Waiting Out The Stigma: Progress On Social Equity Programs For Cannabis Developers Is Painfully Slow

Executing social equity programs for cannabis companies in Illinois and in other states where recreational use is legal remains a tough slog as licensees continue to struggle with securing both capital and real estate for their dispensaries.

The Illinois Adult-Use Cannabis Social Equity Program is intended to benefit communities historically impacted by arrests and imprisonment through providing licenses and loans to boost participation in the legal cannabis industry.

The state issued 185 social equity licenses for dispensaries in 2022, but participants in the program are up against the clock, with just 180 days to get stores up and running — a tall order given economic conditions, challenging times for the cannabis industry and a consistent lack of capital for dispensary owners.

“Nationally, we're gonna see, as the stigma continues to decrease more and more, states rolling out adult-use programs, and I think that those are going to be partnered with social equity programs,” Ambrose Jackson, chairman and CEO of The 1937 Group, said at Bisnow's National Cannabis Summit held Feb. 16 at the Loews Chicago Hotel.

But developing a successful program is an order of magnitude more difficult.

“There are different states that are trying different things and learning from other states," Jackson said. "We still, I don't think, have an example of a real working social equity program that leads to sustainable operating businesses.”

Illinois' 180-day timeline can be extended if a location can be secured, WTTW reported.

But that isn't necessarily easy, either, as some communities object to having a dispensary in their neighborhood.

Grow America Builders, for example, had a dispensary project approved for a location on Michigan Avenue near a Catholic school. Days before breaking ground, Grow America Builders received a letter from the Archdiocese of Chicago, ultimately leading to the project being halted. The dispensary has since moved to the suburbs. 

“We got all the preapprovals,” said David Fettner, co-founder and managing partner at Grow America Builders. “The alderwoman was on board. We were about 1,500 feet from a Catholic school, got approval from the board. They had no problem with it.

“We met all the standards. We were outside of the buffer zone. But you can't fight City Hall, and you can't fight the Chicago Archdiocese either, so that died.”

The problem comes down to capital: Cannabis companies usually aren’t eligible for financing from traditional banking institutions since cannabis is still federally illegal. 

“There's social equity programs and licenses whose issuance programs have very good intentions, but if you don't solve the capital program, it's hard to see these programs really get off the ground and thrive,” said Peter Sack, managing director and REIT co-president at Chicago Atlantic. 

Social equity programs need to not just focus on licensing people of color who have been disproportionately affected by the war on drugs. Access to capital also needs to be a part of the equation, Highlife Group CEO Ashley Peterson said.

“As programs and states move forward on how to legalize and address the issue of social equity, I think we will see more and more states matching a path to licensing and a path to capital," Peterson said.

"Because my fear right now, especially in the Illinois industry, is that we're going to have a lot of people that are potentially going to have their licenses in jeopardy because they were unable to get open at this point in time.”

Different states are watching each other as they pilot social equity initiatives to see which models prove successful.

“One of the test cases that I'm most excited to see roll out is New York state's social equity fund program, where they've granted 150 licenses to dispensary licensees," Sack said. "The first issuances go to social equity applicants, and they've established a $200M fund in a private and public partnership to actually fund the build-out of these dispensaries."

Florida’s first cannabis licenses required nurseries to have been in business for 30 years to benefit families that had generationally worked in the state's agriculture business.

That had the consequence of preventing Black farmers from getting into the cannabis industry given the historic lack of capital they have faced across the economy, said Nikki Fried, former Florida commissioner of agriculture.

“How are we twisting some of our business proposals to say, ‘OK, how do we make sure that the next set of licenses are focused on some of these underserved communities and to make sure that they truly are reflective of the people of our state?’” Fried said.

“But don't count on Florida government coming to rescue. It's going to come from the capital side. It’s going to come from the private side. It's not going to come from the government side.”

States like California and Oregon are considering interstate models for their social equity programs, which Peterson said is worth watching.

“I would say one thing for certain is that in every state where we have these large populations — New York, Illinois, Massachusetts — the requirements for social equity are not going anywhere,” said Chima Enyia, executive vice president of social equity and educational development at Cresco Labs.

“That's a good thing because I think it's good business practice for people to be socially conscious around the impact that their business has, the privilege that they have, because these licenses are not a right.”