Social Equity in the Cannabis Industry
As of 2020, 33 states and the District of Columbia have passed legislation legalizing cannabis for medical and/or adult use. Nevertheless, as the cannabis industry has developed into a thriving industry, it has also become apparent that additional requirements are needed to provide for a level playing field for new industry entrants. Accordingly, many states have put in place “social equity” programs to support low-income populations that have been disproportionately harmed by federal and state enforcement of now-repealed cannabis laws. For example, the city of Los Angeles’s cannabis social equity program was created “to promote equitable ownership and employment opportunities in the cannabis industry in order to decrease disparities in life outcomes for marginalized communities, and to address the disproportionate impacts of the War on Drugs in those communities.”
North Carolina has not yet passed legislation legalizing cannabis. As the saying goes, however, “it is not a question of if, but when”. Several cannabis bills have recently been introduced, including H.B. 401 (2019) and H.B. 1143 (2020) which would create a medical cannabis program. Although North Carolina lags behind the rest of the U.S. with respect to cannabis, having a clean slate allows any new legislation to include a robust social equity program.
Overview of Social Equity Programs
Initially, state legislation legalizing medical and adult-use cannabis laws did not include social equity provisions. In fact, California, whose voters approved medical marijuana in 1996 and adult-use cannabis in 2016, and Colorado, who approved medical marijuana in 2000 and adult-use cannabis in 2012, only recently adopted social equity programs. It was not until Illinois’s legislature legalized adult-use cannabis in 2019 that social equity provisions were included in legalization legislation.
States approach cannabis social equity programs in different ways. Some, like California and Oregon, leave enactment and enforcement of social equity requirements to local jurisdictions. States such as Illinois and Massachusetts have passed legislation creating social equity programs at the state level. Similarly, cities such as Portland, Oregon have established robust social equity programs at the local level.
While social equity programs foster fairness in the cannabis industry, there is also evidence that these programs have a positive effect on the total amount of annual state cannabis sales (and consequently the amount of tax revenue raised by state and local governments). Since 2016, states that have legalized cannabis and have passed social equity provisions “are projected to have total annual sales of $12.7 billion in 2022, compared with $4.1 billion combined for those without a social equity program.”
Problems and Solutions
Even though multiple cannabis bills have been introduced in the North Carolina legislature since 2009, no legislation has directly addressed social equity. This inaction is an opportunity for North Carolina legislators to look at what has worked in other states and to adopt a cutting-edge social equity program that meets the needs of the North Carolina populace. The following are suggested social equity provisions to include in proposed cannabis legislation.
- Remove Barriers to Entry
The best way to empower social equity applicants in the cannabis industry is to remove the structural barriers to entry. One of the most apparent barriers is high licensing fees. For example, while Oklahoma does not have a social equity program, the state has low licensing fees, few regulations and does not cap the number of licenses. Similarly, Oregon has significantly lower licensing fees than other states. In this area, North Carolina legislators are on the right track. Proposed H.B. 401 provides for a relatively low fee schedule which generally aligns with that of Oklahoma and Oregon.
Moreover, any North Carolina cannabis legislation should include a fee reduction, such as a 25-50% license fee discount, for social equity applicants. Michigan, for example, provides fee reductions for (i) residency in a disproportionately impacted community and (ii) marijuana-related convictions. The city of Portland gives a fee reduction up to 25% for qualifying businesses.
Even with low licensing fees, however, a complicated and burdensome regulatory system will drive up compliance costs, effectively keeping social equity applicants out of the process. In California and Massachusetts, high taxes and numerous regulations have been blamed on excluding otherwise compliant applicants. North Carolina legislators must ensure that the state agency administering the cannabis laws does not adopt sweeping or burdensome regulations. Additionally, the administering agency must establish a licensing process that prevents avoidable and needless delays that cause applicants to run up compliance and lobbying costs while awaiting licensing decisions.
Likewise, local jurisdictions have often intentionally or unintentionally hobbled social equity programs. California delegates administration of social equity programs to the local level, but the vast majority of California cities and municipalities have banned cannabis retail stores. In New Jersey, 50 local governments banned cannabis sales within their jurisdictions. In Washington, one out of every four cities have banned cannabis businesses. North Carolina legislators must ensure that local jurisdictions do not enact rules that effectively prevent cannabis companies from operating within their borders.
- Social Equity Grants and Loan Programs
Access to capital is perhaps the number one impediment for social equity applicants. To combat this problem, North Carolina legislators should create a program to provide grants to social equity applicants for employee training, technical and compliance assistance and accounting and legal costs associated with the applicants’ cannabis businesses. For example, Portland provides grants to small businesses, minority and women-owned businesses and individuals and communities adversely impacted by cannabis prohibition, which grants are funded by the city’s 3% local tax on retail cannabis sales.
