N.Y. proposes $200M social equity fund to help minority businesses sell weed. What about N.J.?

By Published On: April 4, 2022Categories: News

As New York races to open its adult cannabis market, its governor has proposed what social equity advocates are calling a bold and innovative way to get a truly diverse pool of applicants in the new marijuana industry.

In her Jan. 5 inaugural State of the State Address, Gov. Kathy Hochul proposed a $200 million social equity fund in the state’s $216.3 billion fiscal year budget, which has yet to be hammered out as the state missed its Friday deadline. New York lawmakers are expected to reconvene on Monday in Albany.

The $200 million fund to be backed by state and private dollars is intended to help entrepreneurs of color and other under-represented groups get into the business.

While the idea is short on details, Hochul and supporters say the fund is to get capital to those who need it most since cost of applying is a real barrier to entry.

It’s prompted some lawyers who represent smaller marijuana operators and wealthy investors to ask: Why not a social equity fund in New Jersey?

Jeff Brown, executive director of the state Cannabis Regulatory Commission, said he found New York’s idea “interesting,” but could not point to a similar big-dollar proposal to ensure diversity and inclusivity in the nascent industry in New Jersey.

“The CRC threaded equity and inclusivity through every part of the rules we wrote for the recreational cannabis market and we know that financing is an additional piece of ensuring the market is accessible,” Brown said in an email to NJ Cannabis Insider. “We have been working with other state agencies to identify access to capital, workforce development assistance, and business development resources for aspiring entrepreneurs and expect to have new initiatives in the future.”

The CRC last week approved 68 cultivators and manufacturers for conditional licenses as a social equity measure to give the smaller operations a piece of what is expected to be a multi-billion dollar industry alongside multi-state operators and well-heeled investors.

“These are the first businesses to get a foot forward in the state of New Jersey,” Brown said at the meeting. “I cannot stress that enough.”

That action was overshadowed by the board’s unexpected delay in approving eight medical marijuana dispensaries’ applications to also sell recreational weed this spring, which spurred Senate President Nicholas Scutari, D-Union, to announce he would hold oversight hearings over the CRC’s performance. The 68 smaller operators aren’t expected to be in a position to sell weed until late fall at the earliest.

At the meeting, Brown also noted that the New Jersey Economic Development Authority is working to help ensure a diverse pool of applicants.

“Additionally, we hope that municipal leaders, property owners, and others who stand to benefit from a thriving cannabis market will choose to invest in new businesses by not setting up financial obstacles for entrepreneurs,” said Brown.

The governor’s office acknowledged there was no social equity set-aside akin to New York’s proposal in Gov. Phil Murphy’s proposed $48.9 billion budget, which would kick in on July 1.

“Our administration has always strived to eliminate barriers to entry for the adult-use recreational cannabis marketplace, through low fees, priority application review for licenses for micro-businesses, impact zone businesses, and social equity businesses, and the option to apply for a conditional license,” said Murphy spokesman Michael Zhadanovsky to NJ Cannabis Insider.

“The governor and the CRC are committed to working with advocates and stakeholders to ensure a marketplace that works for everyone. The administration is always open to hearing new ideas for equity in the marketplace,” added Zhadandovsky..

Murphy has said minor marijuana convictions did irreparable harm to Black and brown communities, whose members were sent to jail by the nation’s failed War on Drugs. The governor said the primary goal of the legalization of cannabis and its sale in a legit market is to fund restorative justice programs.

After signing the cannabis bill last year, Murphy touted that New Jersey’s cannabis market would be one of the most inclusive in the country, welcoming everyone from mom-and-pop operations to larger concerns, and giving preference to minority- and women-owned businesses.

New York’s social equity fund received a mixed response from those closely watching New Jersey’s yet-to-open adult market.

“We’re not an apples to apples comparison in the regards of financing mechanisms,” said attorney Beau Huch, a former top aide to state Sen. Declan O’Scanlon, R-Monmouth, who worked on both the medical and recreational cannabis bills. “I do know New Jersey is broke.”

“We have no money to just give away and that’d be a heavy lift here even if we did,” added Huch.

Edmund DeVeaux, president of the trade group New Jersey CannaBusiness Association, said it can’t be just about money to ensure the success of minority and women-owned cannabis enterprises.

“In our evolving regulatory and legislative arenas, the state has provided not only prioritization for communities most impacted by unequitable treatment under the law, but those with previous cannabis convictions and small startup businesses also have access to various forms of assistance through state sources like the Economic Development Authority, Business Action Center, and New Jersey Re-entry Corporation,” DeVeaux said in an email to NJ Cannabis Insider.

“There has to be a recognition that future and current participants in the cannabis industry may have to hone certain skills to be successful in the long-term.”

But some in the Garden State say applicants need the financial assistance more at the front end of the application process.

New York expects to start issuing licenses to sell adult-use recreational cannabis sometime next year. Hochul’s $200 million social equity fund would be backed by state and private dollars to provide capital and startup support for disadvantaged applicants.

Hochul envisions allocating $50 million — money that New York would advance before collecting it from cannabis license fees and taxes — and look to private investors for the rest.

A private partner would manage the fund that could give both grants and loans to eligible businesses, which would include those owned by women or minorities, disabled veterans and people from communities that endured heavy weed law enforcement. Specifics are still in the works.

If that money is approved, New York may use some of it to help open cannabis businesses, including securing retail leases and furnishing stores.

Nadir Pearson of Clifton would love it if New Jersey adopts this idea. The 25-year old Black entrepreneur said he could use the financial help as he applies for a conditional manufacturing license. So far Pearson said he’s spent $13,000 on lawyers to review his conditional application. He expects another $35,000 in fees to convert to an annual license.

On top of that, Pearson is spending tens of thousands of dollars on a down payment on a 16,000-square-foot warehouse in South Jersey. He secured the site in February, but with the ongoing delays in launching New Jersey’s adult recreational market, Pearson said he’s paying $10,000 a month in rent for a property not yet generating any revenue.

“Legislators should be a little bit more cognizant of the economic impact that they’re going to be having when they put in these statutes.” Pearson said. “There’s a strong disconnect between understanding the actual business of cannabis and the intent of these laws.”

Like many entrepreneurs, Pearson has tapped personal funds, relatives and friends — to get his foot in the door. His mother, Onika Perez, and another business partner, Hope Wiseman – a cannabis operator in Maryland – are listed as majority owners on the application to snag one of the women-owned business licenses. He has a minority stake.

“Figuring out ways to alleviate some of these financial burdens needs to be a priority … wherever the state feels that it can be most strongly suited to provide financial assistance – it should,” said Pearson.

“If true equity was the standing point on which we wanted to create this industry, then they need to take a long hard look at that.”

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