Rafael: Tonight, there is smoke in the air in New York and I am not talking about wildfires.

It is been over six months since the first recreational cannabis dispensary opened here.

That store is doing well but other states are outpacing the area.

"MetroFocus" starts right now.

♪ >> This is "MetroFocus," with Rafael Pi Roman, Jack Ford, and Jenna Flanagan.

MetroFocus is made possible by Filomen M. D'Agostino Foundation.

Barbara Hope Zuckerberg.

And by Jody and John Arnhold.

Dr. Robert C. and Tina Sohn foundation.

The Ambrose Monell Foundation.

Estate of Roland Karlen.

♪ Rafael: good evening and welcome to "MetroFocus."

Almost two years after New York State legalized a don't use of recreational marijuana the first dispensary housing Works finally opened its doors.

Recently it reported in its first six months of operation it sold $12 million worth of marijuana products, doubling its initial sales projections.

This particular dispensary has been very successful but the rest of the state has lagged behind.

In fact housing work sales represent over one third of the 33.4 million dollars that the entire New York State industry generated in the same time period.

And as a whole, New York sales numbers pale in comparison to other states such as New Jersey which generated 24 million dollars in marijuana sales in its first month alone.

Why did it take New York two years to get its legal weed market up and running?

what made housing works so much more successful than the other dispensaries?

and where exactly is the tax money generated from the stores going to?

joining us to answer these and other questions are two experts on the rowing cannabis industry, the states cannabis policy reporter for Politico and Jerry Burkett, the founder of a news later around the cannabis industry.

It is a pleasure to have you with us.

Mona: thank you so much for having us.

Rafael: as I mentioned in the introduction it took nearly two years to get the first dispensary opened in New York.

Was that what was expected?

Jeremy: thank you, first off thank you for having me on.

And thank you for bringing your attention to it.

I would say that I think people expected New York to be slow and that is what the regulators and policymakers told people.

They are trying to do something different with their cannabis policy.

But at the same time I think people did not think over two years into it that we would only have two stores open state.

That is behind what policymakers projected.

But regulators here, to be fair, they have a tough job using cannabis legalization does solve problems of economic inequality.

They are telling people if they get these cannabis licenses they can create generational wealth.

That is a lot more difficult than just saying that's opening up the market right away saying anyone can come in, all of these businesses can come in and make money.

What they are doing is hard causing a slow rollout.

Rafael: one of the ways the state is trying to make the industry a means to achieve equity has been that it decided to give licensing priority to those that have been convicted of violating marijuana laws in the past or to a close family member of someone that had.

At the same time as a Forbes -- as Forbes Magazine is reporting that some states prohibit people with convictions, drug convictions, from holding licenses.

Tell us why New York decided to do this exactly.

Mona: since the first states in the U.S. including Colorado and Washington state starting -- started legalizing a don't use marijuana, the conversation has shifted to be one about social justice and racial equity.

Data shows lack and brown people were targeted for marijuana use.

And I think that is particularly stark in New York and particularly in New York City.

Lawmakers wanted to put racial equity at the center of any sort of legalization proposal.

And the regulators who were ultimately up -- appointed to implement the law prioritized that which is how they came up with this conditional licensing program that narrowly targets people directly harmed by marijuana --.

The idea was to give back to people economically harmed because they had kind of his convictions on their record, maybe they found it hard to get jobs or housing because of that.

It is designed as a way to repair the harms of that sort of enforcement.

Rafael: New York is the only state that does that, putting people that have been convicted of marijuana infractions in the past in the front of the line.

Does I said in the introduction, New York State is at behind states like New Jersey and Maryland which earned $87 million in its first month.

I wonder if that economic lag of New York State has anything to do with this particular policy.

What do you think?

Jeremy: I think it does but I want to be careful to say that it is the social equity applicants halt that the market is being rolled out slowly.

That is not necessarily the truth but the truth of the matter is they have given -- regulators have given them preferential access to the market but it is difficult for them to get up and running.

The applications are open to a narrow window of people.

