Writing the WrongsCannabis Industry thought leaders
Open Cannabis Markets Are More Socially Equitable than Markets with a Social Equity Component
In February, I went to a cannabis conference in Albuquerque that blew me away. It wasn’t that the conference was fundamentally different from others I have attended; it was the air of HOPE that permeated the entire expo floor. People were excited. Coming from California, where I haven’t seen this level of excitement, ever — even in the beginning — I started to wonder why New Mexico residents had such a sense of buoyancy. Then I realized it was because they had a reasonable expectation that they would be able to enter the cannabis market if they applied for a license.
This is not the case for most applicants in other legalized states. We applied for licenses in New Mexico in February of this year and in less than two months, the fruits of our labor were realized. On March 15, we received our dispensary and manufacturing licenses less than 45 days after applying. Let me say that again in case you missed it: Less than 45 days after we applied in New Mexico, we received our licenses with a total capital output of $1,000.
There are people in California, Illinois, and Massachusetts who are still waiting for licenses, and those who have licenses who are waiting to realize the potential of their licenses. In New Mexico, there were no particular social equity hoops we had to jump through, no 600-page application (Illinois), no interview requirement (Fresno), no need to have a building (Los Angeles), and no requirement to incubate social equity applicants (Oakland). The truth is that in New Mexico, they did not pit BIPOC, the formerly incarcerated, our nation’s first people, and people harmed by the war on drugs against one another to obtain those licenses. The barriers enacted in social equity states were removed in New Mexico.
New Mexico’s cannabis industry model
New Mexico passed adult-use legalization on April 12, 2021, and in less than a year, the state has licensed more than 500 businesses, outdoor farms, greenhouses, retail outlets, and manufacturing facilities. During the new market’s opening weekend, New Mexico’s retail cannabis sales surpassed $4.5 million dollars. They have made their barriers to entry low and, so far, have no caps on the number of licenses they will issue.
Some may point to Oklahoma, another state that made its barriers to entry low, as a failed attempt at an open market. Although Oklahoma has had issues, they are nothing compared to what we have seen in states that tout themselves as champions of social equity where, despite the headlines, no successful social equity programs actually exist. For example, a friend of mine, who is El Salvadoran, has in hand one of those fabled Los Angeles dispensary licenses that he received during the city’s first lottery. After waiting for months for the local cannabis commission to move forward following a slew of lawsuits, he chose to move to Oklahoma in 2020. He opened his dispensary in less than 90 days and to this day, is very successful. He is still waiting for LA to get its act together, three and a half years after he won that license in the first lottery.
What is the difference between those states and New Mexico? The answer is simple: a limited license market touting a social equity component usually means it is exponentially harder for BIPOC, women, formerly incarcerated-led companies, and anyone not backed by large corporate and/or multi-state operator capital to get a license. An open market with low barriers to entry and little (New Mexico) to no (Oklahoma) social equity demands makes it easier and more cost-effective for BIPOC-, women-, and formerly incarcerated-led companies to get a license.
The problem with social equity
In my opinion, the whole movement around social equity has caused an infantilization of non-white and non-male cannabis entrepreneurs. Social equity applicants have to jump through hoops to prove they have been harmed enough to even be considered for a license. What in The Hunger Games is that? The applications for equity applicants in and of themselves are so complex that the going rate to get them written by lawyers or consultants is $25,000 or more… usually more. That is an entire ancillary industry created off the suffering of people and communities who were harmed by the war on drugs. Let that sink in. Where is the justice in that? The access to capital needed to realize the potential of your license does not exist for BIPOC, women, or the formerly incarcerated. Nor do current capital markets even understand how to assess the creditworthiness of this group of people in lieu of the fact that our financial system is built on a racist foundation designed to intentionally exclude us.
