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Special Report


BROKEN PROMISES: HOW MARIJUANA LEGALIZATION FAILED COMMUNITIES HIT HARDEST BY
THE DRUG WAR

States vowed that cannabis licenses would bring equity to places that suffered
most in the drug war. Instead, most license holders are wealthy and white.



Illustration by Adrián Astorgano for POLITICO

By Mona Zhang, Shia Kapos and Natalie Fertig

12/23/2023 07:00 AM EST

 * 
 * 

 * * Link Copied
 * * 
   * 
   * 

In the long and contentious fight for marijuana legalization, lawmakers across
the country won over skeptical colleagues by promising social justice: The
economic benefits of cannabis sales would be targeted at communities marred by
decades of racist drug enforcement policies.

New York’s plan would be “transformative” for afflicted communities, said
Majority Leader Crystal D. Peoples-Stokes of the state assembly.



Los Angeles, California, would “level the playing field” for the downtrodden,
vowed Councilmember Curren Price.



Illinois would “right the wrongs of the past,” proclaimed state Rep. Jehan
Gordon-Booth.

The result, almost a decade since the start of the legalization movement, has
been a series of increasingly elaborate programs designed to ensure that the
spoils of legal marijuana sales — which are projected to hit $35 billion this
year, and double again by 2030 — would benefit the communities hardest hit by
the war on drugs.

But a POLITICO investigation found that those efforts have failed to deliver the
promised economic justice, while overwhelmingly white and wealthy investors seek
to benefit from the cannabis boom.

The reasons for those failures vary from state to state, but some of the key
factors behind the blunders of state equity programs were lack of funding,
shoddy implementation, legal fights and struggles to access banking services.
Many frustrated minority entrepreneurs say they’ve emptied their bank accounts
to take advantage of what were touted as extraordinary economic opportunities
only to find their plans derailed by the botched enactment of poorly designed
policies.



Housing Works Cannabis Co., the first legal cannabis dispensary to open in New
York State and a recipient of a social equity license, held a grand opening in
New York City, on Dec. 29, 2022. | Michael M. Santiago/Getty Images; Stefan
Jeremiah/AP

No comprehensive nationwide numbers are available about the racial, ethnic and
gender makeup of business owners operating in state-legal cannabis markets.
That’s in large part because every state market operates in isolation and data
collection is scattershot and inconsistent. Cannabis remains illegal at the
federal level.




A POLITICO analysis of statistics from various markets offer a grim assessment
of how these efforts have fared.

In Illinois, for example, there were no Black or Hispanic majority owners of
dispensaries in 2022, three years after cannabis was legalized, though that
number has since climbed to 37 out of 200 retail outlets in 2023, according to
the state’s Department of Financial and Professional Regulation. In Michigan,
nearly 90 percent of business license holders who responded to a state survey
identified themselves as white, while those who indicated that they were Black,
Latino or Asian each accounted for no more than 5 percent of the total. And in
Washington state, at least 82 percent of license holders were white, while all
other racial and ethnic groups accounted for 16 percent combined, according to a
2022 report.



Some states have made strides in diversifying the industry. The most striking
example might be Nevada, where nearly 40 percent of industry executives are
Black or Latino, according to a report issued in January.

Other states have made more piecemeal progress. In Colorado, for example, 18.8
percent of licensed cannabis businesses are minority owned, in a state where 86
percent of the population is white, according to the most recent data.

Even for those who’ve successfully overcome the regulatory hurdles, the
anticipated financial windfall from legal weed sales has proven illusory. The
vast majority of companies are hemorrhaging red ink, even as their owners bank
on future growth. The 10 largest publicly traded U.S. weed companies lost more
than $2 billion in 2022, according to a POLITICO analysis of financial filings.

“All the regulatory problems, lawsuits and self-inflicted wounds have led to an
environment where it’s very difficult to get money from investors because
everyone is realizing this is not the money-growing-on-trees industry that
people thought it would be,” explained Mark Peysakhovich, an Illinois lobbyist
whose clients include hemp and cannabis companies.

Efforts to redress the repercussions of the war on drugs have moved forward in
some places — but not because of marijuana legalization. State programs to scrap
old marijuana-related convictions have spared millions of people the stigma of
criminal records, which can hamper them in seeking housing, employment or other
basic needs. In Illinois alone, more than 500,000 convictions have been wiped
away.

But the major selling point of legalization — that it’s a way to make amends for
decades of enforcement policies that disproportionately targeted Black and brown
communities — has failed to materialize.


