At War with the War on Drugs: Diversity and Representation in the Cannabis Industry in the Burgeoning Era of Inclusivity

cannabis covid-19

Since it’s prohibition in 1937, cannabis has been used as a means to arrest, detain, and incarcerate millions of Americans. Roughly 30 million of them, to be more precise. Of these millions, a large majority are minorities. Nationally, Black Americans are almost 4 times as likely to be arrested for minor possession, according to the American Civil Liberties Union. In some states, this rises to almost 10 times (Figure 1), despite very similar usage rates nationwide (Figure 2). In 2017, 27% of the people arrested for drug law violations were Black, despite the fact that African-Americans comprise only 13.4% of the national population (for reference, Whites make up 73%).

 

Historically, minorities have also often been portrayed in propaganda and media as more likely to use marijuana, despite this having no factual basis. So, what role do minorities actually play in the burgeoning legal cannabis industry, after being made the face of the illegal cannabis industry in America?

 

 A War on Drugs, or a War on Minorities?

To provide some historical context for the disproportionate incarceration of minorities, here is a brief timeline of marijuana’s legal history in the US:

  • Early 1900’s- After the Mexican Revolution, Southern states saw a large influx of Mexican immigrants, who brought with them the medicinal herb they called “marijuana.” During this time, Americans were already, and had been for a long while, using marijuana in almost every tincture and medication available. However, they knew it by another name: cannabis. The two were not known to be the same thing at the time, and marijuana was demonized as a “Mexican drug.”
  • 1931- Hearings are held to decide the legality of marihuana in El Paso, Texas. Many white people testify that marijuana would cause men of color to “become violent and solicit sex from white women.” El Paso would go on to outlaw marijuana and use it as justification to arrest and deport Mexican immigrants.
  • 1937- Marijuana Tax Act of 1937 essentially made illegal the use and sale of marijuana in all of the US.
  • 1971- Controlled Substances Act is passed by the Nixon administration, beginning what we know today as the war on drugs. Marijuana was listed as a schedule 1 substance; on the same legal par as heroin. This was despite the protestations of the Schafer Commission, which found that marijuana had no addictive properties and brought into question its categorization as an illicit substance.
  • 1996- California legalized the use of medicinal marijuana
  • 2013- Washington and Colorado become the first states to legalize marijuana fully.

In summary, from its inception, marijuana policy has been the long arm of the oppressor, targeting minority populations with propaganda, and with disproportionate rates of arrest and incarceration. In doing so, BIPOC have been historically stripped of their public voice, and this is continuously used to deny them their legal voice in the poll booth, both during and after incarceration.

 

Barriers to Entry for Business Owners of Color

Decades after the Civil War, government agencies began drawing lines around districts that were deemed undesirable for public and private financial investment. The lines of the districts encircled majority BIPOC populated neighborhoods. Those maps were then used well into the eighties to deny inhabitants of the district’s loans for anything from housing to business, as well as education.

This process of loan denial based upon “poor financial risk” is known as redlining, and while it is not legal today, the repercussions are still felt in many large cities. Redlining has severely handicapped BIPOC’s ability to build the foundation of generational wealth, given that college education and owning a home are historically the easiest ways for an American family to build wealth. Due to this, areas that were redlined are extremely prone to cycles of generational poverty. An investigation into the Atlanta housing market showed that even today, banks are more willing to grant a loan to a low income White family, than to a medium to high income African-American family. Lack of investment in neighborhood resources and inability to secure housing loans leads to low property value, which in turn lends itself to low funding for public schools, as public schools are more often than not funded by property taxes.

Even when residents of these areas are able to obtain a college degree, implicit bias ensures that the adversity doesn’t stop there. Job applicants are twice as likely to get a call back when they have a white sounding name, even if their qualifications are exactly the same or less than those of their non-white sounding competitors. In keeping with this, the unemployment rate of African American college graduates is twice as high than the unemployment rate of their white counterparts.

The ramifications of racist policies and practices, drug related and otherwise, are still apparent in society today, even decades after the abolition of segregation and Jim Crow. Systemic racism is very real, and it permeates more than one facet of American culture. Lack of access to funding, unequal employment opportunities, lack of representation, and implicit bias are just a few of the barriers of entry for BIPOC to many industries today, including cannabis.