There is no better example than what we see coming out of New York. They announced a $200 million social equity real estate fund in January. In February, they did a state-wide virtual roadshow touting this groundbreaking fund. In March, New York state officials made a bold commitment to ensure the first 100-200 retail licenses go to those formerly incarcerated on cannabis charges and/or their families. Oddly though, they also sent out a request for information asking how to create, administer, and distribute this $200 million social equity fund that same month after announcing it. Do not announce a social equity fund when you don’t know how to create, administer and distribute this type of fund. To truly address the capital needs of the most vulnerable populations from the War on Drugs, New York will need to add much more than a real estate debt fund. They need to add recoverable grants as San Francisco did along with business development support. One, a stand-alone debt facility for real estate isn’t going to get us to an equitable industry. And its not the first, second, or even third step to getting us there.
We have learned that we cannot count on social equity legislation, municipal codes, or programs to help us. What we need and what we should demand now, from the existing regulated states and those to come, is lower barriers to entry. We can look to New Mexico as a roadmap.
Language and Intent: What Matters in Designing Social Equity Programs
As state after state regulates adult-use cannabis consumption, one issue has become a sticking point – social equity and justice reform.
Some states have chosen not to mention the disparate impact of cannabis prohibition and the war on drugs, such as Maine, Alaska, Montana, South Dakota, Nevada and Oregon.
Other states started mutely on the matter and then changed course after the work of community and industry advocates prompted them to make necessary changes, notably Colorado and Washington.
Then there’s the group that chose to tackle it head-on but to widely varying degrees; those states are Massachusetts, Michigan, California, New York, New Jersey, New Mexico, Vermont, Connecticut, Illinois, Virginia, and Arizona.
This varying degree is what I want to dig into in this blog.
There’s a popular saying, “Something is better than nothing,” but I’d like to disagree.
Arizona Falls Short in Social Legislative Language
The hope introduced by the presence of language that does not comprehensively address or consider all constituents, especially those from marginalized communities, can be damaging.
The Greater Phoenix Urban League feels the weight of this very issue. The Urban League affiliate, in partnership with Black women-led equity company Acre 41, attempted to challenge the social equity program in its entirety.
Concerns about equity licenses remaining with qualified equity applicants are one of the issues cited. However, Maricopa County Superior Court Judge Randall Warner dismissed the lawsuit stating that the rules and regulations created by the AZ Department of Health Services were within the bounds of the law and reasonably met objectives.
Let’s consider the objectives and guidance provided by Prop 207 for Arizona’s handling of social equity and justice reform.
To start, section two, “findings and declaration of purpose,” has no mention of either term.
We first see the words “social equity” in the section attached to the appropriation of funds from the medical marijuana fund and private donations.
Out of 45 million dollars, two million dollars is allotted to developing and implementing a social equity ownership program. This language offers much flexibility and does not guarantee the receipt of funds by equity applicants.
Four million goes to expungement and another million to non-profits for community education and outreach.
In total, only seven out of 45 million dollars from this fund are slated for harm repair.
Finally, social equity is mentioned in sections later under “rules, licensing…”, part g, pertaining to the number of licenses set aside for the social equity program and the timeline for implementation post approved regulation.
Beyond these comments, Prop 207 is silent.
New York’s MRTA Legislation Provides a Strong Benchmark
Now let’s juxtapose this with a bill from a state that chose to make social equity a focal point of its legislation: New York and its Marijuana Regulation and Taxation Act (MRTA).
To start, in its “findings and intent” section, we see the immediate acknowledgment of the consequences of the war on drugs, such as mass incarceration, the disparate impact felt by Black and LatinX communities, and to use a significant part of the revenue generated to make investments in impacted communities and individuals.
This establishes a structure that is meant to be diverse and a representation of the entire state.
The section also includes the designation of an equity officer and a community advisory council to handle the regulatory process.
Beyond this, Article 4 provides social equity applicants being able to benefit from waived and/or reduced fees, the establishment of an incubator program for social and economic equity applicants, criteria for determining who should benefit from said programs, priority given in licensing, and a stopgap that prevents the selling of equity licenses within the first three years to a buyer beyond other equity operators.
At this point, New York is knee-deep in its regulatory process, so we cannot speak to the full interpretation of the MRTA. However, the intent is clear.
It is also important to note that no state has created an equity program without challenges and needs for improvement to date. There will always be uncontrollable factors, such as lawsuits and litigation, that impact the implementation of a language that seeks to specifically assist one group over another.
