Following years of stalled attempts and failed efforts, adult-use recreational cannabis is now legal in the state of New York. That’s right, the Empire State has finally joined the “green rush.” As the world turns its eyes to New York, it will be interesting to watch how the state determines its licensing process, particularly as it regards social equity and equal opportunity.
Social Equity
New York is the first state to directly build equity reform into its legalization process, and for good reason, as minorities in New York accounted for 94% of pot-related arrests and summonses in 2020.
Beyond the legislation’s criminal justice measures, like expunging criminal records of those convicted of drug crimes that are now legal, the legalization bill passed in New York also addresses social equity issues. The bill states that 40% of tax revenue from the sale of marijuana will be invested back into communities disproportionately impacted by the decades-long war on drugs. Part of the tax funds will be used to invest adult education and job skills in targeted, minority communities.
In addition, when dispensaries open next year, 50% of all business licenses will be reserved for “social equity applicants,” which include companies owned by people of color, women and those with past marijuana convictions. The goal here is to address equity reform while also preventing national cannabis companies from monopolizing the New York market, which could potentially block the aforementioned communities from the industry. But, as New York state officials flesh out licensing, the challenge lies in defining who “social equity applicants” are. While it is encouraging that half of dispensary licenses will be going to people of color and those with past marijuana drug crimes, the devil remains in the details of how that will actually happen.
There is talk of the state providing grants, low-/no-interest loans and business incubator programs to minority communities aimed at providing assistance and education to minorities interested in joining the cannabis industry.
Equal Opportunity
It will be critical for decision-makers to ensure the entire state is served by the licensing process. Of course, it’s no secret that NYC is the world’s most economically powerful city, but more than half of the state’s residents do not live in the Big Apple. As such, it will be important that the rest of the state is served by dispensaries and able to reap the rewards from large-scale cultivation facilities that bring in a significant amount of jobs and the vast majority of the economic impact.
The ability to serve the entire state, not just New York City, should remain top of mind in Albany as rules and regulations are discussed. Not only can small-to-medium-sized privately owned cannabis companies be beneficial for the economy and social equity efforts, but their inclusion in the state’s nascent legal cannabis industry will help cultivate a sustainable cannabis industry for years to come.
It would be unfortunate if New York set up a licensing system that only benefitted publicly traded cannabis companies because many of those organizations are not actually as financially sound as they claim to be on paper. While some such companies are reporting massive revenues, they’re failing to disclose crippling debt-to-income ratios that ultimately make their business model unsustainable. So even as many states have set a high bar for capitalization requirements, which is important for the industry to make sure companies can maintain solvency, when the bar is set too high, only individuals able to access capital at that high level are able to play. Consequently, it’s integral that New York creates a system that focuses on equal opportunity and ensures opportunities for privately held businesses in addition to publicly traded companies.
As the state determines its licensing process, officials need to resist the temptation to just look at the companies publicly traded on Wall Street simply because they’re in their backyard. Despite many of the largest hedge funds in the world being based in Manhattan, it will be crucial that state officials keep an eye on competition and a free market as the state fleshes out how licensing will work. Currently, New York’s plan is to limit the amount of dispensaries retailers can operate within the state. This would help prevent large, publicly-traded companies to monopolize the state, leaving more room for local, minority owned businesses.
New York Gov. Andrew Cuomo has made several statements regarding his intentions to “right the wrongs” of the disproportionately debilitating war on drugs in minority communities, and has been deliberate in assuring the new bill “prioritizes marginalized communities so those that have suffered the most will be the first to reap the benefits.” While these are steps in the right direction, it will be interesting to see how the licensing plays out. Hopefully, we’ll see these plans come to fruition and begin to see more equity reform being tied to legalization bills across the country.
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