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The 10 largest publicly traded U.S. weed companies lost more than $2 billion in
2022, according to a POLITICO analysis of financial filings. | Michael M.
Santiago/Getty Images

“You can’t get racial justice until you get economic justice,” said Toi
Hutchinson, who served as Illinois’ first cannabis czar and is the former
executive director of legalization advocacy group Marijuana Policy Project, in
an interview. “There’s nowhere you [can] go and say that’s where it works.
That’s not happening. This is still very, very nascent.”




State equity programs have proven to be “an almost complete failure,” said UC
Davis economist Daniel Sumner, co-author of the book Can Legal Weed Win?

In Sumner’s view, cannabis regulators should be delivering a blunt message to
prospective social equity entrepreneurs: “Take all the money you can scrape
together, we’ll help you [and] you’re almost surely to lose everything.”




‘BLED THEM OUT FINANCIALLY’

Cannabis entrepreneur Virgil Grant carries bags of medical marijuana at a
dispensary he runs in Los Angeles, Calif., on Feb. 8, 2018. | Frederic J.
Brown/AFP via Getty Images

Six years ago, Los Angeles became a pioneer in creating a social equity program
for weed entrepreneurs.

“I’m ready to level the playing field so that everyone has a fair shot at
reaping the rewards of this booming industry,” Price said during a 2017 City
Council meeting where regulations were enacted for the fledgling recreational
weed market. “Because we shouldn’t just be rolling out the red carpet to those
individuals with deep pockets or powerful corporations.”

But the city’s initial effort was “a disaster,” said Virgil Grant, who operates
three dispensaries in the city after serving six years in federal prison for
marijuana.




The biggest obstacle encountered by entrepreneurs from communities marked by
high poverty rates and inordinate levels of drug arrests: There was initially no
money allocated by the city to help them navigate the time consuming and
expensive process to get their businesses open.

In the early days of L.A.’s social equity program, rules required people to
secure a lease even before they could apply for a license. Finding real estate
in one of the country’s most expensive cities was already an overwhelming
challenge for entrepreneurs who, by definition, lacked resources. But the slow
pace of the rollout meant many who managed to secure leases were paying rent for
years even though they were unable to open for business.

“You basically bled them out financially [and] they all fell out of the
industry,” Grant said.



A cannabis growing operation is seen in the Santa Ynez Valley northwest of Santa
Barbara, Calif., on Aug. 6, 2019. | David McNew/AFP via Getty Images

Because weed remains federally illegal, cannabis businesses are largely shut out
from the banking system and that makes it exceedingly difficult to raise funds
to secure property and bankroll their operations.

That fundamental challenge is compounded by competition from an entrenched
illicit market. Industry officials estimate that unlicensed shops now account
for more than 80 percent of cannabis sales in Los Angeles, roughly five years
after California launched its recreational market. Cash-strapped businesses
struggle to compete with underground retailers that don’t have to pay licensing
fees or adhere to costly regulations. Nationwide, the situation is nearly as
bleak: 75 percent of cannabis sales are still in the illicit market, according
to Whitney Economics, which tracks the industry.

The funding problems faced by entrepreneurs were also exacerbated by an
application process so confusing and lacking in accountability that it left lots
of would-be entrepreneurs wondering if the system was rigged. Many winning
applicants, Grant and others contend, ended up using residents of areas with
disproportionate cannabis-related arrests like Compton and South Central on
their applications, and actually lacked ties to those communities themselves.




Ultimately, a third-party audit of the licensing round detailed problems with
the first-come, first-served application process. While the report found that
regulators acted “in good faith,” it recommended various changes including
altering the criteria for program eligibility and using a lottery to select
winners. The audit also hinted at concerns about who actually owns companies
that secured equity licenses. It recommended bolstering regulations “to ensure
that those most impacted have unconditional and direct control of their
business.”

The end result of all these problems: 200 social equity entrepreneurs are open
for business out of a total of 457 social equity licensees, according to the
latest data from the Los Angeles Department of Cannabis Regulation.



Los Angeles' initial social equity program was “a disaster,” said Grant
(bottom), who operates three dispensaries in the city after serving six years in
federal prison for marijuana. | Frederic J. Brown/AFP via Getty Images

Even those that managed to get licensed and open up shop are struggling.

Rhavin Klein, an entrepreneur who secured a license in the first round, opened
her shop on Dec. 31, 2021 as part of a group of applicants under an umbrella
group known as 4thMVMT. That coalition helped 13 applicants raise capital and
provided technical assistance to navigate the licensing process, and came under
criticism for dominating the application process.

Even with that support, only two entrepreneurs of the 13 ended up actually
opening dispensaries. And an initial investor in 4thMVMT pulled out, leading the
organization to pull the assistance it had been offering to applicants.

