National Trends for Social Equity Programs in the Growing Cannabis Industry
As people begin discovering gold at the end of the cannabis rainbow, some communities have been missing out on the bonanza. Notably, people of color, women, veterans, those with prior cannabis convictions, and members of communities hardest-hit by the war on drugs have faced barriers to entry to the profitable cannabis industry.
Every state that has a legal cannabis market is continuously deliberating about how to license, regulate, and oversee their cannabis industries. Now, with several examples of successful cannabis legislation, states are shifting their focus to conversations around matters of social equity and justice.
Only very recently has the business landscape started to improve for those that have been left behind. Since 2016, of 18 states that have made cannabis legal, six have taken measures to boost diversity in the cannabis market by implementing social equity programs.
Not only do social equity programs serve to begin righting wrongs of our legal system’s past, but projections also show that markets with these programs are projected to grow larger than those without.
To maximize your potential for success in the cannabis market, learn about social equity programs in your state or city. Here are some common themes to be aware of, along with figures that illustrate the power of including previously underrepresented individuals in this booming industry.
Learning from Existing Social Equity Programs
According to Marijuana Business Daily, “States that legalized medical and/or adult-use cannabis since 2016 and included social equity provisions are projected to have total annual sales of $12.7 billion in 2022, compared with $4.1 billion combined for those without a social equity program.”
Social equity provisions vary by state – a trend we anticipate continuing as we all navigate this new terrain. As new states legalize, they’re able to look back and learn from other states, including what worked, what didn’t, and how we can improve into the future.
For example, Ohio adopted a quota system that required no fewer than 15% of its licenses to be granted to members of certain “disadvantaged groups.” However, the law was deemed unconstitutional and thrown out by a judge. As we’ve learned so far, quota systems are unsuccessful while optional social equity programs that provide additional points in the application process have proven promising.
However, we’ve also noticed that by lowering barriers for candidates who are eligible under specific social equity criteria, we’re also seeing an increase in the number of applicants attempting to include social equity candidates in their businesses. Oftentimes this is positive, but in some cases, social equity candidates are being used as token partners in an aspiring cannabis business.
Prominent Themes in Social Equity Programs
Similar themes have emerged among states and cities when it comes to defining those applicants who may qualify to take advantage of benefits like reduced license application and renewal fees, grants, low-interest loans, business training, and additional application points in a highly competitive licensing process.
When filling out your application, visit your state or city’s licensing entity website to research the specific criteria for social equity qualifying applicants. If you’re not sure if you qualify or how to satisfy social equity criteria, consult with experts who specialize in writing applications, like Higher Yields Cannabis Consulting.
Depending on the state, an applicant may need to meet only a single requirement to be considered a social equity candidate, but additional points may be awarded for being able to check multiple boxes.
Most programs share similar qualifiers. Regardless of the state, social equity applicants are typically:
- Individuals with prior cannabis arrests, convictions, or adjudications that fall within certain guidelines, or family members of those individuals (such as a spouse, parent, child, or another dependent).
- Individuals who have been residents for a minimum number of years – typically 5 of the preceding 10 – of designated areas that have been disproportionately impacted by prohibition or are deemed economically disadvantaged.
- Applicants who own a certain percentage of equity in the company applying for the license – typically 51%. Illinois is the only state that requires both 51% ownership and control.
- Applicants whose income falls below a certain threshold. This is not a stand-alone requirement but may help the applicant qualify for social equity status.
- Individuals from certain racial, cultural, or ethnic backgrounds and small businesses owned by these individuals and/or women and veterans.
- Businesses with a majority of employees or contractors who live in designated disadvantaged areas.
States like Maryland, California, Massachusetts, Pennsylvania, Michigan, and Illinois already have social equity programs while others are developing theirs now. For instance, Ohio has filed a measure to pass recreational cannabis. If it becomes law, they plan to allocate 25% to a commission on expungement, criminal justice, community investment, and cannabis industry equity and diversity.
