Solving Social Equity Issues in Legal Cannabis [Reuters]
By all accounts, 2020 and 2021 have been banner years for the cannabis industry in the United States. Despite federal prohibition, the state-legal cannabis industry is now estimated to be worth over $18 billion, supporting over 300,000 full-time jobs, and several states, including New York, New Jersey and Connecticut, passed laws legalizing adult-use cannabis in the first half of 2021. But the very same minority populations most harshly impacted by the war on drugs are largely excluded from this industry. For example, according to Leafly's Jobs Report 2021, African Americans represent roughly 13% of the U.S. population, but only 1.2% to 1.7% of business owners in the industry.
Recent legalization efforts try to address these disparities head on through social and economic equity requirements baked into the laws. A number of states, including California, Illinois, New York, and Connecticut, offer priority licensing for social and economic equity applicants.
Though definitions vary by state, generally these include applicants who are from communities that have been disproportionately impacted by cannabis prohibition, women-owned businesses, minority-owned businesses, distressed farmers, and service-disabled veterans. The goal of these programs is to allow those impacted by the war on drugs — as well as certain other underrepresented groups — to participate in the burgeoning cannabis industry.
New York's recently enacted Marihuana Regulation and Taxation Act (MRTA) aims to do this by planning to award 50% of all adult-use dispensary licenses to social and economic equity applicants, while also granting preference to licensees that set out a plan for benefiting communities and people disproportionately impacted by the enforcement of cannabis laws in the past. It also waives some requirements at the application stage. Connecticut's new law goes further by including a requirement to reserve 50% of all licenses for social equity applicants. However, as discussed below, these good intentions may not be enough.
Many social equity laws have a residency component, which can be expressed either as a requirement or a preference. Advocates of such policies argue that they are necessary to ensure that residents — rather than out-of-state investors or multistate operators (MSOs) — reap the economic benefits of legalization. For instance, Detroit attempted to set aside 50% of its licenses to so-called "Detroit Legacy" applicants, a definition that combined a lengthy residency requirement with certain social equity components (like being impacted by the war on drugs).
Such regulations have been challenged on constitutional grounds, with the Detroit regulation being found to likely violate the Dormant Commerce Clause of the U.S. Constitution, which prevents states from discriminating against interstate commerce. See Lowe v. City of Detroit (E.D. Mich. 2021).
Similar challenges were successful in Missouri and Maine. See Toigov. Dep't of Health & Senior Servs. (W.D. Mo. 2021); NPG, LLC v. Portland (D. Me. 2020). But at least one court sidestepped this question by refusing to use "its equitable power to facilitate [federally] illegal conduct" (in this case the award of medical marijuana licenses). Original Invs., LLC v. Oklahoma (W.D. Okla. 2021).