Last week, 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.