Making social equity programs viable

Almost every recreational state has included a social equity initiative

In 2012, when voters in Colorado and Washington legalized recreational marijuana sales, lawmakers and regulators were concerned about how legalization would impact public health and safety and how to ensure adequate control over the tracking, production and sale of legal products. But there was little done to ensure the opportunities legalization created would be distributed equitably.

The growth of the legal cannabis industry has brought increased acknowledgement that the benefits and financial profits of legalization are not flowing to the communities that have been disproportionately harmed by the War on Drugs. The industry and government officials are increasingly facing calls to create social equity programs to address past harms by providing access to the commercial industry and an environment where disadvantaged individuals can thrive in a highly regulated and competitive market.

Social equity programs seek to promote equitable ownership and employment opportunities in the cannabis industry in order to decrease disparities for marginalized individuals and communities. In March 2019, the National Cannabis Industry Association released a comprehensive report and succinctly articulated six key goals of social equity programs: repair the damage to individuals caused by discriminatory enforcement of prohibition; create more equitable licensing outcomes through the application process; ensure the industry reflects the local community; address financial barriers to market entry; support companies and individuals entering the industry from disproportionately impacted communities; and invest tax revenue in communities harmed by prohibition.

The more successful social equity programs will consider the factors that restrict accessibility and include educational services, incubator programs, favorable zoning regulations and license allocation, as well as government responsiveness and community reinvestment. Accessibility encompasses components that affect the ease with which social equity applicants can learn about and access a given program, while a support structure for social equity applicants and after-license resources help their companies to thrive.

States are struggling to develop programs that address a wide range of issues and needs. Fortunately, the landscape has changed significantly in just a few short years. On the recreational side of the industry, every new state, except Maine, has included a social equity initiative. Some medical states, including Missouri, are still working through the specifics of their respective regulations, so a social equity provision may still be added. Inadequate measures to address social equity, among other reasons, caused adult-use legalization bills to stall in the New Jersey and New York legislatures. Michigan, Pennsylvania and Ohio all provide incentives for minority inclusion.

In Illinois, the first state to legalize recreational marijuana sales via the Legislature, lawmakers passed one of the most progressive marijuana business licensing frameworks in the country, including a comprehensive social equity plan that has merit.

Many advocates favor instituting programs that prioritize a one-for-one approach, in which applicants from impacted communities receive licenses in a one-for-one ratio with all other applicants. A social equity applicant would be defined by a combination of criteria, including geography, impacted person status, income level and other factors, but not so stringent that hardly anyone qualifies.

Bringing cannabis above ground is an incredibly complex process, and California is doing it on an unprecedented scale. To date, California’s program is pushing forward with Oakland, San Francisco and Los Angeles leading the way for implementation. Los Angeles has complied with its commitments to the social equity program and its own deadlines. During a recent application window, qualified applicants submitted all the required paperwork and are now eagerly awaiting the results of the first-in, first-served rush for the initial round of 100 allocated retail licenses.

The biggest struggle is resources. In an industry where companies need significant startup capital, how are social equity applicants to compete, and what is a state or a city obligated to provide in order to make the access realistic? The list of needs for a cannabis startup is long and runs from legal advice to protect the participants’ interest to operating capital for building improvement, rent, buying product and enough cash flow to support the months until the operation stabilizes. Any viable social equity program should include loan and banking assistance, mentorship support, publicly funded incubators and accelerators, prioritize licenses, workforce placement programs and community outreach.

Time will tell if the efforts to right past wrongs are successful.

 

Anne van Leynseele is a cannabis and hemp regulatory and deal attorney, often working across sovereign borders. She advises multi-state and multi-national cannabis clients on governance, compliance, licensing, acquisition, asset management, and import/export matters. Prior to joining Zuber Lawler, she spent four years as a federal attorney advisor in Washington, D.C. She is a summa cum laude graduate of the University of Washington and a cum laude graduate of the University of Seattle School of Law. She can be reached at avanleynseele@zuberlawler.com.

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