New York’s convicts-first approach to pot draws praise, questions

A criminal record doesn't always hurt

New York state’s plan to let people with past convictions for marijuana crimes become the first to sell it legally is admirable, but faces some major challenges.

The dynamic pits what’s now referred to as the “legacy market” of once-illegal sellers against the publicly traded multi-state companies, some of whom already sell medical marijuana in the state. It’s a group that includes big players such as Curaleaf Holdings, Green Thumb Industries and Acreage Holdings. 

As New York becomes one of the world’s largest legal marijuana markets, the nitty gritty of its regulations will make or break the broader industry. Like California, where the industry is now asking for bailouts to beat back a still-thriving illicit market, New York has an entrenched network of marijuana dealers who don’t pay taxes or meet regulatory standards — helping them potentially undercut fledgling licensees. 

New York’s decision to set aside the first 100 to 200 licenses to sell recreational marijuana for people with past convictions may upend that dynamic. It’s one of many initiatives across the country to bring  those arrested for past marijuana crimes — disproportionately Black people — into the newly legalized industry and its profits.

“Those who have been most impacted will go first,” said Christopher Alexander, the executive director of New York State’s Office of Cannabis Management, during last week’s conference announcing the measure. Alexander clarified that New York’s rules would include good conduct standards to exclude individuals who are unfit to lead businesses. Applicants should also have experience as a business owner.

“We’ve always planned on pursuing a license,” said Vladimir Bautista, a co-founder of Happy Munkey, a cannabis lifestyle company that has hosted events in New York. A spokesman for Bautista said he’s had past offenses for smoking and selling cannabis, but hasn’t had any issues with the law in the last 15 years.

New York isn’t the first state to look at past cannabis convictions as a criteria to qualify for an advantage in the legalizing industry. Arizona, Colorado, Illinois, Michigan, Massachusetts, New Jersey and Virginia have all used similar measures, according to the Last Prisoner Project, a non-profit focused on helping those imprisoned for such crimes.

It’s unclear whether the prioritization of those with past convictions will affect publicly traded companies in what they see as a key market, given New York’s cultural prominence and exposure to tourism.

“This provision does not impact our plans. It expands the opportunities within New York’s cannabis industry, and we are eager to supply new and existing operators with quality, safe, and tested products,” said Bryan Murray, Acreage’s vice president of government relations, in an email. He praised the initiative’s social goals.

Other states have seen some companies try to pair up with people who won licenses based on similar criteria, or buy out their  licenses.  Alexander said there will be provisions in New York’s rules so that those who win licenses based on past convictions can only transfer the title to people who meet similar criteria for the first few years. 

New York’s licensed medical marijuana companies aren’t being cut out of opportunities in the state — in fact, given they already have cultivation sites, they’re poised to get products on the shelves fastest.

Todd Harrison, founding partner of cannabis investment fund CB1 Capital Management said he sees the multi-state operators likely partnering with retail dispensaries to sell their products.

 “New York was always setting up as a wholesale opportunity,” he said.

The state will also let hemp farmers apply for conditional licenses right away, a measure that aims to help the struggling hemp market and get a more diverse set of cultivators contributing to the market. Still, it will take time.

“It takes 18 to 24 months from the day you get a license to the day you have a crop,” said Jeffrey Schultz, a partner at law firm Feuerstein Kulick, which specializes in cannabis. Schultz said he anticipates that over the next two years, the state will roll out up to 500 or 700 licenses, leaving plenty of room for other players to enter the market.

The true number to watch won’t be how many people with past convictions get licenses, but how many of them can succeed.  

“The idea and motivation are terrific,” Gregory Heyman, founder of Beehouse LLC, which has invested $350 million in the legal U.S. cannabis industry. But he added that even the lucky first license winners in New York’s market will still face an uphill battle, with the disproportionate tax burden on cannabis companies, and virtually “no access, or prohibitively expensive access, to capital or banking services.”

“It’s almost impossible for a stand-alone store to succeed in this environment,” Heyman said.