Low- or no-interest loans are also a viable option to provide needed capital. Illinois created the “Restore, Reinvest and Renew” program, where the state provides no-interest loans to social equity applicants for costs associated with starting a business, such as accounting and attorney’s fees. Legislators in Massachusetts recently introduced a bill to create a “Cannabis Social Equity Loan Trust Fund” for the purpose of making no-interest loans to economic empowerment and social equity program participants.
Total U.S. cannabis sales are projected to reach $37 billion by 2024. However, over the past several decades, thousands of individuals have been convicted of nonviolent cannabis offenses and have suffered the attendant consequences. One way to bring these individuals back to the fold is to provide for “expungement” of prior cannabis convictions. The expungement process erases and destroys the individual’s record with respect to the applicable convictions, removing a major impediment to employment, housing and other services.
North Carolina legislators should include a provision in any cannabis legislation that explicitly expunges all prior convictions for unlawful possession of cannabis. Legislators can look to Illinois, where the law provides for both automatic expunction and a petition process for prior offenses, depending on the severity of the offense. Lawmakers in Massachusetts also recently introduced a bill that provides for expungement of a prior “arrest, citation, investigation, charge, adjudication of guilt, criminal proceedings, and any sentence related to a conviction for possession of cannabis”.
While it is imperative that cannabis legislation provide for expungement, it must also be mentioned that there are several nonprofit organizations that help those harmed by cannabis laws. “National Expungement Week” is an annual week-long legal clinic held in multiple cities throughout the U.S. where individuals are provided expungement relief and wrap-around services to communities affected by the War on Drugs. Additionally, the Last Prisoner Project is a nonprofit organization of cannabis industry leaders, executives and artists dedicated to bringing restorative justice to the cannabis industry.
- Allow Cities to Experiment With Social Equity Programs
While North Carolina legislators should not cede the enactment and administration of social equity programs to local jurisdictions, cities and counties should be given wide latitude to develop forward-thinking and social equity programs that meet the minimums mandated by the state. Some examples of ideas for social equity initiatives at the local level include:
- Real estate property tax incentives
- Technical assistance to entrepreneurs and employers
- Priority licensing for businesses promoting economic empowerment in communities disproportionately impacted by drug arrests
As discussed above, North Carolina has not yet legalized cannabis use. This clean slate, however, presents the state with the ability to get social equity right the first time. Lawmakers should build on what other states have done with social equity programs, taking what is good and eliminating what is not. While it will not be the first state to do so, North Carolina has the opportunity to be at the forefront of creating a significant and thriving social equity program.
 City of Los Angeles Dep’t of Cannabis Regulation, Social Equity Program, https://cannabis.lacity.org/licensing/social-equity-program (last visited Aug. 6, 2020).
 H.B. 401, Enact Medical Cannabis Act, Sess. 2019 (N.C. 2019).
 Jeff Smith, California approves statewide social equity program for cannabis industry, Marijuana Business Daily (Sept. 28, 2018), https://mjbizdaily.com/california-approves-statewide-social-equity-program-for-cannabis-industry/ (last visited Aug. 6, 2020); see also News Brief, Colorado lawmakers pass cannabis social equity measure, Marijuana Business Daily (June 16, 2020), https://mjbizdaily.com/colorado-lawmakers-pass-cannabis-social-equity-measure/ (last visited Aug. 6, 2020).
 Cannabis Regulation and Tax Act, 2019, Pub. Health 410 I.L.C.S 705.
 Jennifer Peltz, A look at efforts to make legal pot foster social justice, Fox5 News Baltimore (May 19, 2019), https://foxbaltimore.com/news/local/a-look-at-efforts-to-make-legal-pot-foster-social-justice-05-19-2019 (last visited Aug. 7, 2020).
 City of Portland, Oregon Community Office of Community & Civic Life, Cannabis Social Equity, https://www.portlandoregon.gov/civic/80046#:~:text=The%20Cannabis%20Social%20-Equity%20Grant,tax%20on%20retail%20cannabis%20sales.&text=This%20came%20in%20the%20form%20of%20Portland%20Ballot%20Measure%2026%2D180 (updated Dec. 19, 2019 and last visited Aug. 6, 2020).
 Eli McVey, Chart: Newer marijuana markets embrace social equity programs, Marijuana Business Daily (Aug. 6, 2019), https://mjbizdaily.com/chart-marijuana-social-equity-programs/ (last visited Aug. 6, 2020).
 See Oklahoma Medical Marijuana Authority, Business Application Information, https://omma.ok.gov/business-application-information3 (last visited Aug. 6, 2020) (application fee for growers, processors, dispensaries and transporters is $2,500); see also Eli McVey, Chart: Not all states’ cannabis social equity programs are equal, Marijuana Business Daily (Aug. 20, 2019), https://mjbizdaily.com/chart-not-all-states-cannabis-social-equity-programs-are-equal/ (last visited Aug. 6, 2020); Andy Seeger, Illinois & Oklahoma: A Tale of Two Regulatory Structures, Cannabis Business Times (July 2020), http://magazine.cannabisbusinesstimes.com/article/july-2020/sales-trends-illinois-oklahoma-tale-two-regulatory-structures.aspx(last visited Aug. 6, 2020).
