With cannabis making its way through the road to legalization, concern in the disparity of the lack of minority license holders continues to grow. To address this issue, social equity licensing has arisen as a government mechanism intended to even the playing field for those from communities disproportionately impacted by the war on drugs. Different approaches have been explored by various cities and states (i.e., California, Connecticut, Massachusetts, New York, and Oregon), with some programs faring better than others.
To explore the necessary ingredients to a successful social equity licensing program, San Francisco social equity licensee Mirage Medicinal provides some insight via Jon Heredia, the Mirage Medicinal CLO and Director of Business Development.
It provides verified social equity applicants with priority processing, technical assistance, waiver of fees, and access to local and state grants. Through the program, my partner (the social equity applicant) and I have been able to secure funding for three dispensaries in San Francisco, roughly $100,000 in city and state grants, and a white labeling partnership with a Sacramento microbusiness.
The overwhelming majority of social equity applicants in a tourist destination like San Francisco are seeking retail dispensary or delivery licenses. Retail has higher business margins compared to other supply chain models, so many applicants choose retail businesses to account for the higher cost of living and working in San Francisco.
Although a set retail license cap has been explored, there is no clear cap on retail licenses in San Francisco. Rather, there is only a market cap, where retail businesses cannot be less than 600 feet apart from each other.
These factors, coupled with the idea that storefronts are “sexier” as a model (vs. distribution), means that if all social equity applicants acquire retail licenses, then they will find themselves competing in an already saturated market, thereby decreasing their likelihood of success.
Social equity applicants must undergo a complex, multi-agency land-use and building application process (like all new San Francisco business owners). This process involves a social equity applicant paying for architectural plans, which must go through an approved process of multiple reviews by several agencies like the Department of Planning, Building, Police, Fire, Health, Public Works, etc.—none of which are required or incentivized to help speed through social equity applications. The San Francisco Office of Cannabis, however, is mandated by the San Francisco Social Equity Program to prioritize and expedite social equity applications. As a result, it is common for social equity applicants to languish in the permitting process for years, leaving them struggling financially while they wait in limbo.
Our company waited three years before finally getting our permit to build. Over those three years, we still had to pay rent while waiting to be granted our building permit. Although we were able to negotiate some rent forgiveness and deferrals with the landlord, the majority of equity applicants were not. As a result, many social equity applicants were forced to give up their verified social equity status and property because they simply ran out of money. These same applicants went back to the black market, in deep debt and distrust of the government.
Most social equity applicants do not have “neighborhood associates turned legal and business advocates.” Despite there being city and state resources and services available to social equity applicants, it’s still a complicated and tedious process to learn and apply for grants and investment. The land-use and permitting process is extremely complicated, even for professionals. The allocation of funds to maintain the health of a business (for application fees, rent, tax withholding, etc.) is a matrix that experts are still trying to figure out as to what works best.
If this is difficult for even the savvy business person, it is extremely difficult for a social equity applicant.
The San Francisco social equity program strictly focuses on providing social equity applicants a path to ownership via straight ownership of a business or being incubated by an incubator. However, not everyone who qualifies as a social equity applicant is capable, qualified, or even has the desire to be an owner upon initial verification as a social equity applicant.
The social equity program should not just be a program that gives equity applicants a path to ownership of a cannabis business. It should also be a program that requires or incentivizes currently operating cannabis operations to hire verified social equity applicants as employees and help them develop and thrive in the cannabis space.
Jurisdictions should implement a public awareness campaign informing communities of the diverse business models of the cannabis industry. Once more people are aware of the different operators along the supply chain, these folks will be more informed and better understand how they can fit in these non-retail models.
Concurrently, jurisdictions should incentivize social equity applicants interested in non-retail licenses by carving out license allocations and conducting public outreach campaigns informing them of the availability of these licenses.
Lastly, a city cap on retail licenses should be considered.
All local agencies, not just the city’s designated cannabis agency, must have a mandate to prioritize processing social equity applications. Furthermore, an official within each respective agency should be assigned as the agency’s “cannabis liaison” and be held accountable to abide by the mandate and minimize any procedural delays.
The city should increase its partnerships with service providers like CPAs, cannabis law firms, financial advisors, law schools, business schools, and social workers and make these service providers available to social equity applicants as soon as these folks become verified as social equity applicants. The services should not just be limited to legal advice but also include business advice, tax advice, life planning, and therapy.
The goal is for the city to give social equity applicants a pathway to ownership and guidance to succeed in the industry by helping them thrive in a corporate setting. Social equity applicants should also be taught how to best allocate their personal funds so that they are primed to achieve generational wealth.
The city should create a rule (not just a recommendation) requiring a certain percentage of a business’s workforce to be comprised of verified social equity applicants. To increase the pool of social equity applicants, the city should implement an outreach campaign, in partnership with job placement and recruiting centers, informing community members of the requirement that cannabis businesses must meet their quota of verified social equity employees.
Concurrently, with the financial support of the city, these job placement centers can hire consultants whose job is to train employees across all aspects of the cannabis supply chain (cultivation, manufacturing, distribution, testing, and retail). Over a set amount of sessions, these consultants will describe every aspect of each job across the supply chain and can provide light training to equity applicants who are interested in applying for the position.