People who have had cannabis-related offenses themselves or are directly related to someone and have run a profitable business and that is a narrow window of people and it is difficult to sift through and see who is telling the truth about their business.

Are they capable of doing this?

are they set up from the investment side to be successful?

these things take a long time.

At the same time the state has taken a more hands-off and are getting more hands-on approach slowly.

The product is freely available all over the place and as it takes time to give the right people access to the market, it is slowing down the rollout of the market.

Compare that to Maryland which led publicly traded companies, multistate operators, they let them in early and quickly to stand up the market.

It does not necessarily accomplish the goals that New York has been open about wanting to solve for witches degree economic opportunity for the people harmed by the war on drugs.

Rafael: one more question on the prioritizing policy you have written that an unintended consequence has been to leave women entrepreneurs out of the business.

How does it do that?

Mona: as you can imagine at the height of stop and frisk in New York City it was black and brown men disproportionately targeted.

Just like the numbers of people that have passed convictions on their record, it is overwhelmingly men.

The state tried to remedy this by opening it up to having an immediate family member impact did.

That way women could also qualify.

But you see women in low numbers in this priority licensing program despite the fact that in the legalization bill women-owned businesses are also supposed to be prioritized.

They are not really included in this conditional licensing program which is very narrowly targeted.

Rafael: as we tape this program, there is a pending court case related to New York's prioritizing policy.

The program is being sued.

Who is doing that?

let me know if you know the answers.

Why does the complaint?

What is the remedy being sought?

Jeremy: the lawsuit you are referring to is the fury lawsuit.

It is a group of veterans suing the state saying that they are supposed to be one of the groups that should have preferential access to the market.

It is not just, as Mona pointed out, these mostly minority entrepreneurs but it should also be veterans and specifically ones that may have been injured in the line of service.

The lawsuit basically is getting to the heart of this conditional licensing program saying, look, we were also supposed to have priority and if we cannot then maybe no one should have priority.

This is the elemental question about what New York is doing with its legalization program.

Right now, the conditional licensing structure is under an injunction and the state has been enjoined to stop releasing those licenses and stores in the process of opening and entrepreneurs in the process of setting up real estate and getting their stock, things you need to do to open a cannabis shop, they have been forced to stop.

It is throwing a wrench in things.

Rafael: if you have a guess of how this will be resolved, what would be your guess on how the ruling will be resolved?

Jeremy: my guess is probably amateurish at best.

I'm not a lawyer.

When you read the bill that the former Governor signed into law that passed cannabis legalization, veterans are specifically listed as a group that should have preferential access.

They are listed as one of the groups.

It is there in the bill.

I don't know how all of the pieces will fit together or how the court will decide.

I was watching a hearing last weekend the judge had a point to say maybe everyone should get into a room and come together.

Both sides.

To figure it out.

I think it is idealistic Devin White is on the line.

And this week there was some reporting that the sides are not negotiating towards a settlement.

We will see what happens.

Rafael: I should repeat that this is happening while we are taping.

When we air, it may have been resolved.

You have written that the rollout of the market has been "a mess."

Aside from the prioritizing stuff.

And in the article you say that you profile four individuals that have been granted licenses.

And you talk about some of the headaches they have had to go through in order to get their stores open.

Can you give us some examples of the problems they face?

And why they face them?

Mona:--, there are so many -- gosh, there are so many problems.

One of the issues is the lack of raising funding which was supposed to help the licensees with real estate and capital.

As a result, because of the delays and their desire to get open and running as soon as possible to have that first mover advantage, some of them had to take out personal loans to finance the dispensary openings.

One applicant said I would never have applied for this license if I knew I was going to have to take out a loan to fund it.

Some other issues have been real estate.

It can be hard to find compliant real estate and even if you can, a lot of landlords do not want to rent to a cannabis business because it is still federally illegal.

A lot of landlords have mortgages that are backed federally.

There are all of these issues within the cannabis business that makes it really difficult because of the federal illegality.

And then you have the whole factor of a state program at was supposed to match licensees with actual dispensary locations.

That program, the funding, the real estate, it was all very slow to get up and running so a lot of licensees decided to go out and find their own locations.

