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Will the Lack of License Caps in New York Ensure an Inclusive Cannabis Industry?

Numerous lawmakers demanded provisions in cannabis reform to deal with the effects of decades of prohibition after New York legalized adult-use marijuana last year. Legislators wanted to make sure that legal cannabis was available for everyone in New York, especially those who are members of minority communities and others that have been disproportionately affected by the War on Drugs.

This is the clear evidence. Although research shows that Blacks and Whites consume cannabis at approximately the same levels, the American Civil Liberties Union’s 2020 study revealed that Blacks were almost four times more likely than whites to be arrested on pot-related charges. New York City saw 93 percent of cannabis-related arrests in 2020. Less than 5 percent were white, a group that makes up 45 percent of the city’s population.

New York Law Legalizes Equity

Due to this uneven enforcement of cannabis prohibition laws, the Marijuana Regulation and Taxation Act of New York (MRTA), approved last March in New York includes restorative justice measures like the exoneration of previous cannabis convictions. To ensure that everyone can enjoy the economic benefits of legalization, the legislation includes social equity provisions. 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.

Currently, the MRTA’s social equity goals are being met. Democratic Governor. In January, Democratic Gov. Kathy Hochul provided $200 million to the state budget for a fund that would help applicants with social equity to cover some costs associated with launching a marijuana business. State regulators also announced last week that those with past convictions in relation to marijuana will get the initial 100-200 licenses for recreational dispensaries.

Tremaine Warren, chair of Cannabis Control Board, explained how regulators wanted to create a new industry that is affordable to entrepreneurs at the recent New York forum.

“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.

The MRTA is another attempt to foster an inclusive cannabis market. It also rejects the tendency in some states to limit the number of cannabis operator licenses. Freeman Klopott of the New York State Office of Cannabis Management notes that while the law does not prohibit local governments from setting a limit on the number of business licenses they can issue, communities have the option to refuse hosting dispensaries or 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 Chronic News. “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.”

Many states allow cannabis licenses to be limited.

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. The caps are intended to protect the industry from the fear of dispensaries popping up and help regulate it, but they can also create issues.

“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 is the co-chair for the cannabis law firm Vicente Sederberg’s hemp and cannabinoids section. She agreed that licensing caps increase the license value, which favors well-capitalized applicants at the expense of independent, small-scale entrepreneurs. Consumers can be hurt by restrictions on how many businesses are allowed to operate. This could lead to delayed litigation or limited product choices.

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.”

Is it possible to ensure an inclusive sector by removing license caps?

But not all people believe that license caps won’t result in an equitable cannabis industry, as regulators wish. Khadijah Tribble, senior vice president of corporate social responsibility at Curaleaf, one of the world’s largest cannabis companies, told Chronic News 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.” 

Her observation that even a licensed facility with social equity provisions can be opened, it requires millions in capital, which is quite a barrier for many people. The cost of opening a dispensary can be prohibitive. It also involves substantial capital. There are other types of cannabis businesses, such as delivery services and consumption lounges that can provide more cost-effective and easily accessible ways to get into the market. However, true equity can only be achieved when there are initiatives to provide financing opportunities for new businesses once they have established a stable operation.

“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 Chronic NewsIn an email. “One loan, grant, or investment may not sustain a business to keep them afloat. We need to have financing measures. That will help ensure a diverse representation of the cannabis industry in New York.”