The New York City Cannabis Industry Association and the Hudson Valley Cannabis Industry Association Talk with the Cannabis Control Board’s Reuben R. McDaniel, III

February 17, 2022

By Eric Altstadter

On February 16, 2022, the New York City Cannabis Industry Association and the Hudson Valley Cannabis Industry Association held a joint event featuring guest speaker Reuben R. McDaniel, III.  Mr. McDaniel was recently named to the Cannabis Control Board (the “CCB”) by New York State Governor Kathy Hochul.  The CCB is responsible for approving the regulatory framework for New York State’s cannabis industry, including issuing final applications needed to apply for the business licenses as well as issuing the licenses, and approving the rules and regulations which will govern the industry.

Mr. McDaniel, in addition being the President and Chief Operating Officer of the Dormitory Authority – State of New York, which is the largest municipal bond issuer in the country, spent 30 years in the securities industry, and a number of years as the Chairman of the Board of Atlanta Public Schools.

While discussing the status of the rules and regulations, Mr. McDaniel noted that rules are still in the drafting stage and not finalized.

The CCB currently has about 45 people working on the future rules and regulations, and Mr. McDaniel expects that number to grow to over 200 people in the near future.

One of the goals of the CCB is use the $200 million Governor Hochul has proposed be established to fund entrepreneurs of color and other diverse backgrounds for the cannabis industry. That $200 million is expected to come from government as well as from private investors.

The Governor has pledged to create the “most diverse and inclusive marijuana industry in the nation.”  According to the state’s policy, “New York will lead where many other states have fallen short.”

Questions still remain as to if those dollars, the $200 million, will cover the costing of seeking a license for those that cannot afford the cost to secure one, or the start-up costs for those who can.

An interesting aspect: The New York State proposal is expected to include a requirement that a site be obtained to run the business and the address included as part of the application process.  Mr. McDaniel explained the CCB thinking is that people shouldn’t be able to get a license who were unable to procure a facility where they can run the business.

The $200 million dollar fund is expected to fund debt investments in the industry, rather than equity.  According to Mr. McDaniel, the state has no interest in owning these companies. He also emphasized that the return to the investors would be “a reasonable market rate of return” so as not to bankrupt these new companies during their infancy.

For dispensaries and cultivators and well as processors, distributors, delivery services and other types of licenses, the funding from this fund could be the lifeline entrepreneurs need.  For example, a dispensary could cost as much as $500,000 to $1,500,000 to start, and a grow facility substantially more.

Mr. McDaniel stressed that the CCB’s goal was not to see a few large multi-state operators run the New York State industry, therefore they would limit the number of licenses, or number of facilities, any license holder could control.

But, as Mr. McDaniel said, the rules and regulations are still being developed.

Based on what has been said, it would appear that the sale of cannabis in New York State won’t take place until sometime in 2023.

About Eric Altstadter

Eric Altstadter CPA is an Audit Partner and Chair of the firm's Cannabis and Hemp practice with over 30 years of experience working with public companies and privately held businesses