Finger-pointing in Arizona over marijuana social equity hurdles

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An image of a lightning bolt in a rural Arizona neighborhood

The failure of a key marijuana bill in Arizona’s Legislature has triggered an angry round of the blame game by social equity advocates, who charge that more established companies torpedoed the bill because they want to keep the state’s cannabis market to themselves.

According to social equity advocates, the defeat of House Bill 2050 last week means social equity licensees will, for now, be shut out of most of the major metro markets in Arizona, including Phoenix and Tucson.

As a result, those smaller operators – mainly those affected by the war on drugs – could be forced to sell their permits to the highest bidder, industry sources said.

That’s because much of the state has already banned stand-alone adult-use marijuana companies.

By contrast, longstanding medical marijuana companies in Arizona have far wider latitude when choosing locations, and were given the initial crack at selling both MMJ and recreational products when the adult-use market launched in January 2020.

Among other things, HB 2050 would have converted the 26 social equity permits awarded in April into “dual licenses” that would have opened up far more real estate zoned for medical cannabis businesses but which is off-limits to recreational-only companies.

“It means a long, hard road for the social equity license holders. That’s what it means,” Demitri Downing, a cannabis industry consultant and the founder of the Marijuana Industry Trade Association in Arizona (MITA-AZ), said of the defeat of HB 2050 on Thursday.

Meanwhile, the head of an industry trade group that had opposed the bill rejected suggestions that his members were trying to undermine social equity operators.

“We’ve been against this bill long before anything to do with social equity was introduced,” said Ryan Hermansky, president of the Arizona Dispensaries Association (ADA), which counts among its members multistate operators such as Florida-based Ayr Wellness and Trulieve Cannabis, as well as large local players such as Copperstate Farms.

The finger-pointing again underscores a widening fault line within the U.S. marijuana industry – one that pits grassroots/social justice-focused advocates against larger, more established companies battling to gain market share.

The bill and the upshot

Among other industry changes, HB 2050 would have granted social equity licensees:

  • Greater flexibility when it comes to zoning and permissible locations, including in Phoenix and Tucson.
  • A far larger customer base. Arizona is home to more than 216,000 registered MMJ patients, making it one of the nation’s largest medical cannabis markets.
  •  The same dual-license rights as the initially permitted MMJ companies, which numbered roughly 130 when the market launched 1½ years ago.

Currently, social equity operators may participate only on the adult-use side of the marijuana industry and are prohibited through zoning in most metro areas.

Which means social equity operators such as Alicia Deals – the owner of Life Changers Investment – would be limited to smaller municipalities, where they’d have a harder time succeeding on their own.

“If they were able to kill this bill, we wouldn’t be able to get proper zoning to open up anywhere. And we could potentially lose this license,” Deals said last week before HB 2050 was nixed.

Deals had been hoping to open up shop in Phoenix.

But without the dual-license rights provided by HB 2050, she’s not sure what will happen.

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Other social equity licensees echoed that sentiment.

“Right now, we can’t open in Phoenix and Tucson, the two largest metropolitan areas in the state, because the zoning is not correct. That puts us at a disadvantage, in more of an outlier area,” said Shonae Johnson, the owner of Dynamic Trio Holdings, one of the 26 social equity licensees.

“We should have the same rights as other owners. I don’t know why our licenses are different,” Johnson said.

Establishment opposition

The Arizona Dispensaries Association lobbied heavily against the bill.

The ADA’s Hermansky said HB 2050 represented a much more dramatic shift to the industry landscape than just expanding social equity license rights.

He explained that the measure had evolved in recent months and noted the social equity provisions were only added in June.

The ADA initially registered its opposition in March, after the bill was first amended from its original version as a telecommunications measure into a marijuana bill – and then only because of specific provisions unrelated to social equity, Hermansky said.

He also said the bill would change testing procedures and other protocols without requiring regulators to first gather industry input – another trigger for the ADA’s opposition.

“That alone is another reason why we’re completely against this bill,” Hermasky said.

He pointed out that it was the ADA that included a social equity program in the 2020 ballot measure that legalized adult-use marijuana, Proposition 207.

“The ADA is not anti-social equity,” Hermansky said.

Hermansky said HB 2050 began months ago as a move to add new MMJ dispensaries to rural counties that didn’t have any – which, he said, the ADA originally supported – to a license giveaway for one specific entrepreneur who has been trying to get into the market for years: former Arizona Cannabis Chamber of Commerce member Mason Cave.

Hermansky said Cave was able to convince lawmakers to amend language into the bill in March that would have effectively given him at least five new MMJ dispensary licenses in rural Arizona, without any new lottery, the system under which all licensed operators won their company permits.

“It took a bill that we were supportive of that was very simple and made it very convoluted,” Hermansky said. “We don’t agree with that principle of just handing licenses to one person.”

Cave could not be reached for comment.

Downing and others, however, criticized the ADA harshly for its stance and alleged that the real reason for the opposition was ADA board members such as Trulieve wanted to protect their existing market share.

Former ADA board member and Curaleaf Holdings executive Steve Cottrell – who left the ADA after a 4-3 board vote to oppose HB 2050 – alleged that the main concern of the majority was potential competition posed by both Cave and social equity licensees.

“The pushback is based solely on competition. They don’t want the competition,” Cottrell said.

“This is going to add some serious divide to the Arizona industry. … Going after the social equity licenses was just off-limits. I feel like it’s going to put a black eye on the ADA.”

California-based rapper Berner, the CEO of Cookies, criticized ADA board member Trulieve in a call with MJBizDaily for not supporting the bill.

He noted that Trulieve made a splash in its home state of Florida not long ago by partnering with a Black-owned brand, DeLisioso, which is run by an executive who spent decades in prison for a cannabis conviction.

“If you’re embracing a brand of someone who just sat down for 32 years for bud and then, on the other side, trying to block anyone who’s done time for bud or has any kind of past charges from doing anything in the space, that’s just backwards,” Berner said.

“That would make no sense. That would be really crazy.”

Trulieve President Steve White told MJBizDaily via email that his company “has a long history of supporting social equity in the cannabis industry, demonstrated by ongoing partnerships with folks directly impacted by the War on Drugs, support for expungement programs, and ongoing advocacy efforts across the industry and within the communities we serve.”

“Our commitment to driving meaningful change has never been stronger and we look forward to continuing to build on our track record for years to come.”

Hermansky reiterated last week that “this is not a social equity bill to” the ADA.

Downing, who called the ADA’s stance “greedy, hypocritical, elitist,” shared emails with MJBizDaily between ADA lobbyist Pele Fischer and the Arizona League of Cities and Towns.

According to Downing, the ADA tried to corral the League into helping kill HB 2050 with “scare tactics.”

“This is a proliferation of the (marijuana) industry,” Fischer wrote in an email that was cited by the League in outreach to its members.

Fischer asserted that HB 2050 could result in 39 new cannabis business licenses, not just 26 social equity retailers, and that “many of these licenses are not restricted by location.”

“These licenses will likely end up relocating their retail stores to more densely populated areas for profit. This could turn into an over saturation in certain areas with a dispensary on every corner,” Fischer wrote.

“I never thought that I would hear from the ADA that they’re afraid of having a dispensary on every corner,” Downing said.

Downing added there will be another attempt at a legislative fix in January, when the Legislature reconvenes.

“It might pass in March or April, and then they’ll have six months to find locations. That’s the best-case scenario,” Downing said. “We’re not just going to give up.”

John Schroyer can be reached at john.schroyer@mjbizdaily.com.