After Meeting With “Justice-Involved” Licensees, Cannabis Regulators Say More Program Changes are Coming 

Regulators are again trying to boost the state’s nascent adult use cannabis industry. 

As frustrations build over how growers will place their product with only a dozen legal sellers operating so far, regulators announced on Wednesday a new $5 million loan fund so that shops “can be opened faster.” They also announced a tool to help license hopefuls identify less expensive sites, and caps on buildout costs for dispensaries. 

After a meeting between the “justice-involved” licensees given a head start on retail,  known as Conditional Adult Use Retail Dispensary (CAURD) licensees, the Office of Cannabis Management (OCM), and the Dormitory Authority of the State of New York (DASNY), which oversees the equity fund formed to assist CAURD licensees in opening shops, regulators announced changes to the program, “many” of which, they said in Wednesday’s announcement, are “based on direct feedback” from CAURD licensees. These changes are coming at a time when the state, especially New York City, is so flooded with unregulated cannabis operators that  legislation seeking to stem the proliferation has been introduced from the New York City Council to the office of Gov. Kathy Hochul. Hochul signed her bill in May.

Some context: In January 2022, Hochul announced a $200 million public-private equity fund that would, the State of the State book noted, “provide direct capital and startup financing to social equity applicants,” as the state “takes meaningful steps to ensuring that New York’s cannabis industry is the most diverse and inclusive in the nation.”

That fund has languished. While the initial $50 million came from the state, the remaining $150 million was to be raised by DASNY, yet little has been said publicly about where the fundraising stood. Then, at a Cannabis Control Board meeting on May 30, DASNY CEO and Cannabis Control Board member Reuben McDaniel spoke about the uphill economic conditions, and said that “best way” forward was to make the fund available to credit investors instead of just equity investors. 

That set the stage for Wednesday’s announcements, which was broken down into three buckets: “much greater flexibility” in locations that CAURD licensees can select; more capital through a new $5 million CAURD Capital Loan Program; and a search tool that license hopefuls can use to locate potential business sites that meet regulatory requirements. 

“While it continues to pursue the raising of $150 million in private capital, DASNY has announced changes to the Fund structure and options to offer greater flexibility to licensees, with the goal of hastening the opening of dispensaries,” regulators announced Wednesday. 

The loan program will offer up to $100,000 in loan funding from DASNY, expected to be offered at 5% interest rate, to pay for shop build-out costs. 

It appears that New York City’s real estate landscape, where rents have surged since the early days of the pandemic, is posing problems for CAURD licensees who are seeking to get their cannabis shops off the ground while they still have a head start. If current rulemaking remains on track, existing medical cannabis operators, known as Registered Organizations (ROs) in New York, which are well-capitalized multistate operators, will be eligible to convert to serve adults 21 and older by the end of this year. 

Following Wednesday’s announcement, DASNY will “begin identifying new locations that may better fit some CAURD licensees’ business models, including offering smaller sites with lower rents and renovation costs.” 

Higher-than-expected construction costs have also created headaches for CAURD licensees. To that end, the the equity fund will now have buildout caps that top out at $1.3 million in New York City and $1.1 million in upstate regions, “which narrows the pool of possible locations to those that require comparatively less work, and therefore can be opened faster,” according to the announcement. DASNY is also “revamping the design and construction process to provide even more detailed cost and design information before the licensee commits to a site.” 

Meanwhile, regulators also announced that the Cannabis Control Board plans to award its first license to a shop in the Finger Lakes region, an area that was blocked from licensing because of a lawsuit that challenged aspects of the residency requirements for CAURD licensees. However, at the last Board meeting, regulators approved a settlement. 

“With the prospect of the litigation ongoing, the Office has recommended that the litigation be settled. And the plaintiff has agreed to a settlement so that we can move forward with the CAURD program and issue licenses also in the Finger Lakes region, as well,” OCM general counsel Linda Baldwin said at the May Board meeting. 

Regulators also announced that adult use cannabis shops will open in Farmingdale on Long Island, a region marked by opposition to cannabis shops, and in Syracuse, this month.