But we also cannot deny that the decision by Judge Randall Warner in Arizona highlights the reality that language within laws that govern the regulation of cannabis is important, especially when addressing the disparate impact and establishment of programs to repair harm and support the advancement of impacted individuals and communities. Simply put, language matters.
How to Make NY’s Social Equity Vision a Reality: An Investor’s Perspective
As a native New Yorker and one of the earliest investors in social equity eligible operators in the legal cannabis industry on the west coast, I believe we have the best chance to make an equitable cannabis industry in New York. But, sadly, we are missing the mark with the proposed fund structures by the Cannabis Control Board. Luckily, there are adjustments that the state can make to partner with investors to set a new standard for the industry and make real their social equity vision led by NYS Assembly Majority Leader Peoples-Stokes, Senator Kruger, and Governor Hochul.
To be clear, the fixes proposed below are not just ‘feel good’ policy. Without pathways for leaders from the legacy market to transition to the legal market, other states like California have struggled– in December 2021, cannabis operators in the legal market estimated that 73% of cannabis is still bought from the legacy market. Without the expertise, competitive prices, culture, and consumer base of the legacy market, the legal market has been unable to compete. This has resulted in a less profitable and more volatile industry for investors and created insurmountable barriers for legacy operators who have tried to transition.
The proposed fixes below are vital to ensure that New York’s newly regulated cannabis market can be competitive with our booming legacy market. Without these fixes, our legal market will stumble before it even starts.
New York’s Social Equity Vision
New York’s market is going to become the largest market on the east coast and the new standard of the industry… and the world. Their plans to have the first 100-200 retail licenses go to entrepreneurs formerly incarcerated on cannabis related charges (and their families) is both the right move and a gamechanging standard to set for future states. NYS Assembly Majority Leader Peoples Stokes, Senate Majority Leader Stewart Cousins, and Governor Hochul knew the assignment and delivered for our state and ultimately the nation. I am ALL in on the bar they have set for us!
But to make this vision a reality, financial infrastructure MUST be built to make due on this gamechanging move. Together, we must eliminate barriers to entry and growth for legacy operators to catalyze a thriving, equitable industry. The current plan will not get us there without additional infrastructure. Luckily there are immediate fixes that can be made.
How to Make NY’s Social Equity Vision a Reality:
1.Fund an Incubator-like structure run by successful social equity eligible operators to provide business development support and de-risk investments
New York has referenced providing business development support to social equity eligible entrepreneurs. This is a vital component of a thriving market. Unfortunately, the state is suggesting a public entity with no experience in the cannabis industry lead this rather than Black, Brown, and Indigenous entrepreneurs who have successfully operated in this industry for decades. This is not just a missed opportunity, it’s a misstep.
There are plenty of examples for how the state can and should catalyze thriving markets, but they all require public funds to catalyze private sector leadership to accelerate their market. For example, Israel has invested in becoming the leading market for medical research in cannabis. They created low barriers for entry for companies to enter this sector of the market, incentives for companies entering the sector, and supported private accelerators and incubators to catalyze best in class models and de-risk investments to attract more capital. Many of these accelerators and incubators are based in economic priority zones where the government provides concessions to those willing to set up there to bring down unemployment and create good jobs.
Solution: New York should create a funding pool for successful social equity eligible operators who have effectively accelerated other social equity companies to lead these business development support programs in order to de-risk our investments as investors, aggregate eligible projects, and provide additional data points to evaluate the credit-worthiness of participants.
2. Stop using criteria that excludes and creates even greater barriers to capital
2.a. Provide amnesty for social equity eligible operators, especially those from the legacy market, so investors may assess their creditworthiness and track record in the legacy market
In my experience with formerly incarcerated and systems impacted entrepreneurs and legacy operators, the only structure we have found to work is having an intensive start up/transition accelerator that centers their needs as well as a growth stage advisory to de-risk our investments and supplement traditional indicators investors are looking for to determine creditworthiness and risk.
