Are Cannabis Micro-Businesses & Cooperatives an Easier Entry for Social Equity Applicants and Why?

Being a cannabis micro-business or a locally based cannabis cooperative can make it easier for a business to meet the definition of a “social equity applicant” when applying for cannabis-related business licenses. Many states and localities offer set-asides for various types of cannabis-related business licenses for those businesses that meet the definition of a “social equity applicant.” Often, qualifying businesses also receive tax and licensing fee reductions. Here is a quick overview of social equity applicants and how being a micro-business or a local cooperative can be advantageous.

Background

According to media reports — see Reuters report titled “The challenges of getting social equity right in the state-legal cannabis industry” dated July 22, 2021– as of late 2021, the state-level legal cannabis industry has become massive, generating over $18 billion in annual revenue. According to estimates cited by Reuters, over 300,000 full-time jobs now exist in the cannabis industry. But so far, most of that economic benefit has gone to non-minority businesses and communities. As the Reuters article states, only a tiny fraction of cannabis businesses are owned by African Americans — estimated at 1.2% to 1.7% — even though African Americans represent about 13% of the US population.

Many states and localities have been trying to rectify these disparities by offering “priority licensing” for businesses owned by persons from communities that have been disproportionately impacted by anti-cannabis laws. These states and localities include:

• California
• Illinois
• New York
• Connecticut
• Detroit
• Los Angeles
• San Francisco

The rules vary from jurisdiction to jurisdiction, but typically, priority licensing is available based on ownership or the number of employees who come from “disproportionately impacted” areas or communities. Thus, for example, in Illinois, a social equity applicant must be at least 51% owned and controlled by one or more individuals from disproportionately impacted areas or have more than half of its employees be from disproportionately impacted areas (if the business has more than ten full-time employees). See the Medill Reports article titled “Becoming ‘social equity’ is nearly a must for opening an adult-use cannabis dispensary in Illinois”. In New York, social equity applicants are defined as individuals from “communities disproportionately impacted by the enforcement of cannabis prohibition,” as well as minority- and women-owned businesses, disabled veterans, and financially distressed farmers. Check out MJ Biz Daily’s article titled “New York’s marijuana social equity program eyed as possible game changer”.

How being a cannabis micro-businesses or cooperative helps meet the definition of a “social equity applicant.”

By definition, micro-businesses and cooperatives are small. They are usually owned by one or two persons with few employees, and they rely on locally sourced materials, resources, products, and distribution. Cooperatives also tend to be small and locally owned. Because of their size, it is much easier for a micro-business or cooperative to meet the ownership and control requirements of being defined as a “social equity applicant.” Likewise, micro-businesses and cooperatives are almost always “community-based” businesses. This makes it easier to satisfy the “disproportionately impacted community or area” requirement.

Further, being “local” tends to mean that employees, staff, and third-party business alliances are also “local.” This, again, makes it easier for a micro-business and a cooperative to satisfy the “disproportionately impacted community or area” requirement. Finally, some jurisdictions have an income or asset limitation for being considered a social equity applicant. For example, San Francisco bars a person from being an equity applicant if the single-person household has net assets exceeding $193,500. Annual income can also be a factor under San Francisco’s rules. Being small, micro-businesses or cooperatives can often overcome asset-based or income-based hurdles to meeting the definition of a social equity applicant.

Find Out More from a New York State Cannabis Attorney

For more information, contact New York State Cannabis Attorney Michelle Fields. With more than 17 years of litigation experience and a focus on New York Cannabis Law, ours is a special commitment to an Equitable, Inclusive and Sustainable Cannabis Industry. You can read more about these issues here and contact me at 718-400-6143.