NY Cannabis Regulators Disclose How They Chose Licensees

This story was reprinted with permission from Crain’s New York Business news and written by Cara Eisenpress. 

Retail cannabis applicants who lived in low-income areas, in public housing or were homeless when they were convicted of marijuana-related offenses had an advantage in the application process for legal cannabis dispensaries, according to details newly revealed in court papers.

As part of a motion filed last Tuesday in U.S. District Court in the New York Northern District by state Attorney General Letitia James’s office, the Office of Cannabis Management disclosed specifics about the process of awarding winners for the first set of retailers, whom the state intends to allow to sell legal pot and other cannabis products before the end of this year.

The Cannabis Control Board last week granted the first 28 individual licenses to experienced business owners who had had encounters with the justice system. A little more than half of the applicant score – 55% – had to do with the nature of the justice involvement. The other 45% of the score came from the applicant’s business history.

Within the justice section, 40% of the score came from the residential address of the person who had the marijuana offense at the time of arrest or conviction. Using data regarding the median household income of census tracts, the regulators awarded more points to applicant who lived in areas with low incomes, in public housing or were homeless. Those who lived in places with higher incomes got fewer points. Points in the other 15% of the section came from whether the applicant had been convicted of a marijuana offense or whether it was someone close to them—a spouse, child, guardian or dependent.

The justice-involved requirement comes from the state’s legalization law, which focuses on social and economic equity for communities and people negatively affected by the pre-2021 prohibition on cannabis. The requirement played out through a scoring model that put different weights on different parts of the application, according to a declaration by the Office of Cannabis Management’s director of operations, Herb Barbot, filed with the motion.

The business history section allotted higher points for applicants who operated physical retail locations, had been in business for longer and were denied a bank loan early in their operations, “recognizing entrepreneurs who faced hurdles due to their conviction and their ability to overcome the impacts of their conviction,” Barbot said.

There were 903 total individual applicants for 150 conditional licenses, the state said.

The state filed the motion in a September case brought by Variscite NY One. Variscite, an applicant for a dispensary license, had argued against one of the requirements in the application: that at least one applicant on the team had a marijuana conviction in New York. On Nov. 10, a federal judge issued an injunction that blocked any conditional licenses from being issued in Brooklyn and several of the city’s northern suburbs in the mid-Hudson region, as well as three other upstate regions. The mid-Hudson region had 75 applications for 17 licenses, while Brooklyn received 110 applications for 19 licenses.

Tuesday’s filing by the state asked the judge to narrow that injunction to only the Finger Lakes region, which was Variscite’s first choice on its application, according to the motion. Since Variscite had a relatively low score, it would not even qualify for a Finger Lakes license, let alone a license in its four other choices—including the mid-Hudson region and Brooklyn.

That’s because Variscite’s applicant with the marijuana record had been living at the time in a Michigan census tract where the median household income is in the top quarter for the state, leading to a score in the bottom quartile of the 43 applications for the Finger Lakes region, where only nine licenses are available.

To make such an argument, the state had to provide details about how it came up with the score.

The Office of Cannabis Management’s application website contains a high degree of detail for applicants, but the office had not been clear about the precise accounting for each part of the application nor the fact that 40% of the score would be derived from the home location of the justice-involved applicant at the time of their arrest or conviction.

In the motion, the state also argued that a decision about narrowing the injunction was crucial for the carefully calibrated and highly regulated industry, since 262 licensed cultivators and 25 processors had spent the summer harvesting and preparing cannabis products to sell at the final point in the chain: the retail dispensaries.

Family farms had invested significant savings to grow the new crop, Barbot said, as have processing businesses.

“If the farmers have insufficient outlets for their crop, they will lose the billions of dollars that have been collectively invested in their businesses, potentially lose their businesses, and will otherwise be forced to watch their crops rot and expire or sell their crops illegally on the illicit market,” reads James’ memo of law.