New York cannabis regulators have scrapped a rule requiring the state’s first retail operators to accept storefronts assigned by the government in an effort to get sales going before the end of the year.
The change three weeks before the new year frees up license holders to base their operations out of locations of their choosing, pending the state’s approval. The move was announced by the state’s Office of Cannabis Management in a statement Friday.
Some entrepreneurs seeking to enter the recently legalized recreational cannabis market in New York welcomed the flexibility the shift in rules would allow. Other industry observers, however, say that the eased storefront requirement is another sign that state regulators and private investors are falling short of their vows of support for these new businesses.
The state had promised turnkey storefronts and millions of dollars in start-up loans to license holders in order to get retail sales of cannabis up and running by the end of the year. But those promises have yet to be fulfilled.
The shift in regulation unveiled Friday further signals that the state’s development and construction agency, the Dormitory Authority, has struggled to provide license holders with access to real estate and financing.
A spokesman for the agency did not immediately respond to an email seeking comment.
New York recently named the first 36 recipients of retail licenses. Regulators are awarding the first 175 licenses to businesses owned by people directly impacted by the criminalization of marijuana and to nonprofits serving formerly incarcerated people. But the slow pace of leasing and fund-raising threatens to undermine the advantage of a head start.
Damian Fagon, the chief equity officer for the state’s cannabis agency, said regulators made the change after speaking to the first licensees, who expressed a desire for more flexibility with their storefront locations. The decision also alleviated pressure on the Dormitory Authority to rush the leasing process, he said.
“It’s just about adapting to changing circumstances, and making this thing work for New York,” he said, adding: “People are ready to make some money, and we’re ready to make that as easy as possible for them.”
The first batch of permits were awarded last month to 28 businesses and eight nonprofits. At the same time, regulators said licensees would be allowed to start deliveries before they opened storefronts.
The changes put the spotlight on a fund that Gov. Kathy Hochul and the State Legislature launched last spring to cover the cost of leases, renovations and start-up expenses for licensees who might otherwise face significant obstacles to entering the nascent cannabis industry.
So far, the state has only put about $20 million into the fund out of the $50 million it promised to contribute. An additional $150 million is supposed to come from private investors by way of fund-raising steered by the Dormitory Authority in partnership with Social Equity Impact Ventures, a private investment firm. Some reporting has raised questions over the vetting of the firm, citing doubts about its purported achievements and potential conflicts of interest.
It is unclear how much money the fund has raised or how many locations the Dormitory Authority has leased. Earlier this week, the agency announced that it had signed its first lease for a storefront in Harlem.
Scheril Murray Powell, a lawyer who represents one of the license holders and 26 additional applicants through her nonprofit, the Justüs Foundation, said the state’s eased storefront requirements reflected the tough economic climate. Possible donors and investors have become skittish about parting with their money, likely slowing the growth of the state fund, she said.
“It’s affecting nonprofits, it’s affecting people seeking investment, and it seems like it’s affecting the O.C.M.,” Ms. Murray Powell said, referring to the cannabis agency.
Some entrepreneurs who applied for licenses welcomed the opportunity to have more control over where they could set up shop.
Vladimir Bautista, 39, the chief executive of Happy Munkey, a local lifestyle and events brand, and an applicant for a retail license, said the agency’s shift on storefronts gave owners more power to decide how their business looks and feels and would also be attractive to investors.
“I think it’s a step in the right direction,” he said. “If we were just counting on the state, that limited us.”
But there was concern that others might face difficulty finding locations. The Dormitory Authority will continue its work obtaining properties that it can sublease to retail license holders, while also providing loans to cover leases and start-up expenses for businesses who choose their own sites, the state said in its release.
Regulators also published delivery guidance on Friday allowing retail license holders to open warehouses for up to a year before opening stores. Businesses will be allowed to hire up to 25 employees who can make deliveries to customers via bicycle, scooter or car. Customers must be at least 21 years old and pay online or over the phone. But the businesses will not be allowed to accept payments on delivery or by cash.
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