A group of cannabis dispensary operators called on Gov. Kathy Hochul Thursday to forgive tens of millions of dollars of high-cost loans that they say threaten the viability of their businesses.
The loans were made by a social equity loan fund created by the Hochul administration to provide capital to dispensary owners, but that has instead “perpetuated many of the economic inequities it was designed to combat,” according to a letter to her from the group, which includes operators whose lives were affected by the state’s former, racially discriminatory drug laws.
THE CITY highlighted the plight of several of them, including in an article last November focused on Roland Conner, operator of the first cannabis dispensary backed by the fund, which opened in early 2023. Conner signed a $1.9 million loan with a 13% interest rate and had trouble making the monthly payments within a year.
The letter is from a collective of borrowers who participated in what is known as the conditional adult-use retail dispensary program, or CAURD, and it took aim at the $200-million fund proposed by Hochul in early 2022 as a way to finance the first 150 cannabis dispensaries in the state.
The public-private fund has been the subject of extensive reporting by THE CITY, which was referred to in the letter to Hochul. THE CITY found that the fund failed to attract the private investors who had been counted on to provide $150 million to its financing and that it helped open only a fraction of its planned number of stores. All the while, it loaded store licensees’ with steep costs and high-interest loans that many owners say are sinking them.
The public-private fund now includes $50 million of state funds and another $28 million in loans from Chicago Atlantic, a private investor. So far, 21 fund-backed stores have opened with the assistance of tens of millions of dollars in loans. According to a late draft version of the Chicago Atlantic loan agreement reviewed by THE CITY last April, taxpayers may be on the hook for 10 years of interest to the company even if the state forgives the loans to the social equity borrowers.
But the ramifications of a loan forgiveness are unclear because of the complex financial arrangements underpinning the fund and its relationship with Chicago Atlantic. The state has repeatedly refused to disclose those details fully in response to public records requests and requests by advocates.
An Illinois Model
In a statement, the governor’s office said, “as the state’s newest billion-dollar industry moves into the new year, the Governor remains committed to the CAURD program, which is the backbone of our legal adult-use industry, and the Hochul administration will continue working with CAURD licensees to establish programs that increase access to capital, empower communities, and promote further economic growth.”
While crediting the governor’s commitment to social equity, the letter from the cannabis operators, contended that, “while we have been promoted as ‘social equity success stories,’ the reality is that the current structure of the Social Equity Cannabis Investment Fund has imposed severe financial challenges that threaten the viability of our businesses.”
In arguing that the loans be forgiven or converted to grants, the letter — which was signed by six members of the collective including Conner — argued that the loans were “predatory,” not only because of high-interest rates, but because they had to cover unexpectedly high construction costs charged by companies the state required borrowers to use. They also charged they were subjected to high-pressure negotiation tactics used to get licensees to sign the deals.
The store operators called for the state to instead adopt a program based on an Illinois’ model that made nearly $9 million in forgivable loans available to social equity cannabis licensees in 2022. The New York fund provides non-recourse loans, in which borrowers cannot be held personally liable for the debt. But in order to keep operating, licensees must make the monthly payments or the loans will keep accruing interest.
Three key state lawmakers have called for some form of borrower assistance: State Assembly Majority Leader Crystal Peoples-Stokes and state Senators Liz Krueger and Gustavo Rivera, all Democrats.
“This moment represents an extraordinary opportunity for New York State to lead the nation by demonstrating how a restorative justice program can repair past harms and create meaningful change,” the store owners’ letter said.
