New York State Cannabis Social Equity Investment Fund Secures $150M In Debt To Provide Loans To CAURDs –

10 July 2023

Foley Hoag LLP

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Earlier today, New York Governor Kathy Hochul unveiled a
noteworthy development regarding the New York State Cannabis Social
Equity Investment Fund (the “Fund”), as it secured a
substantial investment of $150 million from Chicago Atlantic
(“CA”). This capital infusion, in the form of a senior
secured loan, will be utilized by the Fund to provide
“low-interest” loans to Conditional Adult Use Retailers
(“CAURDs”). These loans aim to support and empower
CAURDs, and should come as welcome news to both CAURDs seeking
startup capital as well as the cultivators and processors who have
largely struggled to stay afloat with only a handful of retail
locations to date.

However, there are several crucial questions that remain
unanswered, which have drawn the attention of industry
stakeholders. Given the glacial pace of progress in raising capital
thus far relative to expectations, perhaps the biggest question
relates to when CA will provide the funding and whether it
will be funded as a lump sum or phased in over time. Additionally,
the exact amount of capital provided by Chicago Atlantic, as well
as the potential involvement of other investors, remains
unclear.

Another important aspect is the nature of available collateral
for the senior secured loan to the Fund: is it equity in the Fund
itself, the real estate leased or subleased to the CAURDs and
secured by the Fund, or even the CAURD licenses themselves? Answers
to these questions will inform how potential defaults of either
CAURDs or the Fund would be handled. Furthermore, the implications
of such defaults on the tax revenue proceeds representing the $50
million in equity in the Fund are yet to be determined.

Additionally, it remains uncertain if the Fund would replace a
defaulting CAURD with another CAURD and what role Chicago Atlantic
would play in this process. Furthermore, in the case of a
CAURD’s insolvency, the treatment of other creditors such as
distributors, cultivators, processors and brands, vis-à-vis
the Fund in a receivership process, remains an open issue to keep
an eye on.

These are just a few of the unanswered questions regarding the
terms, processes, and potential outcomes associated with this
significant investment in the Fund, but nonetheless this
announcement should come as welcome news to a broad spectrum of
industry stakeholders and advocates as the New York Adult Use
market comes to life.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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