Social equity and the legal cannabis business: Where does NY stand?

Photo of author

By Dan Sears

Listen to this article

This March marks three years since former Gov. Andrew Cuomo signed the New York State Marijuana Regulation and Taxation Act (MRTA) into law, which made recreational use of marijuana legal in New York for adults over the age of twenty-one.

MRTA also represented one of the most progressive cannabis legalization bills in the nation – intending to award half of its licenses to social and economic equity (SEE) groups and invest forty percent of the adult use cannabis tax revenue toward rebuilding communities harmed by cannabis criminalization.

“New York’s program is one of the most comprehensive out of the states that have legalized cannabis thus far,” said William M. X. Wolfe, associate, and member of the cannabis industry team with Harris Beach PLLC. “This is likely because NY looked to other states with similar programs when crafting its social equity regulations to ensure that they not only gave preferential treatment to qualified applicants but also reinvested in communities adversely impacted by cannabis prohibition.”

Almost two years later, how are New York State’s efforts going when it comes to social equity in the legal cannabis space?

“I think they’re going great,” says Damian Fagon, chief equity officer for the NYS Office of Cannabis Management. Fagon is a third-generation farmer with a background in international development, agriculture and small business who assumed his role with the state in June 2022.

He also has a background in social equity activism and has known many of those who have been fighting for equity and cannabis across New York state for the years.

“All of us would agree that what we value is outcomes over speed,” Fagon said. “There are obviously a lot of folks who would like us to go faster and would like there to be more stores open. But there are also communities that have been fighting for this for a long time and understand that not everyone’s ready at the same time. It’s a deliberate, intentional process that takes time.”

See also  House Judiciary probe into ESG expands to ISS and Glass Lewis

Edwin Spencer and Precious Brown, co-executive directors of B.L.O.O.M. ROC, are two of those individuals in the Rochester region who have been working hard to inform and empower potential SEE applicants (minority- or women-owned businesses, distressed farmers, service-disabled veterans and individuals from communities disproportionally impacted by past cannabis criminalization) about opportunities presented by MRTA.

“We are six solutions-based organizations that came together specifically to be a resource to the social and economic equity applicant,” said Brown, co-founder and CEO of Rochester-based EWC LLC, a cannabis education and entertaining company. “If you are an individual who wants to reimagine yourself in the cannabis industry B.L.O.O.M. ROC is creating those avenues to make sure that it’s easy for you. And if you are a legacy operator wanting to legitimize your illegal business, we want to be able to resource to you as well.”

The leaders of B.L.O.O.M. ROC united in October 2023 when the application portal for SEE applicants opened (it closed on December 18, 2023). During the application cycle, B.L.O.O.M. ROC leaders met with over 120 residents of the Rochester region who qualified as SEE applicants and assisted twenty-four with submitting their applications on time. Those applications are being reviewed or will be reviewed in the upcoming weeks.

Spencer explains that in addition to raising awareness and dispelling misconceptions about the application process (such as the cost – which is $500, not thousands of dollars like in other states) and helping community members through the process, B.L.O.O.M. ROC wants to ensure entrepreneurs succeed once they receive licenses via professional development.

“We want to help entrepreneurs grow their businesses because, at the end of the day, we want to get tax revenue back into the community,” said Spencer, who is an accountant and partner with Sun Lion Financial Group LLC. “We want these businesses to be so successful that their tax revenue leads to change in the schools and down the street. And we’re willing to work and collaborate with anybody else who is trying to help.”

See also  Priciest home sales in Kings Point

Fagon, who says New Yorkers can expect to see an explosion of newly licensed SEE operators across the state in 2024, gives credit to community-led organizations like B.L.O.O.M. ROC that are collectively playing a key role in helping make this happen.

“We benefit from all these organizations like B.L.O.O.M. ROC, Cannabis Connect, and others that have stepped in and are doing this work to educate the population,” Fagon said. “I think New York has caught up to speed in a lot of ways and people know a lot more than they did a few years ago when the MRTA was signed. That’s to the benefit of the industry; people are going to be able to be more successful, make better decisions and they’re going to be taken advantage of like we’ve seen in other states.”

As the state’s rollout continues, Wolfe says there are some things those interested in the space should keep on their radar, including the potential for an injunction stemming from Variscite NY Four, LLC et al v. New York State Cannabis Control Board et al (Index No. 1:23-cv-01599-DNH-CFH) filed on December 18, 2023.

If the court grants an injunction to the plaintiffs in this action currently pending in the Northern District of New York, it could cause a further delay to the SEE and CAURD (Conditional Adult Use Retail Dispensary) programs and potentially bring the entire adult-use cannabis program to a halt, Wolfe explained.

See also  Law firm Quinn Emanuel & Sullivan moving to Textile Building

Additionally, Wolfe said, “All applicants must keep in mind the tax implications of running a cannabis business. Although the federal government has called for the reclassification of cannabis from a Scheduled I drug, it remains as such.”

As a Schedule I drug, cannabis businesses are unable to claim many of the deductions that regular companies can claim. However, Wolfe explains, there is a workaround that was most recently employed by the Massachusetts-based cannabis company Theory Wellness, creating an Employee Stock Ownership Plan (ESOP) – the company, in turn, becomes tax-exempt at the federal and state level and avoids the onerous provisions of 280e of the federal tax code.

“In addition, there are some real estate concerns that readers should be prepared for, including the zoning setback restrictions from schools, churches, public youth facilities, and other retail dispensaries,” Wolfe said. “Additionally, landlords need to check with their lenders and insurance carriers to make sure cannabis use is not prohibited use according to the landlord’s financial institution and insurance carrier.”

For more information on B.L.O.O.M. ROC visit https://bloomroc.org/

Caurie Putnam is a Rochester-area freelance writer.

Rate this post

Leave a Comment