The rapid growth of the cannabis industry has been accompanied by a pressing need to address the historical injustices of federal prohibition and provide opportunities and assistance for individuals and communities disproportionately affected by the war on drugs. However, many state programs have largely fallen short of their goals due to a variety of challenges—financial, operational, and legal—faced by equity applicants and licensees.
In the years since the first social equity programs launched in 2020, the shortcomings have been obvious. There are plenty of implementation issues to address, but there are also solutions that start with financial institutions.
Social equity policy initiatives aim to rectify the impacts of cannabis prohibition that hit marginalized communities especially hard, particularly Black, Latin American, and indigenous populations. Despite the good intentions behind the programs, these groups currently hold only about 5 percent of cannabis licenses nationwide. That’s quite a gap between lofty goals and stark reality.
Equity provisions in state laws typically include reserving a pool of licenses for social equity applicants and establishing criteria based on prior nonviolent cannabis convictions, residency in impacted areas, and other similar factors. Illinois, for example, made history in 2020 by prioritizing social equity in its licensing program and requiring applicants to meet specific criteria related to residency, ownership, and impact from the war on drugs. However, while Illinois has seen some success, many other state programs are struggling due to licensing lawsuits and competition from the illicit market.
Sadly, several challenges have hindered the success of social equity initiatives. Lack of access to capital and financial resources remains a significant obstacle. Due to federal restrictions on financial institutions working with businesses selling a Schedule I substance, operators face unique hurdles when attempting to secure funding and business banking services. The problem is exacerbated for social equity licensees, who often lack the financial networks, business experience, and other resources that are available to more established members of the industry.
Large multistate operators (MSOs) also have exploited some equity programs by partnering with social equity applicants to access licenses, raising concerns about true ownership and actual engagement by the social equity license holders. In Arizona, for example, cases have been documented where social equity licensees who technically owned 51 percent of the business were not involved in business operations.
Lack of business education and support for social equity licensees is another critical challenge. Applicants may rejoice in securing a license, but then they struggle when faced with the day-to-day complexities of running a business in such a highly regulated and fluid sector. A significant need remains for resources and education for operational aspects like business plan development, marketing strategies, and regulatory compliance.
In order to address the social equity challenges properly and accomplish effective change, some steps can be taken.
Financial institutions can and should work with regulators to create specialized programs for social equity license holders. In addition, offering reduced application fees and waiving minimum balances would help alleviate some of the capital constraints faced by these entrepreneurs, at the same time increasing financial institution portfolios.
State programs must provide comprehensive business training and equip social equity founders with the skills needed to succeed. Ongoing support and resources are crucial for long-term success. For example, New York lawmakers are pushing for a $100-million fund to provide zero-percent or low-interest loans, along with job training, for Conditional Adult Use Retail Dispensary applicants.
Increased scrutiny by state regulatory agencies can prevent exploitation by MSOs. This includes monitoring and enforcing rules to ensure 51-percent owners are actively involved in the business.
Dedicating cannabis tax revenue to community reinvestment in areas with disproportionate arrest rates can be a powerful form of redress. And while many states have implemented programs to clear cannabis-related criminal records, these efforts could be expanded to include all low-level drug possession records and provide broader relief to affected communities and individuals, whether or not they seek a career in cannabis.
Some states have shown promising progress in their social equity efforts. For example, the Illinois Direct Forgivable Loan Program, launched in 2022, provides immediate access to capital for conditionally approved social equity loan applicants. Loans from $50,000 to $500,000 are available with the potential for forgiveness. According to a recently released independent study by the Nerevu Group, 59 percent of Illinois dispensary licenses were issued to minority- or women-owned businesses, and minority- or women-owned businesses hold 63 percent of craft grower, 61 percent of infuser, and 74 percent of transporter licenses. The study also found nearly 84 percent of the state’s direct forgivable loans went to minority- or women-owned businesses.
The cannabis industry and regulators must go beyond mere lip service to address historical injustices and create a more equitable future. It’s critical for all stakeholders—established businesses, emerging-market regulators, and policymakers—to recognize the importance of the efforts and work together to ensure the industry evolves in a manner that reflects the diversity of our communities and provides real opportunities for those affected by prohibition.
As vice president of business services for Salal Credit Union, Munzer Sukhun leads a business banking team that specializes in serving the cannabis industry. He focuses on helping businesses thrive through tailored banking and lending solutions. Sukhun earned a master’s degree in business administration from Southern Oregon University. SalalCU.org
