Cannabis Equity Programs Often Fail, But We Can Fix Them
While equity programs are well-intentioned, but they have not had the impact that many in the industry wish to see.
The cannabis industry has an equity problem.
The prohibition of cannabis has adversely impacted people in communities of color. Disproportionate enforcement of anti-cannabis laws by law enforcement often carries extraneous, life-altering sentences.
As cannabis legalization is spreading across the U.S., minorities are again being pushed to the fringes as white-owned corporations are taking advantage of new opportunities with the funding to ensure they succeed. Meanwhile, due to the incredibly high cost of bringing a new cannabis brand to market. minority-owned businesses and entrepreneurs are hobbled.
Select states and even some individual cities have instituted equity programs developed specifically to support minority-owned businesses. These equity programs are designed to ease this burden of entry into the cannabis industry for those in communities most impacted by draconian cannabis policies. Some equity programs are aimed at reversing the wrongs of prohibition; others work to create an inclusive cannabis industry.
Cannabis equity advocates created these programs with the best of intentions, but it is clear that we still have a long way to go. Let’s look at where these programs have fallen short (and where they’ve succeeded) and how the cannabis industry can fill the gaps.
Challenges of legislating diversity
Equity programs written into cannabis policy are often well-intentioned, but they have not had the impact that many in the industry wish to see. While these programs are critical to creating opportunities for communities that have been harmed by inequitable enforcement of prohibition in this country, they shouldn’t be the only approach to making the cannabis industry open to all, regardless of race.
These programs typically take actions like expunging minor cannabis offenses from the record and setting aside a percentage of cannabis business licenses for minority-owned ventures. But are they doing enough?
It’s important to understand that each state or city has its own cannabis policy and unique equity program (if one exists). Some of these programs are much more robust and effective than others. This means there is a distinct difference between policies that work and those that don’t.
Cannabis legalization has progressed under the banner of "balancing the scales" for disproportionately impacted communities, minorities, and frankly, penalties that didn't match the plant.
Ironically, in today's legal industry, equal access and diversity are relatively recent concerns in the cannabis industry. Many legal medical and recreational markets have no programs in place to address the negative effects of prohibition on communities of color or the lack of diversity in cannabis industry leaders. Thankfully, this has changed in the past few years.
Most of the recent states that passed recreational legalization, like California and Massachusetts, made equity initiatives a centerpiece of their legalization programs. Despite this, Massachusetts’ cannabis industry reports minority-owned business ownership in percentages in the low single digits.
Illinois, one of the latest states to initiate cannabis legalization, has created a progressive licensing system that directly supports applicants from Disproportionately Impacted Communities and may prove to influence programs created in other states going forward.
How to create true equity
If these government programs aren’t enough, how do we create a more equitable cannabis industry? In many cases, the primary barrier to entry into the cannabis industry is the limited number of available licenses. Most localities set a restriction on the number of each different type of cannabis license available. That means only a set number of applications will be approved. Big companies with strong financial backing can stack the deck in their favor with methods like flooding the system with applications to increase their chance of getting selected for a license.
This brings us to the next issue that many minority-controlled businesses face: the high cost of fees attached to licensing and startup. Even if approved for their license, the immense initial costs tied to entering the cannabis market will prevent many businesses from getting off the ground. What this creates is an accessibility issue, where money upfront determines success in the end.
Some state and city level equity programs offer loans or grants to qualifying minority applicants. However, there is a significant contrast functionally in how these two options affect businesses in the long run. Grants are awarded, but with no intention of being repaid and, therefore, can be used by businesses to help make startup costs more manageable.
On the other hand, loans, even those with low to no interest, create debt upfront for a business already disadvantaged by a lack of funding. With a razor-thin margin of success, any misstep can leave a business owner unable to continue or pay back their loan.
Other aspects of equity programs mandate a minimum number of licenses go to minority-owned businesses. However, this limited number of opportunities, coupled with the restricted number of overall licenses available, means that many businesses are locked out simply because the industry is held to an artificial cap.
Allowing for more licenses and minimizing the associated fees would go a long way, but going further, if social equity programs were to partner with shared-use facilities to help eliminate unanticipated start-up costs, city fees, equipment purchases, etc. would naturally help to increase actual diversity in the cannabis industry at every level by making it more accessible to minority businesses.
How to even the playing field
The cannabis industry shouldn’t wait for the state government to mandate equity. There are steps we can take now as a community to ensure that the cannabis industry that we become is one of inclusion and opportunity, not one of monopoly for the advantaged.
To do this, we need equity to be a foundation of our industry, not just legislative wishful thinking. Thankfully, there are steps that the industry itself can take to increase access to the industry, including a smarter, more ethical use of Type S cannabis licenses.
Type S shared use cannabis manufacturing licenses allow multiple cannabis businesses to operate under the same roof, significantly cutting into licensing and other startup costs for small businesses. However, many times, these licenses are used as a way for larger corporations to exert control over small brands interested in entering the cannabis market. Instead, these shared use licenses could be put to work creating an opportunity for small cannabis businesses, especially those that are minority-owned.
By taking on an incubator-like atmosphere, we have opened the door to an industry that has largely only been open to those businesses with the financial backing to absorb the high cost of entry. Creating true economic and racial equity by giving minority businesses a clear path to cannabis industry success.
If we want true diversity in the cannabis industry, we can’t wait to act—we have to take the lead. We need to empower our community members by arming them with the tools, resources, guidance, and capacity to succeed. The influx of large investors and large corporations into our industry has resulted in fewer small businesses, especially those led by minorities. Acting now, as an industry, we can help minimize these negative trends and increase equity for those harmed most by cannabis prohibition.