New York Agency Will Stop Overseeing Marijuana Dispensary Construction As Lawmakers Grill Governor’s Nominee

“I don’t wish us to continue with a very, very questionable model that’s not in the interests of the CAURD applicants or the state of New York.”

By Rosalind Adams, THE CITY

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State senators grilled the acting chief of the state Dormitory Authority about the terms of a high-interest cannabis business loan program recently exposed by THE CITY as part of his confirmation hearing on Tuesday—while the authority says it’s suspending new deals.

Gov. Kathy Hochul (D) appointed Robert Rodriguez, formerly New York’s secretary of state, as acting president of the Dormitory Authority last month. The governor had put the agency, which typically finances public construction projects like schools and hospitals, in charge of creating a $200 million cannabis “social equity” fund that would be used to lease and construct 150 cannabis dispensaries for licensees impacted by drug convictions.

Licensees matched to dispensaries leased and built out by the state were required to use loans from the cannabis fund to cover the costs of the renovations, which they had no control over. Borrowers, attorneys and state sources had told THE CITY the state loans were virtually impossible to pay off, thanks to unrealistic projections for sales of legal marijuana products and inflated construction costs.

The state contributed $50 million to the cannabis fund and eventually approved up to $150 million from Chicago Atlantic, a private equity investment fund, last June. The terms of Chicago Atlantic lending the cannabis fund money were kept secret despite requests from lawmakers and public records requests until THE CITY obtained a late draft of the document last month.

At Tuesday’s hearing, senators led by Liz Kreuger (D-Manhattan), an architect of the 2021 cannabis legalization law, and Gustavo Rivera (D-The Bronx) used the confirmation hearing as an opportunity to press Rodriguez about the details of the cannabis fund, questioning whether its deal with Chicago Atlantic is fair for the retail licensees.

“People are arguing—including people who went into these deals—that they will never have the revenue to pay back their loan,” Krueger said. She pointed to some of the terms of the agreement reported by THE CITY, including how a licensee can be removed from its dispensary location for late payments.

“That’s a fairly radical action compared to what would happen if you were late on your mortgage for your home—for, I think, most business fields. Do you happen to know whether that information is correct?” Krueger questioned.

“I’ll have to look into that,” Rodriguez responded.

Krueger also asked Rodriguez to confirm whether it was true that if the licensees fail and default on their loans to the fund, the state would still be on the hook for payments. THE CITY first reported the state’s liability in the agreement with the private equity firm.

“Chicago Atlantic would actually still hold the state of New York responsible for continuing to completely pay back the total loan, is that your understanding?” the state senator asked.

Rodriguez didn’t have a clear response to that question, either.

The loan program has already drawn scrutiny from state legislators, including Assembly Majority Leader Crystal Peoples-Stokes (D-Buffalo), who raised concerns about the high construction costs of the dispensary build-outs. Krueger and Rivera both raised the build-out expenses to Rodriguez, as well.

The acting Dormitory Authority president told the committee that “the expenses related to construction have been verified by third parties” and that they’ve “tried to secure lower costs.”

“That’s something that we continue to evaluate for the upcoming stores, as well,” he added.

Rivera asked Rodriguez for a commitment to running the loan program in an equitable way. “I just want to make sure we’re on the record,” the senator said, “that the role your agency will play in this process is making sure that these folks get the economic support that they require from the fund that was created specifically for this purpose.”

Krueger told the New York Post on Monday that the Dormitory Authority is no longer issuing loans through the cannabis fund. During the hearing, Krueger said this information may have changed and she had heard that the cannabis fund operators were considering a new model.

Jeffrey Gordon, a spokesperson for the Dormitory Authority, said that DASNY will stop seeking out leases or overseeing construction of any dispensaries. So far, the fund has signed 24 leases. From now on, the cannabis fund will only lease dispensary locations already acquired by Chicago Atlantic to potential licensees.

“The transition is from the lease side of the Social Equity Investment Fund program to the purchase side of the program,” Gordon wrote in a statement to THE CITY.

During the hearing, Krueger clarified that she was using the opportunity to get answers to questions about the Conditional Adult Use Retail Dispensary (CAURD) loan program, and that she didn’t expect Rodriguez to have every answer immediately.

“My purpose in asking all of these without the answers is I very much hope you know the answers very soon,” she added. “I don’t wish us to continue with a very, very questionable model that’s not in the interests of the CAURD applicants or the state of New York.”

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Photo courtesy of Chris Wallis // Side Pocket Images.