Who Will Set the Golden Market Standard for Social Equity?

Stephen Andrews
16 Nov 2021

As New York and Connecticut are preparing to open their adult-use marijuana markets, regulators in both states are coming forward with some of the most innovative social equity programs. The two neighboring states took part in a regional effort to coordinate a general adult-use framework. It appears, at least on paper, both have crafted robust programs that appeal to minorities, women, war veterans, struggling farmers, and everyone affected by the war on drugs.

Valued at $750 million, Connecticut's recreational marijuana market will launch smaller than New York's; however, as industry experts nod, Connecticut just might have a stronger social equity program, something which the state of New York was touted to have before.

Connecticut is poised for a relatively full launch by the end of 2022. According to the MJBizFactbook projects, the state's recreational product retail could total as much as $250 million in the first 12 months after opening, and this number is anticipated to triple by the fourth year. 

New York's marijuana market, projected at over $2 billion of worth, is scheduled to launch in the spring of 2023. The state plans to issue 50% of adult-use licenses to social and economic equity applicants. It will also allocate 40% of the tax revenue to community investment funds. New York's social equity program includes low and zero-interest loans, reduced or waived fees, and assistance preparing applications. 

In New York, existing medical marijuana operators will be required to settle a one-time "special licensing fee" to convert three of their medical dispensaries into hybrid shops that sell both medical and adult-use products. That fee should also help fund social equity grants. The state's regulation also foresees to allow vertical integration for microbusinesses, but not for existing operators. Those who receive social equity licenses will not be permitted to sell or transfer their licenses within the first three years of business.

Connecticut's program will also have 50% of the recreational marijuana shops in possession of social equity applicants. The state regulators will allow existing medical marijuana manufacturers and dispensaries to convert operations to meet demands for the adult-use market, and this, similarly like New York, will require settling a fee. Producers who want to convert will need to pay a fee of $3 million, and dispensaries $1 million. But if the business party partners with a social equity business, the cost is reduced by half. 

Connecticut's adult-use marijuana law enables current medical cannabis dispensaries to apply and become dual shops, and begin recreational retail within a month, provided that cultivators have at least 250,000 square feet of cultivation and processing space.

Social equity applicants that locate their facilities in areas disproportionately impacted by the War on Drugs will have an advantage in the initial round of license-granting over other applicants. Otherwise, licensed operators will be chosen by lottery, but state regulators have yet to figure out the details.

Kaitlyn Krasselt, communication director for the Connecticut Department of Consumer Protection, said that "Definitely a priority is put on to consider the harm done by the war on drugs and to think about the disproportionately impacted communities and how to reinvest in them."

Connecticut's Social Equity Council has discussed income and residency requirements and is still due to finalize criteria that will determine where equity licenses go. Once all requirements are made known, the state is required to begin accepting licensing applications within 30 days. 

Multistate businesses interested in expanding operations in Connecticut are recommended to follow the same advice as with any emerging market. Double-check with local governors and officials before deciding to buy a building or property where the business will run. 

Both New York and Connecticut appear to be building the industry's new gold standard for social equality, but perhaps it's a little early to make the conclusions. In the states, we have repeatedly seen that social equity programs do not always work as first imagined and ideated. 

In Illinois, a process that sought to award 75 retail licenses led to numerous legal challenges; it practically left the state with no new minority license holders within the first year of legal marijuana retails. 

California, which is struggling to tame down its underground market, as well is failing to meet its cannabis social equity programming. A recent report revealed that social equity "grants are issued by the state with little accountability, while local programs stall and funds remain unallocated." Although applicants are spending fortunes to maintain properties, some are waiting years for local approval to utilize their business.

Past experiences are many to overlook, and it's only logical to remain alert over how New York or Connecticut will perform in the end. If you look at New York, one of the questions raised by experts is how social equity applicants will receive the funds to get in the market if the financing for programs such as low- and zero-interest loans goes via recreational retail? Or, how will microbusinesses compete with multistate operators that are already present in the market? Hopefully, New York regulators, with their tremendous experience in complex financing, will come up with creative solutions, which, if needed, can be replicated if neighboring Connecticut faces some of the same struggles.

Stephen Andrews