Cannabis Licensing: Will New York's Social Equity Model Set The Trend Or Get Tripped Up?

Several states that have recently or soon intend to roll out their adult-use cannabis marketplaces hope progressive equity licensing measures pay off, unlike the states before them.

New York, New Jersey, Illinois and others aim to address criminal records while prioritizing licensing for drug war victims.

New York's market potential and progressive licensing model is earning it ample spotlight. The state expects to rival top earners in time, generating $1.25 billion in revenue over the first six years of business, according to Gov. Kathy Hochul's fiscal year 2023 executive budget. Part of the anticipated booming economy will be equity license holders.

In March, the state's Office of Cannabis Management (OCM) announced it would give approximately the first 100 operator licenses to drug war victims and their families. They join existing select hemp farmers and the state's 10 medical LPs receiving first-wave access.

The Empire State isn't the first to prioritize those most affected, but most, if not all, have fallen short in few reaching equity goals so far.

As the Brookings Institute reported, New York's specific goals for ownership and investment could ensure legacy market operators and groups disproportionately affected by the drug war receive an equitable market share.

As promising signs, the report highlighted a 50% equity owner goal and an annual 40% reinvestment fund. They join criminal reform measures, like automatic expungement, as signs of New York's progressive cannabis approach. A $200 million fund for equity license holders has also been promised by Gov. Hochul.

Michelle Bodian, Counsel at Vicente Sederberg LLP, said the state acknowledges the importance of day one access for equity owners.

"New York is prioritizing not only equitable ownership but prioritizing the first-mover advantage," Bodian said.

While receiving much praise, it remains to be seen if New York will achieve where several states have come up short.

Optimism Mixed With Uncertainty And High Hurdles

Sources tell Benzinga they are optimistic about the licensing program but caution that results will take years. Other states may take a wait-and-see approach while assessing if the Empire State's progressive model is indeed equitable.

Jacobi Holland, co-founder of digital and New York-based cannabis event series On The Revel, is a fan of the provisional licensing program. He called the OCM "the best team at the helm."

Still, he cautions, "the devil is really in the details," noting that program uncertainties could trip up progress.

"It's unclear where exactly these licenses will have real estate or the quality of the flower they will have access to," said Holland.

David C. Holland, principal for the law firm David Clifford Holland P.C., commends the state's priority of the legacy market. He also voiced concerns about terminology used, like "justice-involved," and the limitations it may place on applicants.

"The decision does not reflect a retreat from the importance of equitable ownership, but it may not represent the most inclusive and navigable path from the legacy market to licensure," Holland said.

Brooke Butler, VP of partnerships for reg-tech firm Simplifya, commended the state's inclusivity of groups ranging from minority-owned ventures to distressed farmers and veterans.

She also said that New York would be a pricey market, making ownership difficult for people without access to ample funding, a prolonged problem among minority owners.

"It is great to offer those with previous convictions the first licenses, but a lot of the time, if you have a criminal record, finding jobs or gathering funding is not easy," Butler said.

Mary Pryor, CMO for Tricolla Farms and Tonic CBD said the licensing model also has to support hemp farmers "who are losing their shirts." Tricolla was one of the first wave of hemp farmers to receive a temporary conditional adult-use license.

Pryor highlighted a disparity in farming, with New York severely lacking in Black-run and owned farms. Only 139 out of 57,000 New York farmers were Black, according to a 2017 state agriculture census.

Will It Work?

New York's day one equity licensing model may prove replicable in other progressive markets. For now, states will wait and see if New York falls victim to the hurdles or if it can establish an equitable marketplace.

John Kagia, chief knowledge officer at New Frontier Data, called the program the most robust program yet and that "policymakers across the country are watching closely to see how it plays out."

He said the state could face unique challenges as the largest state to roll out a robust equity program. He expects many to attempt to get a cut of the action and forecasts potential legal proceedings along the way.

"Given how radical a departure the state's approach is compared to most other markets, New York's efforts will face extreme scrutiny and likely attract litigation from those who feel excluded by the regulations," Kagia said.

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