In that, we translate and analyze the past financials of those in the legacy market given our experience and trusted relationships in the industry. But since NY state has repeatedly refused amnesty for those from the legacy economy, I don’t believe the state will be able to use this strategy to determine creditworthiness at scale until they change their policy. Without a clear picture of the track record of entrepreneurs, investors will be unable to assess risk and creditworthiness to provide the capital needed at scale for the first movers in our retail markets.
Solution: Provide amnesty for those who have operated in the legacy market.
2.b. Adjust criteria to include legacy economy business experience in the ‘successful business operator’ mandate for first 100-200 retail licenses for formerly incarcerated people on cannabis charges. Make it optional but asked for on application.
While I understand the spirit, having a criteria for these licensees to “have run a successful business for two years” in the legal economy, this is going to exclude more than it will help (especially in the wake of COVID).
Instead, we should provide amnesty and include their trackrecord in the legacy market to include the best applicants for a thriving industry and provide additional data points for investors in their due diligence process.
Furthermore, in the wake of the COVID economic crisis, this criteria will exclude even those who have successfully transitioned to the legal economy in other industries. The compounding effects this crisis has had on people of color and formerly incarcerated people has shown the vast disparities in access to capital– in fact, the federal government had to be sued to ensure PPP grants were accessible for formerly incarcerated entrepreneurs since they were excluded from the first round (They then gained access for the 2nd round after many small businesses folded because of exclusionary lending practices early in the pandemic).
Including this requirement while also excluding the entrepreneurs from the legacy market that are the best positioned to lead our industry, cuts our market off at the knees. It will be prohibitory at best and limit the flow of talent we need to make our industry successful.
Solution: Eliminate exclusionary mandates on successful legal businesses. Provide amnesty for those who have operated in the legacy market. Allow the trackrecord of legacy operators to be included.
2.c. Expand Access to Capital for Social Equity Eligible Operators– eliminate limits on # of owners and pivot to caps on % of ownership
While intended to create protections for small, local entrepreneurs, NY has legislated caps on the number of owners different social equity licensees can have, which limits access to capital for Black, Brown, and Indigenous entrepreneurs. Meanwhile, investors have no limits in how much they can invest in the white owned, vertically integrated Medical Operators in New York who are being grandfathered in.
The state should absolutely protect small business, but without limiting access to capital for those already experiencing significant barriers to capital.
Solution: The state should fix their legislation to limit the % of ownership investors can have rather than capping the number of companies we, as investors, can invest in in specific sectors of the market. This fix will unlock millions and, combined with the other suggestions here, unlock capital more equitably for Black, Brown, and Indigenous Communities most harmed by the war on drugs.
3. Establish grant, debt, and equity funds to incentivize and aggregate capital, and address barriers to entry for Black, Brown, and Indigenous entrepreneurs most impacted by the war on drugs in our state– especially those who have led the legacy market
New York has announced a $200M real estate debt fund to support the first 100-200 retail licensees (all of whom will have been systems impacted). This fund intends to help licensees secure property for their retail dispensaries. While this is well intended, it is too small to make a major difference, and requires sister venture funds across all segments of the industry for it to have its intended impact.
In NY state, $200M isn’t enough to put a dent in the real estate needed. Not by a long shot. Without eliminating other existing barriers to capital, I doubt it will even catalyze the retail real estate needed in New York City (which is home to the majority of the most impacted communities by the war on drugs), let alone upstate NY, which plays a vital role in the thriving industry. In addition, the fund excludes real estate for cultivation, manufacturing, or distribution– all of which require significant property and build outs to make an equitable industry led by those with the experience to run it successfully.
Furthermore, Real estate investors are largely relying on the track record of the venture and entrepreneur/tenant to assess risk. Given existing barriers to capital outlined above, most of these 100-200 entrepreneurs who get first mover status in NY’s retail market will not be able to access the capital needed for their venture, nor be able to explain their track record without exposing them to recriminalization. Most will be unable to meet the standards needed for real estate investors to assess their creditworthiness and invest in them.
While there should be capital to support the procurement of real estate for these 100-200 retail licensees and ALL social equity eligible operators, without a venture fund to capitalize their ventures, agreements for amnesty, and business development support to enhance data points to assess creditworthiness, the state’s effort puts the cart before the horse and will not have the intended impact.
