What Investors Need To Know About Social Equity in the Cannabis Space

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With National Expungement Week shining a spotlight on social equity in the cannabis industry, investors must understand how companies in the sector are advancing social equity efforts as decriminalization — and thus expungement — becomes more common in states across the country. 

As an increasing number of U.S. states navigate the path toward medical and adult-use cannabis legalization, discussions surrounding the creation of social equity programs aimed at benefiting individuals and communities harmed by the decades-long cannabis prohibition are growing louder.

Since 2001, the U.S. averages more than 600,000 marijuana arrests each year, with Black people nearly four times more likely to be arrested for possession than white people — despite individuals from both groups using cannabis at a similar rate. Worse yet, despite the rapidly growing and lucrative nature of the cannabis industry, participation remains strikingly skewed toward white employees and business owners. According to a 2019 Marijuana Business Daily report, less than one in five (19.8%) of legal cannabis businesses nationwide are minority-owned.

However, in spite of these troubling statistics, barriers to an equitable cannabis industry continue to exist.

The Push to Ensure Diversity, Equity and Inclusion in Cannabis

States across the nation, from California to Colorado to Michigan to New York, are working to create and enforce social equity programs that address the long-standing impact marijuana enforcement policies have had on communities of color. 

To benefit social equity applicants and impacted communities, state and city lawmakers are providing priority consideration in the licensing process, reduced application and licensing fees, technical assistance, low-interest loans to undercapitalized license holders, and using cannabis tax revenue to fund community development programs.

How Cannabis Companies are Prioritizing Social Equity

Unfortunately, entirely too many cannabis companies talk a big game but fail to walk the walk by getting involved and turning talk into action. When the city of Aurora in Colorado pushed equity through delivery, many companies talked a big game about supporting that effort but most of them failed to engage with a minority delivery company out the gate. 

Whether fostering beneficial partnerships with or donating to nonprofit organizations and social justice groups, cannabis companies can lead the way by hiring minority employees and helping advocate for regulations or the passage of legislation that creates a more inclusive and equitable industry. Such partnerships can also provide technical business support and mentorship training benefitting those negatively impacted by cannabis prohibition. 

By creating job pipelines and pairing aspiring employees or business owners with experienced mentors, companies can help make the industry more accessible to employees of color. As an example, Terrapin, a multistate consumer-focused cultivator, processor and provider of high-quality medical and recreational cannabis products, collaborated with The Color of Cannabis in June 2020 to organize a social equity-focused informational session, a resume workshop and a job fair for people of color seeking jobs at the company’s production facility in Grand Rapids, Michigan. These efforts empowered Terrapin to hire nine local employees (about 25% of total employees at the facility at the time) and ultimately make a positive impact within the Grand Rapids community. 

As state and city leaders nationwide continue embracing social equity licensing programs, it becomes increasingly important for investors to recognize a company’s emphasis on diversity, equity and inclusion before making a cannabis business investment. Just as important as who is on the team, a company’s financial health, its product/service offering and the competitive landscape, social equity efforts could be the difference between making money on your investment — or not.