Gov. Hochul has received great praise (along with some criticism) for her proposed roll-out of the retail marijuana dispensary program in New York State. Most notably, much attention has been paid to the governor’s decision to give individuals with prior marijuana convictions (called “equity entrepreneurs”) a priority when applying for licenses to open retail cannabis sales locations.
Unfortunately, the debate regarding the propriety of favoring individuals with marijuana convictions over those without criminal records has overshadowed an even more remarkable – and potentially transformative – component of the marijuana legalization plan.
In particular, the governor has also launched a $ 200 million “Social Equity Cannabis Investment Program,” which will not only provide funding support for the “equity entrepreneurs,” but also have the state Dormitory Authority identify and lease retail locations, undertake renovations, purchase equipment and furniture, and then sublease the spaces to new cannabis businesses.
This truly groundbreaking approach should be expanded far beyond the cannabis industry because it addresses one of the greatest challenges facing low-income Black and Brown entrepreneurs and small businesses: the inability to afford the start-up and leasing costs required to open retail locations, particularly in areas like New York City, where space rental costs are so high.
The existence of structural racism is undeniable, and a major resulting hurdle for Black and Brown entrepreneurs is the difficulty in obtaining financing to launch retail businesses, particularly from mainstream financial institutions.
Reports from the Federal Reserve have shown that Black- and Hispanic-owned businesses are less likely to be approved for financing than white-owned businesses, even after controlling for relevant factors such as business performance and credit scores. Minority-owned businesses are also more likely to be discouraged by financial institutions from applying for credit, and more likely to seek funding from higher-cost non-bank lenders.
The Association for Enterprise Opportunity, an organization dedicated to creating economic opportunities for underserved entrepreneurs, has demonstrated the accompanying challenges for minority-owned businesses caused by the lack of wealth, the lack of relationships with financial institutions and business mentors, and the “trust gap ”Caused by the long-standing experiences of bias and discrimination. The combination of these factors leads to businesses never getting off the ground because of insufficient access to start-up capital and technical assistance.
New York State’s proposed new retail marijuana licensing program directly addresses these issues by having the state provide start-up funding for budding “equity entrepreneurs,” offer expert guidance and mentoring, and also find, lease and renovate suitable retail locations that these start-ups can sublease from the state.
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The benefits of this approach go far beyond the financial impact, and help to address the one thing that almost every small business owner lacks: time. Even with adequate funding, the challenges of finding appropriate retail space, negotiating lease terms, contracting for and overseeing renovations, and then purchasing and installing equipment are daunting. Having the state take over some of these tasks, while simultaneously providing expert guidance and mentoring assistance, is invaluable.
Unfortunately, all of these benefits will only go to the approximately 100 to 200 equity entrepreneurs who the state estimates will receive retail cannabis licenses. With more than 380,000 minority-owned businesses in New York State, this means that even after the cannabis program is fully implemented, more than 99% of minority-owned businesses in the state will be selling something other than marijuana. Compared to them, cannabis entrepreneurs will have special advantages.
If we truly want to address the impacts of structural racism on Black and Brown entrepreneurs, we need to expand this program far beyond the cannabis industry, and provide similar assistance to support businesses in other sectors as well.
Doing so will open a new front in government efforts to assist underrepresented business owners, which to date have primarily focused on the Minority and Women-Owned Business Enterprise (MWBE) certification process. That well-intentioned initiative has greatly increased the number of MWBE firms with government contracts, but the vast majority of minority-owned firms sell goods and services that the government does not purchase, or sells them in quantities too small to be competitive.
The harsh truth is that for a typical minority-owned restaurant, clothing store, law firm, hair salon, coffee shop, health club, caterer, art gallery or seller of scores of other goods or services, obtaining an MWBE certification provides very few benefits . This is why New York has only about 9,300 certified MWBEs, which is less than 3% of the total number of minority-owned businesses in the state.
We need to start focusing on the other 97%, and many of these businesses need assistance in finding retail locations, renovating spaces, negotiating leases, obtaining start-up financing and accessing business advice and guidance. This is exactly the type of hand up that the state is now offering to equity entrepreneurs seeking to run retail cannabis operations, a groundbreaking approach that should be expanded and allowed to bloom in other business sectors as well.
Nocenti is the former executive director of Union Settlement, which provides services and assistance to low-income residents and small businesses in East Harlem.