In just over 20 minutes on the day after a long holiday weekend, New York regulators made significant moves on equity, litigation, and enforcement.
On Tuesday, the Cannabis Control Board met and heard the first formal update from the Dormitory Authority of the State of New York (DASNY) on its fundraising efforts for the state’s social equity fund. Regulators also approved a settlement related to a lawsuit that blocked licensing in five areas of the state.
New York Gov. Kathy Hochul announced the $200 million public-private equity fund last year, and the money was set to go toward providing turnkey cannabis shops to Conditional Adult Use Retail Dispensary (CAURD) licensees. Now, after months of crickets on how fundraising is going beyond the $50 million coming from the state, causing mounting frustrations, DASNY is recalibrating as it cites a range of challenges. The headwinds are the result of changing conditions since the fund was announced, from rising interest rates to hurdles in the cannabis industry, according to Reuben McDaniel, CEO of DASNY and Cannabis Control Board member.
“Since that period of time, the markets have changed quite a bit,” said McDaniel on Tuesday. “The equity markets in the cannabis space have also become much more difficult than they were a year ago, partly because of a national settling, if you will, of wholesale prices in cannabis, but also just the equity investors seem to be waiting to see how different states go, including New York.”
So, DASNY “went down the journey of identifying investors” and discovered that the
“best way” forward was to make the fund available to credit investors instead of just equity investors, McDaniel said.
In other words, a debt investment that “allows us to have a platform for our next stages,” McDaniel said, adding that DASNY could return to the Board for further equity fund tweaks.
“This is just a big step along that journey so that we are closer than we have been to securing the funding,” McDaniel said.
The Board also swiftly approved emergency rules related to enforcement against unlicensed cannabis businesses. Hochul signed legislation earlier this month that focuses mostly on civil penalties like fines and targets building owners and lessors who rent to unregulated cannabis businesses.
“Now, the focus is on closing doors,” Office of Cannabis Management (OCM) Executive Director Chris Alexander said, of unlicensed shops. “Folks will see a lot more of those public notices that shops have been engaged in illicit activity, illicit cannabis has been seized, and that we are closing down these businesses.”
Finally, Linda Baldwin, OCM’s general counsel, gave a brief update about the lawsuit from Variscite. The lawsuit, which was filed last September, challenged aspects of the CAURD application process. The litigation ended up blocking regulators from issuing licenses to these “justice-involved” licensees in five regions: Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn. In March, as Cannabis Wire reported at the time, a judge lifted the block in all regions except the Finger Lakes.
“Now, with the prospect of the litigation ongoing, the Office has recommended that the litigation be settled. And the plaintiff has agreed to a settlement so that we can move forward with the CAURD program and issue licenses also in the Finger Lakes region, as well,” Baldwin said.
“One of the conditions of the settlement was to grant the plaintiff in that case, the one that had applied for a CAURD license, an adult use license, when those licenses become available. And those were terms that we could agree upon in order to move forward,” Baldwin added.
The Board signed off on the settlement. The lawsuit filed by Variscite NY One, Inc argued that the criteria for CAURD licensees violate the Dormant Commerce Clause. Kenneth Gay, who owns Variscite, also owns a company called PeridotTree, which is making a similar argument against the City of Sacramento, California.
The settlement will be filed later this week, and will be made public at that time.
There was no public comment, nor a report from Alexander.