Business

Cannabis equity isn’t working

By Alex Halperin
Jan 18, 2021
(Photo by Spencer Platt/Getty Images)

For years, progressive cannabis activists have called for “equity.” They mean that the communities of color who have suffered most from the war on drugs and mass incarceration should profit from the industry’s rise. It’s an admirable idea that has proven very difficult to implement.   

Many cities and states have set up programs designed to benefit cannabis businesses owned by people of color. They typically offer some combination of access to capital, mentoring and preferential licensing. While a smattering of shops and brands have opened under these arrangements, they represent only a tiny fraction of sales. 

After years of trying, however, it’s an open question whether programs like this will ever be effective.  Nonetheless, equity programs are still underway. New Jersey’s stalled REC legalization bill, for example, aims to award 30% of licenses to women, veteran and minority-owned businesses, a target few if any other legal states can match. 

To succeed these programs have to overcome daunting challenges: 

  • City and state governments aren’t generally equipped to foster entrepreneurship, especially when the start-ups they’re supporting must immediately compete against publicly-traded companies with hundreds of millions in revenue.
  • Beyond the optics, the multi-state operators (MSOs) and other big companies don’t have much incentive to invest in equity programs. It’s not clear that equity programs benefit their top or bottom lines.
  • Cannabis’ federal illegality exacerbates the barriers that make it difficult for people of color to raise capital and start businesses in the mainstream economy.
  • Major jurisdictions like Los Angeles and Illinois, which created rules designed to foster equity, have faced litigation that at best hampers their ability to award equity licenses.

One possibility is for MSOs to become willing participants in the equity movement, which means they’ll need to profit from it. They could, for example, franchise or license their brand to equity businesses. Thus far, however, there’s little motion on this front.

In the meantime, WeedWeek asked a few experts for their thoughts on the future of equity: 

Shaleen Title, Co-founder, Cannabis Regulators of Color Coalition, Former Commissioner Massachusetts Cannabis Commission

“As with marijuana legalization itself, the goal of designing cannabis laws and regulations to create equity for communities disproportionately harmed by the drug war is audacious,” Title, a vocal equity advocate writes. 

  • She suggested that programs that take a multi-pronged approach have the best chance of success. This could include “a combination of loans and grants, more reasonable regulations/requirements as stigma is reduced, exclusive access to licenses for certain groups, and ongoing mentoring and technical assistance.”
  • She notes that economic participation in the industry isn’t the only way to measure equity. Other metrics include expungement of cannabis offenses and distribution of pot tax revenue.

Elizabeth Ashford, Eaze 

Eaze, a delivery service operating in California, has one of the more visible corporate social equity programs. The company runs Momentum, a business accelerator for founders from underrepresented groups. Participants receive grants of $50,000 and a host of other benefits. Some Momentum graduates, as well as other social equity businesses, sell their products on the Eaze platform.

  • Ashford, the company’s senior director of corporate communications, said social equity businesses have sold $2.6M worth of products on the Eaze platform. “I’m not aware of any other program that is working this well,” Ashford writes.
  • No doubt she’s right that the company has helped brands “make real economic gains.” But the sales by social equity brands represent only a tiny fraction — less than 0.1% — of California’s multi-billion dollar annual legal market. Scaling the benefits would likely require other companies to develop programs of their own. (Disclosure: Eaze has advertised in WeedWeek.)

Karim Webb, CEO, 4thMVMT

Webb, a former Buffalo Wild Wings franchisee, started 4thMVMT, which aims to franchise dispensaries in a manner similar to how restaurant chains operate. Participating entrepreneurs receiving training and financial support. The company is named for Dr. Martin Luther King Jr.’s fight for Black economic empowerment. 

  • Asked if any existing equity policies are working well, Webb responded, “None have it right.  None have it close to being right.”
  • He suggested that jurisdictions “should issue RFPs for companies whose role is to provide the opportunity and arrange to finance the opportunity.” Successful applicants should be “incentivized by the success of the program and individual operators without having an interest in individual businesses.”
  • In the meantime, 4thMVMT has been held up by “crippling” licensing delays in its target city of Los Angeles. Once authorized Webb says the group will be able to open its first store in 90 days.
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