Will New York’s Lack of Licensing Caps Ensure an Inclusive Cannabis Industry?

When New York legalized adult use of cannabis last year, many lawmakers insisted that cannabis reform include provisions to address the harms of decades of prohibition. As the state transitioned to a legal cannabis economy, lawmakers wanted to ensure that the economic opportunities of legal cannabis were within reach of all New Yorkers, especially members of communities of color and other marginalized groups who historically have borne the brunt of the Drug War.

The evidence is clear. Despite research showing that blacks and whites use cannabis roughly equally, a 2020 study by the American Civil Liberties Union found that blacks are nearly four times more likely to be arrested on cannabis-related charges. In New York, 93 percent of those arrested for cannabis in New York City in 2020 were Black or Hispanic. Less than 5 percent were white, a group that makes up 45 percent of the city’s population.

Equity legalization in New York

Because of this patchy enforcement of cannabis prohibition, the Marijuana Regulation and Taxation Act (MRTA), passed in New York last March, includes restorative justice measures such as overturning previous cannabis convictions. The legislation also includes social justice provisions to ensure that the economic loot of legalization benefits all. Significantly, the legislation reserves half of the state’s cannabis licenses for retailers, growers, processors and other businesses serving women, minorities, distressed farmers, veterans and “individuals who have lived in communities disproportionately affected by the failed War on Drugs.” “, belong.

The social justice goals of the MRTA are currently being implemented. In January, Democratic Gov. Kathy Hochul allocated $200 million in the state budget to establish a fund to help social justice claimants meet some of the costs of starting a cannabis business. And last week, state regulators announced that the first 100 to 200 recreational pharmacy licenses in the state will be awarded to applicants with prior weed-related convictions.

At a recent public forum that provided information about the introduction of legalized weed in New York, Cannabis Control Board Chair Tremaine Wright explained that regulators are trying to ensure the new cannabis industry is accessible to all entrepreneurs.

“What we’re trying to do is build a supportive ecosystem that allows people to get involved regardless of their economic background, and we want everyone to know they have a real opportunity for licensing and support to get their businesses involved.” ongoing businesses will thrive and have opportunities for growth,” Wright said last month.

In another attempt to promote an inclusive cannabis industry, the MRTA bucks the trend in many states to limit the number of licenses granted to cannabis operators. Freeman Klopott, spokesman for the New York State Office of Cannabis Management, notes that the legislation also prevents local governments from capping business licenses, although communities have had the option to opt out of establishing dispensaries and consumption lounges.

“We are focused on creating a stable marketplace that offers multiple entry points to expand opportunities for equity seekers and small businesses,” Klopott wrote in an email to High Times. “We’ve seen caps in other states drive up costs and raise hurdles for equity applicants, and as such we have no plans to introduce them here in New York — our priority remains stability and opening up access to opportunities that way.” as far as possible.”

Most states cap cannabis licenses

In this year’s MCBA National Cannabis Equity Report, the Minority Cannabis Business Association and Arcview Group find that 26 of the 36 legal cannabis states have license caps in place to limit the number of cannabis business licenses issued. But the caps, designed to help regulators stay in control of the industry and prevent the perceived threat of cannabis dispensary proliferation from becoming a reality, create their own problems.

“Limiting the number of licenses at the state level artificially increases the value of the license due to limited competition in the legal market, without accounting for competition from the legacy market and without providing access or incentives to transition to the legal market,” the MCBA wrote in his report. “Despite arguments of oversaturation in low-income neighborhoods, state-level license caps do not reduce retail density or over-concentration, particularly in low-income neighborhoods.”

Michelle Bodian, co-chair of the hemp and cannabinoids practice at cannabis law firm Vicente Sederberg, agreed that license caps inflate the value of licenses, a situation that tends to favor well-funded applicants to the detriment of small, independent entrepreneurs. Limiting the number of companies can also delay litigation and limit product choice, all at the expense of consumers.

Licensing caps “often result in lawsuits, typically filed by one or more applicants who do not receive licenses, which can slow implementation of government programs,” Bodian explained in an email. “Restricted markets can potentially reduce the variety of products available to consumers and potentially hamper the development of new and potentially improved products.”

Bodian also noted that a lack of license caps does not translate to an immediately unlimited number of permits for cannabis companies, a point underscored by last week’s announcement that the first 100 dispensary licenses would be for so-called “judiciary-involved” applicants would be reserved.

“Although the MRTA does not place caps on the number of cannabis companies, it is unlikely that New York will open the floodgates by making a large number of licenses immediately and immediately available,” Bodian said. “The state is more likely to issue a set number of licenses in an initial application phase. Depending on how many licenses are available during the first few licensing rounds, New York may behave like a “limited licensing state,” although the law does not impose a state licensing cap.”

Will a lack of license caps ensure an inclusive industry?

However, not everyone is convinced that a lack of license caps will lead to the fair regulation of the industry that they hope. Khadijah Tribble, senior vice president of corporate social responsibility at Curaleaf, one of the world’s largest cannabis companies, told the High Times that “there is certainly room for everyone in the industry, from large corporations to small social ownership-owned organizations.” . But, she added, a more regulated industry adoption could be a better way to achieve the goal of a diverse cannabis economy.

“In New York, we’re hoping for a situation where social justice licenses are prioritized even without a license cap in the market,” Tribble wrote in an email. “We believe that with measured regulations that put social justice at its core, licensing caps could provide an opportunity for incumbent operators to establish legal businesses in New York in a way that would be celebrated by the thriving cannabis community.”

“However, the truth is that there is no magic bullet as to what model regulatory regime will work to ensure an equitable distribution of opportunities, and there are no great examples right now,” she added.

Gia Morón, President of Women Grow, a group dedicated to creating an equal and diverse cannabis business community, believes we shouldn’t “generalize this idea that no caps create fewer barriers because not everyone is financially at every level.” this industry is prepared”.

She notes that opening a cultivation facility, even under a license with social justice provisions, requires an investment of millions of dollars, which is a significant hurdle for most people. Opening a dispensary also requires significant seed capital, a fact that could discourage a large group of people from participating in the legal cannabis industry. Other types of cannabis businesses, such as delivery operations and consumption lounges, can provide more affordable and accessible entry points for the industry. But real equity in the market can only emerge with initiatives that provide a source of funding for early stage companies as they gain operational stability.

“If New York’s diverse, inclusive and equitable industry matters, capital will matter. If there is no access to capital, licenses don’t matter,” Morón said in an email to High Times. “A loan, grant or investment may not sustain a business to keep it afloat. So we need funding measures. This will help ensure diverse representation of the cannabis industry in New York.”