Cannabis Social Equity Programs Are Fundamentally Flawed

SIVA Enterprises CEO takes a look at social equity programs

In 2016, Californians voted on and passed adult-use cannabis regulations effectively creating what will be a robust licensed supply chain and industry. Running parallel to the 2016 legalization movement, the effort to support communities disproportionately impacted by the war on drugs began gaining traction.

In a historic first of its kind, the city of Oakland, California, developed a social equity program to address past disparities by providing communities disproportionately impacted by the criminalization of cannabis an opportunity to participate in the newly regulated, licensed industry. Cities including Sacramento and Los Angeles followed suit.

Illinois is currently in the process of administering their second round of state licensing wherein all available licenses have a social equity requirement.

As cannabis legalization sweeps throughout the country, social equity has taken center stage in discussions among stakeholders throughout the industry, legislative circles and communities. Politicians have adopted the cause as a platform, well-known celebrities have signed licensing deals with cannabis companies to promote social equity and advocacy organizations have declared “equity or war!”

With all the vocal support any cause could ask for, why are equity programs across the country failing?

Social equity programs are failing because they are fundamentally ill-conceived and flawed. When the fundamentals of a program are flawed, the administration of it will be nothing short of sloppy, divisive and perhaps, worst of all, damaging to the communities the program intends to serve.

In theory, providing a business opportunity in what is perceived as a lucrative industry should be straightforward. In spirit, it’s the right thing to do. In practice, when the tools to succeed are absent, what qualifies an individual for a social equity program is the exact opposite of what would qualify the average person to own and operate a multimillion-dollar business.

The issue isn’t a question of whom to provide with the business opportunity. The issue is how to provide it to extend beyond feel-good, yet ineffective policies — in a way that is practical and aligned with the spirit of what this movement was intended to accomplish.

At a fundamental level, all social equity programs have the following core requirements in one form or another:

  • The social equity applicant must have a prior cannabis conviction;
  • The social equity applicant must have at least five years residency in an area of the city that was disproportionately impacted by the war on drugs;
  • The social equity applicant must be low-income;
  • The social equity applicant must own 51% of the equity in the company applying for the license.

Conversely, the business opportunities these programs intend to make available to qualified social equity program participants require millions of dollars in startup capital, extensive business experience, financial wherewithal to manage millions of dollars (in cash no less), intense regulatory compliance requirements and a myriad of other needs standard for any startup business. All this under the umbrella of conflicting federal and state regulations with no access to banking or traditional loan programs.

Social equity programs are failing because the core requirements necessary to qualify an individual to participate in the program are exactly what’s preventing social equity applicants from participating in the business of cannabis.

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