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Cannabis Economics: The Impact of Overall Economic Issues on Black/Brown Minorities In The Industry

Updated: Oct 2, 2022

A 2017 study highlighted that only two out of every ten businesses in the cannabis industry belong to people of color. It’s quite shocking considering that minorities encounter several barriers to entry yet they have suffered the most, for decades, due to massive and biased incarceration for cannabis offenses. Racial segregation is the source of these economic issues, however, cannabis activists nationwide are aggressively promoting legal reforms that will create a level playing field for business owners.

The Barriers To Entry For Minority Entrepreneurs In The Cannabis Industry

Cannabis is one of the fastest-growing industries in the United States, and minority entrepreneurs are looking to get in on the action. But the road to starting a cannabis business is not an easy one. There are a number of barriers to entry that make it difficult for minority entrepreneurs to get their start in the industry.

1. Costly Entry Requirements That Lock Out Entrepreneurs from Low-Income Backgrounds

An entrepreneur intending to open a cannabis dispensary in California has to spend at least $10,000-$100,000 on an annual license. In addition, the federal government imposes strict regulations governing the size and location of premises. Often, the premises that are compliant with these entry requirements cost at least $5,000 monthly.

Despite the legalization of cannabis in over 15 states, minorities rarely own dispensaries operating in their neighborhoods due to the high cost of entry. Michigan requires applicants to also pay an assessment fee on top of license application and annual fees. Large and mid-sized companies from different areas that can afford the expensive entry requirements end up hoarding spots reserved for minority-owned cannabis dispensaries.

2. Poor Implementation of Business Grant Programs for Social Equity Applicants

A social equity program ensures that minorities in a particular city receive a decent amount of slots, which the country government designates for the registration of local cannabis businesses. Unfortunately, these programs only address half of the problem because an applicant who successfully secures a slot for registration requires at least $150,000 in capital.

Despite the huge amount of taxes collected by the federal government, there’s been little initiative on their part to create financial institutions that offer business grants to potential dispensary owners. Commercial banks also refrain from offering cannabis startup loans due to the product’s classification as a schedule 1 drug.

3. Presence of Ill-Intentioned Investors Who Are Preying On Social Equity Beneficiaries

Some large companies exploit loopholes in social equity programs in an effort to dominate local retail markets. Company representatives posing as angel investors usually approach minority-owned cannabis dispensaries and promise the owners huge profits if they sign long-term partnership agreements.

In most cases, these dispensary owners have limited knowledge on how to analyze contracts and they unknowingly give away major equity to the conniving investors plotting a hostile takeover. The new company then assumes ownership under the guise of a social beneficiary to spend less on annual license fees.

These are just some of the challenges. Unnecessary barriers to entry imposed by federal governments also create a glass ceiling because it's really difficult for a black or brown professional that's talented, and has gained years of work experience, to transition to entrepreneurship. These barriers also limit the innovation of new cannabis strains and products because most cultivators in minority communities need financial assistance in licensing their farms.

The Lack Of Diversity In The Cannabis Industry And Its Impact On Black/Brown Communities

Although cannabis is often seen as a progressive industry, the lack of diversity within it is having a negative impact on black and brown communities. Because these communities have been disproportionately targeted by the War on Drugs, they have been left out of the legal cannabis industry almost entirely.

This lack of diversity not only perpetuates the cycle of poverty and mass incarceration in these communities, but it also denies them the opportunity to participate in an industry that is projected to be worth billions of dollars in the coming years. The cannabis industry has the potential to create wealth and economic stability in these communities, but only if companies make a conscious effort to include them in the industry.

The Potential For Minority-Owned Businesses To Thrive In The Cannabis Industry

The potential for black/brown-owned businesses to thrive in the cannabis industry is great. With the increasing decriminalization of cannabis and the potential for federal legalization in the near future, there is a huge opportunity for black/brown entrepreneurs to get involved in this growing industry.

Look at this chart from MJ Biz Daily on minority ownership by state:

(Source MJ Biz Daily)

The good news is many states are creating programs targeting minority entrepreneurs in order to get them the capital, resources, and support they need to compete on a more even playing field. It’s just a matter of overcoming the obstacles many of these programs are facing to fulfill their mission.

With the right support, black/brown entrepreneurs can build successful businesses in the cannabis industry. With the right resources and knowledge, they can overcome any obstacles they face and thrive in this growing industry.

Steps That Need To Be Taken To Ensure Equality In The Cannabis Industry

There are a few steps that need to be taken in order to ensure equality in the cannabis industry. First, the industry must be made more accessible to people of all socioeconomic backgrounds. This can be done by offering financial assistance and opportunities to those who are traditionally underserved. Additionally, the industry needs to do a better job of promoting diversity and inclusion. This can be accomplished by ensuring that people of all races and genders have a seat at the table. Proper and effective implementation (as well as adequate funding) of the programs already on the books would be a great place to start.

There are a number of organizations working on this problem throughout the United States. Supporting these groups to help fulfill their missions is a great way for businesses and individuals to become involved on this issue.

Organizations Supporting Social Equity In Cannabis:

The Fluresh cannabis brand launched a Michigan-based accelerator in conjunction with community partners with the goal of increasing access and equity in the cannabis industry. While the program is open to any legal resident of Michigan 21 or older, it strongly emphasizes social equity applicants and women.

The Minority Cannabis Business Association (MCBA) is the largest national trade association dedicated to serving the needs of minority cannabis businesses and our communities. MCBA represents minority and allied cannabis businesses, aspiring entrepreneurs, and supporters who share a vision of an equitable, just, and responsible cannabis industry.

The NuLeaf Project directs cannabis tax and corporate revenue into Oregon-based businesses owned by people of color in order to address the capital, education, and connection hurdles that people of color face when entering the cannabis industry.

Treehouse is a venture capital fund comprised of a group of experienced female investors in the legal cannabis space. With more than 10 years of experience, the Chicago-based fund focuses on companies that are led by women and minorities and/or have a strong commitment to diversity and leadership for women and minorities in their C-suites and on their boards.

In Conclusion

It is evident that the current state of the cannabis industry has a significant impact on black/brown minorities. The lack of diversity in ownership, the high cost of entry, and the lack of inclusion in the industry have all contributed to the continued disparities between white-owned and black/brown-owned businesses. While there are no easy solutions to these problems, it is clear that everyone needs to do their part to ensure we have a fair and equitable industry moving forward.

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