Cannabis social equity makes progress in Washington state, but licensees will face notable obstacles

(This is the fifth in a series of stories from Marijuana Business Daily examining social equity regulations and business opportunities in key U.S. markets. Part 1 covered Illinois, Part 2 Michigan, Part 3 California, Part 4 Oregon, Part 6 Nevada, Part 7 Colorado and Part 8 Massachusetts.)

Efforts to broaden minority participation in Washington state’s cannabis industry are underway, but government officials face obstacles to create a viable social equity program in a hotly competitive market with plentiful supplies.

In March, Washington state Gov. Jay Inslee signed House Bill 2870 to create a new social equity program “that provides business opportunities to people from disproportionately harmed communities so they can … become a cannabis retailer.”

Washington state’s cannabis market, which began recreational sales in 2014, is mature by industry standards. And allowing social equity candidates to start retail outlets sets up any newbie for significant challenges.

For one, existing marijuana retailers are well established, having had several years to build up their customer base.

Jim Makoso, co-founder of vape and extraction company Lucid Lab Group and CEO of Flowe Technology, based in Seattle, noted it’s tough to become a profitable player in the Washington state market.

“Will there be a difficulty for these new licensees? Absolutely,” he said. “It’s a competitive space.”

Makoso said Washington state is one of the most competitive markets in the country for all license types. Once applicants get their licenses, they’re still going to have to battle uphill aggressively, he added.

Task force

Under the new social equity law, license applicants must have:

  • 51% ownership of the business by someone who has lived for at least five of the past 10 years in a disproportionately impacted area.
  • Or 51% ownership of the business by someone who has been convicted of a marijuana offense or who has a family member that has.

Under the law, a disproportionately impacted area means the locale has high rates of:

  • Poverty.
  • Participation in income-based federal or state programs.
  • Unemployment.
  • Law enforcement actions tied to marijuana-related offenses.

HB 2870 went into effect June 11.

But Christy Hoff, an employee with the state health department who is helping to oversee the social equity task force created by the law, said it will be months before social equity licenses are issued.

The task force members – expected to be a mix of a dozen or so people from state agencies, cannabis business owners, legislators and minority representatives – haven’t been selected.

Once formed, the panel will make recommendations to the state Liquor and Cannabis Board (LCB), which is in charge of implementing the program.

Hoff said the task force has the authority to develop recommendations, but legislative action might be needed to change the rules and regulations.

“Our focus has been on social equity and eliminating institutional racial injustice in our system,” she said.

The bill also requires the state to create a “marijuana social equity technical assistance competitive grant program.”

Seattle conversations

A cannabis equity forum held in Seattle in February enabled industry stakeholders, regulators and community members to discuss the support social equity licensees would need.

Oscar Velasco-Schmitz, co-owner of Dockside Cannabis, which has stores in Seattle and Shoreline, said the forum brought a wide representation of voices into one room.

“Ownership within the supply chain is one point of the conversation,” Velasco-Schmitz said.

He also noted that social equity applicants need access to real estate, capital, a license from the LCB and the operational capacity to execute on their business plan.

“If you do not have those four things in place, you will fail 100%,” Velasco-Schmitz said.

Mature-market difficulties

But is it too little and too late for well-established programs such as Washington state, Oregon and Colorado, which are highly competitive and didn’t factor in social equity from the outset?

According to Caitlein Ryan, interim director of The Cannabis Alliance in Seattle and an investor in a Tier 3 producer/processor in Malaga, that lack of foresight is one of the biggest challenges.

“It should have been done in the beginning, and now we’re trying to reinvent the wheel after the fact,” she said.

Because there was no eye toward social equity during the market’s formation, the industry is mainly composed of white owners, Ryan added.

As in Colorado, some industry players in Washington state are discussing adding new license types, such as delivery and social consumption, solely for social equity applicants to give them a level playing field.

But the barrier to entry needs to be low enough and the permits relatively easy to obtain for such applicants to succeed.

“The licensing process is a great way to ruin someone from becoming an entrepreneur for life,” Ryan said.

The commonly cited lack of access to capital for social equity applicants is difficult in Washington because regulators bar cannabis companies from receiving out-of-state funding, according to Ryan.

Allowing non-Washington residents to invest in the state’s marijuana businesses has been under discussion.

All in all, the industry participants and advocates agree HB 2870 is a start toward a more diverse cannabis market in Washington state.

“These programs are needed, and they’ve been long overdue,” Makoso said. “But the fact that this is happening is progress.”

Bart Schaneman can be reached at [email protected]

For a sampling of organizations and efforts that support, foster and enhance social equity in the cannabis industry as well as opportunities for minorities, overall diversity and racial justice, click here.

3 comments on “Cannabis social equity makes progress in Washington state, but licensees will face notable obstacles
  1. Charlie A. on

    Unfortunately, time has shown that the social equity programs, which many states and cities have half-heartedly try to implement, were only used to convince people to allow cannabis businesses into their communities.
    As soon as these cannabis companies gained entrance to operate in these communities, these cannabis companies forgot all about trying to genuinely help underprivileged, underrepresented people of color. The number of people who have actually been helped by any social equity program IS ABYSMAL.

    Reply
    • Pat on

      You got it right. Social equity is simply something that the power structure HAS to pretend that it cares about. Right? Had they cared, social equity would have been part of the equation when the whole thing got going. You mean to say that all of the sudden the establishment became aware of a social equity concern? It was always there. They just didn’t give a F. They like their money, no matter how it’s gotten. They threw all of the social equity folks under the bus. Without remorse. There shouldn’t be any confusion or delay around this issue at this juncture. But, everywhere you look, in this USofA, there’s “confusion”, around how to implement/administer social equity.

      If you were playing buy the rules in your state up until the moment that your govt. pulled the rug out from under you; and those thousands ( tens/hundreds ) of dollars invested, and they callously expect you just forget about it….I say, forget you….. and go rogue. Those states that pulled this on their citizens didn’t play by the rules. And when you don’t play by the rules in a very fundamental manner; esp when you are the govt. …. Anything goes. Go rogue. We’re gone back to the 60’s/70’s thanks to fed/state/local policies around this concern. The middle finger is up, higher than it ever was.

      Reply
  2. Jeffrey T Hudson on

    I like the idea of “adding new license types, such as delivery and social consumption” because it is an area ripe for growth with little to no competition.

    A much more drastic but a possibility is a business tax rebate for these new retail social equity businesses. This could help level the playing field immediately but something this drastic should only be available for the first few years of a new business when it is establishing itself.

    Reply
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