Solution: New York must create a sister grant, debt and equity fund in addition to funding the accelerator and incubation structures to de-risk and catalyze a thriving legal industry.
Assuming there are approx 500-600 licenses for social equity eligible operators from seed to sale in NY, the following would be needed at minimum:
- $50-75M Fund to provide $150,000 Grants for licensees who are formerly incarcerated people on cannabis charges to launch their company
- $500-750M Fund to provide low cost financing for social equity eligible licensees to provide start up costs and growth Capital for their new ventures
- $750M-$1BN Fund to provide low cost financing for social equity eligible licensees to secure real estate
Unless these fixes are created, the state’s $200M real estate debt fund for retail dispensaries will not finance an equitable industry, and will inadvertently sabotage the potential of New York’s legal cannabis industry to thrive.
How does this get paid for?
If the state created a debt structure paid back from tax revenue and then partnered with private investment, the state could give our nation the best chance we will likely ever have at a truly equitable market. An investment in a competitive industry will result in hundreds of millions more each year in tax revenue, catalyze economic prosperity in the communities most harmed by the war on drugs to create significant cost savings to the state, and establish New York as an international leader on these topics.
Visionary leaders like NYS Assembly Majority Leader Peoples Stokes, Senate Majority Leader Stewart Cousins, Senator Kruger, and Governor Hochul have blazed the way for the most equitable, competitive regulated cannabis industry in the US. Now its up to investors like myself to meet their vision and help it become a reality. But to do so, we need the state to make these changes and eliminate barriers for our investment. When they do so, it will catalyze the vision our leadership have fought tirelessly for, position NY’s industry well for federal de-scheduling, and benefit tax payers and the communities most harmed by the war on drugs for generations to come.
About: Christina Hollenback is an angel investor in cannabis. She is one of the earliest investors in social equity eligible operators and has advocated for just economic policy in the cannabis industry to ensure Black, Brown, Indigenous and systems impacted entrepreneurs are able to continue to lead the cannabis industry for future generations.
Gray Market Crackdown . . . Is It Necessary?
On March 31, 2021 the Marijuana Regulation and Taxation Act (MRTA) was signed into law making adult-use cannabis consumption legal, however, the road to regulated sales is another story. After a six-month delay and major change in state leadership, the process to upstand this industry began with the appointment of members to the Office of Cannabis Management (OCM) and the Cannabis Control Board (CCB). They are now in the process of drafting the rules and regulations by which licenses will be awarded and business conducted. In the interim, a new class of entrepreneurs and market has emerged, known as the “Gray Market.” It’s important to note that this market may or may not include legacy operators and that many of the businesses actually have publicized physical locations. To be clear, “legacy operators” are those who were operating in states during full prohibition. They faced the threats of draconian policies that were disparately administered within Black, LatinX, and Indigenous communities.
According to an official statement released by the New York State Office of Cannabis Management on Feb 8, 2022. The “gray market” consists of all “business operators selling a product and/or service, including club memberships, stickers, and other items, to consumers and providing cannabis as a ‘gift’ in return.” These activities are considered illegal and businesses that fail to abide by the blanket ruling and/or received cease and desist letters run the risk of being blocked from the official licensing process. According to CCB Chair Tremaine Wright, “We have an obligation to protect New Yorkers from known risks and to strengthen the foundation of the legal, regulated market we are building…therefore, these violators must stop their activity immediately, or face the consequences.”
One gray market operator, The Empire Cannabis Club, has been vocal about their intentions to not only ignore the cease and desist letter they received, but to expand their operations. Owner Lenore Elfand was quoted in the Cannabis Business Times as saying, “what they are actually doing is making the medical market the recreational market before people like us even get a chance to get into it.” There are many, including potential equity applicants, who feel the same way – that the medical operators have an unfair advantage and that time is not on their side with being able to engage in the industry. Many New Yorkers are considering how others have fared in their state’s process and deciding that the odds are not in their favor. Initially, no equity applicants were awarded licenses in New Jersey even though their legislative language acknowledges harm and includes efforts to address and repair. In Arizona, the Phoenix High Times reported that 58% of applications submitted for the 26 equity operators have ties to industry money and/or major investors.
