The Cannabis Equity Failure

Monday, May 27th 2019
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The pioneering cannabis activist turned capitalist Steve DeAngelo often says things like, “If all that we do with this is create a new industry, shame on us.” Cannabis, he says, should grow into “a new kind of industry,” one that reflects what he considers the values embodied by the plant.

But, several years into legalization, the cannabis world has not displayed the will or inclination to address its racial disparities. Like most U.S. industries, the cannabis industry’s upper ranks and ownership are overwhelmingly white. But cannabis bears a historical burden that other fields do not: The state experiments with this (still federally illegal) industry, owe their existence to the ongoing racial injustices of prohibition.

(DeAngelo recently discussed cannabis equity on the WeedWeek podcast.)

As they've legalized, jurisdictions from Oakland to Massachusetts, have enacted laws designed to support minority entrepreneurs and others disproportionately harmed by the war on drugs. These “equity” programs typically involve some combination of financial support, training and preferred status in the application process.

Despite their good intentions, these equity programs have given rise to only a handful of dispensaries and delivery services nationwide. Just this week, closely watched equity programs in Los Angeles and Massachusetts encountered new setbacks.

Cannabis equity programs are going nowhere, in part, because they have a daunting problem to solve. It combines the unique difficulties of running a marijuana business, with the systemic racial inequalities of America’s economy and justice system.

Another problem with cannabis equity is that most established cannabis companies have little or no incentive to solve it: As they see it, efforts to address equity offer only financial downside. Meanwhile, the organizations charged with finding answers -- state and local governments mostly -- aren’t equipped or funded to foster small businesses in any industry, let alone this one.

Still, some initiatives are underway. This January Portland awarded $30,000 grants to two black-owned cannabis businesses.

Such grants, however well-intentioned, seem paltry when you realize sophisticated cannabis companies with national ambitions operate in a different financial universe.

Consider iAnthus, which is based in New York and Toronto. Even by cannabis industry standards, it's not a particularly large company, generating 2018 revenue of $4.5M. But it is well-positioned to become a big company.

In 2016, iAnthus, whose CEO Hadley Ford is a former Goldman Sachs executive, became the first U.S. cannabis companies to go public in Canada. "We saw a need in the market for capital and pioneered," the approach, he told me.

iAnthus then acquired the U.S. assets of a Canadian cannabis company in an all-stock deal valued at C$835M (US$640).

A few weeks ago, iAnthus unveiled a new brand called “Be.” which it plans to roll out at its flagship store near the Barclays Center in Brooklyn, and in 20 more dispensaries in 10 more states. Several more well-capitalized companies are pursuing similar strategies.

Many of the cannabis industry’s complications, from partial bans on social media, to the industry hated tax rule 280E, seem to favor larger companies with the resources to mitigate them. In this climate, it’s difficult to see how equity businesses can compete in a meaningful way, or even survive.

The Minority Cannabis Business Association (MCBA) has proposed six ways local governments can support equity in the industry. Some of them, like expunging criminal records for non-violent pot-offenses may help in places.

On a larger scale, nothing suggests the cannabis industry is capable of addressing its racial disparity. This isn’t the fault of any one person or company -- it’s hard enough to run a pot business without considering the burdens of history. But unless there's a dramatic change soon, it will always be the industry’s shame.

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