That put people in a sticky situation where they were competing with a state agency for a limited number of compliant locations.

There are all of these really interesting hurdles that people phased because of the nature of the cannabis business and the way New York's program is designed.

Rafael: Jeremy earlier said the regulators had taken a hands-off attitude.

But as I read the stuff it seems they are very hands-on to the point, as you write, that one licensee had already put the signage on the front of the store costing her thousands of dollars and the regulators came in and vetoed it.

Are they too hands-on?

and let me ask this also, you write that there was a meeting in June of the licensees and the regulators that was very heated.

Has the situation got better?

Mona: I think cannabis by nature as an industry is very strictly regulated on a state level because of federal D-League and for that reason a lot of times people are dealing with a lot of regulatory and compliance hurdles the issue with the signing -- the signage that you mentioned.

Regarding the contentious meeting, after the meeting the head of the dormitory Authority of the State of New York just agency overseeing the real estate and investment fund portion of the program, McDaniel, he stepped down from the cannabis control board after that meeting.

Not saying it was because of the meeting but that agency has come under a lot of criticism from licensees because that things have not gone according to plan.

They had anticipated raising money for the fund by September, 2022.

They did not raise money for the fund until July of this year.

I think a lot of times government officials think -- we are going to rollout this cannabis program and failed to appreciate how difficult it is to fund raise for something like cannabis because of federal illegality or the real estate issue.

Mike r.: how much money has -- Rafael: how much money has the state committed to this issue?

Jeremy: it has committed a lot of money.

Rafael: I read something like a million -- Jeremy: the public-private fund is supposed to be up to $200 million and the EDC, a public-private agency, has also committed I believe about -- I think it has committed about $5 million and is looking to raise $25 million.

If you do the math it is upwards of $250 million not to mention the upfront cost.

These agencies need to be staffed with lawyers and policymakers.

The state has put a lot of money into this dust from a wrong number perspective.

Rafael: let's turn to housing Works which I talked about in the introduction.

The first legal dispensary to open its doors did well and is doing better than some of the other dispensaries that have opened up.

What is the secret of its success?

Mona: I would not say housing works is necessarily doing better than others.

They were the first so they have that advantage of being first to market.

For a while being the only regulated dispensary open in the city helped them generate a lot of revenue.

But I do here there are a lot of other dispensaries that are open right now doing well in terms of sales.

As Jeremy mentioned, there are about 20 regulated dispensaries opened in a state with a population of 20 million people.

They are few and far between and there is great demand for the product.

All of the early dispensaries are doing well.

However, part of the issue, particularly for the justice impacted entrepreneurs, is that some of them opened on a pop-out basis.

The state was in a rush to get these dispensaries open and some of them were not fully built out and now they have to shut their doors to do construction before reopening.

You can imagine.

That situation for a nascent business can be very detrimental.

Rafael: you agree that that particular dispensary is not doing that much better than the other ones?

and if it is, are there lessons that other dispensaries can learn?

Jeremy: I don't want to discredit anything they are doing.

It is a well-run show and they have a good product selection.

But at the same time, cannabis is cannabis.

It is an undifferentiated product.

The illicit products are tested are not regulated in the same way but for your average consumer it is sort of the same.

The other thing I will point out is that housing works doubled their sales expectations.

We did not get to see a full accounting of all of the sources -- of all of the expenses associated.

We don't have a good sense of the margin for housing works.

At the sink time, it is a great store and it is impressive what they have done.

Rafael: and by the way, Mona, everywhere you go in Manhattan and Brooklyn there seems to be a dispensary open.

How is that possible?

they look like they function with impunity.

Mona: they kind of do it part of the reason is simply because part of the point of legalization is to move away from criminal enforcement of cannabis sales.

The other part is there has been -- there is a great demand.

There is a lot of consumer interest.

People think they are regulated because they are so outwardly selling cannabis.

Rafael: I thought so.

Mona: but they are not licensed.

And I think the state has -- is really struggling to crack down on these stores.

Recently I heard an estimate from a City Councilwoman that there are upwards of 2000 illicit shops in New York and I imagine it would be much greater than that.

