By Aaron Kelley, Attorney at Harris Sliwoski
The need for social equity in cannabis programs
As adult-use cannabis legalization sweeps across the country and America confronts the toll of previous, draconian cannabis policies, one of the best attempts to right abject wrongs is social equity programs within state cannabis industries. Unfortunately though, social equity programs are easily exploited and “loopholed.” Licenses have even been discreetly purchased by multi-state operators (MSOs) in some cases, or other entities that should not qualify as social equity applicants. Regulators are getting wise. One such example is Missouri, where concerns have been raised about the authenticity of social equity applications, leading to the revocation of several licenses. This highlights the need for robust oversight and accountability to ensure that social equity programs fulfill their intended purpose of fostering diversity and economic empowerment within the cannabis industry.
Missouri’s social equity initiatives: a closer look
One example of a state regulatory agency having to revoke a considerable number of social equity licenses is Missouri, one of the newest states to legalize cannabis. Based on sales figures, the Missouri cannabis industry has already become a raging success, selling over $1.4 billion in the first year. Moreover, the Missouri Department of Health and Senior Services created an innovative micro license program to serve as a smaller scale, but expedited, process for social equity business ownership. Nearly 150 guaranteed micro-business licenses are guaranteed over the next three years.
Concerns have arisen among certain Missouri legislators though, most notably State Senator Karla May. In October of 2023, May sent a letter to the Director of the Missouri Division of Cannabis Regulation formally requesting that the authenticity of the social equity program be investigated by regulators. May’s concerns were well founded, as the 2023 Activity Report from the Chief Equity Officer confirmed that an astonishing number of social equity applications were connected to multi-state operators or other out-of-state business entities or LLCs.
Addressing exploitation: lessons from Missouri
The widespread ramifications of Missouri’s damning report are coming to fruition, as the Missouri Division of Cannabis Regulation recently announced that 9 of the initial 48 social equity applications would be unconditionally revoked. Not too surprisingly, the series of licenses that were ultimately revoked were due to the exact, defined list of issues documented by the 2023 Chief Equity Officer report. In December, the Missouri Division of Cannabis Regulation also issued eleven Notices of Pending Revocations (NOPR) to social equity licensees.
In total, eight of the revoked licenses were originally in possession of out-of-state entities. As the social equity program heavily focused on Missouri-based residents and aspiring business owners, all the out-of-state entities were excluded and licenses revoked. The startling number of applications that these groups were connected to was troubling. Notably, 118 of the 1,625 total applicants were entities from California, while another 110 social equity applications were filed from operators hundreds of miles north, in Michigan– a state with an a robust program.
Most egregious of all, an Arizona-based entity called Cannabis Business Advisors filed 400 social equity applications in Missouri. All six licenses that the group received have been revoked. Apparently, the application listed majority business owners that had little knowledge of who was operating these licenses, and who couldn’t recall the true applicants’ names who applied on their purported behalves. The Director of Division of Cannabis Regulation, Amy Moore, explained in a March 27, 2024 press release:
“While owning and operating a license may include contracting for management services or consulting services, the lack of knowledge, control, agency or decision-making demonstrated by the individuals whose information was used to meet eligibility does not meet even the most generous interpretation of owning and operating a business. These circumstances do not meet the intent or meaning of the requirement in Article XIV that microbusinesses are operated by eligible individuals.”
Advancing social equity in the cannabis industry
The implementation of social equity programs in state cannabis industries represents a crucial step towards rectifying the injustices of the past. However, as demonstrated by the challenges faced in Missouri and other states, these programs are often subject to exploitation and loopholes. The case of Missouri highlights the need for stringent oversight and accountability to ensure that social equity programs truly benefit those they are intended to help. While the road ahead may be fraught with challenges, addressing these issues is essential to ensuring that the cannabis industry becomes a force for positive change, fostering diversity and economic empowerment for all.
Reprinted with the permission of Harris Sliwoski
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