California Cannabis Social Equity Program Applicants and Incubators

California Cannabis: Social Equity Programs

What is a Social Equity Program?

California social equity programs (also known as cannabis equity programs in some cities) propose to address the disproportionate impact of cannabis-related law enforcement and the war on drugs on disadvantaged communities and to increase participation in the legal cannabis industry by members of these disadvantaged communities. Los Angeles, Oakland, and San Francisco have commissioned reports which identify the barriers to entry in the cannabis industry and set forth recommendations regarding policy options to overcome these barriers. Reported barriers include limited availability of real estate within zones established for legal cannabis activity; limited start-up capital and banking options; prior drug-related convictions; and limited knowledge of cannabis programs in affected communities. These reported barriers are common themes among nearly all social equity programs.

Where Do These Social Equity Programs Exist?

As of February 2018, the Bureau of Cannabis Control reported that San Francisco, San Jose, Sacramento, and Los Angeles have social equity programs. In July 2018, the City of Long Beach joined this list. Currently, there is no regulation prohibiting local governments from implementing a social equity program. Furthermore, recent legislation has passed at the state level that should make implementing a social equity program an easier process for local governments. As a result, it seems likely that the number of social equity programs will increase in the near future.

How Do Social Equity Programs Benefit Applicants?

Generally, applicants seeking a permit to conduct legal commercial cannabis activity in localities which implement a social equity program are divided into Equity Applicants and Equity Incubators.

While the specific requirements for each social equity program vary across programs, Equity Applicants generally include individuals who meet certain criteria intended to reflect their membership in a disadvantaged community such as a household income below average median income, a prior arrest or conviction for cannabis-related activity, and residency requirements in the relevant local government. Equity Applicants are then matched with an Equity Incubator, as described below, who have pledged, as part of their application and permitting process, to assist the Equity Applicant with various aspects of legal commercial cannabis activity. Additionally, local governments may provide Equity Applicants with special loan programs, technical assistance, reduced or zero permitting fees, and other benefits.

The specific requirements for each Equity Incubator also vary, but generally, Equity Incubators are applicants that have the means and ability to assist Equity Applicants to successfully navigate the legal commercial cannabis industry. Equity Incubators are also obligated to provide Equity Applicants with rent-free space, technical assistance, and other benefits. In addition, local governments will also often require Equity Incubators to submit a plan that provides benefits to the surrounding community. These benefits may include community beautification programs, hiring individuals from the local community, and other requirements. Permits for Equity Incubators are often tied to Equity Applicants. This means that if an Equity Incubator is unable to pair with an Equity Applicant, then they will not receive a commercial cannabis permit. Additionally, if the Equity Applicant ceases their commercial cannabis activity, then the local government may require the Equity Incubator to notify the local government and restart the permitting process.

Are There Any Changes In the Future?

The California Cannabis Equity Act of 2018 (“Equity Act”), signed into law on October 3, 2018, creates a legal pathway for eligible local governments to submit an application to the Bureau of Cannabis Control (“BCC”) requesting assistance with an existing social equity program. Upon approval of these applications, the BCC may provide technical assistance in the form of training and educational sessions regarding state cannabis licensing processes and requirements. The Equity Act also allows the BCC to provide grant money to local governments from a state budget appropriation. These jurisdictions may use these grant funds to assist local equity licensees in gaining entry to, and successfully operating in, California’s legal commercial cannabis marketplace.

In addition, the Equity Act requires the BCC to publish approved local equity ordinances and model equity ordinances created by advocacy groups and experts. These approved or model equity ordinances must be released on or before July 1, 2019. Based on the BCC’s prior course of utilizing the maximum allotted time to conform with mandates, the approved and model ordinances may not be available until July 1, 2019. Those who would prefer to avoid the additional burdens placed on equity applicants may seek to expedite their licensing applications in an effort to avoid the obligations of a future social equity program.

If your business needs assistance with legal commercial cannabis, contact us for additional information.

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David Jarzabek

David Jarzabek focuses on intellectual property matters, including assisting clients in formulating trademark strategies to ensure maximum protection for brands, participating in the Firm’s trade secret and privacy law audit programs. Additionally, David frequently assists clients with commercial contracts including licensing intellectual property and technology. David has also taken a keen interest in the evolving regulations and compliance issues for clients in the cannabis industry in California. He utilizes his background in intellectual property to assist the firm’s growing number of cannabis-related clients with formulating the most effective licensing strategy as well as ensuring maximum protection for their brands on a state and national level.