Berkay Sebat has been edging toward becoming the owner and operator of one of the state’s first cannabis dispensaries. But it’s been four months since the Office of Cannabis Management informed him that he’d been matched with a storefront in SoHo, and he’s not sure he’ll ever get his site.
A court injunction on the state’s Conditional Adult-Use Retail Dispensary (CAURD) licenses, specifically meant for people impacted by past cannabis convictions, has Sebat concerned his license will be worthless. He said an employee at the Dormitory Authority of the State of New York (DASNY), which oversees funding for licensees, told him that if a judge throws out the program, the state’s promise to set up those licensees with dispensaries will also be scrapped.
Sebat said he’s already spent about $100,000 in his efforts to open up a dispensary, money that’s gone toward purchasing fixtures for his store, legal fees and looking for his own location prior to the Dormitory Authority’s offer. He said he had left his engineering job and now lives with his brother.
“When we first got licensed, a lot of people were waiting and still wait to this day for DASNY to give them their store,” he said.
Over a year after New York City began giving out its first retail licenses to hundreds of applicants impacted by the war on drugs, and amid a lawsuit challenging the legality of the program, several licensees have said to THE CITY that they’re unsure the state will be able to deliver on one of its original promises: to equip them with ready-to-go dispensaries.
People who have received CAURD licenses but don’t have stores open yet say they are trying to decide whether to apply for one of the state’s new licenses for the general market and whether they should look elsewhere for investment dollars in their efforts to open up a dispensary.
The state created the $200 million New York Social Equity Cannabis Investment Fund, a joint public-private effort, to support formerly justice-involved entrepreneurs with the capital needed to enter the retail market, recognizing that the onerous hurdles of obtaining support from financial institutions and investors would stop many licensees from opening their dispensaries.
But to date, only eight Fund-supported sites have opened, five of which are in New York City, with the most recent being Gotham Buds in Harlem on Oct. 18. And two of those city-based dispensaries are currently closed for a build-out, according to Jeffrey Gordon, a spokesperson for the Dormitory Authority. He said the fund had secured a total of 24 leases for dispensaries.
Meanwhile, this month, the Office of Cannabis Management opened up licenses for the general public, meaning many CAURD licensees who had banked on the advantage of being first into the market will face stiff competition.
DASNY and the state Office of Cannabis Management have been hamstrung by an injunction stemming from a lawsuit filed by a group of veterans who had challenged the constitutionality of the CAURD licenses.
The state’s Office of Cannabis Management has informed Conditional Adult Use license-holders that they are free to apply for one of the other licenses during this application window.
OCM Spokesperson Aaron Ghitelman said in a statement to THE CITY, “The instruction to CAURD licensees to apply for a non-conditional license is to ensure the greatest possible flexibility for those licensees as OCM continues to work through existing litigation regarding the CAURD program. DASNY and the Fund will continue to support all current and future CAURD licensees matched to Fund sites, which by statute can only be accessed by CAURD licensees.”
Speaking for the Dormitory Authority, Gordon echoed the commitment to support CAURD license-holders who use locations provided by the Fund, stressing that “the Fund by statute may only serve CAURD licensees so other licensees cannot enjoy the highly advantaged loans from the Fund.”
Sebat said he is hesitant to jump — because forfeiting his Conditional Adult Use license would likely close the door on getting a store through the state’s Social Equity Fund. “If there’s no CAURD, then I have no Fund location,” Sebat said. “All this time I spent with this space was for nothing. I could have been talking with investors.”
‘It’s Unfortunate’
The injunction caught other cannabis entrepreneurs midway through their launch.
When a judge upheld the injunction against the CAURD program in early August, Statis, a dispensary in the Bronx, had been open at its pop-up location on East Tremont Avenue only a few weeks. The plan was to move to a location near Yankee Stadium supported by Dormitory Authority funding.
But after the injunction, the Dormitory Authority told Statis that it would stop signing leases until the injunction was lifted, said the dispensary’s CEO, Christian Chavez. The owners were far along in the process to secure a spot for a permanent location — but with just a letter of intent from the landlord in hand and no signed lease, the injunction upended their effort.
“The injunction definitely halted our plans and made us pivot,” Chavez told THE CITY in an interview.
Statis has applied for a general adult use retail location to expand its footprint across New York. Chavez said they’re still unclear about how having a CAURD license and a general use license may fit together and what will happen if they’re awarded both.
Moving forward, the dispensary is raising capital on its own, planning for the possibility that financial support from the Dormitory Authority will never come.
“Our plans are still in the works, it’s just, I don’t believe that the Fund can be part of it at this point, Chavez said. “It’s unfortunate, you know, the injunction has affected us all.”
During a state Senate hearing on Monday, Dormitory Authority Vice President Charlie Williams said that the injunction prevents the Office of Cannabis Management from matching license-holders with Fund-supported sites but that the build-out of leased locations is still ongoing.
