Deep Dive: The Unintended Consequence of Trying to Give Black Marijuana Entrepreneurs a Head Start
Image: @politico
Social equity programs in cannabis are almost universally applauded in concept. Most people in the industry understand that people of color have been unfairly policed and punished for cannabis in the last several decades, and a progam to help those affected communitieis benefit from legal cannabis makes a lot of sense.
However, the execution of those social equity programs has been complex, and in some cases has caused harm where they intended to help.
Politico released an in-depth report on the social equity licensing problems in Detroit, which highlights several issues with that cities social equity program while putting those issues into larger national context.
Three points of emphasis are below.
1: Adult-Use Leaves Medical Behind
Like many cannabis market, the adult-use market rapidly eclipsed the medical market in Michigan.
Detroit has been slow to adapt, as it has a city ordinance that prevents adult-use cannabis business as it workes to create an equity program that gives those in need access to the lucrative adult-use licenses.
However, this system has strangled the addressable market of the medical shops in Detroit, who do not have access to far wider pool of adult-use customers.
By the time the Detroit City Council got around to passing an ordinance to establish an adult-use market in November 2020, nearly a year after the law had gone into effect and a full two years after the referendum had passed, the recreational market statewide had hit monthly sales of $54.7 million, surpassing medical market revenues of $37.3 million. At that time, there were 463 licensed adult-use businesses statewide, including nearly 200 dispensaries.
2: Defining Equity Recipients is Easier Said Than Done
Detroits first attempts at creating equity programs have seen successful legal challenges, and thus have had to be re-written and re-litigated.
Under the new ordinance, at least half of the 75 licenses for dispensaries and 35 licenses for consumption lounges would be reserved for applicants who met the “legacy” criteria. To qualify, applicants must either have lived in Detroit for at least 15 of the last 30 years, resided in the city for at least 13 of the last 30 years and have an income below the federal poverty threshold, or lived in the city for at least 10 years out of the last 30 and have drug conviction. The City Council passed the ordinance unanimously.
The program “gives an unfair, irrational, and likely unconstitutional advantage to long-term Detroit residents over all other applicants,” wrote U.S. District Court Judge Bernard Friedman in his ruling. He issued a preliminary injunction blocking the city from proceeding with the application process. That left the 20 pending applications in legal limbo.
Since that time, Detroit leadership has gone back to the drawing board to create better equity criteria.
However, this all prolongs the customer crunch that medical cannabis shops are seeeing, all while their counterparts in other cities like Ann Arbor and Grand Rapids are seeing success with their own adult-use markets.
3: Mixed Results in Other States
Like many other cananbis regulations, different states have tried different approaches to social equity licenses with mixed results.
Illinois was once lauded as the most aggressive state in helping drive social equity licensure, but now serves as a cautionary tale. llinois’ existing medical dispensaries — largely owned by big multi-state operators — were permitted under the state’s recreational law to start selling immediately to anyone at least 21 years old, giving them a stranglehold in a market that had $1.4 billion in sales last year.
California & Oklahoma have seen their unlimited business license model drive more diverse cannabis businesses. Massachusetts has had initial success with a similar model, only limiting the number of licenses owned by person instead of overall licenses.
Shaleen Title, a former member of the Massachusetts Cannabis Control Commission who has written extensively about efforts to create equity in the cannabis industry
“The best possible program would have low barriers to entry and be accessible,” Title said, “and then on top of it, it would have special benefits for people harmed by the Drug War. That’d be the perfect scenario.”
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Equity licensing programs are immensely challenging to create. On one hand, states must build something sustainable that can not be exploited by the biggest and most well funded cannabis operations. On the other hand, states must act quickly to prevent markets like Detroits from languishing while their neighbors prosper.
In these early stages of legal cannabis, regulators must commit to education on how different state and city ordnances have played out in the past, and then must apply their own knowledge of their community with creativity and business sense.
It's not an easy task, but one that is vitally important.
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