“For something that was sold to us as an amazing opportunity … it has not been
easy,” Klein said, noting that 4thMVMT’s abrupt exit has been devastating for
her nascent business. “Everything bled into every area of my life. It’s impacted
our personal lives too. I’m literally going through a divorce.”




The problems with L.A.’s social equity program so frustrated would-be weed
entrepreneurs that city officials sometimes worried about violence.

“For a while, I was really concerned about our safety,” said Imani Brown,
director of L.A.’s social equity program, recalling meetings where hundreds of
furious people showed up. “Several times we had to have police escort us to our
cars.”




‘TWO DIFFERENT BATTLEFIELDS’

Illinois Gov. J. B. Pritzker, state Rep. Kelly Cassidy (left) and state Sen. Toi
Hutchinson (right) hold a bill that legalizes adult-use cannabis in the state on
June 25, 2019, in Chicago. | Amr Alfiky/AP

When Illinois enacted legislation in 2019 establishing an adult-use market, it
was hailed as a landmark effort to mitigate the harms of the war on drugs.

“This historic legislation will right the wrongs of the past and truly serve as
a model for other state legislatures as they look for an equity-centric approach
to legalize and regulate recreational cannabis,” said Gordon-Booth, the Illinois
state lawmaker and a key legalization supporter, in a statement after the bill
passed. “This is nothing short of a landmark moment for criminal justice reform
in the state of Illinois.”

But a deluge of lawsuits challenging the licensing process led to three years of
delays in implementing the program. Court battles ensued after a state-hired
contractor made mistakes on scoring applications and over a dispute about giving
preferences to veterans. The protracted delays allowed the state’s existing
medical market operators — dominated by white-owned businesses — to gain an
entrenched advantage in serving the fledgling recreational market.



Perhaps more significantly, it created even more financial headwinds for social
equity entrepreneurs looking to get a toehold in the state’s $1.5 billion
industry.

“For many applicants, the time that the court held up licensing was an absolute
killer,” said Ron Holmes, a Chicago-based cannabis lobbyist who has worked with
many social equity applicants. “Most folks who applied using the social equity
criteria didn’t have the proper resources to fight the wars on two different
battlefields.”




While some social equity players went into the process with outside investors,
others applied with only their own financial resources. When they actually got
licenses, and realized that more cash was needed, they discovered that investors
were hard to come by in the quasi-legal industry.

Illinois’ current law requires applicants to secure funding, find a location
that meets zoning rules and build it out. Then they have to purchase cameras and
other security equipment required for their locations. All that must be done
before the state will allow them to open their doors.

Even the most well-connected licensees have struggled to get their operations
running.



Top: Dameon Johnson talks about his problems starting up his cannabis business
during a cannabis equality town hall in Springfield, Ill., on April 20, 2023.
Bottom: Customer Elise Swopes makes a purchase at Sunnyside Cannabis Dispensary
in Chicago, Ill., on Jan. 1, 2020, the day that recreational marijuana became
legal in Illinois. | Thomas J. Turney/State Journal-Register via USA Today
Network; Kamil Krzaczynski/AFP via Getty Images

“I’ve made it through zoning. I’ve found the location. But money dries up,” said
Rickey Hendon, a former Illinois state senator who has a stake in a cannabis
company, in an interview. “And this is a tough financial market. It’s terrible.
So, you add that with the red tape, and there are no Black or brown
dispensaries.”

The process has proven so frustrating that some social equity applicants are
looking to turn around and sell their licenses, often to large cannabis
companies with white owners. Earlier this year, for example, Planet 13 Holdings
— which is best known for operating a massive weed emporium just off the Las
Vegas Strip — announced that it was purchasing the remaining 51 percent of a
social equity licensee Frank Cowan’s dispensary in Waukegan, Illinois, near the
Wisconsin border.




It’s a lucrative payday for owning a business that had never opened its doors:
Nearly $900,000 and just over 1 million shares of the publicly traded company.

Transactions like that one have unleashed a fierce debate about the goals of
cannabis social equity programs. Some argue that selling licenses to white-owned
companies defeats the purpose of creating licensing rules explicitly designed to
help people disproportionately targeted by criminal enforcement.

“I personally hate it. I absolutely hate it,” Holmes said. “There are enough
qualified minority businesses that these folks are standing in the way of.”

But others point out that social equity entrepreneurs are well within their
rights to turn around and sell their licenses to the highest bidder and reap a
big financial windfall. Hutchinson argues that it would be unfair to prohibit
social equity applicants from selling their licenses in an effort to diversify
the industry, particularly given the financial struggles that have hit so many
of them.

