Roadblocks and red tape: New York’s cannabis effort at a crossroads

When New York State began laying the groundwork for its recreational cannabis industry last year, officials cast atonement for the harm done by the war on drugs as a cornerstone of the ambitious plan — and promised people previously convicted of marijuana offenses the first chance to sell it legally.

Today, that effort appears to be failing: Although Governor Kathy Hochul suggested last fall that more than 100 dispensaries would be up and running by this summer, only 12 are open as regulators issued the first permits in November.

In a letter to regulators and the governor’s office last month, a coalition of dozens of would-be pharmacy operators described being blocked by the state from selecting their own store locations. Some said they felt pressured to accept excessive rents and construction costs, while others said the state was withholding money from those who wanted to rent space or manage things themselves, said the letter, which was also sent to The Times .

The potential sellers said they appreciated that the state’s tight control over the program was designed to benefit them, but added that it more often held them back.

“We are now learning very clearly and quickly that it is now at our disadvantage in the current landscape,” they said.

The outcry drew support from cannabis farmers, processors and others with an interest in the recreational marijuana industry, who said the vision of a cannabis market that uses the licensing process to right old wrongs and promote small businesses is far from being realized .

Gahrey Ovalle, a 47-year-old Long Island businessman and retail licensee, signed the letter with his brother, whose previous conviction helped them secure a license in April. The pair had sought advice from others who had already begun the process, only to learn that many of them had made little progress in opening their own stores and were afraid to speak out against the regulators who were determining their fate.

“What they described was, they’re in the same room as us and we came over six months later,” Mr Ovalle said in an interview. “And that was very alarming to us.”

The delays in opening the state’s first legal recreational marijuana dispensaries have reverberated throughout the supply chain, leaving farmers and processors with hundreds of millions of dollars in crops slowly declining. Some said they were facing the loss of their land and businesses.

The retail initiative was designed to help people convicted of marijuana offenses gain a foothold in the legal cannabis industry by making them the only ones eligible to legally sell weed for an initial, fixed period of time. It would provide 150 of them with turnkey locations and a total of $200 million in low-interest loans. But a year after Ms. Hochul assigned rental and financing duties to the Dormitory Authority, a behemoth of public construction, the agency hasn’t found enough landlords willing to rent to pharmacies and hasn’t raised money from investors for the loan fund.

The situation has become more pressing since the Cannabis Control Board, which approves permits and regulations, voted last month to allow the big cannabis firms behind the state’s medical marijuana program to enter the recreational market in December — two years early.

When that happens, the smaller dispensaries run by people with previous marijuana convictions, currently the only ones who can legally sell recreational marijuana, will find themselves in direct competition with big companies that have all but shut out small players in other states. Some of those companies have openly attacked the New York State program that awards retail licenses to people convicted of marijuana offenses.

The shift came without explanation, two months after some medical marijuana companies sued regulators to gain access to the recreational market.

The Office of Cannabis Management, which issues permits, and the Dormitory Authority have declined interview requests. But agency leaders said in a joint statement that they would meet with the letter’s signatories and make improvements to the program. The first such meeting was scheduled to take place in Queens on Tuesday.

Kavita Pawria-Sanchez, the CEO of CannaBronx, a grassroots policy organization that works on behalf of current and former dealers, said the outpouring of support showed a growing sense that what legalization activists were fighting for was in danger.

“I think people are exhausted and understand that we’re in a make-or-break moment and if this ship doesn’t change course, we’re not going to see what we thought we would see,” she said.

Some permit holders found locations on their own only to be outbid or told it was so by the state too close to a location the agency was already interested in, the licensees said. Those who depend on the state are offered spaces with high rents and renovation costs with few details or no room for negotiation.

A permit holder said he found a place to rent for $9,000 a month, but the property owner changed his mind after the Dormitory Authority offered him $14,000 a month to join the landlord pool instead. Another said he was charged $125,000 for a security system that normally costs $12,000. And several licensees said contractors quoted renovation costs of $800,000 to $1.6 million for work that could be done for less than $300,000. The licensees spoke on the condition of anonymity because they feared reprisals from regulators.

The licensees said the cost makes profit almost impossible for dispensary owners, who already have no access to traditional financing and can’t deduct most business expenses from their taxes because selling cannabis remains a federal crime. They also face high state taxes and operating costs that make it difficult to compete with the illicit market.

Attempts to raise concerns with the Dormitory Authority and fund managers have gone unanswered, the licensees said, prompting them to write last month’s letter.

Carson Grant, 45, owner of a retail packaging and shipping company in Queens and who signed the letter, received one of the first pharmacy licenses in November as part of a cohort that an official said was the “top class” of applicants.

Six months later, he said, officials have yet to answer his most basic questions: “How much is this going to cost me? Where is my loan agreement?” – and he began to fear that licensees are set up to fail.

“I’m just not treated like a businessman making business decisions, which could lead to my failure, my family’s failure,” he said. “So frankly, this whole scenario has been traumatic for all of us.”

“I have tears sometimes,” he added. ‘I can not sleep. There is no clear direction. There is no complete transparency.”

At a recent regulatory meeting, Dormitory Authority Chairman Reuben McDaniel III defended his agency’s handling of the program. He said some licensees had negotiated worse deals than the state for the same properties.

Contractor bids seem high because they include things like ATMs and furniture that are typically not part of construction costs, he said. But all estimates are down, one by as much as $400,000. He added that the dispensary’s owners don’t have to provide collateral, which allows them to fund other parts of the business, such as inventory.

In Albany, Ms. Hochul signed a bill last Thursday that would allow farmers and processors to continue supplying pharmacies, avoiding an imminent supply chain disruption. But it remains unclear whether other measures, such as a bill that would provide loans to struggling farmers, will pass with less than a week left in the session.

Reginald Fluellen, the senior consultant for the Cannabis Social Equity Coalitiona group representing black and brown people harmed by anti-drug policy enforcement said it was up to Ms Hochul to salvage the rollout.

“The governor needs to step in and use her influence to get course correction, or replace them to correct what’s going on here,” he said.

Officials from the Office of Cannabis Management said in a recent meeting with growers that they hope farmers and retailers will soon be able to sell weed at farmers’ markets and events such as concerts.

For Katherine Miller, a farmer in Sharon Springs, west of Albany, time is of the essence.

She was one of 250 hemp farmers who grew the state’s first legal crop of cannabis last year, and she planned to use the proceeds from the crop to fund a second season. But at a Cannabis Control Board meeting earlier this month, she was one of several farmers who described how not being able to sell their cannabis crop anywhere had turned what should have been a lifeline into a liability.

Mrs. Miller, 50, recently planted a second round of seeds. But she said she’s afraid of losing the farm she’s owned for 13 years, which is also her home.

“Replanting is like my last Hail Mary,” she said. “It’s like trying to believe that this will come together and it will be profitable and worth it in the end.”