When New York legalized adult-use cannabis last year, many lawmakers were adamant that cannabis reform include provisions to address the harms of decades of prohibition. As the state transitioned into a legal cannabis economy, legislators wanted to ensure that the economic opportunities of legal cannabis were in reach for all New Yorkers, particularly members of communities of color and other marginalized groups that historically bore the brunt of the War of Drugs.
The evidence is clear. Despite research that shows that Blacks and whites use cannabis at about the same rates, a 2020 study by the American Civil Liberties Union found that Blacks were nearly four times more likely to be arrested for a pot-related charge. 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 in New York Legalization
Because of this disparate enforcement of cannabis prohibition, the Marijuana Regulation and Taxation Act (MRTA) approved in New York last March includes restorative justice measures such as the expungement of past cannabis convictions. The legislation also incorporates social equity provisions to help ensure the economic spoils of legalization are enjoyed by all. Significantly, the legislation reserves half of the state’s cannabis licenses for retailers, cultivators, processors and other businesses owned by women, minorities, distressed farmers, veterans and “individuals who have lived in communities disproportionally impacted” by the failed War on Drugs.
The social equity goals of the MRTA are currently being implemented. In January, Democratic Gov. Kathy Hochul allocated $200 million in the state budget to create a fund to help social equity applicants meet some of the costs of launching a cannabis business. And last week, state regulators announced that the first 100 to 200 licenses for recreational dispensaries in the state will be awarded to applicants with past weed-related convictions.
At a recent public forum held to provide information about the rollout of legalized pot 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 are trying to do is build a supportive ecosystem that allows people to participate no matter their economic background and we want everyone to know they have a real opportunity at a license as well as support so that their businesses will be ongoing enterprises that are successful and have the opportunity for growth,” Wright said last month.
In another bid to help foster an inclusive cannabis industry, the MRTA bucks the trend in many states of limiting the number of licenses awarded to cannabis operators. Freeman Klopott, spokesman for the New York State Office of Cannabis Management, notes that the legislation also bars local governments from putting a cap on business licenses, although communities were given the opportunity to opt out of hosting dispensaries and consumption lounges.
“We are focused on establishing a stable market that provides multiple access points to expand opportunity for equity applicants and small businesses,” Klopott wrote in an email to High Times. “We’ve seen how caps in other states have driven up costs and raised barriers to equity applicants, and we have no plans to establish them here in New York as a result — our priority remains on stability and opening access to opportunity as wide as possible.”
Most States Cap Cannabis Licenses
In this year’s MCBA National Cannabis Equity Report, the Minority Cannabis Business Association and the Arcview Group note that among the 36 states with legal pot, 26 include license caps to limit the number of cannabis business licenses issued. But the caps, which are designed to help regulators maintain control of the industry and prevent the perceived threat of a proliferation of cannabis dispensaries from becoming a reality, create problems of their own.
“Limiting the number of licenses at the state level artificially inflates the value of the license due to limited competition within the legal market without accounting for competition from the legacy market and without providing access or incentive to transition to the legal market,” the MCBA wrote in its report. “Despite arguments of oversaturation in low-income neighborhoods, state-level license caps do not decrease retail outlet density or overconcentration, especially in low-income neighborhoods.”
Michelle Bodian, the co-chair of the hemp and cannabinoids department at cannabis law firm Vicente Sederberg, agreed that license caps inflate the value of licenses, a situation which tends to favor well-capitalized applicants to the detriment of small, independent entrepreneurs. Caps on the number of businesses can also lead to delaying litigation and limited product selection, all at the expense of consumers.
License caps “frequently result in lawsuits, typically filed by one or more applicants who do not receive licenses, that can slow down the implementation of state programs,” Bodian explained in an email. “Limited markets can potentially reduce the variety of products available to consumers and potentially disincentivize the development of new and potentially improved products.”
Bodian also noted that a lack of license caps does not translate into an immediately unlimited number of permits for cannabis businesses, a point underscored by last week’s announcement that the first 100 dispensary licenses would be set aside for so-called “justice-involved” applicants.
“While the MRTA does not include caps on the number of cannabis businesses, it is unlikely that New York will open the floodgates by making a large number of licenses immediately available at once,” said Bodian. “It is more likely the state will issue a set number of licenses during an initial application phase. Depending on how many licenses are available during the first several licensing rounds, New York may behave like a ‘limited license state,’ even though the law does not mandate a state license cap.”
Will a Lack of License Caps Ensure an Inclusive Industry?
Not everyone, however, is convinced that a lack of license caps will result in the equitable industry regulators hope to create. Khadijah Tribble, senior vice president of corporate social responsibility at Curaleaf, one of the world’s largest cannabis companies, told High Times that there “is certainly room for everyone in the industry, from large businesses to small and social equity owned organizations.” But, she added, a more regulated rollout of the industry may be a better way to achieve the goal of a diverse cannabis economy.
“In New York, we hope to see a situation where social equity licenses are prioritized, even without a license cap on the market,” Tribble wrote in an email. “We believe that with measured regulations that put social equity at the center, licensing caps could provide opportunity for legacy operators to build 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 to what model regulatory scheme will work to ensure an equitable distribution of opportunities, and there are currently no great examples,” she added.
Gia Morón, president of Women Grow, a group working to create an equitable and diverse cannabis business community, believes that we should not “generalize this idea that no caps create fewer barriers because not everyone is financially prepared for every level of this industry.”
She notes that opening a cultivation facility, even under a license with social equity provisions, requires millions of dollars of investment, a significant barrier for most people. Starting a dispensary also requires substantial start-up capital, a fact that could eliminate 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 offer more affordable and accessible entry points to the industry. But true equity in the marketplace can only come with initiatives that create a source of financing for fledgling businesses as they gain operational stability.
“When it all comes down to a diverse, inclusive, equitable industry in New York, it’s going to come down to capital. If there is no access to capital in place, licenses won’t matter,” Morón told High Times in an email. “One loan, grant, or investment may not sustain a business to keep them afloat. So, we need measures in place for financing. That will help ensure a diverse representation of the cannabis industry in New York.”