As cannabis operators and applicants are by now well aware, social equity programs have long been embedded in cannabis industry regulations and licensing frameworks across the country. These programs were designed to address the devastating racial disparities caused by the War on Drugs, ensuring that those most impacted had a fair opportunity to participate in what is now a multibillion-dollar industry.
However, the cannabis industry still faces a deep-seated diversity challenge. Despite projections that the industry will surpass $40 billion in 2024, racial disparities persist, particularly in ownership and access to capital. These issues have only been compounded by the broader rollback of corporate diversity, equity, and inclusion (DEI) programs, with major companies like Meta terminating diversity-focused initiatives, and shifting political headwinds, including the commencement of a second Trump administration. As regulatory priorities evolve, industry stakeholders must confront the reality that government-driven social equity programs may face heightened scrutiny—or even dismantling—making private sector leadership and advocacy more crucial than ever.
Racial Disparities In The Cannabis Industry
Racial disparities in cannabis business ownership and executive roles are significant, with minorities underrepresented in the industry. A 2017 survey revealed that 81% of cannabis business owners in the U.S. were white, while only 5.7% identified as Hispanic and 4.3% as Black. More recent analyses indicate that Black ownership has declined further, representing just 1.2% to 1.7% of cannabis business owners as of 2021.
These disparities are evident even in a state-by-state basis. In Massachusetts, for example, racial minorities comprised 14.4% of cannabis business ownership in 2023, which is below the national average of 18.7%. Additionally, in Colorado, while 35% of registered cannabis employees identify as nonwhite, a stark contrast exists at the ownership level, where 81% of business owners are white.
The Rise Of Social Equity Programs
In an effort to mitigate the harms caused to marginalized communities by the War on Drugs, and in response to continuing racial disparities in ownership of cannabis businesses across the country, many states and U.S. territories have prioritized diversity and inclusion in their programs, with varying levels of success.
Massachusetts: A Trailblazer in Social Equity in Cannabis
Massachusetts was the first adult-use cannabis market in the country to develop a social equity program (“SEP”), specifically designed to prioritize and support individuals who have been directly and disproportionately impacted by the War on Drugs - i.e., those who, among other things, reside in an area of disproportionate impact. Those in the SEP receive a variety of benefits, including, but not limited to, expedited application review, technical assistance, and a limited-time exclusive access to delivery and social consumption licenses. Notably, Massachusetts also does not disqualify applicants for prior drug offenses (unless those offenses involved trafficking to minors), and its relatively low application and annual fees appeal to a variety of socio-economic groups.
And in April 2019, the Massachusetts Cannabis Control Commission (“CCC”) denied an adult-use production permit on grounds that the applicant failed to demonstrate a sufficient commitment to diversity and inclusion - the first state to take such action (but not the last).
Notwithstanding these initiatives, as noted above, women and minority ownership of cannabis businesses in Massachusetts has been well below the national average.
In response, the CCC issued revised regulations with the goal of improving the SEP and lowering barriers to entry. These regulations, among other things: (A) permit the CCC to oversee and approve Host Community Agreements, which had become predatory obstacles to obtaining a license in the State; and (B) required municipalities to adopt bylaws and ordinances that promote equity no later than May 1, 2024.
New York: A Novel and Challenging Approach to Social Equity
New York created first-of-its-kind Conditional Adult-Use Retail Dispensary (CAURD) Licenses (the first retail licenses awarded in the state) which were granted to “justice-involved” individuals (those with prior cannabis-related convictions or whose family members had such convictions) and nonprofits that, among other things, have an officer that is “justice involved.” New York also set a goal of awarding 50% of all cannabis business licenses to social equity applicants, including minorities, women, distressed farmers, and service-disabled veterans. The State further created the New York Social Equity Cannabis Investment Fund (the “Fund”): A $200M public-private fund, established to support CAURD licensees in launching their dispensaries.However, the State’s ambitious social equity program (the CAURD program, specifically) has been mired in lawsuits which have delayed the overall licensing roll-out, making it especially difficult to combat a hefty illicit market in the Empire State. The Fund has also been under intense scrutiny after investigations uncovered that it was being mismanaged by the private equity fund initially charged with its oversight.
New Jersey: A Slow but Steady Social Equity Roll-Out
New Jersey's adult-use cannabis social equity program prioritizes social equity applicants, including those with past cannabis convictions, residents of economically disadvantaged areas, and minority-, women-, and disabled veteran-owned businesses. These applicants receive advantages such as priority licensing, fee reductions, grants, and educational and technical assistance.
However, local municipalities have created significant roadblocks to social equity success. While New Jersey legalized adult-use cannabis at the state level, local municipalities have substantial control over cannabis business approvals within their jurisdictions. Many of these local jurisdictions have: (A) imposed their own expensive and time-consuming application processes, (B) sought exorbitant application fees, (C) implemented onerous zoning restrictions, and (D) delayed approvals.
California: A Piecemeal Approach to Social Equity
In the early days of adult-use legalization, social equity was left to local governments. Oakland, California, in particular, addressed diversity by mandating that 50% of all dispensary permits be awarded to applicants previously incarcerated for cannabis-related offenses and those who lived (in the last two years) in one of Oakland’s six precincts most adversely affected by the War on Drugs. Other municipalities such as Sacramento, Los Angeles and San Francisco, implemented priority licensing programs favoring diverse applicants. Some cities also provided technical assistance, low-interest loans, waived application fees, and business compliance training, among other benefits. And in October 2024, the Governor’s Office of Business and Economic Development (GO-Biz) announced the release of the fiscal year 2024-25 Grant Solicitation for the Cannabis Equity Grants Program for Local Jurisdictions. This program offers financial assistance to local governments developing and implementing equity programs tailored to their communities' specific needs.
