New York Senators Call For Investigation Of State’s Marijuana Social Equity Fund After Exposé Of ‘Predatory Deals’

“What this story describes is not a social equity fund. We must get to the bottom of this.”

By Rosalind Adams, THE CITY

Citing an investigation by THE CITY, two state senators have called for New York’s social equity cannabis fund to cease issuing loans to dispensary operators and for any “trapped in these predatory deals to be made whole.”

“What this story describes is not a social equity fund. We must get to the bottom of this,” State Sens. Liz Krueger (D-Manhattan) and Gustavo Rivera (D-The Bronx) asserted in a joint statement that pointed to the high interest rates and start-up costs highlighted in the article.

They called for an investigation by the state’s inspector general of the public–private fund, which was designed to finance a form of reparation for people whose lives had been disrupted by decades of racially discriminatory drug laws.

The governor’s office did not immediately respond to a request for comment. The office has repeatedly refused to answer detailed questions from THE CITY seeking greater clarity about the fund’s operations.

THE CITY’s investigation found that officials of the state’s Office of Cannabis Management, or OCM, had repeatedly warned the governor’s office for months about how the cannabis investment fund was being managed. They raised red flags about how dispensary operators were being loaded with steep costs and trapped in loans with strict terms that they believed were likely to lead to defaults. And OCM’s own counsel warned in an email that the licensees would likely default on their loans under the proposed terms.

The story was based on more than 500 internal agency emails, memos and presentations from July 2022 to July 2023 when the state was having trouble opening more than just a handful of dispensaries.

Calling the fund’s practices “unscrupulous,” the legislators said, “We must take action to redress these loan agreements.”

Read my joint statement with Senator @LizKrueger in response to reports by @THECITYNY‘s @RosalindZAdams of internal concerns regarding the operation of New York’s Cannabis Social Equity Fund. pic.twitter.com/BltcUXTjhl

— Gustavo Rivera (@NYSenatorRivera) June 13, 2024

The fund, announced by Gov. Kathy Hochul (D) in her 2022 state of the state agenda, was anchored by a $50-million state contribution that would be augmented by $150 million in private financing  secured by the state Dormitory Authority, or DASNY.

Its goal was to finance the leasing and building out of 150 dispensaries across the state to licensees who would then get the keys to a ready-to-open store. In return, they are required to pay back the expenses of the buildout costs over a 10-year loan.

But the Dormitory Authority had trouble attracting investors, and after a year of failing to find a partner, finally announced a deal with the Chicago Atlantic Group, a private equity fund that is a national lender in the cannabis industry.

In their statement Krueger and Rivera said, “We also deserve answers about the unsettling pattern of unheeded warning by agency officials about the clearly predatory loan agreements made by the Dormitory Authority of the State of New York (DASNY) and Chicago Atlantic.”

Kruger and Rivera also cited the case of a licensee who told THE CITY that he was outbid on a store location he found by brokers retained by DASNY.

“It is egregious that DASNY used its approval powers to outbid licensees that had secured their own location and were working with OCM to start their business,” their statement said.

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