Who is getting richer thanks to the legalization of marijuana in New York?

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A worker collects hemp flowers for processing at the Hempire State Growers farm in Milton, New York.
Photo: Paul Frangipane / Bloomberg via Getty Images

Money is about to grow on the plants in New York. With the legalization recreational marijuana last week for people over 21, lawmakers and industry experts predict the weed trade could bring in as much as $ 4.2 billion of the State’s annual revenue, which is desperate need of a new business to tax. But despite efforts to ensure that this financial windfall benefits the populations of communities ravaged by the war on drugs, due to the nature of the weed industry, large sums of money could still flow. to large companies.

In honor of the leaders of the Senate and the Assembly who control snatched of the legalization process away from Governor Andrew Cuomo, the Marijuana Taxation and Regulation Act is a major piece of progressive legislation – and not just for its robust criminal justice measures. Forty percent of tax revenue from the sale of marijuana will be reinvested in communities disproportionately affected by punitive drug policies. (Although the drug has been decriminalized since 2019 and rates of use are similar across all racial groups, black and Latino residents are still made up 90 percent weed arrests in the fourth quarter of 2020 in New York City.) And when the dispensaries open next year, half of all business licenses will be reserved for “social equity seekers,” which includes businesses owned by people of color and those previously convicted of marijuana. “For me, it’s more than just increasing income,” Crystal Peoples-Stokes, the bill’s sponsor, told the legislature. new York Times. “It’s about investing in the lives of people who have been damaged.

The law works to provide opportunities for small growers and sellers, according to Charlie Alovisetti, partner at Vicente Sederberg, a Massachusetts-based law firm that helps businesses navigate the peculiarities of cannabis law. “The emphasis on social and economic fairness is ingrained in the bill in a way you don’t always see,” Alovisetti says, adding that New York’s law is “several times longer” than the laws. regulations in other states that have been legalized.

A crucial part of the equity protections relates to the limitations imposed on large companies known as multistate operators, which have the basic advantage of run efficiently The medical cannabis market in New York. While these companies have been licensed to run seed-to-sale medicinal operations in the state – an attractive option for businesses that can afford the overhead – new recreational cannabis businesses cannot take advantage of the tax benefits. and the higher profit margins that accompany vertical integration. Multi-state operators already running the current maximum of four medical operations in New York City will also be limited to opening four new medical centers and three adjacent recreational clinics. These provisions aim to curb the near-exponential growth of billion-dollar cannabis businesses in states with more permissive rules. Curaleaf, which describes itself as the largest retail dispensary in the United States, will only be able to have a total of eight locations in New York City. In the Florida medical market, they have 37.

But the way the industry is structured nationwide could lead to upstream cash flow, even if the big guys don’t seem to dominate at the mall level. Marijuana is still classified as a Annex I substance by the Drug Enforcement Agency, so although it can be sold legally in 16 states, federally chartered banks rarely grant credits to cannabis companies for fear they may be sued for help and complicity criminal activity. Efforts were made to correct this inconsistency in the federal system: in 2019, the United States House passed a bill that To allow banks to work with cannabis companies that follow the rules of states in which it is legal. But an administration that is coming fired Several staff who have reported using marijuana in the past are unlikely to prioritize measures to facilitate lending in the legal weed sector over their emblematic legislative projects.

Because lending to a marijuana grower is considered too risky, access to capital is a major obstacle in a market with significant start-up costs. To fill this gap, the industry has increasingly become dependent venture capital, an area in which social equity has not traditionally been a concern. From 2019, only one percent of all businesses supported by VC were owned by blacks and only 1.8% were owned by Latinos. Thus, a green industry has turned white, with only 19 percent cannabis businesses operated by racial minority owners or founders, according to a 2017 study.

