Drastic Action is Needed for NY to Achieve its Goals for Equity in Cannabis
The term “social equity” could be the most highly used phrase in New York’s cannabis industry. Despite an unprecedented effort by lawmakers to ensure a diverse industry that affords real economic opportunities to those communities devastated by the War on Drugs, there is no guarantee that a regulatory regime will achieve these goals.
The Majority Leader, Assemblywoman Crystal Peoples-Stokes, made social equity a centerpiece of her legislation (the MRTA) to legalize cannabis. During debate on the bill Peoples-Stokes addressed concerns amongst her assembly colleagues that it allowed so-called “criminals” into the marketplace by flatly responding “they won’t be criminals come tomorrow” – referencing the fact marijuana was about to be legal in New York for the first time in over eight decades. She was spot on.
New York isn’t creating a new industry, the State is simply legitimizing a marketplace that is already thriving. For the entirety of prohibition entrepreneurs grew, processed, distributed, and sold cannabis. Many of these operations became highly sophisticated and adapted to New York’s culture. For example, growers would hide plants along the brush line to avoid recognition by DEA helicopters while delivery services in Manhattan used apps and a network of couriers to help satisfy the insatiable demand. These innovators had to work under constant threat of violence, organized crime, and having their lives uprooted by law enforcement. They deserve a first look at the billion dollar opportunities legalization will open up.
A Conversation About Equity With Buffalo’s Most Legendary Cannaprenuer
In July, I sat down with Buffalo-area legend Reggie Keith. If you don’t know him – he is the founder of CannaHouse, a cannabis events and social club. He and his team have been putting on interesting events in Western New York for several years now along with marketing their marquee product, “Dirty Lemonade”. He traveled to Binghamton with his team to discuss how my consulting firm, The Castetter Cannabis Group, can help him prepare for licensure. After sharing some stories and going through the business model, we ended up in a fascinating conversation around our frustrations of how the State was approaching social equity and more specifically – the inclusion of entrepreneurs like himself and my family who have been working hard for years in the informal marketplace. We ended up taking this conversation into a recording of our podcast, Empire State of Cannabis.
THE FOLLOWING IS A SUMMARY OF SOME OF THE MOST IMPORTANT POINTS AND A FULL RECORDING OF THE EPISODE IS ONLINE AT: CASTETTERCANNABIS.COM/PODCAST.
The State Will Need to Act Intentionally
The MRTA sets a goal that 50% of licenses awarded go to social equity applicants. If achieved, this will undoubtedly be a positive boost for communities most impacted by the War on Drugs and afford new opportunities to entrepreneurs who deserve them. However, Reggie points out that we will be setting them up to fail if the State isn’t intentional about reducing barriers to entry.
“If there are legal systems in place that don’t allow those equity applicants to truly flourish then we are really just duplicating this process (prohibition) all over again”. – Reggie Keith on the Empire State of Cannabis Podcast
Identifying these barriers including access to capital, strict compliance regulations, confusing tax structures, limited access to consumers, and more is the first step. Through the regulatory process, the State can help mitigate these barriers and be intentional about solving for them. For example, New York could redistribute tax revenue to entrepreneurs in the form of grants or loans, provide technical assistance for compliance, and avoid costly and unnecessary restrictions on how licensees can market their products.
Further, regulators will need to provide amnesty to legacy market operators by shielding them from the IRS and understanding that there will not always be a way to document the source of funds. As Reggie remarks about the new legal marketplace; “it should reflect what already is there [and] that is diverse, has a lot of players who look like myself. But there is no mechanism that establishes trust for those to transition out of the legacy market”.
Putting People in Charge Who Best Understand the Challenges
Despite being over 100 pages, the MRTA sets only a broad framework for how the industry shall be regulated. Critical issues around licensing, marketing restrictions, how expensive an application will be, and more will be decided by a newly created Office of Cannabis Management (OCM). This office of attorneys, analysts, and regulators will be tasked with creating regulations for approval by the Cannabis Control Board – a 5-member board appointed jointly by the Governor, Senate, and Assembly.
The task is daunting. Even within a single issue – licensing, there are dozens of decisions that will need to be made that will drastically affect who gets chosen to operate a cannabis business. If the State opts to limit licensing, an approach that Massachusetts and Illinois have taken, there will be tough decisions over who deserves such an opportunity and who does not.
Reggie argues that all too often those making regulatory decisions don’t truly understand the perspective of those in the cannabis industry – especially legacy operators. He remarks that if a regulator is looking for what a “drug dealer” looks like and asks law enforcement they’ll get a certain view of legacy operators as compared to talking to a sophisticated industry vet or savvy entrepreneur who curates high-end cannabis social experiences.
While it’s difficult to identify who exactly has the most legacy market industry experience while federal prohibition holds – the State should allow for robust stakeholder feedback through the advisory board and regulatory comment periods.
Chris Alexander, a highly respected activist whose previous work at the Drug Policy Alliance helped shape the MRTA, was chosen as the OCM’s Executive Director. His leadership will ensure a progressive vision but he will have to recruit staff with seriously diverse backgrounds and life experiences – some of whom might not have the most impressive resumes on paper but do have a grasp on the legacy market.
If there aren’t legal systems in place that truly allow equity applicants to flourish, then we’re really just repeating the process of prohibition all over again.
Transferring Knowledge & Expertise
Besides access to capital, the knowledge gap presents the most formidable barrier to entry. Beyond the technical industry knowledge needed to operate extraction equipment or set up large scale fertigation systems, operators will have a maze of compliance, tax collection, and security requirements to wade through. Many legacy entrepreneurs have never had to remit sales tax, maintain detailed batch production records, or run payroll.
Reggie tells me that this barrier shaped his experience as an entrepreneur while growing CannaHouse.
“In our community, we find ourselves we’re first generation entrepreneurs. My CMO Shine, Val, and his parents own a couple different businesses in the community but that’s not the norm. We just grew up watching our parents work a job and so a lot of the behavior, the mindset, that we had to take on as these entrepreneurs and CEOs of our own companies is learned behavior. So we had to learn this from [Shine’s family] who runs a coffee shop… it’s not what I’m doing but he has some expertise in running a business, and he looks like me, payroll, takes me from this hustle into transitioning this into a business.“
I asked him if he thought the State bears responsibility for this.
“Yes I do. It’s disingenuous to say that you really want these licenses to be filled by qualified candidates and you don’t do anything to help them become qualified”.
Listen to the full podcast here.
Written by Kaelen Castetter
Reggie Kieth is founder/CEO of Buffalo-based cannabis events company Canna-House.
Leading the Castetter Cannabis Group, Kaelan has become a trusted advisor to some of the top hemp companies, lawmakers, and organizations across the State.