NY must pull its pot plan out of the weeds

More than three years have passed since New York’s Marijuana Regulation & Taxation Act became law. Today, the state’s ambitious goal of licensing, fostering, and regulating legitimate retail sales for recreational cannabis use — all with a “social equity” goal — remains quite a distance from fruition.

The state program has sputtered, it seems, on every front. Gov. Kathy Hochul was compelled to acknowledge the rollout was a disaster. The word is not an exaggeration.

Those in the legal pot business, or trying to be, are vexed every day by open, unrestrained, illegal competition. Nobody in New York ever had reason to believe that legalization would magically make the underground, untaxed enterprises go away. Last year, industry representatives in California, which legalized recreational cannabis back in 2016, claimed 2 of 3 cannabis sales are made in the illicit market.

Only at this late date, with the pungent scent of cannabis ever-present on many blocks, is New York showing signs of a full push to enforce laws against illegal establishments which have been operating openly. As part of the recent state budget deal, the Office of Cannabis Management, counties, and cities are now specifically authorized and encouraged to padlock these illegal entities. They are to be shut down for selling to minors, unlicensed processing of cannabis, operating close to a school, or selling products that caused illness.

No time to lose there — and progress will be worth watching. But rogue operations are only one big part of the pot problem.

LAWSUITS SPROUTING

The cannabis law imposed a “social equity” system that favors licensing applicants who in the past had marijuana convictions. The thinking was that this would help make up for certain communities having suffered “disproportionate enforcement of cannabis prohibition” in the past.

Since adult-use sales began in 2022, New York has been facing cannabis-related lawsuits targeting these “social equity” preferences and other policies and practices including advertising restrictions, residency requirements, and processing delays, to name a few.

The relevant regulations and legislation were written in ways that left them vulnerable to these challenges. An ill-advised, hard-to-enforce “potency tax” on pot products was eliminated in the recent budget — earning sighs of relief in the industry but also leading to the question of why it was there in the first place.

Financing has proved difficult for eligible ventures — and a recent fiasco made things worse. The state’s Dormitory Authority announced it has stopped issuing new leases for “social equity” cannabis retailers. The authority provides financing and construction services to selected institutions, in this case for store space.

But that program was halted after The City website revealed that a private equity investment fund peddled high-interest, hard-to-pay-back loans to these startup businesses.

Hochul has shaken up top staff in the relevant agencies. That’s a necessary first step, but was too long in coming.

The review released by her state operations office gave other bleak details. Complex and obscure licensing requirements “contributed to creating a bottleneck of marijuana business applicants,” the report said. The licensing process was unclear. Customer service was “sparse.” There was a “misguided attempt to create new information technology systems.”

“Most concerning,” investigators said, the cannabis office “did not intend on reviewing all retail license applications it received, while accepting nonrefundable application fees, and requiring many applicants to execute leases or purchase property.” This created “an environment of deep mistrust.”

SOME LOST INVESTMENTS

In an unusual move, Hochul said the state would make a $5 million pool of state funds available to reimburse those wronged by the program. Some applicants made investments to secure storefronts while the process dragged on.

Farmers, too, lost investments and need help. With local dispensaries delayed, some in the Finger Lakes region had to haul their cannabis as far away as Albany and New York City. Their trade association said last month: “These farmers, central to the cannabis supply chain, have endured overwhelming financial losses, with a staggering 97% of them operating at a loss.”

Now that marijuana is legalized, the state cannot just walk away and forget the whole thing. Officials need to repair the regulatory and development system for cannabis from the top down.

To be sure, New York is far from alone in its cannabis startup problems.

Perhaps it will help if the federal government, as planned by the Biden administration, reclassifies marijuana as a less dangerous but still controlled drug. But a basic business problem might remain — a lack of loans and banking services that other businesses easily obtain.

State bureaucracies are not known to work deftly or quickly, most familiarly in New York. For any government at this moment, cannabis management would be a bear of a project, as it has been elsewhere. Consider, all at once: product safety, business development, law enforcement, competitive applications, agriculture, market forces, retail sales — all developed from scratch or close to it.

It remains to be seen whether New York can beat the odds, reverse the losses, and govern the cannabis business to the satisfaction of all concerned.