The money “could’ve gone to supporting more social equity businesses. Instead it’s going right back into their own pockets.”
By Rosalind Adams, THE CITY
They haven’t come close to fulfilling Gov. Kathy Hochul’s (D) goal of helping 150 people victimized by the state’s old, racially biased drug laws enter the legal cannabis business—and some they have assisted fear their dispensary dreams are collapsing.
But the three managers of a public–private loan fund established to carry out the primary social mission of New York’s sweeping cannabis legalization program are doing just fine.
Records obtained by THE CITY show that they earned $1.7 million over the most recently tallied 12-month period and stand to make millions more in years to come, even though the New York Cannabis Social Equity Investment Fund has faced charges of predatory lending, secrecy and mission failure. By a conservative estimate computed by THE CITY, the managers’ longterm haul could easily come to $15 million over a decade.
The state selected the three managers, who operate under the almost identical name of Social Equity Impact Ventures, after a bidding process in June 2022: Bill Thompson, a former New York City comptroller and mayoral candidate; the former NBA star Chris Webber; and Lavetta Willis, a former sneaker entrepreneur based in Los Angeles.
In an early document, the state said the fund “shall have no other purpose other than to advance the public policy goal” of financing and helping to develop dispensaries “for the benefit of social equity licensees.”
But the fund has financed only 21 stores in two and a half years.
Hochul’s office declined to comment on the fees paid out to the fund managers. On behalf of the fund, Jeffrey Gordon, a spokesperson for the state Dormitory Authority, a financing agency that is a fund partner, sent a list of services that the fund provides that contained no information about payments to the managers.
Willis and Thompson did not answer emails, calls and texts with questions about the management fee and how the fee structure was determined.
The Dormitory Authority provided the $1.7 million figure in response to a Freedom of Information Law request.
A document outlining the structure of the fund partnership, obtained by THE CITY through a second freedom of information request, shows that the bulk of what the management team received, in quarterly payments between October 2023 and July 2024, came from a 2 percent annual fee on all contributions to the fund.
So far that figure is about $78 million, with $50-million coming from the state. The state set a goal for the fund managers to raise up to $150 million in private cash by September 2022, to bring the total funds up to $200 million to invest in establishing dispensaries.
The fund managers are also entitled to another $25,000 for each dispensary they open, which generated another $525,000 over the 12-month period.
THE CITY’s estimate of the possibility that the managers would earn $15 million more over a decade was based on them failing to raise any more cash or financing any more stores. If they do either, their compensation would rise even more.
Criticized from the Start
From the beginning, the fund has been criticized inside the Hochul administration and by outside experts. When state cannabis officials reviewed critical documents governing the fund weeks before it was signed, one concern was that the size of the management fees would undermine the social justice mission, according to emails reviewed by THE CITY.
In one email, Matthew Greenberg, a former financial analyst at the state’s Office of Cannabis Management, wrote to his colleagues that the 2 percent management fee “will completely deplete the $50 million” over ten years.
THE CITY reviewed the terms of the agreement with more than a half dozen cannabis and finance experts who broadly agreed that the fee structure was excessive, particularly for a fund founded with a social mission.
“Social Equity Impact Ventures is capturing a good chunk of capital from the fund—money that could’ve gone to supporting more social equity businesses,” Lucas McCann, the co-founder of the cannabis consulting firm CannDelta, told THE CITY. “Instead it’s going right back into their own pockets.”
New York State’s role in the fund is considerable. Aside from kicking off the fund with an announcement by Hochul and the $50-million commitment, the state holds a 49 percent stake in the venture through the Dormitory Authority (DASNY), which was charged with scouting locations for dispensary leases and supervising the build out of stores.
“They never did what they sought out to do, so why are they getting paid at all?”
Licensees are required to sign loans that cover the design and construction costs of their dispensaries, which they are required to pay back over ten years. Essential to the financing of the effort was Social Equity’s ability to raise $150 million from private investors.
But after missing a September 2022 deadline, the fund managers failed to raise any equity financing despite months of sales pitches. Instead, as THE CITY revealed in April, the $150 million in investor funding 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 Chicago Atlantic made to invest in New York real estate that could in turn be leased to the fund for dispensary sites.
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 its agreement, if the fund failed to meet its payments to Chicago Atlantic, the state guaranteed that it would.
A Tangle for Borrowers
For the fund’s social equity borrowers, the process has not been as seamless or secure. The stores took longer to open than expected. For months, licensees got conflicting information about what kind of deal the fund would offer after they were matched with dispensary locations.
As the fund was getting started, fund officials told licensees at one meeting in January 2023 that it would offer $800,000 to $1.2-million loans at a 10 percent interest rate, according to a report of the event. Several licensees told THE CITY this was never put in writing, and after the deal with Chicago Atlantic, with the 15 percent interest rate it was charging the fund, the interest rate offered to prospective store operators jumped to 13 percent.
New York City recently launched its own public–private investment fund for cannabis entrepreneurs which offers smaller loans for up $100,000 and interest rates capped at 9.5 percent.
Agreements obtained by THE CITY also revealed that the licensees had little control over the costs that the fund was piling up in order to open the dispensaries. Loan agreements for the design and construction of some fund-supported dispensaries exceeded $2 million, while offering few details about the breakdowns of the costs.
In interviews, some dispensary owners have described asking for a temporary reprieve on their loan payments, while others have ended up on a state list of loan recipients who haven’t paid their vendors, according to documents reviewed by THE CITY.
McCann, of CannDelta, said that the $25,000 bonus Social Equity Impact Ventures receives for each dispensary opened feels “very excessive, especially for smaller operators that aren’t making any money in the beginning.” He also observed that the managers benefit “just by getting dispensaries open, regardless of how well they perform.”
David Feder, who runs a law firm called Weed Lawyer, questioned whether Social Equity Ventures deserved any management fees since they failed to raise the anticipated $150-million private equity investment.
“They never did what they sought out to do, so why are they getting paid at all?” he said.
Keeping Secrets
As with much else about the fund, gleaning information about the payments to its managers was far more difficult than it likely would have been if the fund was 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 did not have information about the fund’s operations, citing its status as a private entity.
When THE CITY asked DASNY for a figure for the management fees paid to Social Equity Impact Ventures, it requested that a reporter file a freedom of information request. The agency filed two extensions in response to a request to supply the information.
When the Cornell Law School First Amendment Clinic filed an appeal on behalf of THE CITY, the agency released the figures three days later.
Earlier this month, a coalition of advocates led by Reinvent Albany, a state good-government group, wrote a letter to the Dormitory Authority and the Office of Cannabis Management demanding the agencies release several documents that guide the fund’s operations, including the final loan agreement with Chicago Atlantic. Citing extensive controversies around the fund, the signatories said transparency is key to ensuring the goals of the program.
This story was first published by THE CITY.
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Photo courtesy of Philip Steffan.
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