Despite roughly equal cannabis usage rates across racial groups, over 80% of cannabis business owners are White, highlighting a significant racial disparity in the industry. This article will focus on the social inequities in obtaining loans for cannabis businesses, particularly for previously incarcerated Black and Brown individuals.
It will also highlight the efforts of Lavetta Wills team and DASNY through the New York Social Equity Cannabis Investment Fund, aiming to provide financial support and create a more inclusive industry.
The Legacy of Prohibition
The war on drugs disproportionately affected Black and Brown communities. Black individuals made up 57% of cannabis-related arrests, while 25% were Hispanic. This has led to significant long-term socio-economic disadvantages, including lost lifetime earnings and community impacts. Specifically, lost lifetime earnings due to cannabis-related convictions total approximately $31 billion, with Black and Hispanic individuals accounting for 83% of those losses.
Racial Disparities in the Cannabis Industry
The current landscape of the cannabis industry reveals a stark racial disparity in business ownership. Over 80% of cannabis business owners are White, despite similar usage rates across racial groups. This highlights a major barrier to entry and success for people of color. Data from Massachusetts shows that only 27 out of 122 social equity applicants were given priority by regulators in 2018, and only 8 of those received licenses.
Barriers to Financial Access
Lack of Generational Wealth: The ability to access large sums of legitimate capital is the number one impediment to success for small cannabis businesses. Applicants with generational wealth have a distinct advantage when regulators require substantial liquid assets for license applications.
Investor Bias: The majority of investors able to provide the level of funding needed for cannabis businesses are White males, who tend to fund businesses run by people who look like them. This bias puts women and racial minorities at a disadvantage.
Federal Prohibition: Due to cannabis remaining illegal at the federal level, traditional banks and financial institutions are generally unwilling to provide loans or services to cannabis businesses. This forces entrepreneurs to rely on personal funds or high interest private loans.
High Costs of Entry: The regulatory hurdles, licensing fees, and ongoing compliance costs in the legal cannabis industry are substantial, creating a significant financial barrier to entry.
The New York Social Equity Cannabis Investment Fund Initiative
New York's approach to cannabis legalization is unique, starting with social equity programs rather than implementing them post-legalization. The $200 million New York Social Equity Cannabis Investment Fund, seeded with $50 million in state funds and $150 million in private investment, provides start-up support for justice-involved cannabis dispensary licensees.
The Conditional Adult-Use Retail Dispensary (CAURD) license program received more than 900 applications, and 25% of businesses under the program are majority-owned by Black, Brown, or female entrepreneurs, compared to 0.2% nationally.
Lavetta Wills and DASNY have been instrumental in implementing this initiative, providing 13% non recourse loans for buildout costs of turn-key locations. This support includes not only financial backing but also assistance with securing prime retail locations and operational resources.
Broader Implications and Future Directions
Policy Recommendations: To further support equity in the cannabis industry, federal leadership is needed to provide a blueprint for states to adopt more equitable reforms. Proposed legislation like the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) aims to address racial disparities and the damages caused by the war on drugs.
Scaling the Model: New York's model has the potential to be replicated in other states. With more social equity programs that pair licenses with financial support, other states can follow New York's example and create more inclusive markets. Data on the success of similar programs and projections for broader implementation can help guide these efforts.
Voices from the Field
The impact of the New York Social Equity Cannabis Investment Fund is not just theoretical; it's tangible and life-changing.
Chris Vianello from Dazed Cannabis eloquently summarizes his experience: "Working with Lavetta Wills and her team has been an inspiring and enlightening experience. Lavetta's commitment to social equity in the cannabis industry comes naturally to her as a leader. Her innovative approach through the New York Social Equity Cannabis Investment Fund has provided not just financial support but also critical resources and guidance to marginalized cannabis entrepreneurs. Lavetta's efforts are changing people's lives - literally."
Rich Rainone, also from Dazed Cannabis, echoes this sentiment, emphasizing the practical support they received: "Not having the funds ... it's extremely difficult, especially when you consider site location, lease negotiation, building permits, and all the other complexities. Lavetta and her team took a lot of that heavy lifting away from us, allowing us to focus on the more tangible parts of our business. They didn't just put the loan together for us and walk away. They stood beside us through all the problems, questions, follow-ups, and maintenance issues. It's a partnership."
Conclusion
The disparities in the cannabis industry reflect broader societal inequities, particularly in access to financial resources. However, initiatives like the New York Social Equity Cannabis Investment Fund demonstrate that targeted efforts can make a significant impact. By providing substantial financial support and prioritizing those most affected by the war on drugs, Lavetta Wills and DASNY are helping to level the playing field and pave the way for a more inclusive cannabis industry. As more states look to replicate this model, there is hope for a future where the cannabis market reflects the diversity of its consumers.
