That money “could have been used to support more social equity businesses. Instead, it goes back into their own pockets.”
The City by Rosalind Adams
They came a long way from Gov. Kathy Hochul's (D) goal of helping 150 people harmed by the state's racially biased antiquated drug laws get into legal marijuana businesses. Some fear that the pharmacy dream may be doomed.
But the three managers of a public-private financing fund created to carry out the primary social mission of New York's massive marijuana legalization program are doing just fine.
Despite being accused of predatory lending, secrecy and misconduct, the New York Cannabis Social Equity Investment Fund made no profit in the most recent 12-month period, according to records obtained by The City. He earned $1.7 million and is expected to earn millions more over the next few years. Mission failed. According to conservative estimates compiled by The City, long-term earnings for executives could easily reach $15 million over 10 years.
The state selected three managers to operate under the nearly identical name, Social Equity Impact Ventures, through a bidding process in June 2022. Bill Thompson is a former New York City comptroller and mayoral candidate. Former NBA star Chris Webber. LaVetta Willis is a former sneaker entrepreneur based in Los Angeles.
Former NBA star Chris Webber speaks during the opening of a cannabis store on Bleecker Street on January 23, 2023.
The state said in an early document that the fund “will have no purpose other than to further the public policy goal of funding and assisting the development of dispensaries” “for the benefit of social equity licensees.” ” he said.
However, the fund has financed only 21 stores in two and a half years.
Hochul's office declined to comment on fees paid to fund managers. On behalf of the fund, Jeffrey Gordon, a spokesperson for the State Dormitory Authority, a funding agency that is a partner in the fund, provided administrators with a list of services provided by the fund that did not include payment information. I sent it as.
Mr. Willis and Mr. Thompson did not respond to emails, calls and text messages asking questions about management fees and how the fee structure is determined.
The dormitory administration provided the $1.7 million figure in response to a Freedom of Information Act request.
The majority of the money management received was in quarterly payments from October 2023 to July 2024, according to documents outlining the foundation partnership's structure obtained by the city through a second Freedom of Information request. It is shown that the annual fee was 2%. For all donations to the Fund.
So far, that amount is about $78 million, with $50 million coming from the state. The state has set a goal for fund managers to raise up to $150 million in personal cash by September 2022, bringing the total amount of money invested in dispensary establishments to up to $200 million.
The fund manager was entitled to an additional $25,000 for each dispensary opened, generating an additional $525,000 over a 12-month period.
The City's estimate of the potential for an additional $15 million in revenue for the owners over 10 years is based on their inability to raise more cash or finance additional stores. Based on. If you do either of these things, your reward will increase even further.
criticized from the beginning
The fund has been criticized from the beginning by both within the Hochul administration and by outside experts. As state cannabis officials reviewed key documents governing the fund in the weeks before signing, one concern was that the amount of administrative fees could undermine its social justice mission, according to emails reviewed by the city. It is said that there was a
Matthew Greenberg, a former financial analyst for the state's Office of Cannabis Control, wrote to a colleague in an email that a 2% administrative fee would “completely burn through $50 million” over 10 years.
The city reviewed the terms of the agreement with more than a half-dozen cannabis and financial experts, who broadly agreed that the fee structure was excessive, especially for a fund established with a social mission.
November 28, 2023 Dazed Cannabis Store in Union Square is one of the few state-licensed dispensaries in New York.
“Social Equity Impact Ventures has raised a significant amount of money from the fund, money that could have been used to support more social equity businesses,” said Lucas, co-founder of cannabis consulting firm Candelta. Mr McCann told The City. “Rather, it goes back into their own pockets.”
New York State plays a major role in this fund. Apart from Mr. Hochul's announcement and the $50 million pledge to start the fund, the state has a 49% stake in the business through the Dormitory Authority (DASNY), which leases the pharmacy. was responsible for location scouting and supervision of construction for the store.
“They've never done what they wanted to do, so why are they getting paid?”
Licensees will be required to sign a loan to cover the cost of designing and constructing the dispensary, which will have to be repaid over 10 years. Critical to financing this effort was Social Equity's ability to raise $150 million from private investors.
However, the fund managers failed to meet the September 2022 deadline and were unable to raise equity financing despite months of marketing. Instead, as THE CITY revealed in April, the $150 million in funding from investors came in the form of a $50 million loan from a private equity firm called Chicago Atlantic. An additional $100 million came from a separate pledge by Chicago Atlantic to invest in New York real estate, which could be leased to the fund for a pharmacy site.
By borrowing money itself rather than finding an equity partner, the fund became responsible for paying 15 percent interest on Chicago Atlantic's $50 million loan. Under the terms of the agreement, if the fund failed to meet its payments to Chicago Atlantic, the state guaranteed to do so.
Borrower's entanglement
For the fund's social equity borrowers, the process was not so seamless or secure. It took longer than expected for the store to open. For months, licensees received conflicting information about what deals the funds would offer after matching with a dispensary location.
At a meeting in January 2023, when the fund was being launched, fund officials told licensees they would offer loans of between $800,000 and $1.2 million at 10% interest, according to event reports. . Multiple licensees told The City that this was never put into writing, and that the 15% interest rate they were charging the fund after the deal with Chicago Atlantic was used to finance future store operations. The interest rate offered to those who purchased the loan has reportedly jumped to 13%.
New York City recently launched its own public-private investment fund for cannabis entrepreneurs, offering small loans of up to $100,000 with interest rates capped at 9.5%.
Former City Comptroller Bill Thompson attends a press conference prior to the opening of a state-licensed cannabis store on Bleecker Street on January 23, 2023.
The agreement obtained by the city also revealed that the licensee had little control over the costs that the fund accumulated to open the dispensary. Loan agreements for the design and construction of some of the funded clinics exceeded $2 million, but provided few details about the breakdown of costs.
According to documents reviewed by the city, some dispensary owners said in interviews that they were seeking a temporary moratorium on loan payments, while at the same time dispensing money without paying their distributors. Some pharmacy owners ended up on the state's list of loan recipients.
CannDelta's McCann feels the $25,000 bonus Social Equity Impact Ventures receives each time it opens a dispensary is “too much, especially for a small business owner who isn't making a profit to begin with.” said. He also said business owners can make money “just by opening a pharmacy, no matter how well it's doing.”
David Feder, who runs a law firm called Weed Lawyer, wonders if he is entitled to a management fee after Social Equity Ventures failed to raise an expected $150 million in private equity investment. questioned.
“They've never done what they wanted to do, so why are they getting paid?” he said.
keep a secret
As with many other things about a fund, gathering information about payments to its managers was much more difficult than if the fund were a government agency open to public disclosure laws.
Despite the state's $50 million investment, Albany officials have repeatedly denied requests for documents or said they have no information about the fund's operations, citing it as a private entity. .
When the city asked DASNY how much management fees it paid to Social Equity Impact Ventures, it asked reporters to file a Freedom of Information request. The agency filed two extension requests in response to requests for information.
The office released its numbers three days later when the Cornell Law School First Amendment Clinic filed an appeal on behalf of the city.
Earlier this month, a coalition of supporters led by the state good government group Reinvent Albany sent letters to the Board of Residence Halls and the Board of Cannabis Control to release multiple documents guiding the fund's operations, including the final loan agreement. requested the authorities. With Chicago Atlantic. The signatories cited widespread controversy surrounding the fund and said transparency was key to ensuring the program's goals.
This article was first published by THE CITY.
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