A Plan for Legal Weed Shops Failed. New York Wants Its Money Back.

In 2022, Gov. Kathy Hochul pitched a $200 million effort to help small business owners with marijuana convictions open New York’s first licensed cannabis dispensaries.

State lawmakers approved $50 million to help the program, known as the Cannabis Social Equity Investment Fund, begin leasing and renovating stores that were supposed to open the following year. But just 22 of the 150 planned stores have opened since and some owners now say the state lured them into a debt trap.

The deal to set up the fund also contained a catch that largely went unnoticed until now.

Once cannabis licensing fees and sales taxes began generating enough revenue, the state would claw back its investment. Only after it was repaid would the money trickle down to programs that were intended to deliver the promised benefits of legalization, including by investing in communities battered in the decades-long war on drugs.

The provision has come to light as the governor’s budget proposal indicates that she plans to recoup the state’s funds. Lawmakers and activists who pushed for legalization say the plan goes against the state’s intention to uplift low-income Black and Latino neighborhoods where the vast majority of marijuana arrests have occurred.

Joseph W. Belluck, a lawyer who leads the state panel steering some of the cannabis revenue to affected communities in the form of reinvestment grants, said the timing couldn’t be worse as Republicans led by President Trump move to slash federal aid and destroy equity programs.

The state should figure out another way to repay itself, he argued.

“It’s not the fault of these communities or applicants that this fund failed and now has to get paid back,” Mr. Belluck said. “To ask them to bear the burden of the repayment is just completely unjust and not in the spirit of the law.”