You are here
Home > News > Will the Lack of License Caps in New York Ensure an Inclusive Cannabis Industry?

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

Many lawmakers in New York demanded that the cannabis reform legislation include provisions for addressing decades-old prohibition when New York legalized adult use cannabis. The state was transitioning to legal cannabis. Legislators wanted legal cannabis in New York for all New Yorkers. This included members of communities of colour and those from other groups who were historically most affected by the War of Drugs.

This is the clear evidence. Although research shows that Blacks use cannabis at approximately the same rate as whites, 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 Legalization of Equity

The Marijuana Regulation and Taxation Act, (MRTA), was approved by New York City last March. It includes measures to restore justice such as expungement of prior 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 is implementing its social equity goals. Democratic Gov. Kathy Hochul, a Democratic Governor of Massachusetts, allocated $200 million from the state budget in January to establish a fund for social equity applicants to pay some of the cost of starting a cannabis company. Last week, the state regulators revealed that applicants who have been convicted of marijuana-related offenses will receive the 100-200 first licenses to operate recreational dispensaries.

Tremaine Wright, Chair of the Cannabis Control Board explained at a recent forum that the regulators want to make the New York legalized marijuana industry accessible to everyone.

“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 also aims to encourage an inclusive cannabis industry. This is contrary to the practice in several states that limits the number licenses granted to operators. Freeman Klopott of New York State Office of Cannabis Management says that although the legislation prohibits local governments to limiting the amount of cannabis operators licensed, they are allowed to host dispensaries. 

“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. These caps were put in place to keep the industry under control and stop the alleged threat from a profusion of marijuana dispensaries becoming reality. However, they can cause problems.

“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 (co-chair, hemp and cannabis department, Vicente Sederberg) agreed that license limits inflate license values. This situation favors large, well-capitalized entrepreneurs to the disadvantage of smaller, more independent applicants. Limiting the number of companies can lead to delays in litigation, and limited product choice. All this at the cost of the 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.”

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.” 

Even if you have a social equity provision license, opening a cannabis cultivation facility requires investment of millions. This is a major barrier to most people. A dispensary requires significant start-up capital. This could prevent many people from being able to participate in legal cannabis. 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 NewsSend an email. “One loan, grant, or investment may not sustain a business to keep them afloat. Therefore, financing must be provided. That will help ensure a diverse representation of the cannabis industry in New York.”