Cannabis Legalization: Social Equity Provisions Are a Sticking Point and a Selling Point

By Aleece Burgio

Cannabis

Editor’s Note: This article is adapted from the Initial Report of NYSBA’s Committee on Cannabis Law Regarding Legalized Cannabis Legislation in New York State that was approved by the House of Delegates on January 31. The complete report can be viewed at www.nysba.org/cannabisreport/.

As more and more states across the U.S. legalize cannabis for adult use, social equity provisions have emerged as both a sticking point and a selling point. In New York, social equity has emerged as a central issue as Governor Andrew Cuomo and state legislators work this month to shape a legalization plan that would be included in the state budget that goes into effect on April 1.

In New York as in other states, businesses and deep-pocketed investors see the financial rewards of legal cannabis and are poised to take full advantage of lucrative markets. Social justice advocates – including state legislators working to advance legalization – want to ensure that minority communities with individuals who have been negatively and disproportionately impacted by cannabis prohibition will benefit from the newly legal industry.

Of the 18 states that have legalized medicinal or recreational cannabis since 2016, six have taken measures to increase diversity in their programs. Most of the first states to legalize cannabis, including Colorado and Washington in 2012, did not include provisions that state licenses to grow, process, or dispense marijuana would be distributed equitably or would positively impact disadvantaged communities.

States that have more recently enacted adult-use marijuana legislation, such as Massachusetts, have included social equity provisions.1

SOCIAL EQUITY PROVISIONS VARY FROM STATE TO STATE

In Massachusetts, a social equity program was created where applicants must either have lived for five of the last 10 years in an “area of disproportionate impact” and have an income under 400% of the federal poverty level, or they must have a past drug conviction or be a spouse or child of someone who does, and have lived in Massachusetts for the past year.

In addition, Massachusetts has an Economic Empowerment Priority Review Program, which prioritizes review and licensing decisions for applicants seeking retail, manufacturing, or cultivation licenses who are able to demonstrate business practices that promote economic empowerment in communities that have been disproportionately impacted by high rates of arrest and incarceration for marijuana possession offenses under state and federal laws.

Under Michigan’s adult-use legislation, the state adopted social equity provisions that promote and encourage participation in the cannabis industry by individuals from communities that have been disproportionately impacted by cannabis prohibition and enforcement.2 In addition, Michigan’s marijuana regulatory agency established a social equity team, which provides one-on-one assistance with the social equity application, assistance preparing and completing the adult-use application, and education on marijuana rules and regulations as well as helping to connect participants with resources regarding the program.3

The most notable and controversial social equity program, however, was enacted by Illinois. Illinois’ social equity program includes a range of provisions:

• Technical assistance and support are provided through the Illinois Department of Commerce and Economic Opportunity.

• Applicants from negatively impacted communities automatically receive 50 points out of a possible total of 250 on the application score.

• Extra points are provided for having a diversity plan or having a plan to engage the community, such as establishing an incubator program or contributing to local treatment centers.

• Diversity applicants have reduced application and license fees as well as options for low-interest loans.4

IMPLEMENTING SOCIAL EQUITY IN NEW YORK STATE

Both the Cannabis Regulation and Taxation Act (CRTA) proposed by Governor Cuomo and the Marijuana Regulation and Taxation Act (MRTA) sponsored by Assembly Majority Leader Crystal Peoples-Stokes and Senator Liz Krueger include mandated creation of a social and economic equity plan with components such as loans, business training, incentives for large companies to incorporate social justice into their business plans, and, to varying degrees, reinvesting tax revenues from cannabis sales into communities that have suffered under marijuana criminal enforcement.

However, neither contain a specific timeline for when the program would be implemented or how quickly license applications would be accepted after the bill becomes law.

The CRTA shares many similarities with the MRTA when it comes to social and economic equity, but the bills differ on how to use tax revenue collected from marijuana sales. The MRTA sets aside 50% of tax revenue for community reinvestment in its social equity program, including grants to support job placement, adult education, and housing initiatives. The CRTA proposal contains no specific earmarks, but includes language noting that some money will be used for community reinvestment grants. That disparity has been cited as a large part of the reason that adult-use legalization failed to pass last year.5

NYSBA WEIGHS IN WITH DETAILED RECOMMENDATIONS

On January 31, 2020, the New York State Bar Association adopted the Committee on Cannabis Law’s report that endorsed the legalization of adult-use marijuana in New York State with appropriate safeguards.6

The NYSBA report recommends that any recreational-use legislation include provisions for mandated testing, the creation of an office of cannabis management, opportunities for communities to opt out of sales, a social equity program, a state tax structure, advertising rules, and environmental protections.

