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‘Shark-like’ investors emerge as NY officials court out-of-state money for cannabis startups

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State cannabis officials are trying to attract more investors to New York to help dispensary operators get their businesses up and running – a process that has been slower than anticipated.

But state rules make it difficult for some established cannabis investors to enter the retail market. And New Yorkers who have marijuana dispensary licenses say they are receiving unsavory offers from the investors interested so far.

“One thing we are warning our members about is predatorial and shark-like tactics, parasitic tactics that investors are using to take their equity,” said Jeremy Rivera, a co-founder of the New York CAURD Coalition, an independent group that provides services to those in the state’s Conditional Adult Use Retail Dispensary program, or CAURD. All CAURD licensees must have a past marijuana conviction or a family member with a past conviction and experience running a successful business.

New York could be a major part of the legal cannabis market in the U.S., which brought in about $30 billion in 2022, according to a recent report from the industry publication MJBiz Daily. Ahead of the launch of New York's adult-use market in December, the outlet projected that legal sales here could top $1 billion in the first year, growing to more than $2 billion by 2026.

But Rivera said some of the investors he’s spoken to at cannabis conferences have raised concerns about the illicit market eating into legal sales – something New York lawmakers are trying to address.

“Their evaluations of what they feel the business is worth are really low,” and as a result they are offering CAURD licensees unfavorable terms in exchange for startup capital, he said.

Dan Morena has a license to open a dispensary in Manhattan and is in the process of raising funds. He said he has found some promising investors but fielded several shady offers in the process.

Morena said a common proposal he has heard from investors is to offer funding in exchange for a 49% ownership stake in the company – the largest amount allowable under state rules – while also taking over operations.

"It's a bad business decision to completely rely on an outside party who are strangers to both fund and run your business," said Morena, who advises early-stage startups through his firm Redemptive Technology. "It's just a terrible idea."

Rivera, who has a license to open a dispensary in Queens, said he is relying on funds from friends and family. That means he gets to retain more control of his business, but it limits how much money he can raise. “Everybody is a blue-collar worker, so they work hard for their money,” Rivera said.

Rivera was working at a CAURD Coalition table Wednesday at the MJ Unpacked cannabis business conference in Midtown. He said he wants to help educate license holders about what to look out for as they seek financing.

Elsewhere at the conference, Axel Bernabe, the senior policy director for New York’s Office of Cannabis Management, was trying to convince investors to put their money in the state’s burgeoning legal retail market.

“We are really interested in attracting capital,” Bernabe said during a talk at the event’s investors summit. “We have one of the states that’s most exposed to global tourism.”

But Bernabe had to defend the state’s regulations against criticism from audience members. Some investors said they had talked to dispensary licensees to form partnerships, but they didn’t think they could because state cannabis law bars investors with stakes in grow operations anywhere in the country from having a stake in a retail company in New York.

Bernabe said that “two-tier” system “takes some getting used to.” But he said it is meant to promote a mom-and-pop retail market, similar to the landscape for liquor stores, rather than allowing big companies to take over. He also added that there could be some flexibility for those with smaller investments across tiers.

One audience member also raised concerns that the Office of Cannabis Management is not sharing data on sales at the few legal dispensaries that are up and running so far. They said other states regularly share that information.

Bernabe responded that more data would be forthcoming, but not necessarily right away. “The last year-and-a-half we’ve really been focusing on licensing,” he said. “So our data analytic capacities are being built out and it's probably not the first priority.”

Aaron Ghitelman, a spokesperson for the Office of Cannabis Management, confirmed the agency is “not sharing that data at the moment.”


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