conditional cultivators priority to full licenses and the 300 CAURD license holders the ability to increase their number of dispensaries to three (3), bringing the total number of dispensaries to nine hundred (900). If left unchanged, the revised regulations will not be guided by or benefit from a Social and Economic Equity Plan aimed at achieving the nine (9) social equity goals mandated by the MRTA. If left unchanged, the responsibility for seeing to it that the social equity goals are adhered to will continue to be led by a Chief Equity Officer that is a “toothless tiger.” If left unchanged, the potential for generational wealth, entrepreneurship, self-sufficiency, and socio-economic redress will be replaced with RO paternalism and benevolence, and with public hand-outs, assistance, and aid. There is an old proverb that says: Give a person a fish he will eat for a day. Teach a person to fish and he will eat for a lifetime.
As the Governor of a state that has the potential of being the largest adult-use cannabis market in the country, you have an opportunity to make cannabis social equity the engine for sustainable wealth creation and restorative justice. Your action (or inaction) will in many ways decide the fate of social equity for the country. The undersigned implore you to demonstrate the leadership so desperately needed at this time.
Sincerely,
Mika’il DeVeaux, Ph.D., Chairman, Cannabis Social Equity Coalition – NYS
Charles King, CEO, Housing Works
Joseph Calderone, Co-Founder and Board Member, Cannabis Farmers Alliance (CFA)
Nicole N’diaye, Co-Chair of Hemp and Cannabis Committee, Black Farmer’s United – NYS (BFU), and Adult-Use Conditional Cultivator (AUCC)
Julian Mangano, Co-Chair of Hemp and Cannabis Committee, Black Farmer’s United – NYS (BFU)
Nicole Ricci, President, NY Small Farma
Tiffany Waters, Co-Founder, CEO, NYS Cannabis Connect
Jumaane Hughes, Co-Founder, COO, NYS Cannabis Connect
Justin Merkle, CEO, Star-lite 420, Adult-Use Cultivator (AUCC) and Member of Cannabis Farmer Alliance (CFA)
Roberto Leslie, CEO, Clear Natural, Adult-Use Conditional Cultivator (AUCC)
Penny Monge, CAURD License Holder
Richard McCollough, M.Ed., Black Farmer’s United - NYS
Jeffrey Medford, Founder NY Green Coalition
Carson Grant, CAURD License Holder
Rev. Dr. James A. Lewis, III, Ph.D., Chairman, Cannabis Social Equity Coalition – Buffalo
Kiah Nyame, Ed.D., Chairman, Cannabis Social Equity Coalition – Rochester
Lance Feurtado, President, CEO, King of Kings
Mark Graham, MA, Executive Director, The Redemption Center, Inc.
Tess Interlicchia, Co-Founder and Board Member, Cannabis Farmers Alliance (CFA)
Reginald Fluellen, Ph.D. Senior Consultant, Cannabis Social Equity Coalition - NYS