For purposes of social equity, the NYSBA report recommends that New York State look to the six more recent states that have adopted social equity provisions to see which provisions have been effective in encouraging full participation in the regulated cannabis industry by individuals from communities that have been disproportionately harmed by marijuana prohibition and enforcement, and how to best use the tax proceeds from legalized cannabis in New York State to support those communities.

As part of that process, the report recommends that New York State commission an outside research entity to take a critical look at states with social equity programs for legalized marijuana to guide public policy decisions for what provisions to institute.

The NYSBA report recommends that New York should not adopt any specific social equity provisions until this analysis is complete, but that research should not prevent comprehensive regulation of legalized adult-use cannabis. However, to ensure that social equity measures be promptly considered and enacted, the report recommends that the comprehensive legislation expressly contain a two-year sunset and that a plan for social equity programs must be part of a recertification bill extending comprehensive cannabis regulations.

Specific provisions that the committee recommends New York State consider in its initial social equity programs and in ongoing analysis of legalization legislation include:7

  • Developing incubator programs to provide direct support to small-scale operators who are marijuana license holders in the form of legal counseling services, education, small business coaching, and funding in the form of grants.
  • Requiring licensees to use good-faith efforts in hiring employees who meet social equity eligibility criteria and certify annually that 25% of their employees meet the criteria or that they have use a good-faith effort to achieve that 25% threshold.
  • Dedicating a percentage of local cannabis tax and non–licensing fee revenue to support a community reinvestment fund to, at a minimum, provide reentry services, job training, and criminal-record-change assistance to residents of disproportionately impacted areas.
  • Banning local and state governments from discriminating against licensing applicants on the basis of their substance-use treatment history and convictions unrelated to honesty, and background checks can only be used to check for those convictions.
  • Creating a basic framework for permitting cannabis-consumption lounges while leaving zoning to local governments. Local governments are authorized to regulate consumption lounges where cannabis may be used on site.
  • Authorizing local governments to facilitate resentencing and expungement to restore the civil rights of prior cannabis arrestees and to fund these efforts through cannabis taxes. This can include automation, fee waivers, and funding legal fairs and lawyers to publicize and execute.The NYSBA Committee on Cannabis Law report recognizes the importance of pursuing initiatives in New York State to reach individuals who have been economically disadvantaged and disproportionately impacted by the War on Drugs – and that that there is no “one size fits all” approach to addressing social equity in the implementation of legalized adult-use cannabis.

1. Under Massachusetts Law, Part I Title XV, Chapter 94G, Section 4.

2. Michigan Regulation and Taxation of Marihuana Act., 333.27958 Rules; limitations., Sec. 8. 1.

3. Michigan.gov, Dep’t of Licensing and Regulatory Affairs, Social Equity (Adult-Use Marijuana), https://www.michigan.gov/lara/0,4601,7-154-89334_79571_93535—,00.html..

4. Illinois Cannabis Regulation and Tax Act, Article 7.

5See Rebecca C. Lewis, “Fight Over Marijuana Tax Revenue Ramps Up for Budget Season”, City and State New York, https://www.cityandstateny.com/articles/policy/policy/fight-over-marijuana-tax-revenue-ramps-again-budget-season.html..

6. The committee is co-chaired by Aleece Burgio and Brian Malkin and is composed of members from the following NYSBA Sections, as well as other legal disciplines: Business Law; Commercial and Federal Litigation; Corporate Counsel; Criminal Justice; Elder Law and Special Needs; Entertainment, Arts and Sports Law Section; Food, Drug and Cosmetic Law, General Practice; Health Law; Intellectual Property Law; International Law; Labor and Employment Law; Real Property Law; Tax Law; Trusts and Estates Law; and Young Lawyers.

7See “ Minority Cannabis Business Association’s Ten Model Municipal Social Equity Ordinances, https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/07/MCBAs-Ten-Model-Municipal-Social-Equity-Ordinances.pdf. .

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