New York State’s epic failure on the legalization of cannabis has been well-documented here and elsewhere and apparent to anyone on the streets of the city as thousands of unlicensed shops proliferated at will while the legal purveyors were entangled in molasses-like bureaucracy. But it was even worse than the observer could see.
The New York State Cannabis Social Equity Investment Fund, seeded with $50 million in public dollars and supposed to attract three times that from private investors, was another bust. Meant to help “justice-impacted individuals” open up shops, it was a flop, with some of those people it was created to aid left holding the bag.
Roland Conner is one such person. He secured an early license as a result of both his business plan and a prior cannabis-related conviction and was the very first underwritten by the fund, which aimed to finance the start-up costs for 150 dispensaries. Now, Conner stands at the edge of foreclosure. He never had a chance.
The state let thousands of fly-by-night operators open up in the city. Mayor Adams, finally given the tools by Albany to shut them down, has been energetic in the effort. But there are still only 97 legit shops in the five boroughs (Manhattan: 40, Staten Island: 5, Bronx: 12, Queens: 21 and Brooklyn: 19). Clearly, the market, which sustained thousands cannot be sated with fewer than 100 shops.
Regarding the fund, as the online news outlet The City detailed in April, a financial projection document that was presented to licensees estimated $30 million in annual revenues for licensed cannabis shops like Conner by their fourth year of operation, a figure wildly above other estimates and most other shops’ revenue figures.
There were also too-low construction and fee estimates that came in far higher, which the licensees were expected to pay back at high interest rates as other upfront costs piled up and the green-light to open never seemed to arrive. Meanwhile their future customers were being vacuumed up the unlicensed shops. In a sense, cannabis was cannibalized.
It seems like the only people who came out on top were the fund managers and the private equity firm that provided some of the cash to help plug the funding hole that the managers were unable to otherwise fill. The middlemen received $1.7 million in fees just in the period between late 2023 and mid 2024, despite raising less money and funding fewer dispensary openings than projected. The Chicago Atlantic fund, meanwhile, is an investor in only the loosest sense, taking on zero risk for its cash, which is guaranteed by the state if any of the licensees default.
Such a default seems to be looming for a number of the licensees, including high-profile ones like Conner’s, who was promised a good shot at making a business work after the criminalization of cannabis had already once cost him a conviction.
It’s not clear at this stage what exactly the state can do to remedy the situation, but it’s clear that it should do something, if only to fix the mess it’s created; perhaps it can renegotiate with the lender to secure better terms for the licensees, or otherwise backstop not the equity partner’s profits but the licensees’ financial exposure. They deserve a fair shot.
https://www.nydailynews.com/2024/12/01/smoked-out-cannabis-shop-owners-face-financial-straits/