 

Representation in the Legal Cannabis Industry

Having been made the face of cannabis for so long, one might assume that minorities make up a healthy percentage of people employed in the growing legal industry. Unfortunately, this assumption could not be farther from the truth. According to Leafly’s 2020 Jobs Report, the cannabis industry provided 243,700 full-time equivalent jobs. Of these, less than 1/5 (17%) of the people involved at a stakeholder or owner level are people of color, and of those, only 4.3% are Black.

This lack of representation in industry ownership, coupled with limited access to capital investment, scares many potential business owners of color away from applying for licenses. Applying in and of itself accrues thousands of dollars in fees. Oftentimes, licensing boards will require proof of considerable financial backing just to be considered for a license. Some state licensing boards also have “good moral character” clauses, which allow licensing authorities to reject applicants for past criminal convictions. Although a few states, such as Illinois,  require license applicants to produce a diversity plan, there is no enforcement of said plan. The fear of governmental discrimination they might encounter during necessary federal involvement, especially given the disparate incarceration rate of people of color for minor drug offenses, also presents a major barrier to entry.

As Sieh Semura, cannabis rights activist, told NPR “just because people say it’s legal… it’s not welcoming for everybody.”

 

Benefits to Employing Responsibly

Employing responsibly from within the community puts today’s canna-businesses in a unique position to combat this lack of representation. Not only will staffing a diverse team with nearby community members benefit the relationship between a business and it’s consumers, but it also allows them to directly put money back into disproportionately impacted communities. Supporting the community often means that they will support your business in kind, and can slow some of the very real and very negative effects of gentrification. In addition to the social benefits, diverse teams have been shown to make better decisions, faster, according to Harvard Business Review. Research has also shown that teams with a multitude of backgrounds are top financial performers, and are more innovative than homogenous teams. The push for inclusion in today’s society is being felt on many fronts, and the cannabis industry is being given the opportunity to sink, or swim with the rising wave.

At HYC, we are passionate about social equity and working to combat the lasting effect of discrimination in the cannabis industry. We also work with Dionne Carroll, who is active in Women of Color in Cannabis (WOCC). WOCC strives to address the barriers to entry into the cannabis industry facing women of color today.

Cannabis Investment

In the cannabis and hemp industries, the sky is the limit for investments and ROI. The industry is currently expanding into global markets, sweeping across the United States, and expected to do over $84 Billion dollars in 2028, it’s hard not to be watching this as an investor. Currently, 36 states and the District of Columbia have medical cannabis programs and 16 have established Adult Use programs. In last year’s election, 5 more states voted for new cannabis programs. 

For savvy investors who have already completed their research and heard the 99 horror stories for every one success, this article is for you. At Higher Yields, we have over 100 years of combined experience under our belt in the regulated cannabis industry. We understand where to invest, when to invest, and why to invest in those areas. To be successful, you have to be willing to get creative to develop relationships and gain traction. None of these deals are going to be a home run without some ingenuity and innovation. I will lay out below how to access the market and provide some great pointers for those looking to provide capital in the fastest growing industry on the planet! 

 

When to invest into the cannabis market? 

 

Timing is everything! Cannabis is no different from Crypto Currency, Real Estate, or many other markets; you’ve to get in at the right time. One of the most significant differences from other industries is the novelty of cannabis, as well as the differing types of public acceptance and regulations domestically and internationally. These disparate models and programs can make timing difficult and can undoubtedly strain the understanding of risk and reward when moving into an emerging industry. 

The Cannabis Supply Chain 

Investing into the cannabis supply chain at the right time can be difficult for those new to the industry. It involves the ability to predict where the market is headed, not just where it currently resides. For example, if you are looking to enter into the cannabis market in California or Oklahoma, you may want to consider a few things; How many licenses have been issued? How difficult is licensing at the state AND local level? These are essential questions to ask because they paint a picture of where that specific market is headed. The progressive 2015 awarding of licenses to cultivators in Oregon showed new states how quickly a market with little regulation could become very saturated. In contrast, markets like CA, which regulate the sixth-largest economy globally, have seen a lot more bureaucracy and merit-based RFPs at the local level. This has slowed things down and allowed local municipality  government and the state government to get a hold of inventory and cash moving through these facilities.

