Two New York state senators have called for the state's social equity cannabis fund to stop issuing loans to dispensary operators and for any who are "trapped in these predatory deals to be made whole."  

"What this story describes is not a social equity fund. We must get to the bottom of this," said Liz Krueger (D-Manhattan) and Gustavo Rivera (D-Bronx) in a joint statement upon calling for an investigation into a public-private fund that was designed for the state’s social equity fund meant for those affected by New York’s often discriminatory drug laws.  

What Happened: In June 2022, Gov. Kathy Hochul (D) announced a deal had been reached to fund a $200 million public-private effort, which would finance cannabis dispensaries run by the people who have been impacted by the war on drugs.

Unable to secure a private equity partner, the state agreed to $150 million in private financing from Chicago Atlantic Group at a 15% interest rate, which was secured by the New York Dormitory Authority, or DASNY. The fund was meant to finance the leasing and build-out of 150 dispensaries statewide.

However, the scheme did quite the opposite. An investigation by THE CITY's Rosalind Adams uncovered a “lopsided deal” favoring the private equity firm and raising concerns about the state’s social equity goals.

Now What’s Going On?

A more recent investigation by Adams revealed officials from the state's Office of Cannabis Management (OCM) had consistently warned Gov. Hochul's office for months about the mismanagement of the cannabis investment fund, flagging the burdensome costs and restrictive loan terms imposed on dispensary operators, predicting these conditions would likely lead to defaults, which they did.

Internal communications from the OCM, including emails, memos and presentations spanning from July 2022 to July 2023, expressed these concerns as the state struggled, mostly unsuccessfully, to open more dispensaries and stem the out-of-control growth of illicit weed shops. New York’s legal cannabis market has been plagued with lawsuits, delays, regulatory inconsistencies and now this.

‘Unscrupulous' Practices

In their statement Krueger and Rivera said, "We also deserve answers about the unsettling pattern of unheeded warning by agency officials about the clearly predatory loan agreements made by the Dormitory Authority of the State of New York (DASNY) and Chicago Atlantic."

Calling the fund's practices "unscrupulous," Krueger and Rivera called for immediate action to rectify the loan agreements. "We must take action to redress these loan agreements."

They also pointed to a specific incident where a social equity licensee was outbid on a store location by brokers employed by DASNY. "It is egregious that DASNY used its approval powers to outbid licensees that had secured their own location and were working with OCM to start their business," the NYC-based senators concluded.

Photo: King of Hearts by Wikimedia Commons and Peter Pike on Pixabay