The given examples are not anomalies and the presence of operations outside of legal frameworks are in fact why states are regulating. The legacy market showed just how profitable cannabis is and can be. If the priority is to protect New Yorkers from known risks and to strengthen the budding legal market the question is, is the stick approach that is being employed through cease and desist issuances appropriate? Is the presentation of a continuation of cannabis prohibition-like policies the way to usher in a new day? Is this a reflection of lessons learned from the actions and inactions of states that have already traveled this road? What we know is that in 2020 National Market Sales were estimated at $17.5 Billion for the regulated market and a whopping $100 Billion for the legacy market. Considering this, the goal must be to successfully transition legacy and gray market operators into the regulated industry by minimizing process and financial entry barriers and perhaps by providing ongoing support services for social equity and/or small business owners. The ease of doing business for the Gray Market by operating without a license should streamline the process of operating in a Legal Market. The growth and sustainability of the regulated market depends on it.
The People’s Ecosystem welcomes the opportunity to work with the CCB on efforts to equitably stand up New York’s regulated adult-use cannabis industry.
Please consider the following solutions:
● Creating a pathway for “gray market” operators to transition into the regulated adult-use space inclusive of an expedited approval process.
● The creation of an incentivized study that captures qualitative and quantitative data of “gray market” operator experiences and operating costs.
● The removal of the two-year net profit stipulation in the conditional license eligibility criteria. Most small business owners report needing three to five years before operating in the black. In addition, we are still and have been in a pandemic for over two years. During that time many small businesses have suffered greatly.
● Offering amnesty to Legacy Operators inclusive of a safe harbor provision for past and current operations until a license is awarded and the regulated business is operational.
Social Equity is ‘The Hunger Games’ for BIPOC & Formerly Incarcerated Cannabis Founders
You know that old saying, “I am sick and tired of being sick and tired” — that is how I feel about the term social equity (SE) as it is used in the cannabis space. I am sick of social equity not being social equity.
According to the National Association of Cannabis Businesses, “The goal of social equity laws is to ensure that people from communities disproportionately harmed by marijuana prohibition and discriminatory law enforcement are included in the new legal marijuana industry.”
When social equity first started back in 2016 in Oakland, it was truly intended to make the upcoming California adult-use cannabis licenses accessible to the population most affected by the War on Drugs. This included those currently incarcerated (to be swiftly expunged upon legalization in each state), the formerly incarcerated, and the communities (mostly Black and LatinX) that were over-policed (terrorized) during that same time period. It was a beautiful dream that turned into a nightmare for many of the people it was intended to assist with the creation of jobs, ownership, and generational wealth.
Who does social equity work for?
Honestly, with a few exceptions, no one. Social equity has been an abject failure across all states where cannabis is currently regulated.
Who is profiting from social equity initiatives?
As far as I can tell, the lawyers and consulting firms that are writing the applications. Lobbyists, activists, advocates, and policy wonks who charge fees to governments and private companies to “consult” on their social equity initiatives, often with very little or no connection to the needs and wants of the SE operators they are supposed to be championing in the cannabis industry.
Who is not profiting from any state social equity initiatives or legislation?
The SE operators and prospective operators. For the most part, they bear the financial burden of the initiatives and legislation influenced and in some cases written by lobbyists, activists, advocates, and policy wonks. I want to believe that this is just about not knowing better but regardless of intent, harm is being done. For example:
- Instead of advocating for access to capital, they advocated for business loans and high taxes.
- Instead of advocating for entrepreneurship classes, they advocated for job training classes.
- Instead of advocating for transition programs to assist legacy operators, they advocated for fee waivers.
None of these are inherently bad, but they are not helpful in creating an equitable cannabis industry. We can see their failures right now, in real-time. Too little too late, without meaningful impact.
Social equity failures
Saying you have a social equity program is not the same as actually having social equity.
- Fresno gave out four SE dispensary licenses and none of those licenses went to BIPOC operators.
- Oakland gave out loans, not grants, to SE operators who were never able to realize the full potential of their license due to not having access to capital, and in late 2021 sent those operators to collections.