“There’s no money in cannabis anymore,” Hutchinson said. “No matter how bad it
is, we’re gonna make you stay in that position and continue to lose money …
because we want to make sure there’s somebody Black in that position? Is that
what we’re saying?”




‘DEEP, DEEP, DEEP IN THE RED’

The interior of Yamba Market, a cannabis dispensary in Cambridge, Mass., is seen
on Nov. 2, 2022. Yamba Market is owned by Sieh and Leah Samura, participants in
Massachusetts' social equity program. | Courtesy of Sieh Samura

Even social equity programs that have seemingly achieved some level of success
have left weed entrepreneurs questioning the benefits.

When Massachusetts legalized cannabis in 2016, the state became one of the first
to form an equity program. Sieh and Leah Samura saw this as an opportunity to
realize their cannabis dreams.




The Samuras seemingly had everything going for them: Equity priority status,
investors who believed in their plan — and they were trying to open up a shop in
upscale Cambridge.

The liberal bastion and college town intended to set the standard for how local
governments could support equity applicants in Massachusetts. At the behest of
local advocacy groups, Cambridge put a moratorium on all non-equity applicants
receiving licenses or opening their doors in the city for the first two years.



But that program created unexpected problems. Revolutionary Clinics, an existing
medical shop in Cambridge, sued the city over the moratorium keeping them out of
the recreational market — and a state judge ruled that the local ordinance
violated state law and blocked implementation.

Because of the state’s real estate requirements for cannabis license applicants,
the Samuras had to keep paying expensive leases while waiting for the lawsuit to
be resolved.

“We’re all forced to start deep, deep, deep in the red,” Sieh said. “A
tremendous opportunity was missed in Massachusetts by giving so much local
control and allowing these licenses to become in reality so expensive.”



Leah (left) and Sieh Samura are financially deeply in debt from a five year long
licensing process, and the profits from their cannabis business will not be
fully their own for a long time. | Natalie Fertig/POLITICO

The lawsuit was eventually dropped, and Yamba Market finally opened last April.
The shop is in a prime location: Just by a T station and walkable from the
Massachusetts Institute of Technology. When Leah’s shop opens on Harvard Square
— she received her final license in early December and plans to open her doors
soon — the Samuras will have a second shop in another prime location.




But the Samuras are financially deeply in debt from a five year long licensing
process, and they won’t be operating in the black for a long time. Ultimately,
Sieh says the equity program couldn’t make up for the financial barriers put up
by the state’s regulatory model — and wishes the state had chosen a different
framework.

“[Equity programs] all seem engineered to fail,” Sieh said. “They all seem like
they’re not really informed by the actual people who are doing the work.”




‘YOU NEED TO FIX THIS’

Chris Alexander, who is now the executive director of New York's Office of
Cannabis Management, speaks as advocates urge state legislators to support the
Marijuana Regulation and Taxation Act at the state Capitol in Albany, N.Y., on
May 8, 2018. | Hans Pennink/AP

Many cities and states are now attempting to retool their programs and rectify
the failures.

Los Angeles’ social equity program started in 2017, but didn’t get funding until
2019, explained Brown, the program’s director. Then, just as regulators were
working to put that funding to use, the coronavirus pandemic hit and gummed up
the works even more.

Brown’s biggest piece of advice to regulators elsewhere tasked with implementing
social equity programs is to make sure you have all your funding in place to
boost business owners before issuing licenses.




“People’s hopes were so high but then the reality set in,” Brown said. “Folks
had invested their life savings to hold onto property. ... That was a major
mistake that the city made.”

Los Angeles has now given out $12 million in grants for things like dispensary
buildouts, licensing fees and rental assistance. But even so, many business
operators say they are just barely scraping by.

Rhavin Klein has received $40,000 in grants from the city already, and is
waiting on a final disbursement of $10,000.

“It’s helpful, but it’s not enough,” she said, considering how costly it is to
rent commercial space in L.A. “It’s important to have the funding to really be
able to stand us up.”

In Illinois, state legislators have formed a working group to figure out how to
solve the problems that are preventing Blacks, Latinos, women and veterans from
opening cannabis dispensaries.

“The state needs to loosen these rules that are killing the governor’s vision of
allowing minorities into the industry,” said Hendon, the former state lawmaker
who’s trying to open a weed shop. “We’re saying to the governor, ‘You need to
fix this.’”



Los Angeles has now given out $12 million in grants for things like dispensary
buildouts, licensing fees and rental assistance. But even so, many business
operators say they are just barely scraping by. | Richard Vogel/AP

Democratic state Rep. Marcus Evans points out that there are over 13 state
agencies that have a say in cannabis. Lawmakers had proposed creating a state
cannabis agency to consolidate all those tasks under one roof, but all those
involved have been at odds about how to do that.

