In 2012, Colorado and Washington became the first states to legalize the recreational use of marijuana. Now, the number of states that has legalized recreational marijuana has risen to 19, including the District of Columbia. Much progress has been made in the past decade. Legal cannabis sales reached a record high of $17.5 billion in 2020, up from $12.1 billion from the previous year. Overall cannabis sales were up by 71% from 2019. The legal cannabis industry added 77,300 full-time jobs last year despite the pandemic.
Every total seems to be growing but one — the percentage of minorities involved in the cannabis industry.
It comes as no surprise that the prior prohibition on marijuana disproportionately impacted people of color. Though much progress has been made in the cannabis industry in the past decade, social and racial equity remain an industry-wide problem.
Most states (though not all) that have legalized recreational marijuana have slowly started to create and implement social equity programs in an attempt to remedy this history of disparity and ensure those who were adversely impacted by marijuana law enforcements have a chance to be involved in the cannabis business. A lot of aspiring cannabis entrepreneurs might not be aware of these social equity programs. Below is a synopsis explaining what social equity programs are, which states have them, and how business owners or entrepreneurs could use this as a ticket to enter the playing field.
What are social equity programs?
Social equity programs vary widely by state and how “social equity applicant” is defined. For instance, a social equity applicant could be someone who lives or lived in an area with high incarceration, poverty and/or unemployment rates for a certain number of years. Or it could be someone who has been or is married to an individual who was arrested or convicted for a marijuana-related offense.
Some states understand the challenge for these entrepreneurs is not only in obtaining but also maintaining the license. Oftentimes, entrepreneurs are unaware of the cost of legal compliance and later realize they do not have the capital to maintain the business or license, so they end up selling to larger companies. Massachusetts has programs that provide qualified social equity applicants to receive training and technical assistance in various areas such as legal compliance and accounting.
For Ohio’s social equity program, the state Department of Commerce tried setting aside 15% of the cultivation, processor and laboratory licenses to go to minority-owned businesses. But an Ohio judge ultimately held it was unconstitutional because there was a lack of “sufficient evidence of a government compelling interest” for using racial classification. The Washington State Liquor and Cannabis Board used a different approach. Instead of reserving a percentage of licenses to minorities, the regulatory agency is prioritizing about 34 licenses, which were leftover licenses that had been cancelled, revoked or forfeited, to social equity applicants, which seems to pass constitutional muster.
Each state has the autonomy on how it defines a social equity applicant and how the program will operate. Thus, it is important for first-time cannabis business owners or license-holders to familiarize themselves with how a state’s cannabis regulation defines “social equity applicant,” how applications are being scored or reviewed and what resources the state provides to social equity applicants to not only obtain but also maintain their licenses.
Which states should you watch?
Not every state that has legalized recreational marijuana has a social equity program. States that do include Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania and Vermont.
Two other states entrepreneurs should pay attention to are New York and Washington, because they have relatively new social equity programs. The hope is that they had a chance to learn the shortcomings of social equity programs from other states that come before them and designed theirs to avoid those issues.
New York recently legalized recreational marijuana this summer. Some in the industry say New York has one of the strongest bills among all the states taking social equity into consideration, possibly replacing Illinois, which was previously recognized as the gold standard for social equity. Through New York’s Marijuana Regulation and Taxation Act, one of its goals is to issue 50% of adult-use licenses to social and economic equity applicants. New York also expanded qualifications for a social equity applicant to include minorities, women-owned business enterprises, distressed farmers and service-disabled veterans. Financial support would be provided to social equity applicants including low- or no-interest loans, fee reductions or waivers, and assistance in preparing applications and operating a business.
Even though Washington was one of the pioneer states to legalize marijuana, as of February 2021, only 1% of cannabis licenses are owned by Black entrepreneurs. Realizing this disparity, the Washington State Liquor and Cannabis Board started creating its social equity program in 2020. Although its program will not be finalized until the end of 2022, a notable aspect of it is its allocation of $1.1 million per year for a competitive grant program to help new social equity applicants in attaining retail or producer licenses.
What does this mean for owners and entrepreneurs?
An overwhelming majority of these marijuana business owners and license-holders probably would not meet the requirements to participate in social equity programs. Those who have the financial means may not qualify to participate in social equity programs, and those who do might not know about these programs. This becomes an excellent opportunity for a partnership.
Like most startups, it is the collaboration of people with different skill sets, abilities and resources coming together to start a venture. This is no different. And beyond just starting a business, this is an opportunity to have a positive impact on communities that were disproportionately impacted by the prohibition of marijuana.