Asked why the Dormitory Authority has been slow to open stores, he said it had to do with a changing cannabis market that made it hard to find equity investors — ultimately necessitating a switch to debt investors.
“There are enough resources to build these dispensaries, and as soon as the injunction’s lifted, and we are continuing actually our build out of the existing leases,” Williams said.
Shifting Sands
In June 2022, Gov. Kathy Hochul announced the selection of Social Equity Impact Ventures LLC to manage the $200 million fund — led by former City Comptroller William Thompson, who teamed up with entrepreneur Lavetta Willis and basketball star Chris Webber despite their spotty record in cannabis ventures elsewhere.
The fund failed to open a store before the end of last year, and when it opened its first store, it was a “pop-up” — a bare-bones temporary store, a model still in effect in two of the five state-licensed retail stores that have opened in New York City.
While the Dormitory Authority had announced a goal of raising $150 million from investors by September 2022, it wasn’t until June 2023 that the state secured that sum in private funds, via the Chicago Atlantic Group.
Peter Sack, managing director of Chicago Atlantic, said he remained confident about the future of the fund, despite the legal hurdles. “Some form of messiness is inevitable, and we expected it from the beginning,” Sack told THE CITY.
Last month, Dormitory Authority CEO Reuben McDaniel III departed the authority, Politico reported, after playing a major role in the rollout of the Social Equity Fund. Sack said he recently spent time in Albany with DASNY Vice President Charlie Williams and feels assured about the future of the fund. “There’s so many people across all branches of government that want social equity licensees funded in some way, shape or form that it’s going to get worked out,” said Sack.
As the Dormitory Authority and the Fund’s efforts to open turnkey-ready locations stalled, the Office of Cannabis Management expanded the number of CAURD licenses and gave licensees more flexibility.
In December, OCM announced that licensees would be able to open stores on their own without subleasing from the Fund as well as allowing licensees to do delivery while they awaited their location. And in March, the agency said it would double the number of CAURD licensees — eventually issuing more than 400 CAURD licenses.
However, the fund commitment stayed steady at 150 stores, meaning most licensees would have to open on their own.
DASNY had mentioned to CAURD license-holders that if they scouted a location, they could submit it to authority for potential Fund support. But Gordon said to THE CITY that the fund had not yet opened any dispensary in which the location had been recommended by a licensee.
Additionally, licensees that were looking for sites to either fund themselves or open with fund support found that their proposed sites were being rejected because they were too close to locations DASNY was considering leasing.
At Monday’s hearing, Office of Cannabis Management Executive Director Chris Alexander remarked on the transition toward allowing the CAURD entrepreneurs to open stores on their own.
“As we drew closer to the issuing of the first CAURD licenses,” OCM Executive Director Chris Alexander said at Monday’s hearing, “it became clear that the securing of private investment due to changes in capital markets would require us to give the program a pathway forward that did not rely on the heavy lift that we, along with our colleagues at DASNY, were undertaking.”
At the Cannabis Control Board meeting on Oct.17, CAURD licensee Zymia Lewis shared her concerns about how the CAURD program fit into the new general use application pool.
Lewis told THE CITY following the meeting that she only reapplied to the general pool for a retail license because she heard the instruction from OCM executive director Chris Alexander on a news segment.
Unlike the owners of Statis, though, Lewis doesn’t have a location open and no sales to keep her afloat as the injunction remains in place after nearly three months. She received her license in May, after the region she applied to, the Mid-Hudson, had been tied up in a separate injunction because of a federal lawsuit, which has since been settled.
Over the summer, Lewis scouted her own location that the Dormitory Authority approved for financial support from the Fund. She also found a temporary location where she could open right away, and was aiming for an Aug. 15 opening date. But by the time Lewis was affected by the statewide injunction in early August, the site paperwork wasn’t finalized and lease negotiations were still underway.
“I don’t even think there’s a word for how aggravating it is,” Lewis said. “We’re ready to go.”
For Misha Morse-Buch, a pet store owner who received one of the first three CAURD licenses in Brooklyn, he said it became apparent soon after he got his license that it would be better to pursue obtaining a location on his own, turning to family and friends for additional investment, rather than waiting for a Dormitory Authority location.
While Morse-Buch said Willis had contacted him on several occasions to see if he was interested in a dispensary site in the borough, it’s yet to materialize into anything else.
He said he would likely apply for a new license, albeit a provisional one since he has yet to secure a location. But he’s concerned that applying for the provisional license could mean he’ll close the doors on a Fund-supported dispensary.
“I was open to getting a spot from DASNY. I liked the idea, of course, of the program,” he said, “and I think it’s even more important now for everybody, and myself, that they fulfill that promise and they make at least 150 stores that they originally said they were going to make.”