Industry Insights & Trends

The Cannabis Industry and Enforcement in the U.S: Racial Disparity, Representation & Government Actions

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The policies and regulations around the legal marijuana industry have been reported to be biased against Black Americans. Such biases are largely systematic in nature and help White Americans profit better from the cannabis industry at the expense of their Black counterparts, or at least provide them with a head start. Below, we have detailed some of these systematic biases that exist in the legal marijuana industry along with some information on the racial distribution of cannabis business founders in the United States.

THE LEGAL CANNIBIS INDUSTRY

Racial Profile

  • As of present, minority ownership in the cannabis industry remains remarkably low. Black Americans currently make up about 4.3 percent of owners and stakeholders in the cannabis industry. People of color, including Black Americans, make up 19 percent of equity owners in the entire industry, while White Americans make up 81 percent.
  • According to an independent study by BuzzFeed, only 1 percent of storefront marijuana dispensaries in the country are owned by Black Americans.

Unfavorable Policies

  • The American justice system has been reported to show racial bias in the enforcement of anti-marijuana laws in the past decade. More specifically, Black Americans are often arrested and jailed more frequently than any other race in the United States for marijuana-related offenses, even though Black Americans share comparable usage rates to other ethnic groups in the country.
  • According to a recent report by the American Civil Liberties Union (ACLU), Black Americans are 3.64 times more likely to be arrested for the possession of marijuana compared to White Americans. This report is also similar to a 2013 report by the same organization, which found that Black Americans were 3.73 times more likely to be jailed for the possession of marijuana compared to the general population.
  • However, at the turn of the industry, when marijuana possession and use was decriminalized, individuals with past marijuana-related convictions, which were majorly Black Americans, were by law restricted from obtaining operating licenses and entering the industry. California, Colorado, and Nevada are some examples of states that once had this requirement.
  • Such policies create a situation where those who have a history of cannabis use, hold some expertise in growing the plant, and possess superior knowledge about marijuana are prohibited from profiting from it. This lopsided policy, which generally went into effect at the commencement of the industry, is believed by the Black American community to have been purposely enacted to keep them out of the legal marijuana industry.

Access to Capital and Regulatory Environment

  • Accessing capital is much more difficult for cannabis entrepreneurs compared to those of other industries due to the gray legislative environment around it. Cannabis is still a controlled drug at the federal level and hence illegal, but it has been legalized by several US states. The dual legal status of the drug puts it in an odd situation with the banking system.
  • Traditional banks in the United States only provide limited services to the cannabis industry, and most do not offer loans so as not to potentially violate federal anti-money laundering laws by engaging in transactions with the proceeds of illegal marijuana operations. Due to the fact that the federal government still considers cannabis illegal, small business loans and other special federal loan programs are not available for entrepreneurs in this industry.
  • The overall finance landscape limits the choice of cannabis entrepreneurs to few available options, such as personal finances and venture capitalists. Such limitations only further exacerbate the inequality of ownership in the cannabis industry since the median American White family is 13 times wealthier than the median Black family. Therefore, a White entrepreneur entering the cannabis industry has much better access to funding compared to a Black individual of equal standing.
  • Asides from the inability to access loans from banks and personal savings of friends and family, Black Americans are also disadvantaged when sourcing loans and partnerships from venture capital firms. According to a recent study by BLCK VC, only 1 percent of venture-funded startup founders are Black despite making up 13 percent of the general population.
  • Based on these facts, it is clear that the lack of federal support for the cannabis industry, which limits the involvement of the traditional banking sector, has contributed immensely to the underrepresentation of Black American founders in the cannabis industry.

Licensing Issues

  • In several US states, the cost of obtaining an operating license runs well into hundreds of thousands of dollars. According to an article by the Guardian, it costs about $710,000 to obtain a cannabis license. Therefore, breaking into the legal cannabis market is seen as cost-prohibitive for many African Americans.
  • According to a recent article by NBC News, minority groups are unable to acquire licenses to operate due to the initial capital required to enter into the heavily regulated market. Many African Americans also find it difficult to gather the needed capital as well as other accompanying expertise, such as legal, compliance, media, and marketing.
  • In addition, there have been several reports from small-scale cannabis farmers, who are mostly Black Americans, of lack of adequate protection from governmental bodies as they compete against large, well-capitalized corporate entities. Also, large corporations that are looking to expand into a new geography and are unable to get a license often inappropriately partner with local firms that already possess a license to operate in those areas. The lack of protection from the government for small businesses encourages aggressive market grabbing tactics in the developing industry and displaces smaller firms before they could achieve their full potential.

