Cannabis companies share how they launched social equity funding, programs

social equity

(This story appears in the March issue of Marijuana Business Magazine.)

Marijuana companies face mounting pressure from advocates, consumers and regulators to address the lack of diversity within the cannabis industry.

In response, some companies have launched their own programs aimed at providing women and people of color with more opportunities to succeed in the space.

These efforts range from mentorship programs spanning many months to multimillion-dollar funds that support nonprofits and community organizations.

The team at Curio Wellness, for instance, established a $30 million fund in December to provide startup capital for minority business owners.

The Timonium, Maryland-based medical marijuana company intends to assist women, minorities and disabled veterans in opening franchises linked to Curio Wellness.

“Diversity is a challenge,” said Jerel Registre, managing director of the Curio WMBE Fund, adding that a lack of diversity prevents cannabis supporters “from coming together under one banner.”

In recent years, social equity measures have become a prerequisite in many states writing cannabis legislation for new markets. New York Gov. Andrew Cuomo and state legislators, for example, have failed to launch a recreational market partly because of a lack of agreement on such factors.

In Washington DC, members of the Congressional Black Caucus tacked on social equity measures to the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which passed the U.S. House of Representatives in December.

“Coming up with a solution that either serves as a blueprint or as one of many solutions to the diversity challenges in the industry enables (it) to move forward,” Registre said.

Social Equity Funds

Curio’s part of the solution is to invest in diverse entrepreneurs who would like to open their own dispensaries. The team looks to sponsor entrepreneurs in states with medical cannabis frameworks that include a limited number of available licenses.

“We would provide financing toward the initial capitalization, so that would include the store build-out, the licensing, the initial inventory and the working capital they need as they ramp the store up over the first few months to get revenue flowing,” Registre told Marijuana Business Magazine in December.

In exchange for the upfront capital, the fund initially takes a 40% equity stake in the new dispensary. As the business matures, the entrepreneur buys back that stake, Registre said. The entrepreneurs could become full owners of their franchises in as little as three years.

Hawthorne Gardening Co., a division of Scotts Miracle-Gro, disclosed in late 2020 that the company started a $2.5 million fund to benefit nonprofits with cannabis social justice missions.

The Hawthorne Social Justice Fund will focus on organizations with pro-bono programs that help individuals impacted by cannabis prohibition receive clemency or reentry assistance. The fund also will be used to help groups focused on economic inclusion in the cannabis industry, said Brian Herrington, director of government affairs at Hawthorne.

Mentorship Programs

Chicago-based Green Thumb Industries has taken a different approach, launching its License Education Assistance Program (LEAP) in 2019. The multistate operator last year held private consultations, shared educational presentations and provided other resources to help women and people of color apply for licenses to operate in Illinois’ highly regulated cannabis industry.

This year, Green Thumb transitioned LEAP into an incubator program to further mentor entrepreneurs as they prepare to enter the market.

“We want to reach out and pull people up, and that’s what the LEAP program and the incubator program does,” said Michael Fields, director of corporate social responsibility at Green Thumb. “Whatever expertise they need from within the walls of Green Thumb, they would have access to, which is invaluable.”

Fluresh, a vertically integrated cannabis company, also has launched a mentorship program to further its goal of making the industry more diverse and equitable for victims of the war on drugs. The Grand Rapids, Michigan-based business plans to work closely with about five community members this year through its Fluresh Five Accelerator Mentorship Program.

“We may not do this perfectly, because we don’t necessarily know how to run internships and programs like that,” said Chris Anderson, general counsel and chief regulatory officer at Fluresh. “That said, we believe that with our leaders and managers in our business, as well as our connections within the industry … there’s enough real-life knowledge that will really have a positive impact on the participants.”

Setting Up a Sound Structure

Curio, Hawthorne, Green Thumb and Fluresh all tailored social equity programs to fit their companies’ capabilities and priorities.

Fluresh, for its part, decided to work with a handful of individuals to provide participants with one-on-one mentorship, Anderson said. The company has more than 200 employees and specifically tasked its community impact strategist with handling the program’s logistics, such as coordinating dates and scheduling visits to partner organizations.

“We wanted to take a small, bite-sized group where we’re hopefully not overstretching our team too much or giving these people less than they expect,” he said.

There are also legal concerns to consider, Anderson added. “Part of the regulations (say) that any non-employee has to be accompanied at any point (when they’re in a cannabis facility).”

Green Thumb, on the other hand, worked with hundreds of people through its LEAP program to try to assist as many aspiring entrepreneurs as possible.

“Don’t underestimate the number of people who will avail themselves of such resources,” Linda Marsicano, vice president of communications for GTI, advised other companies looking to implement their own programs. “When the (LEAP) program first started, we had a conference room booked, and many more people came than we thought. It was standing room only. Finally, we were renting out space at a local college to make room for everyone who was interested.”

Curio and Hawthorne have taken different approaches to their fund concepts. Hawthorne relied on the knowledge of its parent company and established its fund via a one-time donation to The Scotts Miracle-Gro Foundation, a 501(c)(3) nonprofit.

“By putting it into the 501(c)(3) mechanism, we can only give to other 501(c)(3)” organizations, Herrington said. “This really targets where the dollars are going to ensure that the community benefits.”

The Curio fund, for comparison, was established under a traditional private equity structure. It’s being seeded via investments from the company’s leadership and third-party investors. Registre, who has a finance background that includes investment banking at JPMorgan and private equity firm Sterling Partners, was hired to organize the fund.

Doing What’s Right, For the Right Reason

Some social equity initiatives from cannabis companies have been criticized for being self-serving or superficial. There’s an incentive, advocates say, for firms to focus on diversity in order to reap benefits such as obtaining licenses from local governments that favor social equity efforts.

“There are a lot of companies starting their own social equity programs, but of course, they have prioritized themselves in the process,” said Amber Senter, CEO of Breeze Distro. The Oakland, California-based nonprofit she co-founded, Supernova Women, helped establish the social equity programs in Oakland and San Francisco and contributed to legislation in California that funds such programs throughout the state.

Firms can avoid missing the mark by partnering with nonprofits and organizations that are repairing damage caused by the war on drugs, increasing diversity in the cannabis industry and spearheading other social equity initiatives, Senter said.

“It’s really important for these companies that are well funded to make sure that they are working with groups like Supernova so that they have a pulse on the community—what’s actually happening on the ground,” she said. “Let these organizations that have been the doing work take the lead.”

Partnerships with community organizations can take the shape of establishing a donation framework, such as setting aside a portion of sales or giving a one-time sum. However, it’s important for businesses to “not just throw money at the issues,” Senter said. They can also leverage their resources such as partnering on workforce-development programs and training opportunities 

Getting on Board

Before starting its social justice fund, Hawthorne reached out to community organizations to help understand where the firm should focus its efforts. The Port Washington, New York-based company also held meetings with business leaders to understand their level of interest and areas they wanted to address, Herrington said.

“The success of any type of community-outreach program (relies on) making sure that you have the buy-in internally from the people within your company,” Herrington said.

“It’s also talking to everybody within the company, even informally, just to understand their thoughts,” he added. “‘Getting that feedback helped inform the program that we wanted to put together.”