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QUEENS CHRONICLE, Thursday, November 23, 2023 Page 16
C M SQ page 16 Y K
NY pot store loans load businesses with steep costs by Rosalind Adams THE CITY
This article was originally published on Nov. 16 at 5:05 a.m. EDT by THE CITY In January 2022, Gov. Kathy Hochul outlined a bold vision to support the ambitious social-equity goals of New York’s new cannabis law: The state would create a $200 million fund to build out ready-to-open dispensaries in prime locations for retail licensees with past cannabis-related convictions. This, lawmakers and regulators agreed, was a chance for those who had been most harmed by decades of racist drug policies to not only participate in the legal market but to thrive from it. Reuben McDaniel, who headed the state Dormitory Authority in charge of setting up fund-supported dispensaries before leaving that position last month, proclaimed that the new program would “help build generational wealth that has been out of reach for far too many of our citizens, and that will succeed in creating social equity when so many other states’ programs have failed.” But nearly two years after Hochul announced the fund, financing documents obtained by THE CITY reveal that the 10-year loans it offers to dispensary owners are highly restrictive and potentially burdensome, giving licensees little control over building out their own locations, instead requiring them to foot a bill handed to them by the state. The details of the confidential agreement have been a source of speculation for months, as delays in securing financing for the $200 million fund as well as getting legal stores open have continued to impede New York’s cannabis market. The loan documents, which Conditional Adult-Use Retail Dispensary licensees are required to sign in order to obtain New York Social Equity Cannabis Investment Fund financing, shows that the public-private fund is authorized to rack up significant expenses without consulting the borrower. And if licensees want to pay off their loan early, they still owe the fund a portion of the interest for its 10-year terms — which could amount to hundreds of thousands of dollars. Those loans are meant to cover costs including expenses related to store leases, property management and store build-outs, as well as up to $100,000 in litigation expenses. The agreements additionally restrict what profit margin a store may charge on its products, how much it can spend on staffing costs and the percentage by which executive personnel may increase their annual salaries each year. That means that while dispensary owners can choose cosmetic details like the color schemes of their dispensaries, they
interest rate, according to the docucan’t control their own costs. Benjamin Rattner, a cannabis law- ments obtained by THE CITY. It also yer in New York who reviewed the gives the fund the authority to loan documents at the request of THE remove the dispensary from the CITY, said the reimbursement agree- location. ment “grants the New York Social States of grace Equity Cannabis Investment Fund a Other states where cannabis is tremendous amount of control.” The loan documents outline the legal have launched social-equity power the social equity fund has to programs with aims similar to New monitor the dispensaries after they York’s but with vastly different are open, as well, including having terms. In Illinois, the governor access to their sales tracking software announced low-interest forgivable and the authority to approach the loans for cannabis entrepreneurs last business’ accountants directly. The year. These loans carry just a 4 perdocument does not specify how that cent interest rate after an 18-month data is protected or how it may be g r ace per iod of no requ i red payments. used. California offers grants or lowLavetta Willis, one of the partners of the fund, told THE CITY that interest loans for cannabis businesses these are ways to measure the health as part of its social equity program, metrics of the business to ensure a depending on the municipality. Sacdispensary’s success. “Our goal is to ramento, for example, offers six-year provide support for CAURD licens- interest-free loans. In Massachusetts, ees to be profitable and successful the state is similarly making no-interest and forgivable loans available as businesses,” she said. Still, the terms have given some in part of its social-equity program. And last month, New Jersey awarded the industry pause. “I’ve never heard any private lend- $250,000 grants to social-equity caner say, ‘We’re gonna micromanage nabis businesses. New York took a different everything that you do to make sure that we’re gonna get our money approach, instead bringing in private back,’” said Jayson Tantalo, co- capital to support its smaller sellers. founder of the New York Retail Can- But while the state put up $50 million nabis Association, an industry trade it struggled to find an investor willgroup. “Why would they offer such a ing to stake the other $150 million. It wasn’t until late June of this great program if they didn’t trust us year that Gov. Hochul announced to run the operations?” Lucas McCann, who runs the can- New York had finally secured the nabis consulting firm CannDelta and money from Chicago Atlantic, a real has reviewed a number of loan docu- estate fund based in Illinois, which would receive a ments on behalf 