The Social Equity in Cannabis Task Force.
The Legislature established the Social Equity in Cannabis Task Force (SECTF) in 2020 (modified in 2021) to make recommendations to the Liquor and Cannabis Board (LCB) including on establishing a social equity program for the issuance and re-issuance of existing retail, processor, and producer cannabis licenses, and to advise the Governor and the Legislature on policies to facilitate development of a cannabis social equity program. The SECTF includes legislators, agency representatives, community members, and cannabis industry licensee representatives. The SECTF issued recommendations to the LCB and the Legislature in January 2022 and the work of the SECTF continues with a December 2022 due date for a report to the Governor, the LCB, and the Legislature.
Cannabis Licensing.
The LCB licenses and regulates cannabis producers, processors, and retailers. The annual license fee for each of those license types is $1,381 per year. A cannabis research license, as well as a transportation license, is also available.
In consultation with the Office of Financial Management, the LCB determines the maximum number of cannabis retail outlets that may be licensed in each county, taking into consideration: (1) population distribution; (2) security and safety issues; (3) the provision of adequate access to cannabis products to discourage purchases form the illegal market; and (4) the number of retail outlets holding a medical endorsement necessary to meet medical needs of qualifying patients. Originally, the LCB set a statewide limit of 334 retail licenses, which in 2015, following legislative action, was increased to 556 retail licenses. Retail licenses may not be moved out of the county in which they were allocated by the LCB.
There are currently over 1,000 businesses licensed as cannabis producers, processors, or as both producers and processors. Currently, except through the social equity program, the LCB is not accepting new applications for cannabis producer, processor, or retailer licenses. As a part of the social equity program, beginning December 1, 2020, until July 1, 2029, cannabis retailer licenses that have been subject to forfeiture, revocation, or cancellation by the LCB, or cannabis retailer licenses that were not previously issued by the LCB but could have been issued without exceeding the limit on the statewide number of cannabis retailer licenses established before January 1, 2020, may be issued to social equity applicants.
Social equity applicants must submit a social equity plan and meet social equity goals along with other cannabis retailer license requirements. The LCB may adopt rules to implement the program and may require that licenses awarded through the program be transferred or sold only to individuals who comply with the requirements for initial licensure as social equity applicants with a social equity plan.
"Social Equity Applicant" Definition.
A "social equity applicant" is currently defined as the following:
"Disproportionately Impacted Area" Definition.
A "disproportionately impacted area" is currently defined as a census tract or comparable geographic area that satisfies the following criteria, which may be further defined in rule by the LCB after consultation with the Commission on African American Affairs and other agencies, commissions, and community members as determined by the LCB:
"Social Equity Plan" Definition.
A "social equity plan" is currently defined as a plan that addresses at least some of the following elements, along with any additional plan components approved by the LCB following consultation with the SECTF:
Cannabis Excise Tax Distributions.
Cannabis excise taxes and license fees are deposited in the Dedicated Marijuana Account and appropriations are directed to specific recipients and accounts through a formula. Within the current appropriations are $1.65 million for fiscal year (FY) 2022 and $1.65 million for FY 2023 to the Department of Commerce to fund the Cannabis Social Equity Technical Assistance Grant Program, and also $163,000 for FY 2022 and $159,000 for FY 2023 to the Department of Commerce to establish a roster of mentors as part of the cannabis social equity program.
Roster of Mentors.
The Department of Commerce may contract to establish a roster of mentors who are available to support and advise social equity applicants and licensees who meet social equity applicant criteria. Contractors must: (1) have knowledge and experience demonstrating their ability to effectively advise eligible applicants and licensees in navigating the state's licensing and regulatory framework or on producing and processing cannabis; (2) be a business that is at least 51 percent minority or woman-owned; and (3) meet reporting and invoicing requirements of the Department of Commerce.
Cannabis Licenses for Qualifying Social Equity Applicants.
Beginning in calendar year 2022 and in each calendar year through 2029, the Liquor and Cannabis Board (LCB) must make available 38 new cannabis retailer licenses and 25 new cannabis producer/processor licenses each year to applicants who qualify as social equity applicants. A restriction on not exceeding the statewide number of retail licenses established before January 1, 2020, is eliminated from the LCB's current authority to issue or reissue retailer licenses to social equity applicants.
