Investigation Reveals Lopsided Deal in $200 Million Cannabis Fund: State Takes on All the Risk

New York State’s $200 Million Cannabis Fund Deal Raises Concerns Over Equity

Last June, Gov. Kathy Hochul announced a groundbreaking deal to fund a $200 million public-private fund aimed at financing cannabis dispensaries run by those most impacted by the war on drugs. However, an investigation by THE CITY has revealed that the deal may not be as equitable as initially promised.

The deal, which involved private equity firm Chicago Atlantic Group loaning $50 million to the fund at a 15% interest rate, raised concerns about the state taking on all the risk while the private entity benefits the most. The terms of the agreement guarantee substantial returns to Chicago Atlantic, with the state responsible for any defaults by retailers.

Critics, including government watchdog groups and legal experts, have likened the deal to distressed debt lending, with concerns raised about the fund’s financial projections being overly optimistic. Licensees who accepted loans from the fund have faced high construction costs and interest rates that exceed initial estimates.

The state’s Office of Cannabis Management also questioned the fund’s revenue and profit potential, highlighting the risks licensees face in meeting the loan terms. Licensees have expressed concerns about defaulting on their loans, with some deciding to walk away from deals due to the high costs involved.

Despite the state’s commitment to building an equitable cannabis market, the terms of the deal with Chicago Atlantic have raised questions about whether the fund truly benefits those it was intended to help. With only a fraction of the anticipated dispensaries opened so far, the challenges faced by licensees highlight the complexities of establishing a fair and sustainable cannabis industry in New York.