Roadblocks and Red Tape: New York’s Cannabis Effort at a Crossroads

When New York State began laying the groundwork for its recreational cannabis industry last year, officials cast atoning for the harm done by the war on drugs as a cornerstone of the ambitious plan — and promised to give people who were previously convicted of marijuana offenses the first opportunity to sell it legally.

Today, that effort appears to be foundering: Although Gov. Kathy Hochul suggested last fall that more than 100 dispensaries would be operating by this summer, just 12 have opened since regulators issued the first licenses in November.

In a letter to regulators and the governor’s office last month, a coalition of dozens of the prospective dispensary operators described being blocked by the state from selecting their own storefront locations. Some said that they felt pressured to accept inflated rents and construction costs, while others said that the state was withholding funding from those who wanted to lease space or handle matters on their own, according to the letter, which was also sent to The Times.

The prospective sellers said that they appreciated how the state’s tight control over the program was meant to benefit them but added that, more often, it was holding them back.

“We are now very clearly and quickly learning that it is now to our disadvantage in the current landscape,” they said.

The outcry drew support from cannabis farmers, processors and others with a stake in the recreational marijuana industry who said the vision of a cannabis market that uses the licensing process to right old wrongs and promote small business is still far from being realized.

Gahrey Ovalle, a 47-year-old businessman on Long Island and a retail licensee, signed the letter with his brother, whose previous conviction helped them to secure a license in April. The pair had sought advice from others who had already started the process, only to learn that many of them had made little progress in opening their own shops and were afraid of speaking out against the regulators who controlled their fates.

“What they were describing was, they’re in the same space as us and we came along six months later,” Mr. Ovalle said in an interview. “And that was very alarming to us.”

The delays in opening the state’s first legal recreational marijuana dispensaries have reverberated through the supply chain, leaving farmers and processors holding hundreds of millions of dollars in crops that are slowly deteriorating. Some said they were facing the loss of their land and businesses.

The retail initiative was meant to help people convicted of marijuana offenses gain a foothold in the legal cannabis industry by making them the only ones eligible to sell weed legally for an initial, fixed period of time. It was to provide 150 of them with ready-to-open locations and a total of $200 million in low-interest loans. But a year after Ms. Hochul assigned leasing and financing tasks to the Dormitory Authority, a public construction behemoth, the agency has not found enough landlords willing to rent to dispensaries and has raised no money from investors for the loan fund.

The situation has taken on greater urgency since the Cannabis Control Board, which approves licenses and regulations, voted last month to allow the major cannabis firms behind the state’s medical marijuana program to wade into the recreational market in December — two years ahead of time.

When that occurs, it will put the smaller dispensaries run by people with past marijuana convictions, currently the only ones who can legally sell recreational marijuana, into direct competition with large companies that have all but shut out small players in other states. Some of those businesses have openly attacked the New York State program that awards retail licenses to people convicted of marijuana offenses.

The shift came without explanation, two months after some of the medical marijuana companies sued regulators to gain entry to the recreational market.

The Office of Cannabis Management, which issues licenses, and the Dormitory Authority declined interview requests. But the agencies’ leaders said in a joint statement that they would meet with the letter’s signers and make improvements to the program. The first such meeting was set to take place in Queens on Tuesday.

Kavita Pawria-Sanchez, the chief executive of CannaBronx, a grass-roots policy organization that works on behalf of current and former dealers, said the outpouring of support demonstrated a growing sense that what legalization activists fought for was in peril.

“I think folks are exhausted and understand that we’re at a make or break moment, and that if this ship doesn’t change course, we aren’t going to see what we thought we would see,” she said.

Some licensees have found locations on their own only to be outbid by the state or told it was too close to a location the agency was already interested in, the licensees said. Those who rely on the state’s help are offered spaces with high rents and renovation costs with few details or no room for negotiation.

One licensee said he found a place to rent for $9,000 a month, but the property owner changed his mind after the Dormitory Authority offered him $14,000 monthly to join its landlord pool instead. Another said he was charged $125,000 for a security system that normally costs $12,000. And several licensees said contractors were quoting renovation costs from $800,000 to $1.6 million for work that could be done for less than $300,000. The licensees spoke on condition of anonymity because they feared retaliation from regulators.

The licensees said the costs make profit nearly impossible for dispensary owners, who already do not have access to traditional financing and cannot deduct most business expenses from their taxes because selling cannabis remains a federal crime. They also face high state taxes and operating costs that make it difficult to compete with the illicit market.

Attempts to raise concerns with the Dormitory Authority and the fund managers have gone unanswered, the licensees said, prompting them to write last month’s letter.

Carson Grant, 45, who owns a retail packaging and shipping business in Queens and who signed the letter, received one of the first dispensary licenses in November as part of a cohort that one official said was the “top class” of applicants.

Six months later, he said, officials have yet to answer his most basic questions — “How much is this going to cost me? Where is my loan agreement?” — and he was beginning to fear that licensees have been set up to fail.

“I’m just not being treated like a business person who makes business decisions, which to me could lead to my failure, my family’s failure,” he said. “So, honestly, this whole scenario has been traumatic for all of us.”

“I have tears sometimes,” he added. “I can’t sleep. There’s no clear direction. There’s no full transparency.”

At a recent regulatory meeting, the president of the Dormitory Authority, Reuben McDaniel III, defended his agency’s handling of the program. He said some licensees had negotiated worse deals than the state for the same properties.

Contractors’ quotes seem high because they include things like cash machines and furniture that are not typically part of construction costs, he said. But all of the estimates have come down, one by as much as $400,000. He added that the loans do not require dispensary owners to put up collateral, which frees them to finance other parts of the business, like inventory.

In Albany, Ms. Hochul signed a bill last Thursday that would allow farmers and processors to continue delivering to dispensaries, avoiding an imminent interruption in the supply chain. But it remains unclear if other measures, like a bill that would provide loans to struggling farmers, will pass with less than a week left in the session.

Reginald Fluellen, the senior consultant for the Cannabis Social Equity Coalition, a group representing Black and brown people harmed by the enforcement of antidrug policies, said that it was up to Ms. Hochul to salvage the rollout.

“The governor needs to step in and use her influence to get course-correction, or replace them in order to correct what’s going on here,” he said.

Officials from the Office of Cannabis Management said in a recent meeting with growers that they hoped to soon be able to allow farmers and retailers to start selling weed at farmers’ markets and events like concerts.

For Katherine Miller, a farmer in Sharon Springs, west of Albany, time is of the essence.

She was one of 250 hemp farmers who grew the state’s first legal cannabis crop last year, and she had planned to use the proceeds of the harvest to finance a second season. But at a Cannabis Control Board meeting earlier this month, she was among several farmers who described how having nowhere to sell their cannabis crop had turned what was supposed to be a lifeline, into a liability.

Ms. Miller, 50, recently planted a second round of seeds. But she said she fears losing the farm she has owned for 13 years, that is also her home.

“Planting again is like my final Hail Mary,” she said. “It’s like trying to believe this will come together, and that it will end up being profitable and worth it.”