DEVELOPMENT PROGRAMS FOR MINORITY GROUPS

There have been some attempts in the last few years by governmental bodies to correct the perceived inequality surrounding the legalization of the cannabis industry. Several states have begun to set up programs to expunge records of low-level cannabis offenses and increase the direct participation of Black Americans and other people of color in the legal cannabis industry. Below are some examples of steps taken by governmental bodies to correct some of the identified issues in the legal cannabis market.

Oakland

  • In 2016, Oakland created a program that allocates half of the city’s cannabis license to low-income residents who have prior cannabis-related convictions.
  • The city was the first US city to create a cannabis equity program. Apart from helping qualified applicants obtain a cannabis license, the program provides a grant of $33,000 and rent-free kitchens, which helps businesses develop before needing to acquire a manufacturing space of their own. The cannabis economy in Oakland has helped in creating several new businesses, which add about $14 million to the city’s tax revenue.

Massachusetts

  • The government of Massachusetts created a state-wide social equity program (SEP) in 2018. The program aims to provide free technical assistance and training for individuals who are looking to venture into the cannabis business. According to its website, the SEP focuses on those that were most affected by the “War on Drugs.”
  • The program provides several benefits to participating individuals, such as free technical assistance and training, expedited application review, and waived application and license fees. In addition, the state set aside marijuana delivery licenses exclusively for social equity and economic-empowerment applicants, who are mostly Black Americans. As of August 2020, 28 SEP participants have acquired provisional licenses. The government of Massachusetts believes that offering marijuana delivery licenses exclusively to minority groups is a great way to reduce competition in the sector and get Black Americans to increase their participation in the marijuana market.

Washington D.C.

  • In 2017, the members of the D.C. Council created legislation that prioritizes local minority-owned companies when applying for licenses to operate in the cannabis industry. According to a council member, the legislation was enacted to ensure that those who were locked up for marijuana-related offenses are able to benefit from the legalization of the industry.

Michigan

  • The state government in Michigan created its social equity program in 2019. The program was created to promote minority participation in the cannabis industry as well as those who were disproportionately impacted by marijuana prohibition and enforcement laws.
  • Unlike other states, Michigan does not set a licensing quota for minority groups. Instead, the state worked to reduce fees chargeable to those in communities that were disproportionately affected by marijuana enforcement, convictions, or served as primary caregivers. Individuals seeking a cannabis license in any of those groups can effectively reduce the cost of obtaining a license by as much as 75 percent.

Colorado

  • In June 2020, the state of Colorado created a statewide social equity program to encourage the participation of minority groups in the cannabis industry. The social equity program expanded the state’s marijuana licensing process to include an accelerator licensing option for those who might not otherwise qualify for the standard cannabis operating license.
  • The accelerator licensing process works by pairing low-income entrepreneurs, especially those disproportionately impacted by the “War on Drugs,” with existing cannabis businesses for mentorship. At the end of the accelerator program, successful participants are awarded a “social equity license” as well as financial grants to kickstart their cannabis business.

Cannabis Record Expungement

  • As of November 2020, a total of 23 states, as well as Washington D.C., have set up relief programs to expunge, seal, or set-aside past records of marijuana convictions. The states of Arizona, California, Colorado, Connecticut, DC, Delaware, Hawaii, Idaho, Illinois, Massachusetts, Maryland, Michigan, Minnesota, Montana, North Dakota, New Hampshire, New Jersey, Nevada, Oregon, Rhode Island, Utah, Virginia, Vermont, and Washington have all created legislation in support of record expungement of low-level cannabis offenses.
  • All state legislations dictate that the court must, on receipt of a valid petition, seal previous records of marijuana arrests and convictions. The remaining 27 states are yet to pass laws relating to the expungement or sealing of past cannabis-related convictions. Individuals that have had their records expunged stand a higher chance of finding jobs and accessing housing loans.
GLENN TREVOR
Glenn is the Lead Operations Research Analyst at Simple Manifestation with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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