Legacy cannabis operators see roadblocks and opportunities in NY's emerging recreational market
On a recent warm day, a few friends gathered around a table in Grant Atkins' back yard in Rochester.
Atkins, a public school teacher and reggae and hip-hop performance artist known as "Skribe Da God," recalled how he was born into the pot culture.
"In the late '70s, growing up, it was always all around you," he said. "It was referred to as 'reefer' then."
Starting at the age of 13, Atkins got experience in every step of the cannabis supply chain, from cultivation to marketing.
But he pulled back from the then-illegal business around 20 years ago, after he was arrested for marijuana possession. He became a father about a year later.
“I’ve had all this potential," he said, "but I couldn’t activate it because (I was) not willing to sacrifice the safety of my family and providing for them.”
Atkins is the kind of legacy cannabis operator state leaders have in mind for New York's initial business licenses for the adult use market. The first 100 or more retail licenses will be offered to people who either had a past marijuana-related offense or have a family member who did.
“You cannot be a Black man in America and not be affected by those laws on drugs," said Atkins' friend, Jeffrey Medford.
He described what he called his spiritual connection to the cannabis plant and a calling to grow it.
“We want to live free, we want to be able to have our own businesses, be our own bosses and take care of our families, like everyone else," Medford said.
State leaders say they will expunge the criminal records of those arrested for low-level drug offenses, but Jesse Watson, another friend of Atkins and Medford, knows some people who are still afraid to apply for cannabis licenses.
They're not convinced those promises are real.
“A lot of people are afraid to put themselves out there because of possible repercussions," Watson said. "And not only that, some people have been in the shadows for a while and some people don’t want to expose their hand like that.”
Even though the laws have changed around cannabis, Atkins’ cousin Eunice Johnson Day believes people who use it and work with it still face a stigma in some arenas.
Some, for instance, may worry about their professional reputation. Johnson Day is a nurse who is willing to speak publicly about her experience with cannabis because it helped her cope with difficulties in her own life. She said she first tried medical marijuana about four years ago to ease anxiety and depression after her father’s death.
“When I saw the benefits of marijuana and what it did for me, I wanted to be in the business to help others,” she said.
Atkins, Medford, Watson, and Johnson Day are members of the New York Green Coalition, a statewide group of cannabis cultivators, processors, geneticists, distributors, and advocates looking for access to the legal market.
Atkins said the group is "like a little local farmers' union" trying to find a space in New York's legal adult use market, which is slated to open this year.
In addition to some people's concerns about their criminal histories, they see another barrier that poses a problem for everyone: IRS tax code 280E.
The code says cannabis operators may not deduct many business expenses from their federal taxes because the federal government still considers cannabis an illegal Schedule 1 controlled substance.
The tax law affects all segments of the cannabis industry, but it hits retail outlets the hardest, with some accountants estimating an effective 60% tax rate on a retailer's net profits.
"This is not designed for us to win," Watson said. "If I take 60 cents out of every dollar, you can't afford anything, let alone rent."
Watson and his friends said the retail space is too cost-prohibitive. Unless they have investors or come up with capital, they could lose money in their first years, far from the wealth some legalization proponents envisioned they might be able to generate.
State Sen. Jeremy Cooney hopes a law he co-sponsored will help.
It allows cannabis business owners to claim on their state taxes the same expenses they aren't allowed to deduct from their federal tax bill, such as rent, utilities and payroll.
It's modeled after a California law that was enacted after large corporations dominated that state's marketplace, pushing out a lot of the smaller entrepreneurs.
"We don't want that to happen here in New York," Cooney said. "We want to learn from some of the missteps that took place in California."
The New York Legislature recently took another step to try to pave the way for license applicants, establishing a $200 million fund to defray some initial business costs, including money for furniture and fixtures and rent for retail space.
"These are all items that social equity candidates will have access to at no charge to them," Cooney said.
It's too soon to tell if these efforts will make a meaningful difference to the people state leaders hope will benefit from the cannabis market.
If New York succeeds in granting 50% of its cannabis licenses to minority groups and others affected by past drug laws, it would be an outlier.
According to one study, none of the 15 other states that set up social equity programs have created an equitable cannabis industry. In Illinois, for instance, there was not a single Black majority-owned cannabis retail outlet in May 2021, a year and a half after the state legalized the drug.
The Minority Cannabis Business Association points to limited licensing as one factor keeping minority participation low in some states.
In New York, state officials say market demand will determine how many licenses are issued.
Despite the potential pitfalls and roadblocks, Atkins has hope.
Since New York state legalized cannabis last year, he feels like he's living a new life because he is no longer seen as a criminal.
"All my life, I was one thing, and then one day, by the stroke of a pen, I’m in the instantly emerging, multi-billion-dollar marketplace to do all these wonderful things," he said. "It’s surreal.”
New York's first provisional licenses for cultivators have been issued, but the application process hasn't opened yet for other license categories such as processing, delivery, and retail.
That window is expected to begin this summer or fall, as state leaders hope to have the first retail dispensaries open by the end of 2022.