 

Cannabis Benchmarks US Spot Index 2015-2017 (Courtesy Cannabis Benchmarks)

 

Venture Capital in Cannabis 

If you’re more of the venture capital mentality, there are many different options to get creative in the cannabis industry. For instance, one can invest in applications in new competitive states, jumping in on a distressed opportunity with little time for diligence, or even invest in a small startup or ancillary business. All of these are great options, but the timing must be correct, or the juice won’t be worth the squeeze!

 

Cannabis applications in competitive states: States with competitive cannabis licenses are always on the horizon but don’t think because you have a few lobbyists and a pocket full of money, you’re a shoo-in. These permits, once issued, are worth 1-100 million dollars, and the thoroughness and requirements of these applications are strict and require very niche expertise depending on the type of license and the location in which you will be applying.

 

Distressed cannabis businesses: Distressed cannabis opportunities are, well, distressed opportunities. With little to no due diligence, this is no different from purchasing a house at a foreclosure auction, which turns out to have a bad foundation and plumbing issues. Surprise, it’s now your nightmare! Since this business is distressed, it will bring other motivated cash buyers, provide little time for due diligence and understanding of the current situation. You will have to act fast. Scared money doesn’t make money, and if you don’t get it, someone else will. You may look back on that missed opportunity like I look back at not buying bitcoin in 2010!

 

Emerging Legal Cannabis Markets 

Emerging markets are great options for investment but when to get in is the question. Most investors believe that first to market in a new market is the route to go. If you have everything in place, you know what you’re doing, and you’re ahead of the following company by a year. Although this may be true, in a market predicted to be very competitive the initial pop could be short-lived, not to mention rushing into market with a mediocre product can significantly affect a brand’s reputation. 

 

Emerging States from the 2020 Election

Arizona  

Montana  

New Jersey  

South Dakota  

 

 

Where do I invest in the Cannabis Industry? 

 

In the United States and around the globe, there is much activity surrounding cannabis; it’s hard to pick that perfect area to jump in. The global market is going to be huge, but what does that look like? How does one get involved and how do different types of products move around the globe? Even here domestically in the United States, cannabis can be challenging to determine which markets will survive and falter. Which areas of those markets are the most lucrative and how long will those booms last before a crash? Getting familiar with the “goings on” of cannabis in all areas is almost impossible for someone new to the industry, but with the right trusted advisors like Higher Yields Consulting, you can quickly identify the “where” while also understanding the potential opportunity of those areas.

 

Cannabis Supply Chain 

You’re ready! You’ve got your money, you’ve selected the state you’re going to operate in, and you know the product you want to bring to market. Investors have to ask themselves a few questions before pulling the trigger on this; Is this sector of the supply chain saturated already? How quickly can I get to market and what will the market look like by then? Will this product and brand last in this market? The supply chain can be tricky. Without an experienced advisor on your side, making the projections without knowing what’s going on in multiple aspects of the territory/state program can be challenging.

 

Venture Capital in Cannabis 

Nothing better than winning big on the blackjack table. To place chips down and let the dealer lay the cards out in front of you, 21! Yes! Blackjack and cannabis are a lot of like in this way. Where you sit at the table will determine more about the outcome than how much you bet or how you play your hand. Investing in cannabis in Massachusetts is probably a better bet than investing in cultivation in Colorado. Why? They are different decks of cards, other players, and where you sit in the game is essential. If you sat down at a hot deck in cannabis, it might look like the opportunity in Massachusetts two years ago. Massachusetts cannabis market is quickly growing as the only AdultUse state on the East coast. If you showed up to a slow deck with a small stack of chips, that might be more similar to showing up in Colorado today hoping to open a 5,000 sq. ft cultivation. You’re not out of the fight, but it’s going to be a David and Goliath type match-up. 

 

Emerging Legal Cannabis Markets 

What’s next for the industry? Federal legalization? Federal decriminalization? While Republicans and Democrats argue over the fate of our country and this incredible plant, we see a lot of movement at the state level. New states are opening up medical programs, old medical programs are turning to adult-use programs, and there are additional rounds of licensing in previously smaller competitive markets like IL. 

 This industry will have twists and turns no matter the strategic investment made, or approach taken. But knowing where to lookwhen to execute, and how to place the capital is crucial to gaining that “pie in the sky ROI. It’s out there; you just have to know where to find it. Here at Higher Yields Consulting, we work day and night to track and develop opportunities for our clients throughout all of the United States and into global markets. We understand and have the experience to provide our clients with the vision and foresight to guide them through their journey to success and financial freedom!