Washington to Diversify Marijuana Industry Through Social Equity

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Representative Eric Pettigrew (D) introduced a bill in the Washington Legislature that establishes a social equity program for retail cannabis licenses. Under the bill, the Washington Liquor and Cannabis Board will provide social equity applicants with priority to unused retail cannabis licenses. The House Appropriations Committee must pass the bill today in order for it to be enacted as law during this legislative session.

The bill notes that, as a pioneer in the industry, Washington did not take social equity into consideration when it created the legal cannabis market. The state last allocated retail cannabis licenses in 2016 when it increased the cap from 334 to 556 retail licenses. The criteria used at that time favored applicants that operated a collective garden prior to January 1, 2013, maintained a state business license and paid all taxes and fees. The WLCB estimated that the size of the market to be $1.3 billion.

In 2019, Washington collected $387 million in taxes from over $1 billion in cannabis sales. The bill notes that the state must now address the lack of diversity and social equity in Washington’s marijuana industry. The social equity goals are to reduce the impact of prior drug laws by providing economic opportunities to people of color and communities that were disproportionately impacted.

The legislation intends to promote diversity in the industry by allocating unused licenses to qualified applicants. An initial version of the bill increased the number of licenses that could be issued by the WLCB for social equity applicants. The substitute bill that passed the House Commerce and Gaming Committee limited the program to the licenses that are still open from the 2016 allocation. There are currently 13 licenses available or 2% of the market.

Who qualifies as a social equity applicant?

The bill aims to help those persons who are of a race or gender that experienced discrimination due to passive participation in a system of racial exclusion. The person must also be from a city, town or county with a history of disparate impact.

The applicant must be a 51% owner and (a) a resident of a disproportionately impacted area for five of the preceding 10 years, or (b) a person, or a family member of a person, convicted of a misdemeanor marijuana offense that can be expunged.

What benefits will the social equity program provide?

The social equity program will provide qualified persons with priority for any unused retail licenses. Persons who received a license that was not used due to a zoning ban by a local municipality may also apply.

Social equity participants may also receive technical assistance for the licensing process, creating a business plan, regulatory compliance, and other business-related matters. The state will fund these services from marijuana tax revenues and private contributions.

Is this enough?

The program addresses the short term issue of allocating retail licenses to social equity participants. The bill fails to address how recipients will obtain capital to get the businesses up and operating as the state’s initial funding for technical assistance is only $100,000. Although the bill permits a 49% ownership interest by a non-social equity investor, the state limits ownership in cannabis businesses to Washington residents. Social equity participants will still face the challenge of obtaining capital within the state at a reasonable rate.

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