Diversity and Equity Still Being Stifled By Limited License Markets

A major priority of ours here at Beard Bros is to educate the consumer. We often publish the “unseen” or “unheard” stories of cannabis, aiming to create a fair, open marketplace. 

Enter MSOs (multi-state operators) and licensing caps, a framework in which some states choose to limit the number of licenses given out for recreational cannabis retail. When the licenses are in limited supply and frightfully expensive, who is more likely to snatch one up–a smaller, minority business, or the big MSO?

This lack of equity in allowing access to the market is present in many states across America, including Illinois, Florida, New York, Ohio, New Jersey, Nevada, and a number of other states. 

Follow us as we explore how limited-licensing marijuana schemes are chipping away at the industry, and why it matters to us as consumers. 

The Problem With Limited Licensing

According to a new study, twenty-seven states have limited-licensing regimes that result in a lack of diversity in the marijuana market. This reflects a growing debate on how best to encourage cannabis business involvement among minorities and people harmed by the drug war.

The problem of license caps has shown a flaw in the cannabis industry’s multibillion-dollar attempt to be inclusive. By pinning minority and entrepreneurial applicants against multistate businesses (or “Big Weed”, as MSOs have come to be known), the larger businesses can flourish, as they’re better positioned to purchase an expensive business license in a limited-license market. Meanwhile, smaller operations and local startups can’t possibly compete and are forced to wait for the next available license–or close up shop altogether, locked out of the market with no possibility of staying afloat.

The Minority Cannabis Business Association (MCBA) released a 39-page report showing that of the 15 states with legalized cannabis and a social equity program, none of them have yet to create an equitable cannabis industry. When asked about the results of the study, Amber Littlejohn, executive director of the MCBA said “the best thing you can do for social equity is open up the market”.

Littlejohn isn’t the only industry pro to feel this way. “I think we’ve got it all wrong, we should promote a free market that is also helping social equity applicants”, said Demitri Downing, founder of the Arizona Marijuana Industry Trade Association. The change would mean funding assistance and low barriers to entry for potential business owners across the country.

RELATED READING: Limited Licenses – A Losing Game For Small Businesses and Consumers

Specific Barriers To Equity

The report from the MCBA is detailed and identifies several barriers to equity. In addition to each state licensing restrictions they include:

  • A LACK OF TIMELY CAPITAL: Limited funds prevent market entry and participation. Applicants are either turned away or forced to partner with organizations that seek to seize control of the business. This is because only six of the 15 states with social equity programs offer financial assistance in addition to fee reductions and waivers. 
  • OPT-OUT PROVISIONS: Provisions for opting out, as well as a limit on the licenses available. Seven of the nine states that do not have state-level licensing caps allow local towns and other jurisdictions to refuse to allow marijuana enterprises to operate inside their borders.
  • PROOF OF A PERSON’S RIGHT TO OWN OR OCCUPY PROPERTY: there are 22 states that demand proof as a condition of applying for or receiving a license. For less wealthy businesses, this can be prohibitively expensive, especially if a license is delayed due to litigation.
  • EXISTING MEDICAL CANNABIS: Businesses already operating receive preferential treatment. Eleven states offer medical businesses early access to adult-use licensing and sales. This allows them a  jump on the recreational market.
  • A LACK OF TECH: Technical support is limited, with only seven states offering training to social equity applicants. 

Should There Be A License Cap?

According to the MCBA report, the rationale for limiting licenses is to reduce crime, eliminate excessive regulatory expenses, and prevent an excess supply from being diverted to the illegal market.

However, many jurisdictions grant a set number of licenses regardless of market demand, and cities are the “best means of limiting the over-proliferation of cannabis businesses,” according to the report. Additionally, the MCBA report shows us that there is no evidence supporting the claim that an increase in the number of retail shops leads to an increase in crime. 

There is another dark ripple effect of limiting licenses and having those licenses primarily be held by MSOs; while licenses are collected by MSOs like Lincoln pennies, establishing and operating profitable cannabis enterprises has proven to be more difficult.

The sky-high prices charged by “Big Weed” as well as long lines, a limited quantity and choice, hefty taxes, and marginal quality mean that users are looking elsewhere for their product. As a result, limited-license states often have thriving unlicensed marketplaces that account for a significant amount of their respective states’ cannabis sales–often even surpassing the legal market’s numbers.

The vicious cycle created by limited-licensing frameworks is a detriment to the cannabis industry. Because there are a limited amount of licenses available, their value is inflated, resulting in fierce competition for each license–and fewer chances that smaller producers can enter the market. Diversity and quality go down, prices go up, and as a response, the illicit market starts booming.    If markets are opened up to more competition, more entrepreneurs, including those from the criminal, legacy sector, will be able to enter. Industry equity increases. 

Beard Bros likes to encourage consumers to shop ethically for cannabis, to learn and ask questions about the underlying structures that inform how cannabis is grown, tested, and distributed for use. Want more news like this? Head over to the Beard Bros website to read more.

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