 Oregon Liquor Control Commission Marijuana Program, Frequently Asked Questions, https://www.oregon.gov/olcc/marijuana/Documents/MJ_FAQS.pdf (last visited Aug. 6, 2020) (license fees include: (i) Producer – $1,000 to $5,750; (ii) Processor, Wholesaler, Retailer and Laboratory – $4,750; and (iii) Micro Wholesaler – $1,000).
 H.B. 401, Enact Medical Cannabis Act, Sess. 2019 (N.C. 2019) (Medical Cannabis Centers and Producer licenses are $5,000).
 Michigan Marijuana Regulatory Agency, Michigan’s Marijuana Regulatory Agency Announces Social Equity Program Expansion (May 19, 2020), https://www.michigan.gov/som/0,4669,7-192-47796-529549–,00.html (last visited Aug. 6, 2020).
 City of Portland, Oregon Community Office of Community & Civic Life, Social Equity Program, https://www.portlandoregon.gov/civic/article/698417 (last visited Aug. 11, 2020).
 Bart Schaneman, California’s marijuana social equity program, rife with corruption, lives or dies at local level, Marijuana Business Daily (July 23, 2020), https://mjbizdaily.com/local-level-key-to-california-cannabis-social-equity-program/ (last visited Aug. 6, 2020) (“Certain regulations come with a high price tag. Grant gave an example of how a mandated camera system could cost an applicant $8,000 to comply.”); Allie Howell, Commentary: Equity promises fall flat in Massachusetts Marijuana Industry, Reason Foundation (Aug. 15, 2018), https://reason.org/commentary/equity-promises-fall-flat-in-massachusetts-marijuana-industry/ (last visited Aug. 6, 2020).
 Patrick McGreevy, Two years in, California’s legal marijuana industry is stuck. Should voters step in?, Los Angeles Times (Dec. 24, 2019), https://www.latimes.com/california/story/2019-12-24/two-years-california-legal-marijuana-industry-is-stuck (last visited Aug. 6, 2020).
 Alan Greenblatt, Legal in the State or Not, Some Cities Ban Marijuana, Governing (March 2019), https://www.governing.com/topics/public-justice-safety/gov-legal-recreational-marijuana-cities-ban-sales.html (last visited Aug. 11, 2020).
 Shia Kapos, Illinois cities turn their backs on pot as legalization approaches, Politico (Sept. 23, 2019), https://www.politico.com/story/2019/09/23/illinois-marijuana-legalization-city-ban-1506494 (last visited Aug. 11, 2020).
 City of Portland, Oregon Community Office of Community & Civic Life, Cannabis Social Equity, https://www.portlandoregon.gov/civic/80046#:~:text=The%20Cannabis%20Social%20-Equity%20Grant,tax%20on%20retail%20cannabis%20sales.&text=This%20came%20in%20the%20form%20of%20Portland%20Ballot%20Measure%2026%2D180 (last visited Aug. 6, 2020).
 Il. Dep’t of Commerce & Economic Opportunity, Apply for a Loan or License, https://www2.illinois.gov/dceo/CannabisEquity/Pages/LoanInfo.aspx (last visited Aug. 6, 2020).
 S.B. 2650, 191st Gen. Ct. (Mass. 2019).
 Eli McVey, Exclusive: US retail marijuana sales on pace to rise 40% in 2020, near $37 billion by 2024, Marijuana Business Daily (June 30, 2020), https://mjbizdaily.com/exclusive-us-retail-marijuana-sales-on-pace-to-rise-40-in-2020-near-37-billion-by-2023/ (last visited Aug. 6, 2020).
 Il. Code Ann. § 2630/5.2 (2020).
 S.B. 1131 , 191st Gen. Ct. (Mass. 2019; see also Melissa Hanson, ‘We’re talking about restorative justice;’ Marijuana business applicants, advocates call out for more equity in Massachusetts cannabis industry, MassLive (July 16, 2020), https://www.masslive.com/marijuana/2020/07/were-talking-about-restorative-justice-marijuana-business-applicants-advocates-call-out-for-more-equity-in-massachusetts-cannabis-industry.html (last visited Aug. 6, 2020).
 Last Prisoner Project, Mission and Vision, https://www.lastprisonerproject.org/mission-and-vision (last visited Aug. 6, 2020).
Joshua B. Smith is an attorney in Charlotte, North Carolina. This article is for general information purposes and is not intended to be and should not be taken as legal advice.