Restrictions on Issuing Cannabis Licenses.
The LCB is prohibited from issuing new cannabis producer, processor, and retailer licenses through December 31, 2029, except for through the social equity program to social equity applicants. It is specified this restriction also applies to any new commercial cannabis license type that the Legislature may create in the future, through December 2029. Beginning January 2030, at least 50 percent of the total number of new licenses issued for cannabis producer, processor, retailer licenses, and any new commercial cannabis license types, must be issued to applicants who qualify as social equity applicants.
License Fees and Licensed Premises Location.
The annual fee is waived for issuance, reissuance, or renewal of cannabis licenses issued through the social equity program. All licenses issued through the social equity program may be for premises in any county, city, or town that permits the cannabis business activity at the proposed location, regardless of the limit on the number of retail licenses per county otherwise established by the LCB.
"Social Equity Applicant" Definition.
The definition of “social equity applicant” is amended as follows:
The Office of Equity is added and the Commission on African American Affairs is removed from the agencies and community members that LCB must consult when defining further criteria in rule on qualifying as a social equity applicant.
Social Equity Plans.
The requirement that an applicant must submit a social equity plan is replaced with a requirement that an applicant must submit documentation to verify qualification status. References to social equity plans and certain references to social equity goals are eliminated.
Prioritizing Applications.
In determining the issuance of a license among applicants, the LCB, in consultation with the Office of Equity and community organizations, must select a third-party contractor to prioritize applicants and the LCB must review applications based on the priority set by the third-party contractor. The third-party contractor must prioritize applicants based on a scoring rubric developed by the LCB with input from the Social Equity in Cannabis Task Force and approved by the Office of Equity.
Rules on License Transfer.
Rules adopted by the LCB must require that licenses awarded through the social equity program be transferred or sold only to individuals who comply with the requirements for initial licensure as a social equity applicant for a period of at least 5 years from the date of transfer or sale.
Agency Consultation.
The Office of Equity is added and the Commission on African American Affairs is removed from the agencies/commissions consulted on further defining the definition of "disproportionately impacted area." Also, to be a contractor on the roster of mentors available to support and advise social equity applicants/licensees, an additional requirement is added that a contractor must be approved through the Office of Equity.
Cannabis Excise Tax Distributions.
Appropriations are directed from the Dedicated Marijuana Account, on an annual basis, to the Department of Commerce, for grants, low-interest loans, and technical assistance under the cannabis social equity program. The existing Cannabis Social Equity Technical Assistance Grant Program administered by the Department of Commerce is changed to the Cannabis Social Equity Grant, Low-Interest Loan, and Technical Assistance Program. The amount of $22.5 million is provided to the Department of Commerce, annually, to fund cannabis social equity grants and low-interest loans for licensees under the social equity program. The amount of $1.1 million is provided to the Department of Commerce, annually, to make available technical assistance to cannabis license applicants and licensees within the cannabis social equity program, including establishing a roster of mentors to provide technical assistance.
Grants and Low-Interest Loans.
The Department of Commerce may award grants to cannabis producers, processors, and retailers licensed under the cannabis social equity program. Eligible activities for grants include, but are not limited to the following: (1) fees associated with a loan; (2) costs associated with complying with a state or local licensing requirement; and (3) capital equipment costs. Grant awards may be up to $100,000 per eligible applicant. Eligible applicants may apply for one grant annually, not to exceed a total of three grant awards.
The Department of Commerce may work with participating lenders to make low-interest loans available for licensees under the social equity program. The Department of Commerce may reserve a portion of funds allocated or received to support loan loss reserves, collateral supports, or other efforts to reduce underwriting risk for participating lenders. Eligible business-related expenses for loan applicants include the following: (1) capital and equipment costs; (2) commercial property including, but not limited to, purchases and improvements; and (3) operating lines of credit and other costs associated with industry-accepted lending practices.
