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Catch-26: The paradox in legal weed's social equity programs

Arizona's recreational marijuana program set aside 26 business licenses for communities disproportionately impacted by the war on drugs, but corporate cannabis presents an illusion of choice for applicants attempting to enter the industry

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Catch-26: The paradox in legal weed's social equity programs

Arizona's recreational marijuana program set aside 26 business licenses for communities disproportionately impacted by the war on drugs, but corporate cannabis presents an illusion of choice for applicants attempting to enter the industry

The stack of papers lay on the table, but the person who presents them gives nothing away about what the pages contain.

They shoot off promises of money, security and stability. They make no mention of the millions, the multi-generational wealth they would be depriving them of.

Within 10 minutes, they coerce an initial here and a signature there, all the while putting the already million dollar cannabis company they represent in the running for another license to operate — now worth anywhere between $10 million to $20 million.

Celeste Rodriguez, a principal partner at Acre41, a cannabis consulting firm, described this scenario of "predatory" agreements between cannabis giants and social equity license applicants, often defined by lengthy contracts, little time, intense pressures and false promises.

The Maricopa County Superior Court recently dropped a lawsuit filed by Acre41 and the Greater Phoenix Urban League against the Arizona Department of Health Services over the broad guidelines governing the social equity licensing program.

Social equity licenses are designated for communities "disproportionately impacted" by cannabis prohibition to provide some stake in the rapidly growing market.

But, as the lawsuit cites, the program does not account for license transfers, leading large multi-state cannabis companies to corner qualified applicants into contracts and buy them out for only a fraction of what the license is worth.

"We wouldn't have a problem if they partnered up,” Rodriguez said. "Our problem is… they end up buying out the person for pennies on the dime while they build their portfolio that they will be able to sell in the future, when it’s federally legal, for billions."

License to operate

Arizona's recreational market brought in $1.2 billion in revenue in the first year of sales. And college-aged adults are one of the leading groups fueling the industry, with consumption hitting a historic high in 2020 according to the National Institute on Drug Abuse.

At the same time, cannabis business ownership in the U.S. is predominantly white, with ownership by people of color decreasing from 28% in 2019 to 13% in 2021, according to a report by MJBizDaily.

Proposition 207, the voter referendum legalizing marijuana in Arizona, came with promises of social justice, economic opportunity and some form of reparations through the social equity licensing program.

The initiative required 26 social equity licenses for communities "disproportionately impacted by the enforcement of previous marijuana laws," though the specifics of the program were left to be worked out down the line.

In June 2021, six months after adult sales started, ADHS adopted eligibility requirements for the program.

To qualify, at least 51% of the applying entity and its applicants need to meet three of the four required criteria. Applicants must:

- Have an annual household income no more than 400% of the poverty level in at least three years between 2016 through 2020, which translates to around $50,000 for one person and $100,000 for a household of four

- Have an expungement of a prior marijuana or marijuana paraphernalia charge

- Be related to someone with an expunged marijuana charge

- Reside for at least three years between 2016 through 2020 in zip codes ADHS deemed disproportionately impacted by cannabis enforcement

The marked zip codes had to have a Black/African American, American Indian/Alaska Native or Hispanic population greater than 50% and over 25% enrollment in Supplemental Nutrition Assistance Program.

Rodriguez said the requirements overlook areas and people impacted by prior prohibition and make it difficult for people who do qualify to apply in the first place.

Applicants are required to put down a nonrefundable $4,000 fee to be entered in the license lottery, which Zsa Zsa Simone, a principal partner with Acre41, sees as an insurmountable hurdle for some.

"How can you expect someone who is on welfare and receiving food stamps to even have $4,000 to apply for a license?" Simone said. "When your income is already limited and the rules say it has to be limited?"

A necessary evil

This paradox makes corporate cannabis an essential and integrated part of social equity license programs across the country, for better or for worse.

Jon Udell, director of politics at the Arizona chapter of the National Organization for the Reform of Marijuana Law, said in the first 18 months of receiving a license, applicants need to apply for approval to operate — a process which entails securing, renovating and properly zoning a property, buying equipment, hiring a workforce, developing policies and procedures, submitting a security plan, consulting with lawyers; the list goes on.

Though costs fluctuate, any cannabis entrepreneur is looking at around $2 million to get started.

There are no state funds for cannabis entrepreneurs, and federal banks are barred from doling out loans because cannabis remains illegal at the federal level. Securing backing from an established cannabis company is often the only channel of investment social equity applicants can access.

