Social Equity In Cannabis

Written by CMG News Contributor, Sebastian Wicker

Based on a state-mandated study carried out by the Joint Legislative Audit and Review Commission (JLARC), legalizing cannabis in Virginia would bring $300 million in tax revenue and 11,000 jobs after five years. This is attractive news for a state struggling economically from the pandemic, but it will require addressing some past wrongs before cashing-in.

At the beginning of the series, I mentioned we’d talk about both the attractive and ugly sides of the industry. Based on ACLU data, black and brown consumers are 3.4 times more likely to be arrested for cannabis in Virginia even though consumption rates are nearly the same across racial demographics. As we look toward legalization and back at the War on Drugs we can see that the “war” was an abject failure and racially motivated in design. Actions taken by the state in the past to enforce the war will continue to negatively impact lives today unless they are directly addressed in legislation. The response to this has been social equity programs.

Social equity programs and initiatives exist to create a simplified path for expunging non-violent cannabis crimes and promoting equity ownership among disproportionately impacted communities. Simple ways to do this include lowering license costs and having no or high license caps (Oregon is a prime example). It doesn’t target anyone directly, but the result has been one of the most diverse ownership markets. More involved ways include creating social equity applicant criteria for access to program benefits. As usual, the criteria and benefits for being a Social Equity Applicant vary by state, and sometimes by locality. Illinois and Massachusetts are considered to be the most progressive/comprehensive with qualifications built around socioeconomic impact. The requirements, which may look similar to Virginia’s in the future, allow people to qualify by:

• Having lived in a disproportionately impacted area (defined by zip code and income) for X amount of years in the last Y years.

• Been arrested for a non-violent cannabis-related offense.

• Have a parent, child, or spouse that has been arrested for a non-violent cannabis-related offense.

If you meet one of those criteria, the benefits can include:

• Expedited licensing

• Reduced licensing fees

• Additional points on competitive applications

• Grants and/or loans

• Business and Operations Training

• Special License Access

The major requirement of being considered a social equity applicant is that you must maintain 51% ownership in the license. While this requirement is well-intentioned, there are some unforeseen side effects. Launching a cannabis business is capital heavy and usually requires outside investment. Even with state funds, there isn’t enough to cover everyone. Most investors, however, aren’t interested in covering the bill without majority ownership. This puts qualified applicants in an extremely limited financial position.

In Illinois, qualifying as a social equity applicant got you enough extra points that you couldn’t win without them. Yet, out of 900 qualified applicants, only 20 companies won all 75 licenses. Unsurprisingly, the winning companies did little to change the ownership demographics. The anticipated response is for the license cap to be doubled to prevent monopolies, but the state has faced numerous lawsuits over scoring and their handling of the process.

As it stands, there are few social equity programs considered to be “succeeding,” but they are each a step closer to impactful solutions. How Virginia will shape their social equity program remains to be seen, and the state has a lot to make up for, but if the results from other states are any indication then straightforward solutions, auto-expungement, and community reinvestment would go a long way. To follow along with the development of Virginia’s social equity program be sure to check out VA NORML.

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Sebastian is a Regulatory Compliance Specialist and Technical Writer. He is the Founder and CEO of LTF Consulting, a company that provides project management, licensing, and compliance services to the legalizing cannabis industry. If you would like to contact him directly, you can reach him at sebastian@livethefrontier.com.