Open Cannabis Markets Are More Socially Equitable than Markets with a Social Equity Component

In February, I went to a cannabis conference in Albuquerque that blew me away. It wasn’t that the conference was fundamentally different from others I have attended; it was the air of HOPE that permeated the entire expo floor. People were excited. Coming from California, where I haven’t seen this level of excitement, ever — even in the beginning — I started to wonder why New Mexico residents had such a sense of buoyancy. Then I realized it was because they had a reasonable expectation that they would be able to enter the cannabis market if they applied for a license.

This is not the case for most applicants in other legalized states. We applied for licenses in New Mexico in February of this year and in less than two months, the fruits of our labor were realized. On March 15, we received our dispensary and manufacturing licenses less than 45 days after applying. Let me say that again in case you missed it: Less than 45 days after we applied in New Mexico, we received our licenses with a total capital output of $1,000.

There are people in California, Illinois, and Massachusetts who are still waiting for licenses, and those who have licenses who are waiting to realize the potential of their licenses. In New Mexico, there were no particular social equity hoops we had to jump through, no 600-page application (Illinois), no interview requirement (Fresno), no need to have a building (Los Angeles), and no requirement to incubate social equity applicants (Oakland). The truth is that in New Mexico, they did not pit BIPOC, the formerly incarcerated, our nation’s first people, and people harmed by the war on drugs against one another to obtain those licenses. The barriers enacted in social equity states were removed in New Mexico.

New Mexico’s cannabis industry model

New Mexico passed adult-use legalization on April 12, 2021, and in less than a year, the state has licensed more than 500 businesses, outdoor farms, greenhouses, retail outlets, and manufacturing facilities. During the new market’s opening weekend, New Mexico’s retail cannabis sales surpassed $4.5 million dollars. They have made their barriers to entry low and, so far, have no caps on the number of licenses they will issue.

Some may point to Oklahoma, another state that made its barriers to entry low, as a failed attempt at an open market. Although Oklahoma has had issues, they are nothing compared to what we have seen in states that tout themselves as champions of social equity where, despite the headlines, no successful social equity programs actually exist. For example, a friend of mine, who is El Salvadoran, has in hand one of those fabled Los Angeles dispensary licenses that he received during the city’s first lottery. After waiting for months for the local cannabis commission to move forward following a slew of lawsuits, he chose to move to Oklahoma in 2020. He opened his dispensary in less than 90 days and to this day, is very successful. He is still waiting for LA to get its act together, three and a half years after he won that license in the first lottery.

What is the difference between those states and New Mexico? The answer is simple: a limited license market touting a social equity component usually means it is exponentially harder for BIPOC, women, formerly incarcerated-led companies, and anyone not backed by large corporate and/or multi-state operator capital to get a license. An open market with low barriers to entry and little (New Mexico) to no (Oklahoma) social equity demands makes it easier and more cost-effective for BIPOC-, women-, and formerly incarcerated-led companies to get a license.

The problem with social equity

In my opinion, the whole movement around social equity has caused an infantilization of non-white and non-male cannabis entrepreneurs. Social equity applicants have to jump through hoops to prove they have been harmed enough to even be considered for a license. What in The Hunger Games is that? The applications for equity applicants in and of themselves are so complex that the going rate to get them written by lawyers or consultants is $25,000 or more… usually more. That is an entire ancillary industry created off the suffering of people and communities who were harmed by the war on drugs. Let that sink in. Where is the justice in that? The access to capital needed to realize the potential of your license does not exist for BIPOC, women, or the formerly incarcerated. Nor do current capital markets even understand how to assess the creditworthiness of this group of people in lieu of the fact that our financial system is built on a racist foundation designed to intentionally exclude us.

There is no better example than what we see coming out of New York. They announced a $200 million social equity real estate fund in January. In February, they did a state-wide virtual roadshow touting this groundbreaking fund. In March, New York state officials made a bold commitment to ensure the first 100-200 retail licenses go to those formerly incarcerated on cannabis charges and/or their families. Oddly though, they also sent out a request for information asking how to create, administer, and distribute this $200 million social equity fund that same month after announcing it. Do not announce a social equity fund when you don’t know how to create, administer and distribute this type of fund. To truly address the capital needs of the most vulnerable populations from the War on Drugs, New York will need to add much more than a real estate debt fund. They need to add recoverable grants as San Francisco did along with business development support. One, a stand-alone debt facility for real estate isn’t going to get us to an equitable industry. And its not the first, second, or even third step to getting us there.

We have learned that we cannot count on social equity legislation, municipal codes, or programs to help us. What we need and what we should demand now, from the existing regulated states and those to come, is lower barriers to entry. We can look to New Mexico as a roadmap.