Chicago Atlantic may be the biggest winner in New York rollout

New York’s much-touted $200 million cannabis equity fund, which was supposed to help those impacted by the war on drugs, wound up being a deal that heavily favors Chicago Atlantic Group and might leave taxpayers on the hook, an investigation by The City showed.

The story traces back to when the New York Social Equity Cannabis Investment Fund was announced by Gov. Kathy Hochul in 2022 as part of her Seeding Opportunity Initiative. The state allocated $50 million to the fund in the 2022 budget and hoped to attract an additional $150 million from private investors.

However, after failing to secure the full amount from other investors, the state turned to Chicago Atlantic in May 2023 for a $50 million loan at a 15% interest rate, according to documents reviewed by The City. The loan is guaranteed by the state, meaning taxpayers would be responsible for repayment to Chicago Atlantic if dispensary owners default.

A month later, the firm committed another $100 million in additional capital for the fund via another loan agreement to help the state reach its $200 million goal.

Industry experts and government watchdogs have raised concerns about the deal’s terms, which provides substantial benefits to Chicago Atlantic. On top of the repayment guarantee, the deal grants Chicago Atlantic the right to seize dispensary leases in the event of late payments.

And according to internal emails, officials at the state’s Office of Cannabis Management shared similar concerns. Internal documents questioned whether the fund may have overstated the potential revenue and profitability of the dispensaries.

“The state is taking on all of the risk,” Rachael Fauss, a senior policy advisor with Reinvent Albany, told the outlet. “The private entity here is the one benefiting the most, though the goal of public policy is to benefit the state and to benefit the dispensary owners.”

The social equity fund has faced a mountain of issues that many believe state cannabis authorities don’t want to take accountability for.

Throughout the process and in public town halls, dispensary owners have expressed concerns about their ability to meet loan obligations, while others have opted out due to unfavorable terms and high costs.

At one point early last year, the fund held an information session with licensees, revealing that the loans would be offered at a 10% interest rate over 10 years, with amounts ranging from $800,000 to $1.2 million. Galina German, a conditional adult use retail dispensary license holder, at the time called the interest rate “shocking” and decided not to accept the loan after calculating that a $1 million loan would require paying back $2.4 million over the 10-year period.

German also expressed concern about the requirement to use contractors and designers chosen by the state, rather than having the flexibility to use the funds as they see fit.

“We cannot use our own contractors for our own buildout. We have to use their contractors, their designers, their cabinetry,” she told Green Market Report in January 2022.

Keith Dalessio, a dispensary owner who decided not to proceed with his planned location in Astoria, Queens, told The City, “I warned everyone I could to stay away from this deal,” after learning that the build-out costs for his 4,500 square foot space would total $1.6 million, significantly higher than the state’s original projections.