Established multi-state operators back social equity applicants in different capacities, and partnerships are not always deceptive. Many make the argument that they, too, are trying to provide support to entrepreneurs from marginalized communities.

Raheem Uqdah, director of corporate social responsibility at Curaleaf, said in an email that Curaleaf, one of the largest multistate operators, is involved in "active discussions to support social equity license applicants in joint ventures."

Uqdah said Curaleaf offers free legal services, mentorship and equipment. They also partner with minority-owned businesses on supply and products.

"The legal cannabis industry has a responsibility to right the wrongs of the past," Uqdah wrote.

Whether or not the industry truly takes on that responsibility remains a question. Legal cannabis claims to be an industry driven to do better, to be more socially progressive.

Scott Leischow, a professor and the executive director of clinical and translational science at the College of Health Solutions, specializes in tobacco addiction and policy.

As he watches cannabis legalization unfurl, Leischow sees some parallels between big tobacco and big cannabis — particularly in marketing attempts to sway public opinion.

"What's happening now is an effort to impact social norms," Leischow said. "This is something we need to be attentive to as citizens."

Motives seem murky to some, especially in analyzing the lengths big cannabis went to find qualified social equity applicants.

Some companies, namely Mint Cannabis and Copperstate Farms, blanketed neighborhoods in qualifying zip codes with fliers, promising a "life changing opportunity" and claiming "owning a cannabis dispensary can be more than a dream."

Copperstate Farms set up a website "Your Bright Horizon" and offered a $100 incentive for each qualified applicant someone referred to the website.

Rodriguez said others went to homeless shelters or held expungement clinics solely to secure access to qualified applicants. Among the bunch, Acre41 found some of the agreements between applicants and multi-state operators to be "predatory."

She said applicants are slated as "straw applicants," used to secure the license, and are then bought out by the cannabis companies for less than their worth.

Down the line

Social equity programs reached similar fates in other legal cannabis markets across the country. The lawsuit filed by Acre41 and GPUL was hardly an anomaly.

Acre41 and Greater Phoenix Urban League filed the lawsuit against ADHS in November. The main complaint cited was the lack of reinvestment in communities disproportionately impacted by cannabis prohibition.

"The regulations … make no effort to ensure the jobs, sales tax revenues, and broader economic benefits marijuana businesses generate are returned to those communities most disproportionately harmed by the drug war," the lawsuit stated.

The lawsuit called for stricter oversight on license transfers, Rodriguez wrote in the filing, "We have no objection to private owners eventually transferring the license, but the social equity provision should be required into perpetuity, or at least for an extremely long period of time."

She wrote that with the transfer change there will be more "opportunity for disproportionately impacted people (and) communities to be positively impacted indefinitely."

Maricopa County Superior Court dropped Acre41 and the Greater Phoenix Urban League's lawsuit in early February, claiming the program upheld the language in the voter initiative to "promote" the ownership and operation of marijuana businesses by heavily policed communities.

Though the lawsuit was dropped, there are still efforts to address the transfer of licenses, though they, too, might have unintended consequences.

House Bill 2545, sponsored by Rep. Kevin Payne, R-Peoria, would ban the transfer of social equity licenses for 10 years after the license is received and would only allow transfers to individuals qualifying under the social equity guidelines.

Arizona NORML is neutral on the bill. Udell sees it as a potentially positive change but worries about social equity licenses becoming a “second-class” license because of the inability to transfer or sell them.

He also worries without transferability license holders would not be able to use their license as collateral when looking for investments.

Udell hopes, reservedly, for more channels of funding for social equity applicants in the future to lessen the need for multistate operator involvement. He also recommends, when entering into agreements with corporate cannabis, qualified social equity applicants read the entirety of the contract presented and have a lawyer present if possible.

"It comes down to, 'does the social equity person feel this is a good deal? Is it in their best interest?'" Udell said. "That's really how you want to respect the autonomy of the social equity applicant."

ADHS processed over 1,500 applications, with some cannabis companies putting upwards of 100 people under one applying entity — which contradicts the rules of the program.

The lottery to randomly award licenses is expected to be underway by the spring, though many have doubts about how random the process will truly be.

Rodriguez and Acre41 plan to continue following the license rollout closely and are prepared to break applicants out of bad contracts they may have been roped into.

"The fight is not over," Rodriguez said.

Kiera RileyMagazine Managing Editor

Kiera Riley is a managing editor at State Press Magazine. She also interns at the politics desk for the Arizona Republic

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