And so it is really difficult to put in the resources to enforce against these dispensaries.

The governor has appropriated more money in the state budget to go after them.

They have increased enforcement powers.

But you hear about reads and they will shut down seven dispensaries and that will be a big deal from an enforcement perspective but meanwhile there are thousands in the city alone.

Rafael: that has to be -- there has to be an impact on the legal dispensaries.

It has to be dampening their business.

Mona: cannabis in the stores that are not licensed are likely -- is likely to be cheaper.

For consumers it is a cheaper option.

Rafael: of the 33 point $4 million that the marijuana industry has generated, how much of that has gone so far to taxes?

and where specifically are those taxes going?

Jeremy: that is a good question.

In terms of proportion, the New York tax system is around 13% on the consumer for a take-out piece.

You can do the math.

Roughly, $3.5 million in taxes already raised by the government.

There is a big question as to where the tax revenue should go.

I think that is an open question for MRTA.

At the same time, part of the problem -- I'm trying to choose my words carefully -- there are a lot of expectations.

A lot of these budgetary pieces are not getting filled.

That is one piece of it.

The second piece of it is I think with the veterans suing, it is unclear how much longer the licensing structure will go on.

That could open up a hornets nest as to where the tax revenue is going.

Can we look at pieces of the bill and figure out if it contains some of those things?

to defend the interest circulating around it.

It is a complicated system.

Rafael: Mona, when legalization was first debated many who opposed it argued it would be too easily available for kids, that it would serve as a gateway for harder drugs and it would cause more traffic accidents.

And that it would lead to an increase in psychotic episodes among the users, especially kids.

It seems from what I have read that some of these problems have been experienced in the two states that legalized marijuana 10 years ago, Colorado and Washington.

Has New York experienced any of that since dispensaries have opened?

and if not is it because we learned lessons from Colorado and Washington?

Mona: the youth use has happened because you do have a proliferation of unlicensed dispensaries that sell to minors and are selling unregulated products.

I have seen anecdotal news stories about kids who got into some sort of unlicensed product and accidentally ingested some cannabis infused candy and had to go to the hospital.

These sorts of things.

If you look at the overall research on the early states that did legalize cannabis, it is a mixed and I don't think we can definitively say that youth use has gone up.

There are studies that show it has gone up and studies that show it has gone down.

The data is mixed.

Overall, though fears have not come to fruition in the way that people who were adamantly opposed to it thought or warned that they might that is not to say that there are not public health harms associated with having a commercial cannabis market.

What I think it is too early right now in New York to tell.

-- but I think it is too early right now in New York to tell.

Rafael: sometimes some of us forget because so many states are legalizing marijuana that it is still illegal federally.

What kind of monkey wrench has that thrown into states' industries and if the federal government legalizes it, what would affect -- what effect would have on New York State?

Jeremy: that is a PhD thesis in a minute and a half.

But I will start, and Mona mentioned this also, the general operating environment for businesses whether that is a mom and pop mainstream retail shop to the biggest publicly traded company, there are so many regulatory challenges with legality.

The tax rate is absurdly high.

There is a section in the IRS code called 280e that says that businesses that traffic in these substances are not allowed to deal with office supplies.

Rafael: 30 seconds.

Jeremy: I think the second piece for policymakers is that there is not a lot of federal cohesion as to what cannabis should look like.

Policymakers want to test different things and are not able to do so because each state is a microcosm with its own policy.

That Hydro Jenae Andy is difficult.

-- that heterogeneity is difficult.

Rafael: thank you, guys.

That was very helpful.

We will have you back as this progresses.

Jeremy: thank you.

Mona: thank you.

>> you can take our award-winning program wherever you go with "MetroFocus -the podcast."

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♪ "MetroFocus" is made possible by the Peter G Peterson and Joan fund.

Filomen M. D'Agostino Foundation.

Barbara Hope Zuckerberg.

And by Jody and John Arnhold.

Dr. Robert C. and Tina Sohn Foundation The Ambrose Monell Foundation Estate of Roland Karlen ♪