“It creates confusion” in the industry, Evans said. “You know how it is, when
you’re not rich, time is money, right?”

The other big priority is to put money into minority businesses, said Democratic
state Rep. La Shawn Ford, who chairs the working group trying to help minority
cannabis dispensary applicants succeed.

He is working on legislation that would release state grant money to help
license holders scale up and bring in investors — something that’s currently not
allowed.

“The fact that this is an industry that is driven by cash and that banks aren’t
allowed to lend, it shuts people out,” Ford said. “By keeping it a cash
industry, it puts Black people, brown people, minorities behind with no way to
catch up.”




Lawmakers are expected to consider the legislation in January when the General
Assembly’s veto session convenes.

But time may be running short for state and city officials to retool these
efforts and get results. The future of these programs are potentially imperiled
by both the courts and the federal government.

The courts are wrestling with the legal uncertainty caused by the disconnect
between state and federal laws when it comes to cannabis. Federal courts have
struck down cannabis laws that favor in-state residents in Maine, Missouri and
Michigan. Those rulings threaten social equity programs that often contain some
sort of residency-based requirement.

If courts coalesce around that view, it could make it even trickier for state
and local governments to craft licensing programs to help people harmed by
criminal enforcement.

The threat from the federal government is a reflection of the incredible success
of the legalization movement over the last decade. More than half of Americans
now live in states where adults can legally possess marijuana.



Illinois state Rep. La Shawn Ford is working on legislation that would release
state grant money to help license holders scale up and bring in investors —
something that’s currently not allowed.  | Justin L. Fowler/State
Journal-Register via AP



Most cannabis policy watchers believe that something akin to federal marijuana
legalization is inevitable in the coming years, given the dramatic shifts in
state laws and public opinion. | Olivier Douliery/AFP via Getty Images

Congress has been far behind the country when it comes to loosening cannabis
restrictions. Lawmakers have failed to pass any significant changes to federal
policies, despite broad bipartisan support for proposals such as making it
easier for weed companies to access banking.




But most cannabis policy watchers believe that something akin to federal
legalization is inevitable in the coming years, given the dramatic shifts in
state laws and public opinion, with 70 percent supporting legalization in the
most recent Gallup survey. That prospect could throw open state markets that
have operated in silos due to federal illegality to interstate commerce.

That would make it easier for big national companies — who may vie to become the
Anheuser-Busch of weed — to take advantage of economies of scale and become more
dominant players.

The latest cautionary tale is New York. The state is in the midst of
implementing the country’s most ambitious effort to use cannabis legalization as
a tool to redress the harms from the war on drugs.

New York reserved all initial dispensary licenses for people who have been
convicted of marijuana crimes or have an immediate family member with such a
conviction. It’s also promising to provide funding, real estate and training to
help these entrepreneurs launch successful businesses.

But a lawsuit filed in August by service-disabled veterans — arguing that
they’re being unfairly shut out of the program — ground the licensing process to
a halt. After four months of waiting in limbo, the veterans and the state struck
a settlement agreement that lifted the injunction in December.

Still, only 35 licensed shops have opened for business more than two years after
legalization was enacted.

Meanwhile, thousands of illegal dispensaries — an estimated 2,000 in New York
City alone — have proliferated across the state.

That’s left entrepreneurs like Carson Grant frustrated with the program’s
deficiencies. Grant, who was a young Black man in New York during the era of
aggressive policing under then-mayor Rudy Giuliani, was arrested numerous times
for marijuana possession. This made it difficult to find work.

Carson Grant stands for a portrait in New York City on June 29, 2023. | Courtesy
of Carson Grant

He says the employment barriers led him to turn to selling weed to support his
two young daughters as a single father, which eventually landed him with two
felonies, making it even more difficult to get a job.

In other words, he is exactly the type of entrepreneur that New York’s program
is trying to help.

During a contentious meeting in June in New York City, Grant spoke out about
being kept in the dark on the terms of a loan from the state for his business,
the costs of building out his dispensary and how regulators continually ignored
his efforts to find out the information he needed to launch his business.

“The way I look at this — this is financial slavery,” he said during an
impassioned speech before state officials. “I’ve been traumatized and victimized
again, just more lies and brushing things under the rug.”


 * Filed under:
 * Congress,
 * New York,
 * California,
 * Massachusetts,
 * Illinois,
 * War On Drugs,
 * Special Report,
 * Marijuana Legalization


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