- San Francisco gave out grants but initially required the SE operators to come out of pocket for their startup expenses and then submit receipts to the city for reimbursement.
- Los Angeles did a lottery in 2019 that was tied up in litigation for two years and has had very few of the 300 SE dispensary licenses actualized.
- Did not learn from LA’s failure and did a lottery.
- Two years later and after multiple lawsuits, there are zero social equity dispensaries open in spite of the fact that they were the first state to include social equity language in their legalization legislation.
- Illinois had a $1.2+ billion-dollar industry as of November 2021; none of that revenue was generated by a BIPOC or formerly incarcerated SE operator — that’s because as of this Op-Ed, no SE operators exist.
- In 2021 Colorado reserved the delivery licenses to be awarded to SE operators exclusively for three years. The catch? They can’t own inventory; they have to work with an existing dispensary. Dispensaries can wait and let the SE operators be the canaries in the coal mine, see if it works, and wait to potentially pick up distressed SE delivery licenses after 3 years.
- December 2021 license demographic data shows 83.4% of owner licenses are held by Caucasians, compared to 2.8% by Black and 7.9% by Hispanic/Latino.
The list of social equity’s many failures to materialize at scale goes on and on.
Will New York be the new Illinois?
Now all eyes are on New York, the state and the city. So what are the potholes in their road ahead? And will they end up like Illinois who started with the best of intentions but is for all intents and purposes a failed cannabis state?
Microbusiness licenses appear to be the most cost-effective option for BIPOC (Black, Indigenous People of Color) and formerly incarcerated communities to participate in the industry, except there are limits on how much these license-holders can cultivate and what they can sell. Why are there limits on the very people who were harmed the most? Seriously, sit with that. Policymakers seem to be saying, “We harmed you and your communities, and now we will allow you to participate in the billion- and soon to be trillion-dollar industry, but only a little bit.”
But microbusinesses can only sell the product they make. Under New York’s current legislation, microbusinesses are not allowed to sell anyone else’s products. This means smaller operators can’t support each other and larger operators are not incentivized to work with microbusinesses.
Investors can’t invest in more than three companies in New York. Raise your hand if you think there is going to be a stampede to invest in BIPOC, legacy, and companies run by formerly incarcerated founders. I can tell you from experience there will not be.
New York has threatened heavy fines for those operating in the legacy market. What do you think will happen to those who can’t afford to cover those fines? Which racial/ethnic groups do you think will be most impacted? This is a repurposing of harm: a new, buttoned-up drug war.
New York, like many states before them, is set to enter into a Hunger Games-like competition and may the odds be ever in your favor.
How we fix it
First, we stop calling it social equity because the process, initiatives, and legislation have not been equitable for any of us. Social equity has been co-opted as a catchphrase, and we deserve more than that.
Second, we need to solve the problems facing SE operators. We are four years into the use of the term social equity — what we didn’t know then, we absolutely know now. It is not working to undo the harm, it is not adding SE operators to the industry, we have no wins, at scale, to celebrate. Not only do qualified SE operators need access to capital, but they also need to learn how to access capital. Access to capital includes how to build a data room, understanding what a capital stack is, knowing when to use debt financing, equity financing, or a combination of both.
We must advocate for amnesty for community members still in the legacy market so they can transition to the legal market without fear of repercussions. We need our federal, state, and municipal governments, who invested TRILLIONS into the War on Drugs, to reroute those funds to provide startup capital for founders who were harmed by the ongoing war. Policymakers must stop using taxes as an incentive to regulate. This might be my most controversial statement but hear me out: for decades, we paid taxes that were spent on the War on Drugs that harmed our communities. Now, we are told that we need to pay high taxes on our cannabis products to repair the harm done to our communities. We paid for the harm, and now we are expected to pay for the repair? That is absurd, and it doesn’t work, but that’s another op-ed.
