The cannabis industry faces a diversity conundrum.
What stands to be a $50 billion industry by 2025 is, nonetheless, still overshadowed by disturbing racial disparities. This problem is driving industry regulators and business participants, with increasing intensity and frequency, to encourage diversity throughout the cannabis space.
The racial disparities in the cannabis industry are reflected in estimates by the Drug Policy Alliance, including that only 1-3% of existing cannabis businesses are owned by people of color. The embarrassing lack of minority inclusion may be attributable to regulation itself, largely shaped by the failed War on Drugs. Those with a criminal record of drug felonies are practically banned from financing, owning or working for cannabis businesses (which touch the plant) in virtually every state that has legalized medical or adult-use cannabis. And some states, including New York and Pennsylvania, have extremely high financial barriers to entry, making it nearly impossible for socio-economically disadvantaged groups to participate.
There can be no question that the War on Drugs disproportionately affected minority populations. The American Civil Liberties Union reports that in 2010, black people were over four times more likely to be arrested for marijuana possession than whites in more than one-third of the United States. On a local level, for example, 92% of cannabis arrests in Baltimore were of black people, as were more than 80% of cannabis arrests in Fulton, Georgia and Philadelphia, despite consumption rates between people of color and whites being virtually identical.
To counteract this problem, state regulators are seeking to increase diversity in the licensing/permitting selection process. In Pennsylvania, regulations require marijuana business license applicants to submit a “community impact statement” and a detailed “diversity plan,” containing a breakdown of the number of employees who are men, women, veterans, service-disabled veterans and members of each racial minority. Collectively, these portions of the application are worth more than 20% of an applicant’s total score.
Oakland, California regulators addressed diversity by mandating that 50% of all dispensary permits be awarded to applicants previously incarcerated for cannabis-related offenses and those who lived (in the last two years) in one of Oakland’s six precincts most adversely affected by the War on Drugs.
Tourism currently dominates the Puerto Rican economy, but investors are looking at cannabis operations as the next big boost for the island.
In Puerto Rico, the commonwealth proposed — and it was agreed — that Natural Ventures, one of the island’s first medical cannabis licensees, hire single mothers first, military veterans second and then open hiring to the rest of the population.
And in Maryland, the state’s apparent failure to mandate diversity in the licensing process resulted in litigation and legislative challenges. One-third of Maryland’s population is black, yet none of the 15 applicants selected to grow medical cannabis are owned by black people. Legislation was introduced (but failed to pass in the most recent session) that would have given five new licenses to minority-owned businesses. While successful passage of that bill would have been a win for diversity, opponents insist that it would have spurred litigation from existing licensees who stood to lose market share, undermining representations previously made to their investors. Two applicants who scored in the top 15, but were bumped in favor of less-qualified applicants in the name of geographic diversity, have demanded a regulatory fix and sued the state.
Industry associations are also responding to correct racial disparities in the cannabis industry. THC Staffing, a recruitment firm emphasizing diversity, is seeking to influence regulators to remove non-violent drug crimes as a disqualifying factor to ownership. Multiple trade organizations, including the Cannabis Cultural Association, Women Abuv Ground, Women Grow and the Minority Cannabis Business Association, have made it their mission to connect and empower diverse participants in the cannabis space.
While business owners are encouraged to adopt diversity goals and prohibit discrimination at the workplace, courts disagree on the best means by which to achieve this and employers must use caution in considering race in all employment-related decisions. Title VII of the Civil Rights Act and many state and local laws prohibit discrimination in employment based on race and other “protected” characteristics (such as gender, religion and disabilities). Discrimination lawsuits often arise from an employer’s effort to avoid discrimination.
To help employers navigate permissible diversity initiatives, various government agencies, including the Equal Employment Opportunity Commission, have recommended best practices, including: establishing management-level diversity committees to oversee and support diversity efforts; striving for diverse slates of qualified applicants; fostering and encouraging a mentoring culture and opportunities for internal and external networking; forcing transparency in employment decisions; and requiring diversity and sensitivity education and training for owners and employees.
The data is clear: businesses that manage successful diversity and inclusion programs enjoy increased profits over those that do not, and diversity is proven to drive innovation. In cannabis, however, a commitment to diversity goes beyond gaining a competitive edge; it can provide a healthy pathway to repair relationships with scores of victims of the failed War on Drugs.
Lauren Rudick represents investors and startup organizations in all aspects of business and intellectual property law, specializing in cannabis, media and technology. Her law firm, Hiller, PC (www.hillerpc.com), is a white-shoe boutique firm with a track record for success and handling sophisticated legal matters that include business and corporate law.
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