Cannabis is legal for medical use in 36 states and four territories in the U.S., while cannabis for adult use is legal in 18 states and two territories, and DC. In the process of legalization, rules and regulations were established regarding ownership requirements that excluded from ownership opportunities anyone with certain felony drug convictions. These restrictions varied from state to state. As the lack of diversity in the cannabis industry became harder to ignore and the Cole Memo was no longer enforced, states began looking for ways to address the social equity issue. One area still being addressed is ownership requirements. One adjustment that was made to encourage diversity in ownership was to offer priority licensing for social equity applicants. California, Connecticut, Illinois, Nevada, and New York have regulations that offer priority licensing for social equity applicants.
Access to Banking
Banking in cannabis is an issue that is nearly universal, and whenever banking is available, it is expensive. We covered this topic in more depth in our “Cannabis Banking Insights” CannaBlog. In short, banks are hesitant to offer financial services to cannabis businesses partially because they need to develop robust internal compliance departments just for cannabis accounts. The banking issue is especially problematic for social equity applicants that have not historically had access to significant capital. Traditional loans and small business loans that would usually help social equity applicants compete are not available at this time, presenting a significant challenge to overcome.
Market Competition in Established Markets
In markets like California, Colorado, Nevada, Oregon, and Washington, where adult use has been legal for five years or more, any new licensing that addresses social equity presents an uphill battle for those applicants. This is due to regulations at the time that limited or excluded participation from owners with cannabis convictions and in some states, the requirement to show significant capital reserves. Applicants entering these markets will be competing with well-established companies and brands. Newer markets will be easier to enter and gain market share, but even established markets will always have room for innovation.
Despite the past and current hurdles that exist for social equity applicants, new opportunities are on the rise. States like New York and New Jersey are attempting to build programs that include community reinvestment to tackle disparities. Oklahoma has chosen to just make the barrier for entry lower and abandon the limited licensing model without including social equity programs. Each of these markets is an ongoing experiment worth watching for potential learning experiences. These markets present entrepreneurs with growth opportunities while presenting regulators with opportunities to see the effectiveness of these policies. Social equity, when done well, has the potential to address the harms caused by the War on Drugs and build a more diverse industry. Good conclusion!