In time, we will likely see other cannabis-friendly states developing similar programs built on the knowledge gained from preceding states.
Qualifying as a social equity candidate can help you get your toe in the door, but it takes more to succeed in the application process and the cannabis industry. Unfortunately, this sometimes creates a disconnect from the very beginning when applicants try to go it alone.
Oftentimes, applicants find themselves competing against candidates that are multi-state operators who can boast of having $20 million to set up shop. For social equity applicants who win a license, it can be like getting the keys to a Ferrari, but having no money for gas, insurance, or a parking space.
For aspiring social equity applicants, partnering can be a strategy for success.
A majority of social equity programs require that applicants include a diversity or social equity plan on their applications – and additional points are awarded to non-social equity competitors who include social equity applicants on their teams.
At Higher Yields Cannabis Consulting, one of our efforts is to pair people with complementary skill sets and assets to form business partnerships. Some candidates don’t necessarily need social equity individuals, but to be competitive in their applications, they most certainly need the points. Like all partnerships, they are most effective when everyone contributes in a meaningful way.
Expungement: One More Effort Toward Justice
In recent years, attitudes about incarceration for drug offenses – cannabis in particular – have evolved. When people learn the staggering number of people who have been incarcerated for non-violent cannabis offenses, most realize the absurd cost to taxpayers of having this many people in jail for something that is growing in acceptance.
Our war on drugs has netted some stark results. According to Betsy Pearl for the Center of American Progress, “Black Americans are four times more likely to be arrested for cannabis charges than their white peers” and “make up nearly 30 percent of all drug-related arrests, despite accounting for only 12.5 percent of all substance users.”
Furthermore, Pearl states that “People of color account for 70 percent of all defendants convicted of charges with a mandatory minimum sentence. Prosecutors are twice as likely to pursue a mandatory minimum sentence for a black defendant than a white defendant charged with the same offense.”
Several states have enacted clemency or expungement initiatives and the ability to have records sealed for certain cannabis-related offenses. In Illinois, approximately 572,000 records for cannabis arrests not resulting in convictions and not associated with a violent offense are being automatically expunged.
Zooming Out: The National View
Lawmakers in our nation’s capital can barely agree on whether or not water is wet. That makes it notable that the House found bipartisan support for a bill that “would allow cannabis convictions to be erased while allocating federal funds to help people whose lives were profoundly affected.”
The bill stalled in the Senate, but its very existence and the support it drew shows that Congress is waking up, listening to its constituents, and crunching numbers.
In February 2019, Congressman Cory Booker introduced the Marijuana Justice Act of 2019. Five of its co-sponsors, along with Booker, were among the field of 2020 presidential contenders.
In more than one Democratic debate this year, the hot topics of cannabis legalization and social justice were included. Candidates seem to agree that expungements are the right thing to do for certain non-violent offenses. They see the collateral damage to the lives of those who have been convicted as they try to get jobs, find housing, and more.
All of this indicates that we are likely to see social equity programs becoming a predominant focus and popular initiative as cannabis legalization spreads throughout the country.
Social Equity Programs: A Treatment, Not a Cure
Social equity programs and expungements are not a cure for systemic discrimination, but they’re efforts that should not be underestimated. According to Hubspot, evidence supports that diversity “can increase ROI, lead to more innovative ideas, and foster a more productive work environment.”
Additionally, “Companies that place emphasis on diversity are reported to be 35% more likely to have financial returns above the industry median.” Each person brings their singular perspective to it. Those who are passionate about social justice are encouraged to advocate to be the change they want to see.
Higher Yields Cannabis Consulting loves connecting people to the resources they need. Sometimes those resources are other people – like cannabis business partners; other times it’s the free webinars we provide or the education we’re able to offer social equity candidates through grants.
Look for more states to continue the social equity trend as they legalize or expand their markets to include adult-use cannabis. Together, we can create a better, more diverse and inclusive future in the cannabis business.
Want more information on how to nail the social equity portion of your application? Reach out to us to schedule a free consultation.