DASNY Taps Private Equity Firm Chicago Atlantic as Dispensary Landlord

The Dormitory Authority of the State of New York (DASNY) has a new game plan to open cannabis dispensaries at a faster clip in New York by turning the state’s private sector partner, alternative investments manager Chicago Atlantic, into their landlord.

The five-year-old Chicago Atlantic will now buy properties for future dispensaries then collect rent for the storefronts, state officials revealed during a New York State Senate hearing Tuesday. 

That’s a change from how the much-maligned $200 million Cannabis Social Equity Investment Fund previously worked as DASNY handled the leasing of storefronts before and didn’t acquire properties. Chicago Atlantic will continue to make a tidy profit as it will still collect the 13 percent interest rate on loans made through the fund for cannabis operators to get up and running.

This shift was news to state lawmakers, who gave the marching orders for the fund three years ago and seemingly learned of the change by accident during the Tuesday confirmation hearing for DASNY CEO Robert Rodriguez.

“This is a new concept,” New York Sen. Liz Krueger, the chair of the Senate Finance Committee, said, butting into Rodriguez’s testimony. “I’ve never heard of it.” (Krueger told the New York Post a day earlier that the Cannabis Social Equity Fund was ending.)

Under the new program, after Chicago Atlantic buys a future dispensary site, a licensee will sign on to become a tenant and “pursue their own buildouts,” Rodriguez told lawmakers. 

The goal is to switch the focus “to the purchase side of the program,” Jeffrey Gordon, DASNY’s spokesperson, said in an email.

Nothing will change for the 11 dispensaries DASNY has helped open thus far, nor the 13 other sites where it has signed leases and build-outs are already underway.

The public-private funding platform has attracted scant few dispensary licensees, chiefly because of the costs DASNY ran up in building out the spaces, but plenty of criticism, especially after The City obtained documents revealing the terms of the deals.

The licensees get stuck with the bill, and that means a mountain of debt for small-scale operators, all of it backed by DASNY, according to the terms of the social equity fund laid out by state lawmakers three years ago.

Chicago Atlantic will pocket the entire returns on licensees’ borrowing costs, despite having only a 75 percent stake in the portfolio, according to the loan terms.  

“You hear licensees say, ‘the minute they get us to start paying we’re dead,’” said Matt Greenberg, the founder of consulting platform Cannabis Advisors and a former staff member of the state Office of Cannabis Management. 

Those terms won’t change under the shift and it’s unclear how licensees will get a better deal with Chicago Atlantic as their landlord.

However, now dispensary owners could eventually get put into a hole they can’t get out of and risk losing their entire license, Greenberg said. 

“It’s pretty easy. You run up the tab as high as you possibly can on all these licensees … you [later] remove those people from those stores,” Greenberg said. “You’ve created a sharecropper arrangement.”

That means Chicago Atlantic walks away with a newly built dispensary. It’s not a bad strategy for the firm, which has made $2 billion in credit and equity investments to date, according to its website. 

A spokesperson for Chicago Atlantic did not immediately respond to a request for comment.

Abigail Nehring can be reached at anehring@commercialobserver.com.