The substitute bill makes the following changes compared to the original bill:
(In support) The bill incorporates many of the recommendations of the Social Equity in Cannabis Task Force (SECTF) and it is time for this bold step. The bill starts the process of correcting past wrongs. It will support entrepreneurship in communities that have been left out, or pushed out, of the industry, and will create jobs and wealth. With billions of dollars in cannabis sold since sales began after Initiative 502 (I-502) passed, data shows that communities of color have not been included in the economic opportunities to build wealth created by legal cannabis. African Americans currently represent only 2 or 3 percent of the cannabis industry and this bill is a necessary step to open economic opportunities. The bill would lead to the establishment of 63 new businesses this year alone for individuals in communities historically left out. In addition to working to right past wrongs, the bill helps the cannabis industry overall. There is agreement on the intended outcome of using a scoring rubric to prioritize applicants and, of the two possible versions, the Liquor and Cannabis Board's (LCB) proposal, which is modeled on the rubric proposed by the SECTF, is preferred. The LCB is committed to adopting a cannabis social equity program that is impactful and can withstand legal challenges. The rubric developed by the LCB is robust and protective of the program's goals. The provisions in the original bill about prioritizing applicants and the use of the third-party contractor for this purpose should be amended so the LCB retains authority to prioritize applicants in consultation with the Office of Equity. There are some concerns about administrative challenges related to the grants and loans, but the Department of Commerce supports the bill and those concerns can be resolved. The bill is a step toward equity, restoration, and economic inclusion for communities devastated by the war on drugs and other practices. Black owners of former medical cannabis stores experienced brutal discrimination and are currently experiencing psychological and economic trauma. When I-502 passed, black and brown people were left out of the profitable industry. The communities who directly experienced harms of historical policies on cannabis are currently being told they can purchase cannabis but cannot participate as owners in the industry. This bill is one step in addressing historical wrongs. There has been consolidation in the cannabis industry and currently there are only about 200 people who own all the cannabis retail licenses. There is a lack of diversity in all aspects of the industry including with ownership of producers and process. Action needs to be taken to increase diversity in the industry before it is too expensive to enter the market. The industry needs a shot in the arm of diversity and inclusion.
(Opposed) There is not opposition to social equity in the cannabis industry, only to the specific approach in the bill to address equity. There are more appropriate ways to rectify past wrongs to communities than to issue cannabis licenses exclusively to those communities. Consider options like helping people attend college or start non-cannabis businesses. Similar to how communities do not want to be inundated with liquor stores, gun stores, and predatory lending businesses, communities do not want to be inundated with cannabis stores. The new licenses created by the bill will exacerbate problems local governments currently face when cannabis licenses are issued contrary to local zoning. The bill should prohibit the LCB from issuing a license if a local government submits a written objection based on zoning conflicts. Robbery and theft issues could increase because of the new cannabis licenses. With the changes in the bill to buffer zones, this raises concerns about these crimes occurring near children. Removing buffer zones will cause harm to disproportionately impacted communities, not heal harm. Existing licenses that are not being used should be available for social equity licensing, but new licenses should not be created. There is a lack of confidence in the LCB's ability to issue this many licenses in this time frame. The vast majority of cannabis producers and processors are currently struggling economically. Adding this many new licenses will destabilize the industry, particularly on the producer and processor side. Instead, consider creating delivery licenses or consumption lounge licenses for social equity applicants.
(Other) The bill is a step in the right direction but does not do enough. The meager number of new licenses created will not help enough people. Consider making more licenses available for social equity applicants relative to the original bill.
No new changes were recommended.
(In support) This is a long overdue bill. The task force recommendations were almost unanimously approved. This is an opportunity to get right what was not gotten right in Initiative 502. The legislation enables the cannabis industry to support individuals who have historically been left out of this industry. The drugs that incarcerated the poor and people of color are now generating millions of dollars to those now in the cannabis industry in the state. Communities of Black, Indigenous, and people of color have not participated in that wealth. The policies under this bill may allow restoration in communities that have been impacted by the war on drugs. There is a surplus of cannabis, but this bill would have no impact on that. It would add more access points for the surplus of cannabis being produced and would be better for the industry as a whole. This legislation is about more than cannabis. It is really about equity and justice for people who have been excluded so far.
(Opposed) The legislation presents a false promise of equity. The market remains oversaturated and communities are struggling to access capital dollars. There should be a market analysis to study the impact of increased licenses that would result from this bill. The Liquor and Cannabis Board does not have the resources to process the additional license applications required under the bill. This delay can cause significant financial damage to businesses. This bill is not ready.