Puerto Rico: An Unprecedented Approach to Social Equity
In Puerto Rico, the commonwealth proposed — and it was agreed — that Natural Ventures, one of the island’s first medical cannabis licensees, hire single mothers first, military veterans second and then open hiring to the rest of the population.
How The Industry Is Moving Diversity Forward In Cannabis
Industry associations are responding to correct racial disparities in the cannabis industry. In fact, several cannabis trade organizations have established missions and initiatives focused on promoting Diversity, Equity, and Inclusion (DEI) within the industry. Here are some notable examples:
- US Cannabis Council (USCC): In December 2021, USCC announced the formation of a Diversity, Equity, and Inclusion Task Force. Chaired by Linda Mercado Greene, the task force includes prominent figures such as NAACP President and CEO Derrick Johnson and National Urban League CEO Marc Morial. The group's objective is to develop and implement strategies to diversify the cannabis industry and ensure that communities impacted by cannabis prohibition benefit from legalization.
- Cannabis Trade Federation (CTF): In May 2019, CTF launched a DEI Task Force comprising civil rights leaders and cannabis industry professionals. The task force works to develop policies that promote diversity and inclusion within the industry. Notable members include NAACP President and CEO Derrick Johnson and National Urban League CEO Marc Morial.
- National Cannabis Industry Association (NCIA): NCIA has implemented Diversity, Equity, and Inclusion initiatives, including a Social Equity Scholarship Program that grants complimentary membership to social equity applicants and operators. This program aims to foster inclusivity and support minority participation in the cannabis industry.
- Minority Cannabis Business Association (MCBA): MCBA is dedicated to creating equal access and economic empowerment for marginalized communities in the cannabis industry. They focus on policy advocacy, social programming, and developing resources to promote equity.
- Minorities for Medical Marijuana (M4MM): Established in 2016, M4MM provides advocacy, outreach, research, and training related to business, social reform, public policy, and health and wellness in the cannabis industry. The organization operates across various states to promote diversity and inclusion.
How the Private Sector Can Legally Improve Diversity in Cannabis
While business owners are encouraged to adopt diversity goals and prohibit workplace discrimination, courts continue to debate the extent to which race-conscious policies are legally permissible. Employers must exercise caution when considering race in employment-related decisions, as Title VII of the Civil Rights Act of 1964, along with various state and local laws, prohibits discrimination based on race and other protected characteristics such as gender, religion, and disability. Thus, well-intentioned diversity initiatives can sometimes lead to legal challenges if they are not carefully structured to comply with anti-discrimination laws (EEOC, 2023).
However, there are numerous lawful strategies businesses can implement to promote DEI while mitigating legal risks. The Equal Employment Opportunity Commission (EEOC) and other regulatory bodies have outlined best practices for employers seeking to increase workplace diversity while remaining compliant with existing laws. These include:
- Creating management-level diversity committees to oversee and support diversity initiatives, ensuring that policies are aligned with legal guidelines and business objectives (EEOC, 2022).
- Expanding recruitment efforts to ensure a diverse pool of qualified candidates by partnering with historically Black colleges and universities (HBCUs), Hispanic-serving institutions, and organizations that support marginalized communities in the cannabis industry (Brookings Institution, 2021).
- Developing mentorship programs and networking opportunities to support career advancement for underrepresented employees, both within the company and across the broader industry (Harvard Business Review, 2022).
- Increasing transparency in hiring and promotion decisions by implementing standardized evaluation criteria and structured interviews to reduce unconscious bias (McKinsey & Company, 2020).
- Implementing ongoing diversity and sensitivity training for owners and employees to foster a more inclusive workplace culture while ensuring compliance with anti-discrimination laws (SHRM, 2023).
Additionally, cannabis companies should keep abreast of and ensure their compliance with industry-specific social equity programs designed to support minority entrepreneurs and employees. Businesses can contribute to state efforts by offering apprenticeships, supporting minority-owned suppliers, and advocating for inclusive policies in industry trade associations (Marijuana Policy Project, 2023).
By implementing legally sound DEI initiatives, cannabis businesses can contribute to a more equitable industry while reducing the risk of discrimination claims. However, given the evolving legal landscape, employers should consult with legal counsel to ensure that their diversity programs comply with federal, state, and local regulations.
Diversity in Cannabis is Smart Business
Increasing diversity and inclusion in the cannabis industry is not just the ethical thing to do, it’s also smart business. In fact, the data couldn’t be clearer: businesses that manage successful diversity and inclusion programs enjoy increased profits over those that do not, and diversity is proven to drive innovation. In cannabis, however, a commitment to diversity goes beyond gaining a competitive edge; it can provide a healthy pathway to repair relationships with scores of victims of the failed War on Drugs. Businesses, policy-makers, and trade organizations should continue to work together to advance this crucial cause.
Rudick Law Group has a trusted history of advocating for social equity initiatives in multiple jurisdictions, and we have supported clients in their efforts to comply with social equity requirements. Please contact us if you need legal support.
An earlier version of this article originally appeared in Marijuana Venture magazine. Material changes have been made since the article’s first publication.
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