Are Dispensary Owners Trapped By New York's Cannabis Social Equity Fund? Pitfalls On The Horizon

The New York State Cannabis Social Equity Investment Fund, a joint public-private effort, aimed at supporting individuals affected by the unequal enforcement of cannabis prohibition might look good on paper but may not be very efficient or fair in reality. As it turns out, the 10-year loans offered to dispensary owners to cover lease, property management and litigation expenses as well as store build-outs, are not proving to be as flexible as anticipated.

Exorbitant Interest Rates

According to loan documents acquired by THE CITY, justice-impacted dispensary operators could face interest rates as high as 18% on ten-year loans for business expansion, while having limited control over the operations.

Licensees of the Conditional Adult-Use Retail Dispensary (CAURD) in New York are obliged to sign loan documents to secure financing from the $200 million fund that New York Gov. Kathy Hochul (D) announced in January 2022.

The $150 million investment in the fund came about a year and a half later from Chicago Atlantic Admin, LLC adding to the state's $50 million investment from NY's cannabis industry revenues. However, the issuance of the social equity retail licenses was on pause for months, up until this week.

What Was The Delay?

Military veterans had sued the Office Of Cannabis Management (OCM) in August, which provoked a temporary injunction on the issuance of new social equity retail licenses. The suit was settled this week, about five weeks after New York regulators opened the licensing application period to all individuals and businesses.

A Look At The Loan Documents

The documents suggest that loan recipients could face substantial expenses while having minimal authority to design their establishments, instead obliging them to cover expenses dictated by the state.

According to THE CITY’s Rosalind Adams, the loan terms allow dispensary owners to decide on “cosmetic details like the color schemes of their dispensaries,” leaving them without control of their business costs.

Jayson Tantalo, co-founder of the New York Retail Cannabis Association touched on the issue.

“I’ve never heard any private lender say, ‘We’re gonna micromanage everything that you do to make sure that we’re gonna get our money back,’” said Jayson Tantalo, co-founder of the New York Retail Cannabis Association. “Why would they offer such a great program if they didn’t trust us to run the operations?”

Companies Can’t Afford To Have A Bad Month

Cannabis consulting firm CannDelta’s Lucas McCann commented on the exorbitant loan payments that range from $20,000 to $35,000. Coupled with the cost of rent, inventory, and staffing expenses, licensees can't afford to have “a bad month.”

“These companies are going to be set up to default because there’s no control over their expenses,” McCann said. 

That is, if a business fails to meet its loan obligations, it could result in an increase in interest rate to 18%.

Moreover, if licensees settle their loan ahead of schedule, they are still required to pay a certain percentage of the interest, that is a portion of the interest for its 10-year term, which could reach hundreds of thousands of dollars.