Analysis: Michigan's Cannabis Social Equity Program Doesn't Work

Fee discounts aren't enough.

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh. 

Michigan’s marijuana social equity program — a provision in the licensing regulations to lower the barrier of entry for residents impacted by marijuana laws — is broken.

Three years into the legal selling of adult recreational-use marijuana in the state, there are only 155 social equity license holders of the roughly 3,100 licenses issued to date. The Cannabis Regulatory Agency issued 122 regular adult-use licenses in September alone.

And who qualifies for a social equity license is pretty ubiquitous. The state, which leaves the actual licensing to municipalities, has a criteria for equity applicants to receive up to a 75% discount of state application and license fees, which range from $1,000 to $24,000 per license.

An applicant must at least meet one of three criteria: Be a resident in a community for at least five cumulative years that was disproportionately impacted by marijuana laws (25% reduction in fees); be convicted of a marijuana-related offense (25% reduction for misdemeanor, 40% reduction for felony); and/or be registered as a primary caregiver under the Michigan Medical Marihuana Act for at least two years between 2008 and 2017 (10% reduction in fees).

Under the state’s definition, a “disproportionately impacted community” is any municipality where marijuana-related convictions are greater than the state median and 20% or more of the population is living below the federal poverty level. That totals roughly 184 communities statewide, according to MJBizDaily.

Anyone living in most of the state’s college towns like East Lansing, Allendale or Marquette can be an equity applicant, for instance.

The reality is fee discounts don’t do much in terms of getting applicants across the finish line to opening a cultivation or retail operation. A grower is required to have a security system that can cost a quarter of a million dollars, for instance. That’s not to mention the cost of securing real estate, which are exorbitant due to limited zoning permissions.

The Detroit office of appraisal firm BBG analyzed same-asset sales before and after approval of marijuana-related uses and those prices have gone up by multiples between three and nine.

Without any doubt, marijuana is a rich person’s game. Owning a marijuana operation of any kind requires the kind of access to capital that only the already wealthy or those connected to wealthy investors and resources have in their repertoires.

Frankly, a lower- or lower-middle class applicant from Detroit or Flint or Tecumseh with a felony drug charge stands little chance of actually succeeding in opening a marijuana operation. With prices collapsing to just $102.65 per an ounce of marijuana flower, any new entrant in the market needs deep, deep pockets to survive rapid consolidation and failures plaguing the industry right now.

So, who are the social equity applicants? Some examples are an orthopedic spine surgeon, a former county commissioner board chair and president of an international logistics firm.

Other states have worked to use at least a portion of tax revenue generated from marijuana sales to provide loans and grants to social equity applicants.

Illinois, for instance, allocated 25% of cannabis tax revenue to violence prevention and economic development. A portion of that fund goes to equity businesses in economically distressed areas.

The state also offers low-interest loans from its Social Equity Cannabis Business Development Fund.

Until the state gets serious about creating a low-interest loan or grant program, its cannabis social equity program will remain among the worst in the U.S.

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