Social equity isn’t working. We must acknowledge this and stop what we are doing, make it right, assess, fix, and do it again, marking our success with metrics that prove it is working as represented by the numbers and success of people who have paved the way for the entire industry. We need to be creative. We need to be brave. We must create a new system that is equitable with the operators’ needs in mind. The one-size-fits-all model does not work. We, as an industry, have the opportunity to create a truly equitable cannabis market if we learn from the mistakes of our past and aim for equity until we have reached it. Then we celebrate.
SAFE Banking For Cannabis Is A Social Equity Issue (Op-Ed)
In February, the U.S. House of Representatives for a sixth time passed the Secure and Fair Enforcement (SAFE) Banking Act—this time attached to the America COMPETES Act, the comprehensive package aimed at enhancing U.S. leadership in science, innovation and competitiveness.
The purpose of the legislation is to protect banks from money laundering charges for providing loans and other financial services to state-legal cannabis businesses. Many argue that the passing of the SAFE Banking Act is a matter of health and safety due to the large amounts of cash that businesses are forced to have on hand and the lack of access to traditional loans.
Senate Majority Leader Chuck Schumer (D-NY) and Sens. Cory Booker (D-NJ) and Ron Wyden (D-OR)—who are working to introduce the Cannabis Administration Opportunity Act (CAOA)—have expressed the need for a comprehensive approach. And Sen. Sherrod Brown (D-OH), who chairs the Senate Banking Committee, has shared his preference to have the SAFE Banking Act paired with drug sentencing reform.
The People’s Ecosystem, a 70 percent BIPOC-, women- and LGBTQ-owned and led business that successfully transitioned from the legacy to the regulated industry, has experienced firsthand the danger and inconvenience, and has been subject to predatory practices with financial institutions.
Our dispensary was physically damaged by a vehicle intentionally being driven into it during a robbery attempt. We have had to deal with up to 40 percent interest rates for loans and have had accounts closed more times than we can count. Harm is being repurposed and specifically disparately impacting social equity entrepreneurs. Not addressing this issue and instead choosing to play political games is perpetuating barriers to capital and economic services. That’s why The People’s Ecosystem is in support of the SAFE Banking Act.
We recognize there are still major disparities in our banking system felt by Black, Latinx and indigenous patrons. Data shows that Black-owned businesses are twice as likely to be denied financing, and if loans are approved, they are also more likely not to receive the full amount for which they applied.
Black, Latinx and indigenous individuals and communities that have historically been discriminated against in the banking system need protection from biased decision-making individuals and structures, guidance with navigating the lending process and preparation in order to receive sought-after outcomes. Accountability measures must be married with timelines and a scope that ensures that the intended people and communities which are owed harm repair are the actual recipients of funds and other financial allowances.
The SAFE Banking Act acknowledges the existence of inequality through its language mandating diversity and inclusion reports and a study to be conducted by the Government Accountability Office. While those measures do not go far enough to address the issue, it is a step in the direction toward righting the wrongs of the past.
We appreciate Sen. Brown’s position that the SAFE Banking Act bill needs to be inclusive of sentencing reform and we look forward to working with Sens. Schumer, Booker and Wyden on their comprehensive bill; however, we need immediate relief.
There are BIPOC business owners right now who are paying exorbitant interest rates on loans for standard operating needs or legal business owners who cannot open a bank account—even for non-plant touching operations. Sixty votes are needed in the Senate for CAOA or any other sort of cannabis reform legislation. The votes don’t appear to be there to pass a broader bill, but we can’t let perfect be the enemy of the good.
We recognize banking access is only one part of the problem facing minority cannabis businesses today. But let’s start somewhere and get done now what we can. We need access to the banking system now as we continue the fight for social equity and sentencing provisions, broader banking service for all minority businesses and greater education and accountability measures.
Quite simply, SAFE Banking is social equity! Banking access is a huge step forward on federal cannabis reform that will catapult our country into a much-needed conversation around cannabis reform and kickstart broader, more comprehensive reforms.
To Sens. Schumer, Booker, Wyden and Brown: to continue to block the SAFE Banking Act is to be against social equity and thousands of state-legal businesses in your states and across the country that desperately need help. Please pass SAFE Banking as soon as possible.
Frederika McClary Easley is the Director of Strategic Initiatives at The People’s Ecosystem and host of The People are Blunt podcast.