In 2022, Gov. Kathy Hochul pitched a $200 million effort to help small business owners with marijuana convictions open New York’s first licensed cannabis dispensaries.
State lawmakers approved $50 million to help the program, known as the Cannabis Social Equity Investment Fund, begin leasing and renovating stores that were supposed to open the following year. But just 22 of the 150 planned stores have opened since and some owners now say the state lured them into a debt trap.
The deal to set up the fund also contained a catch that largely went unnoticed until now.
Once cannabis licensing fees and sales taxes began generating enough revenue, the state would claw back its investment. Only after it was repaid would the money trickle down to programs that were intended to deliver the promised benefits of legalization, including by investing in communities battered in the decades-long war on drugs.
The provision has come to light as the governor’s budget proposal indicates that she plans to recoup the state’s funds. Lawmakers and activists who pushed for legalization say the plan goes against the state’s intention to uplift low-income Black and Latino neighborhoods where the vast majority of marijuana arrests have occurred.
Joseph W. Belluck, a lawyer who leads the state panel steering some of the cannabis revenue to affected communities in the form of reinvestment grants, said the timing couldn’t be worse as Republicans led by President Trump move to slash federal aid and destroy equity programs.
The state should figure out another way to repay itself, he argued.
“It’s not the fault of these communities or applicants that this fund failed and now has to get paid back,” Mr. Belluck said. “To ask them to bear the burden of the repayment is just completely unjust and not in the spirit of the law.”
Kassandra White, a spokeswoman for Ms. Hochul, confirmed the purpose of the payment in an email on Monday. She suggested that under the law, the governor’s hands were tied.
“Legislation was passed in 2022 to require repayment of this investment,” she said. “The state is now following that law.”
The panel Mr. Belluck leads, the Cannabis Advisory Board, was expecting a boost for the community grant program this year, after budget documents showed tax revenues from cannabis sales rising from $42.3 million in the fiscal year that ended last March to $161.8 million in the current one. Instead, Ms. Hochul’s budget plan would keep funding for the program flat, at $5 million, for the second year in a row. He said officials told him the increase he expected was going to repay the state for its investment in the dispensary fund.
The advisory board is set to start awarding grants this spring to nonprofit organizations providing services like health care and job training to young people in affected communities. But without additional funding, Mr. Belluck said the panel would not be able to support a broader range of initiatives and help people of all ages, as the law intended.
Cannabis revenues come from sales taxes paid by licensed wholesalers and consumers who shop at legal dispensaries. The state also collects licensing fees from growers, processors and sellers, as well as fines from businesses caught violating the rules.
Most of the money is used to finance regulatory operations like rule-making and enforcement against unlicensed merchants, while some goes straight to local governments that allow cannabis sales. The rest is divided equally between public schools and community grants, with a smaller portion dedicated to drug treatment and education programs.
When the dispensary fund was created, the governor said the state’s contribution would come from cannabis business licensing fees and tax revenues. But that was impossible since no sellers had been licensed yet. Instead, the state paid its portion from its main coffers.
Now, she is seeking repayment as the state’s turbulent rollout has stabilized, but programs required to deliver on the law’s justice goals remain undeveloped.
The Office of Cannabis Management, which creates and enforces the policies governing the legal market in New York, has a backlog of more than 5,000 applications for business licenses. Most of them are from people who qualify for financial assistance and mentorship that the agency is not equipped to provide, even though it is legally required to.
Heather Trela, a marijuana policy researcher at the Rockefeller Institute of Government, said the planned reimbursement “seems to be in keeping with the original intent” of the law, distributing cannabis revenues first to state agencies so they can be used to collect taxes, expunge criminal records and conduct research on cannabis use.
“Whether this is the right decision or not is up for debate by other folks,” she said.
At a budget hearing last week, State Senator Liz Krueger, the chairwoman of the Finance Committee, said she opposed using cannabis revenues to repay the state because the loan program failed under the stewardship of an outside agency, the State Dormitory Authority, which typically builds libraries, hospitals and residence halls.
In an interview, Ms. Krueger said the state should prioritize helping struggling dispensary owners and making sure the Office of Cannabis Management has the resources it needs to run the cannabis program as it was designed.
“For me, it’s about how do we make sure that these stores get out of these ridiculous deals whole enough to continue and be successful stores,” she said.
Terrence Coffie, a professor of social work at New York University, is the co-founder and executive director of the Cannabis Justice and Equity Initiative, which hosts a 16-week training program that places people from poor neighborhoods with high arrest rates for marijuana in jobs at places like dispensaries and greenhouses.
Mr. Coffie said the nonprofit hopes to win a community investment grant next year so that the program can help 1,500 people a year. He said it was important to him as someone who spent 19 years in prison to create viable opportunities in the cannabis industry for people the state punished when it was illegal.
“Because of the overall impact of anti-cannabis enforcement in Black and brown communities, we are very ambitious,” he said.
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