NYS officials should cultivate pot firms

New York State is ready to start the legal sale of marijuana by granting its first 100 "adult-use dispensary" licenses to qualified applicants who were convicted of pot offenses or had close relatives who were.

This detail was an attention-grabber.

It's an idea that might have sounded jarring and radical, and understandably so. It goes further than recent efforts to forgive or expunge past criminal violations that, as now widely agreed, were enforced unequally across racial lines. The proposed rule offers an official preference premised on those violations.

This is part of an overall social equity movement to address past wrongs by ensuring that everyone has access to the same opportunities. If the state, which regulates the commercial sale of adult use and medical cannabis, left all matters to the marketplace, the communities where disproportionate pot arrests brought bad economic and personal results over many years could come out on the losing side again in what is expected to be a lucrative industry.

Chris Alexander, executive director of the still-new New York State Office of Cannabis Management, points out that individual applicants who are deemed "justice involved," in the current bureaucratic phrasing, need to meet other, positive standards as well.

These applicants must be involved in an existing small business. Or as the pending regulations state, they'd have to "hold or have held, for a minimum of two years, at least ten percent ownership interest in, and control of, a qualifying business, which means a business that had net profit for at least two of the years the business was in operation."

And there are requirements for financing, labor arrangements, and other qualifications.

SOCIAL EQUITY MISFIRES

"Social equity" in pot sales has been attempted elsewhere with mixed results. Various problems persist — lack of federal legalization denying some businesses needed financing and credit-card systems, inner-city crime targeting some cannabis stores, and the taxes that go with highly-regulated businesses.

The cannabis office and the board that oversees it in New York set out on this regulatory adventure well aware of missteps in other states, like California and Colorado.

In 2016, Massachusetts was ordered by voter initiative to create policies bringing those most affected by pot arrests into the new industry. But minority-owned businesses make up few of the hundreds of marijuana dispensaries in the commonwealth. In Illinois, litigation has held up new permits for "social equity" applications in a statewide industry that isn't achieving diversity.

New York’s success on this front is far from guaranteed.

The state's rules could have their own kinks. Cannabis locations must be a certain distance from schools and houses of worship, a challenge in crowded areas. And showing violations already expunged from applicants' records could be tricky.

Proponents hope New York’s plans for support will make its program succeed. Dispensary applicants, for example, are promised they’ll be able to access supplies of the drug grown by local farmers. They could also benefit from state-leased storefronts.

New York is looking to create a special $200 million fund to help entrepreneurs of color and some other groups get in on the expected boon. The fund proposed by Gov. Kathy Hochul relies on $50 million in licensing fees from the industry and $150 million in private equity.

DILIGENT LICENSING

One year ago this month, then-Gov. Andrew M. Cuomo signed legislation making possession of up to 3 ounces of cannabis legal in New York. Now that the various municipal governments around the state have chosen whether to opt out — which dozens of villages, towns, and cities on Long Island did — the licensing and establishment of supply chains and networks become the task. The Albany regulations have finally made it to a 60-day comment period.

There are 11 types of licenses involved in this cutting-edge regulatory buildup. Beyond the dispensaries, the cultivators, processors, and deliverers will need official certification, among others. So will "on-site consumption" establishments such as cannabis bars and lounges. Although the best historic parallel is the regulation of liquor at the end of Prohibition in 1933, governance and social circumstances are quite different regarding today’s marijuana transition.

Aside from social-equity goals and the unique history of this product, the state will need to avoid pitfalls that have plagued other types of programs over the years and that led to significant gaming of the system.

The regulators need to ensure — by diligent review — that any licensee does not merely act as a front for another investor or group of investors or "silent partners." The public will need to know that local farm suppliers and community dispensaries are just that and that vendors are dealing at arms’ length with these businesses. There should be no little family or clique cartels operating behind the scenes.

Proposed stringent requirements of financial disclosures and contracts, and four-year license reviews, are intended to address this. But regulation of any industry is always a work in progress.

With luck, this program could bring significant local economic development and the kind of social balance that past drug policies never even promised.

The details need to be managed attentively and adjusted as the facts come in — or social equity will prove a pipe dream.