Social Equity Program Failures: Lessons Learned and Future Fixes for Fair Licensing

With the long-lasting, hazardous effects of the War on Drugs, launched by President Richard Nixon in 1971, many social equity programs were introduced by governments. The purpose was to compensate affected cannabis industry stakeholders and help them flourish in their businesses.

Despite the positive objectives behind these compensatory programs, many of them have created additional challenges for legitimate licensing in the marijuana industry. The deserving parties are still unable to receive proper compensation for the long-past discrimination and suffering their families have faced.

What are the current social equity licensing provisions that need amendment? What possible future fixes can help boost legalized cannabis business ownership among minorities?

The American War on Drugs: Racism and Discrimination

The American War on Drugs was primarily driven by racism and adversely harmed minority families for years. Not just the therapeutic potential of cannabis products was massively affected, but it also promoted racism and discrimination. In the majority of cannabis cases, the convicted parties were Hispanics, Latinos, or Black individuals. 

Along with felony charges and punishments, individuals were deprived of education grants, employment opportunities, and housing schemes solely because of past convictions. This prejudice left marginalized communities frustrated, damaging their quality of life. They also faced major hurdles to participating in legalized cannabis businesses.

Social Equity Programs for the Cannabis Industry

With more states opening doors for legalized cannabis businesses, some states launched social equity programs after 2018 with the objectives to:

• Limiting corporate abuse by prioritizing communities affected by the War on Drugs
  

• Supporting individuals affected by cannabis criminalization by providing equitable access to growing cannabis market opportunities
  

• Stopping drug convictions of minorities involving legalized cannabis usage
  

• Giving access to legal cannabis products and promoting safe usage among immigrants and seniors

However, some social equity licensing provisions failed to promote racial equity among communities to exploit the legal cannabis market. Those who suffered from drug convictions and served punishments are still deprived or unable to explore the opportunities that a social equity program holds for them.

However, understanding the root causes of these failures and introducing better versions in terms of equitable resource distribution and flexible licensing terms and fees will ensure that every community can benefit from the growing cannabis industry.

Common Loopholes of Cannabis Social Equity Programs

Exploitation of Licensing

Apart from social equity deserving applicants, some took advantage of the flexible licensing by keeping the business in the name of another person. Some cases revealed that the actual owner was someone else, and a minority person’s name was mentioned only to gain leverage as a deserving social equity applicant.

Financial Constraints

Despite equity programs designed for easier entry of minorities, there are still major entry barriers in the form of financial constraints. The participation ratio of Black and Latino individuals remains quite low compared to white individuals due to expenses in the form of:

• Licensing fees

• Insurance

• Business taxes

• Legal expenses

Requiring capital resources from financial institutions comes with further restrictions, as federal laws are still evolving regarding cannabis businesses.

Even equity programs intended to compensate communities affected by the War on Drugs have rejected applicants for funds who were convicted of cannabis-related crimes in the past.

Strict Licensing Criteria

Some states have strict licensing provisions that make it difficult to truly remedy the harms suffered by victims. For example, in Detroit, applicants who had lived in the city for at least ten years were given priority in the licensing process over others. 

It contradicts the compensation goal of equity programs, regardless of how long they have lived in the city. This ordinance discriminated against people who were not long-term Detroit residents, even if they were significantly affected by drug convictions.

Possible Future Fixes for Fair Licensing

Strictly Scrutiny Processes

Many cases have been reported where the actual business owner was white but used a minority as a front to gain an advantage in obtaining a license. The ownership and management rights of the applying company must be thoroughly scrutinized to ensure that the real owner is genuinely a member of the victimized community.

Prevention of Takeovers

There have been cases where, shortly after receiving the license, the investor sold or transferred it to another party. To prevent such misuse, license transfers should be restricted for a defined period. This would help stop takeovers by large corporations or dominant groups that undermine the purpose of social equity programs. Some states already follow these restrictions. For example, in New York, transferring a license is prohibited for the first three years, and transfers are allowed only to another social equity applicant. 

Funding Policy

Giving easy access to capital must be the prime objective of new provisions, as minorities face difficulty in obtaining loans from financial institutions. This can be implemented by generating public-private funds collected exclusively for social equity applicants. 

A practical approach is allocating a percentage of cannabis sales for raising such funds. Currently, multiple states like New Jersey and New York are already working on these funding provisions. However, proper screening is mandatory to ensure the generated funds go into the hands of legitimate parties by collecting all the necessary information.

Low Entry Barriers

Social equity programs must provide greater flexibility for minorities to obtain licenses for potential business opportunities.  Requirements that applicants reside in a specific region for a defined period and similar unnecessary conditions should be eliminated. Another way to make it easier for individuals to enter the market is through cooperative licenses, especially in urban areas. By pooling resources, cannabis cultivation becomes accessible to a larger number of deserving people.

Cooperatives allow participants to share costs, reducing financial barriers and eliminating the need for external funding sources. Members can combine their resources up to a certain limit and collectively benefit from the economic opportunities available in the cannabis market.

Employment Opportunities

Ignoring previous drug convictions, particularly those common in marginalized communities, is mandatory. Programs need to encourage legitimate hiring of such people, giving them a chance to grow professionally and making them key economic drivers for future economic gains.

Institutions, including government agencies, must establish a separate quota for minority individuals with criminal records resulting from past discrimination or prejudice.

Bottom Line

At present, key cannabis industry players, including medical cannabis consumers, are still deprived of the real gains promised by social equity programs. Despite decades of harm caused by the War on Drugs, many affected individuals cannot reap the opportunities created by the legalization of specific cannabis products.

Groups impacted by cannabis prohibition were disproportionately Black and other marginalized communities. Social equity programs were designed to address these historical injustices by providing rightful access and opportunities to affected parties. 

However, weak implementation, limited funding, and regulatory barriers made these programs fail to fully deliver on their intended promise. The state and federal governments need to work not just on a comprehensive legal framework for non-intoxicating cannabis products, but also on stronger social equity programs. The focus should be on funding access, careful screening of applicants, affordable licensing, and long-term business support. This will hopefully end historic patterns of exclusion and exploitation.