15 percent of his clients, return, accordsaid he was priing to SEC filmarily concerned i ngs. Ch icago with how high At la nt ic is n’t t he loa n payactually investments are for the ing in the actual dispensaries. cannabis dispenThey range from saries, but sim$20,000 and ply loaning the $35,000 a month in draft agree- Gov. Kathy Hochul speaks about a fund money at an me nt s he h a s state law enforcement effort against interest rate that seen, which he unlicensed cannabis businesses, reflects the new and quasi-legal said was a heavy June 22, 2023. bill to car r y PHOTO COURTESY NYS GOVERNOR’S OFFICE industry’s difficulties in accessalong with monthly rent, inventory and paying ing the banking system. Unlike with typical private loans, staff. “The concern here is defaulting — licensees have no personal liability you can’t have a bad month,” for the fund loans, losing only the McCann said in an interview with location if they can’t make the THE CITY. “These companies are payments. Akele Parnell, who has worked in going to be set up to default because there’s no cont rol over thei r the cannabis industry for the last six years and is part of the team for a expenses.” If a company does default on the CAURD license in the Bronx, said loan, for instance by making four late they plan to accept a social equity payments in a year or engaging in fund site for their dispensaries. He “restricted cannabis activity” — for considered the terms fair, noting that instance, potentially offering on-site loans for cannabis businesses could consumption if it’s not licensed for be higher than 13 percent in the prithat — it can trigger an 18 percent vate market.
The exterior of Smacked, a dispensary recreational dispensary in Greenwich PHOTO BY HIRAM ALEJANDRO DURÁN / THE CITY Village, on Friday, Jan. 27, 2023. “Almost from the beginning,” Parnell said his team planned on accepting one of the social-equity fund’s sites. Because of federal illegality and other factors, “you have a situation where the majority of Black and brown cannabis license-holders have a really difficult time accessing capital.” Until now, the details of the loan ag reements have been largely unknown. The first revelations about the loans came at a state Senate hearing two weeks ago in Albany where a number of stakeholders expressed their concerns. The fund “is exposing the most vulnerable New Yorkers to predatory exploitation — the precise outcome that the MRTA [law] was designed to stand against,” Eli Northrup from the Bronx Defenders said in his testimony on Oct. 30. “The perception was that they were getting handed free money by the state — that they’re being subsidized. But the reality was, that’s not the case, because the state basically couldn’t raise any money,” said Jon Purow, a cannabis lawyer in New York who reviewed the social-equity fund loan documents. “It’s not surprising then, that in order to convince someone to sign up, terms have to become more favorable to the lenders putting in all of this money,” Purow added. Asked about those criticisms, state Dormitory Authority spokesperson Jeffrey Gordon wrote in an email: “The $200M New York Social Equity Cannabis Investment Fund is a first-of-its-kind public-private partnership, representing the largest cannabis dispensary social equity investment in the country.” He noted, “The Fund’s unsecured loans require no collateral and offer social equity licensees a unique opportunity to access capital on terms much more favorable than many could get from private lenders.” ‘Financial slavery’ Last November, Carl Anderson, a
disabled veteran living in The Bronx, was thrilled to learn he was among the first cohort of justice-impacted people who had been awarded a dispensar y license as part of the CAURD program. The prize wasn’t just the conditional license itself, intended to give smaller players in marginalized communities a leg up before bigger players with deeper pockets hit the market, but the state’s promise of offering its first 150 licensees ready-to-open dispensary locations. Those locations would be secured and built out under the guidance of the Dormitory Authority, a state agency that typically provides financing for schools and hospitals, with the financial support from the social-equity fund. By that time, the state had selected Willis and her partners to manage the fund, but raising private capital and securing leases was moving more slowly than expected. State officials revisited their insistence CAURD licensees had to accept a Dormitory Authority–selected site and told licensees that they could try and find dispensary locations on their own and then submit them to the state for approval. The Dormitory Authority started signing leases for dispensary locations with landlords, documents obtained by THE CITY show. In December 2022, it signed a lease for a store on 125th Street in Harlem. In March, it signed another for a store at Union Square. Subleases for these locations sent to CAURD licensees earlier this year show 10-year rent schedules along with an estimate of the monthly cost of the construction loans, ranging from $25,000 to $26,000 for three Manhattan sites reviewed by THE CITY. Under those terms, licensees would pay $3 million over 10 years for the design and build-out costs of their dispensaries alone. Yet none of those specific costs were enumerated — they simply listed a f lat rate. continued on page 18