Several states with equitable intentions have grappled with the reality of risky banking options for marijuana companies. When Massachusetts voters approved a ballot measure to legalize weed in 2016, an economic empowerment program was put in place to secure business licenses to people who have been “disproportionately affected by high rates of grass”. ‘arrest and incarceration’ for marijuana-related offenses. But from 2020, two years after the start of legal sales in the state, zero The EEP applicants had been successful in opening a cannabis business, as dispensary licenses were effectively at auction to the highest bidder by the cities having the last word on whether or not to authorize sales in their community. Illinois too, highlighted the importance of social fairness in the marijuana industry, but because its law lacked the teeth to guarantee it, there were no dispensaries owned by people of color 15 months after it came into force of the measure.

The New York incubator loan program could solve this problem. Large medical providers will have to pay fees to enter the leisure market; this money will go to low-interest loans to help capital applicants meet the considerable start-up costs. “It’s a big difference from what we’ve seen in other states,” says Melissa Moore, New York director of the Drug Policy Alliance, who worked to help craft the law with her Senate sponsors. and the State Assembly. “The equity programs we’ve seen elsewhere are great mechanisms to put in place, but if those eligible for these licenses can’t afford to start a business, it becomes a moot point.”

Some multi-state operators have embraced the spirit of the program and taken the next step by lending directly to small businesses and minority-owned businesses in states where marijuana is legal. So, Big Weed paved the way for diversifying the industry – and making a lot of money doing it. Curaleaf recently announced plans to partner in legalized states with 420 companies representing historically disadvantaged communities over the next four years. “If a dispensary pulls things together, finding the money to buy cannabis is going to be difficult,” said Patrik Jonsson, regional president of Curaleaf’s northeastern operations. “But we can offer a product for free up front with deferred payments to be operational, which we have done time and time again in other states.”

A distributor offering weed to a reseller may be a more well-known strategy in the illicit market, but it also makes sense for legitimate businesses – opening up access to small businesses that need credit and large ones that want to expand. their imprint in a state that is concerned with controlling their growth. This is where big companies have the opportunity to see their profits skyrocket in one of the largest legal markets in the world. Lending, cultivating to sell to other businesses, and investing in the entire industry from day one will allow multi-state operators to extend their influence far beyond the eight dispensaries they are licensed to operate. Their existing operations will also see their profits increase, as they can now sell marijuana flowers for medical use – which was previously banned – while benefiting from the tax advantages of the drug market and the vertical integration that has been preserved there.

And while New York lawmakers have gone to great lengths to ensure the market won’t be dominated by big business, they still need big players to be active, especially in the early years of sales. legal, when it is important to avoid delays so that dispensaries derive tax revenues that are foregone in the illicit market. “Resisting a culture is a one-year project,” Jonsson explains. “If everyone started from scratch, you’d be lucky if you see something by the end of next year. But we have the infrastructure in place and compliance has decided to take off sooner. “

Until then, the real homework begins for the newly created Cannabis Control Board, made up of five members, which will draft the codes to determine how the law is implemented. Among the issues they must address are how many licenses to offer and how to distribute them across the state, as well as standards for all aspects of production, from seed to sale – two massive projects that will dictate the size of the market. “Obviously the bill is very important, but I don’t think we want to exaggerate anything you can say at this point,” says cannabis lawyer Charlie Alovisetti. “The guidelines issued by regulators will give a better idea of ​​what will happen.”

And while Alovisetti has identified a potential problem – regulation must ensure that social equity seekers don’t lose their protections if they attract investment from large companies – some marijuana justice advocates see an opportunity to continue the public education and advocacy work that has been done. the law a success so far. Melissa Moore of the Drug Policy Alliance described an effort to advise lawmakers on board nominees to ensure full realization of the economic sections of the law. “Together, we succeeded in passing a bill that people thought was impossible,” she says. “When legalization was introduced in 2013 it was considered the third rail, but since then we’ve changed the conversation to center it around justice. Now we have to make sure that these principles are embedded in the regulations. “


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