‘Social-justice loans’ could make pot startups more diverse
Concerned that the state’s fledgling marijuana industry is dominated by white men, Massachusetts regulators are considering an array of new tactics to fulfill their social justice mandate, including offering interest-free loans to cannabis businesses owned by people who were hurt by the war on drugs.
As the first state in the country to include in its marijuana legalization law a requirement to include historically disenfranchised groups, Massachusetts was supposed to be a model for others to follow. But a year and a half after regulators started work, 112 businesses have received licenses, but only nine are woman-owned, and two are minority-owned.
“We need a course correction,” said cannabis control commissioner Shaleen Title, a longtime racial justice advocate, who initiated the discussion at a meeting of the commission on Thursday. “The numbers don’t look good, but it’s very early and we have a lot of control now over what unfolds.”
The other commissioners disagreed the agency had done anything wrong, though they acknowledged there’s more to be done in addressing a daunting issue that affects most industries, but which carries particular weight in marijuana because of racially uneven law enforcement.
Among the commissioners’ other ideas for boosting ownership by women and minorities: studying the barriers to entering the marijuana business; analyzing whether the commission has done enough to reach potential owners outside of Boston; collecting data on who owns ancillary businesses that serve the marijuana industry; allowing licensed cannabis companies to share facilities and equipment; and pre-approving underrepresented applicants so it’s easier for them to get local approval.
Commissioner Jennifer Flanagan said she was not surprised larger players dominate the industry, because smaller firms have trouble getting capital. Banks are unwilling to lend to marijuana companies in light of federal prohibition.
She suggested some entrepreneurs were waiting to apply for licenses until the state authorizes delivery businesses, which would take less start-up money — although there’s no guarantee that they would. “That’s not our fault,” she said. “That’s not something we failed at because they’re waiting.”
Flanagan said the state should focus on helping more women and minorities find work in the industry, rather than solely encouraging them to own businesses.
“We need to talk about employment more than we have been, and pathways to ownership,” she said.
Chairman Steven Hoffman agreed, saying he found it “a little bit scary” that 73 percent of the people who signed up for the state’s social equity program said they wanted to be owners, not employees.
“That’s a great aspiration, but a lot of people just aren’t experienced or ready for that,” Hoffman said. “People who don’t have experience are going to have a hard time getting capital. . . . That’s an unrealistic expectation in any industry.”
But some equity advocates in the room shook their heads.
“The whole purpose is to create wealth” in black and Hispanic communities, said Kamani Jefferson, president of the Massachusetts Recreational Consumer Council. “You don’t really create wealth being an employee. You do it through ownership.”
Other places with legalized pot have set up social equity programs, but with underwhelming results.
Last year, California allocated $10 million to help cities and towns boost participation of those affected by disproportionately high marijuana arrests. Los Angeles, Oakland, Sacramento, and San Francisco have set up social equity programs.
Oakland also adopted a policy that reserves more than half of the city’s licenses for equity applicants, and most of the rest for large companies that agree to host and mentor them. In November, Oakland started a program to loan $100,000 interest-free to businesses owned by people affected by the war on drugs.
But advocates there said it took too long to roll out and has not yet been effective in helping entrepreneurs.
“They talk about a lot of really cool stuff, except they haven’t done it yet,” said Christine De La Rosa, CEO of the People’s Dispensary, a group with cannabis stores in Oakland and Portland. She said many entrepreneurs from disadvantaged communities face the barrier of having to secure a location before receiving a license to be able to get the loan. “You have people who have been paying rent on empty spots for 14 months.”
The rest of the country is watching what happens with Massachusetts’ efforts. At a recent first-of-its-kind congressional hearing on cannabis industry banking, the state was mentioned in a discussion about “whether the current marijuana industry is compounding the racial wealth gap,” Title said. “Our data is being used to demonstrate that what’s being done now is not enough,” Title said. “But then the solution being proposed is our solution.”
The proposed ideas for encouraging more diversity in the industry will be analyzed by staff and potentially included in the commission’s review of its regulations this spring.
No-interest loans have long been a dream of advocates. Federal prohibition of marijuana has kept most banks from serving the industry. Without traditional loans, first-time entrepreneurs are reliant on investors and venture capitalists — a challenge for those without existing connections and a track record of successful businesses.
Carlton Mabrey, a black entrepreneur who attended the meeting Thursday, said the government-run loans would be a huge help for the business that he wants to start.
“If we’re legalizing what was once illegal, it’s very important that people like myself who were disproportionately impacted by the war on drugs — that those people are allowed to make up ground that they lost economically,” Mabrey said.
In 2016, the year legalization passed and took effect in December, black people in Massachusetts were arrested for marijuana possession offenses four times as often as whites, even though both groups consume the drug at roughly the same rate, according to the American Civil Liberties Union.
Last month, Boston City Councilor Kim Janey proposed giving local approval only to certain historically disenfranchised groups for a two-year period. And earlier this month, a state advisory panel recommended that the commission for five years grant home-delivery licenses only to certain disadvantaged groups and small businesses.
In a memo to her fellow commissioners, Title said they had repeatedly heard from regulators in Colorado: “Be careful because you can’t turn back once it’s too late.”
“In a way, we’re the Colorado of diversity and equity programs,” she said.