With the fifth anniversary of recreational cannabis legalization here in California, examining the current cannabis industry in relation to the social equity licensing initiative seems essential considering the fact that the social equity program is so flawed, even with California having five years of legalization under its belt. In an attempt to counteract the still-lasting impact of the war on drugs, California hopes to serve minority populations by utilizing social equity licensure programs for those interested in entering the cannabis industry. That sounds like a promising initiative, but there are some very noticeable issues with the program for those that are current Cannabis Operators. Here are the top 5 noteworthy obstacles to social equity license success in California.
1. A social equity license is NOT an automatic ticket to success.
While social equity programs are well-intentioned, in actuality, their execution is less than perfect in aiding applicants and licensees. There are many more specific obstacles detailed below, including the application process itself, funding, and making the best use of the license once you actually have one. Some cannabis entrepreneurs have even been forced to sell their businesses, and that is after they thought they had gotten it safely up and running because they received a social equity license. Therefore, research and support are vital when entering this industry.
2. Cannabis is still illegal on the federal level (for now).
There is currently Republican led legislation in the works to legalize recreational marijuana at the federal level, but it is still illegal for now. On top of that, recently Marijuana banking legislation was stripped from the federal defense spending bill. Unfortunately, that means banking access remains constrained, with many banks charging cumbersome monitoring fees for those in the cannabis industry, especially dispensaries. Lack of banking access holds other consequences as well, from the rash of dispensary robberies to the ongoing challenges of minority and small business owners to secure capital. In addition, these companies cannot take advantage of business reductions provided by the Internal Revenue Code either, because the industry remains federally illegal. And some banks refuse to provide funding at all to cannabis companies, leaving licensees to turn to outsiders, leading to the next obstacle: bad actors.
3. Bad actors may seek to take advantage of licensees.
Unsurprisingly, many social equity licensees lack access to resources such as venture capital, bank loans, or business knowledge to get their cannabis companies off the ground. Thus, they often must reach out to non-banking sources for assistance. This creates the opportunity for bad actors to take advantage of and appropriate the applicant’s or licensee’s share of the business. It is important for social equity licensees to conduct thorough due diligence on potential investment partners, and our team of professionals can assist licensees with this vital step. At Greenbelt, we offer a full range of services including:
Brand & operational development
Due diligence
Fundraising & capital
Cannabis vendor referral
Licensing
Regulatory & compliance
Land use & development
Property identification & referral
Talent recruitment
“Ready Made” compliance tools
Between our three partners, we have 50 years of diverse experience working with dynamic, industry-leading brands and companies. That experience paired with the c-suite concierge support we offer makes Greenbelt a great fit for anyone looking for assistance in the cannabis industry then. We also have a passion for social justice and social equity in the Cannabis industry, and as a black-owned business, we are a dedicated ally to the continual fight for diversity and inclusion at all levels of the Cannabis industry. As of right now, we have two locations, Los Angeles and Chicago, and have 20+ supported brands with that number continuing to grow, despite just establishing ourselves last year. If you have any questions, you may reach out to us here.
4. There are long waits for applicants even if you qualify.
Are we surprised a bureaucratic body is moving slowly with this application review process? No, but it’s crucial to understand and appreciate, especially if you have plans to apply and are eager to launch or are subject to inflexible timelines. In some cities, such as Chicago, Oakland, and Los Angeles, the review process has been halted altogether, preventing businesses from moving forward in any capacity. On top of the wait for applications, once you are granted an application, there is still often waiting involved. Some licensees that go ahead with renting a storefront for the application process, when required, are forced to pay rent even if their license/application is on hold. That means licensees are shelling out money on bills before they can even realize a profit, while they remain in limbo due to something out of their control, including application holds, wait times, and other bureaucratic issues. Sometimes investments will be on hold as well because of this process, creating another issue for licensees, mainly a lack of funding. California’s Santa Barbara County just announced acreage caps as well, presenting another new issue. That is why it is so important to make sure to research the area you are seeking to apply for a license in then, because of these administrative complications.
5. Stringent Applicant Requirements.
A final challenge facing licensees are the qualifications to apply for a social equity license themselves. There are three tiers for applicants, but this article focuses specifically on the first tier. For tier 1, a person must be able to demonstrate that they are low income and have a prior California cannabis conviction, OR low income and at least five years cumulative residency in a disproportionately impacted area. According to NDICA, “Low Income is defined as income 80% or below the Area Median Income. According to the Survey, the Area Median Household income was $51,538. To qualify as a low-income Tier 1 SEP Applicant, you must be able to prove that you earn $10,803 per year or less,” then, which is incredibly low and significantly limits Tier 1 applications. Therefore, the process is relatively inaccessible. While we do want the application pool to be limited to ensure it reaches the correctly targeted population, these restrictions are arguably too stringent.
As we can see, there is much work to be done regarding the effectiveness of the social equity license program for cannabis companies. Make sure also to keep this list in mind as you get your company off the ground. Finally, check back here for updates on the latest news in the industry, including about the program!