The nascent cannabis market holds significant promise for economic growth and social change, yet it faces profound challenges, particularly in achieving social equity. Despite progressive legislative shifts and increasing acceptance in recent years, the industry grapples with several issues that hinder equitable participation and benefit distribution among historically marginalized communities. These challenges, while reflective of broader nationwide trends, are especially pronounced in densely populated, economically diverse urban centers like New York City. Here are some of the most significant obstacles to achieving social equity in New York City’s emerging cannabis market, as identified by our Prospect Research team:

Historical Injustices and Barriers to Entry

One of the foremost challenges is addressing the historical injustices inflicted by the War
on Drugs. Communities of color have disproportionately suffered from stringent drug laws,
leading to high rates of incarceration and long-lasting socioeconomic impacts. As the legal
cannabis market expands, these same communities often find themselves excluded due to
criminal records, lack of capital, and limited access to business resources. Expungement of
cannabis-related criminal records is a crucial step toward rectifying past harms, yet the process is often slow and inconsistent across states. Additionally, startup costs for cannabis businesses can be prohibitively high, with licensing fees, regulatory compliance, and operational expenses creating formidable barriers. Access to traditional banking and financial services remains restricted due to federal prohibition, further complicating efforts to secure funding.

Licensing, Regulatory Hurdles, and Bureaucratic Inefficiencies, Oh My!

State and local licensing frameworks, though well-intentioned, can inadvertently
perpetuate inequities. Social equity programs aim to prioritize licenses for individuals from
impacted communities, but these programs frequently encounter bureaucratic inefficiencies and inadequate support. Navigating this complex regulatory landscape requires substantial knowledge and resources, which many aspiring entrepreneurs from marginalized backgrounds lack. The regulatory environment for cannabis in New York City is no different; it is complex and evolving. Adult-use cannabis was only legalized in 2021 with the passing of the Marijuana Regulation & Taxation Act (MRTA).

The MRTA intended to “prevent corporate capture” and create opportunities for individuals lacking access to traditional venture capital. In pursuit of this equity-minded policy,
CAURD was introduced. The Conditional Adult Use Retail Dispensary (CAURD) program
aimed to assist licensees by offering renovated dispensary locations and access to a $250 million loan fund. The concept behind CAURD was straightforward: using legal cannabis as a form of reparations. (1) However, the program, like the industry itself, has been plagued with bureaucratic inefficiencies and delays in licensing, complex regulatory requirements for applicants, and a general lack of support and resources, including legal assistance, business development training, and mentorship. This lack of support has left many applicants struggling to comply with regulatory requirements and develop viable business plans.

The Office of Cannabis Management (OCM) has designated half of all cannabis licenses
for social equity applicants. (2) However, in 2019, only two social equity applicants were approved and according to Theara Colman, “about 900 people applied for CAURD licenses during the first round of applications. But only three dozen applications were approved when the OCM announced the debut collection of authorized retailers in November 2022.” In many jurisdictions, the number of available licenses is capped, and applications are reviewed based on stringent criteria that can inadvertently disadvantage smaller, minority-owned businesses. This hyper-competitive licensing environment often favors well-established entities with significant financial and legal backing. This dynamic can result in a market dominated by a few large corporations, leaving little room for small, minority-owned businesses to thrive.

Market Dynamics: Social Equity v. Private Equity

The cannabis market is characterized by rapid growth and high profitability potential,
attracting significant investment. However, legal weed entrepreneurship remains a domain for the well-capitalized. (3) The influx of capital tends to benefit those with pre-existing advantages, such as established networks, business acumen, and financial resources. Large corporations and multi-state operators often possess the capital and resources to submit more compelling applications, secure prime business locations, and hire top-tier legal teams to navigate federal and state regulations. This competitive edge allows them to dominate the market, leaving little room for small, equity-focused businesses to gain a foothold. Consequently, wealth disparities within the industry can mirror broader societal inequalities.

Traditional banking services remain largely inaccessible to cannabis businesses due to
federal prohibition. This issue is compounded for equity applicants, particularly low-income,
Black and Hispanic, and formerly incarcerated entrepreneurs, who typically have fewer financial resources and limited access to private investment. According to an article published in the American Journal of Public Health, starting a cannabis business requires at least $250,000 in capital for fees, licensure, and other requirements, combined with atypical security and operating costs. (4) New York recently reached a deal with Chicago Atlantic Group to establish a $200 million public-private fund that would help finance cannabis dispensaries for social equity candidates. According to an investigation by The City, however, the deal that undermines its commitment to social equity goals as it provides poor terms for both the state and licensees (akin to junk bonds of the 1980s) while guaranteeing (via taxpayer dollars) substantial returns to its partner, private equity firm Chicago Atlantic Group. (5) Together, these hurdles have incentivized the proliferation of illegal dispensaries across New York.

From Prohibition to Participation

Effective policy and advocacy are critical to overcoming these challenges. Policymakers
must collaborate with community organizations, industry stakeholders, and social equity
advocates to design inclusive and supportive frameworks. This includes streamlining
expungement processes, providing financial assistance and technical support for equity
applicants, and enforcing robust anti-discrimination measures. Public education and awareness campaigns can also play a pivotal role in shifting societal attitudes and reducing the stigma associated with cannabis use and business ownership. Highlighting success stories and best practices can inspire broader participation and foster a more inclusive industry.

The most important engine of change, however, is the power of people. Sustained
collective action helps to hold leaders and institutions accountable over the long term and elevate the voices of their communities. In this regard, community-based nonprofit organizations are crucial to making policy change because they have a deep understanding of the local issues and challenges faced by their communities. These organizations serve as trusted advocates for marginalized and underserved populations, ensuring their voices are heard in the policymaking process. Community-based organizations are adept at mobilizing grassroots support, building strong networks, and fostering community engagement. They are essential for driving effective and inclusive policy reforms in the cannabis industry and beyond.

Conclusion

Achieving social equity in the emerging cannabis market is a complex and multifaceted
undertaking. It requires sustained and concerted efforts to dismantle historical injustices, reform regulatory frameworks, address economic disparities, change societal perceptions, and promote inclusive policies. By prioritizing these challenges, the cannabis industry can pave the way for a more equitable and just future, where the benefits of legalization are shared by all, particularly those who have been most adversely affected by years of over-policing and policy violence.

– This blog was written by Michael Cole, LSC Prospect Researcher & Writer

1. Coleman, T. (2024). How New York’s legal cannabis rollout ended up in the weeds. The Week (online edition). https://theweek.com/business/new-york-cannabis-rollout#
2. New York State, Office of Cannabis Management. (2022). What is in the Law: Social and Economic Equity. https://cannabis.ny.gov/system/files/documents/2022/02/cannabis-management-fact-sheet-social-equity_0_0.pdf
3. Tolentino, J. (2024). Legal Weed in New York Was Going to Be a Revolution. What Happened? The New Yorker, 100(2), 12-18. https://www.newyorker.com/magazine/2024/02/26/legal-weed-in-new-york-was-going-to-be-just-and-fair-what-happened
4. Yang, Y. T., Berg, C. J., & Burris, S. (2023). Cannabis Equity Initiatives: Progress, Problems, and Potentials. American Journal of Public Health, 113(5), 487–489. https://doi.org/10.2105/AJPH.2023.307255
5. Adams, R. (2024). How Private Equity Trumped Social Equity in State Cannabis Deal. The City. https://www.thecity.nyc/2024/04/24/cannabis-fund-social-equity-dispensary/

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