New York and New Jersey are becoming industry leaders among states that are embracing social equity. New York sees its program as the gold standard for social equity; on paper, so far, this looks promising. The proof, however, is in the implementation. As more states cannabis markets come online and take advantage of the market potential of legalizing cannabis for adult use, each state is working towards a better understanding of how to address the social equity dilemma that has plagued the cannabis industry. New York and New Jersey are both creating unique opportunities for social equity business owners and opportunities to reinvest in their communities that have been most affected by the War on Drugs. So let’s dive into their social equity programs.
Social Equity Programs: Why Are They Necessary?
The cannabis industry has a diversity problem. This problem traces its roots to early legalization initiative attempts to assuage fears about the risks involved in legalizing cannabis. Many of the ownership requirements to pursue a merit-based cannabis license in these early adoption states severely limited opportunities for participation in the industry from the very communities most acutely impacted by the War on Drugs. A few years ago, social equity programs in cannabis in states like Illinois began in earnest once it became clear that maturing markets lacked diversity and primarily attracted ownership that already had capital readily available to risk in the emerging industry.
Critics have argued that early attempts at social equity did not go far enough and could be abused by having token diversity ownership or hires. These criticisms have led states like New Jersey and New York to address the social equity problem within the cannabis industry and within the states themselves. The states of New York and New Jersey hope their programs address the following:
- The barriers to entry that exist, such as:
- Drug-related convictions,
- Lack of availability of financing,
- The cost prohibitiveness of cannabis business banking,
- Lack of business resources to navigate the licensing process,
- The damage that has been done to communities because of unequal enforcement of cannabis drug laws, and
- Access to the process of expungement of criminal records that have recently prevented many from joining the state-legal cannabis industry.
How New York and New Jersey Compare:
Expungement
New York and New Jersey have both implemented automatic expungement. Unlike previous states that required persons with a drug-related criminal record to apply to have their records expunged, both of these states have chosen to make this automatic. This eliminates both a financial and procedural hurdle that has made similar expungement programs challenging to navigate.
Community Reinvestment
Both New York and New Jersey will direct a percentage of adult-use cannabis tax revenue toward community programs. New Jersey has opted to have 70% of tax revenues from retail sales to be used for grants, loans, reimbursement of expenses, and other financial assistance in municipalities defined as impact zones. New York, however, is proposing to set aside approximately $100 million for social equity purposes over four years, roughly 28.5% of anticipated revenue generated.
Licensing Priorities
New York and New Jersey have set goals for the number of licenses issued to qualifying social and economic equity applicants. New York’s goal is to award 50% of adult-use cannabis licenses to social and economic equity applicants ensuring the inclusion of women-owned businesses, individuals from communities disproportionately impacted by the enforcement of cannabis prohibition, minority-owned businesses, combination minority and women-owned businesses, distressed farmers, and service-disabled veterans. New Jersey has established the microbusiness license as an opportunity for small businesses with fewer than ten employees, and 51% of the owners, directors, officers or employees reside in the town or neighboring town where the business will operate. In addition, 30% of recreational licenses are to be women-owned businesses awarded to minority-owned businesses and disabled veteran-owned businesses.
Where New York and New Jersey Differ
New Jersey will be quicker to implement regulations and start awarding business licenses, while New York has not fully defined their regulations at this time and will not have a merit-based cannabis license period at the moment. New Jersey also has a conditional permit application that will allow for businesses to begin building and preparing for conversion to a full cannabis business license within 120 days. The licensing fees in New Jersey are also significantly lower than other states, and New York has established an office specifically for ensuring social and economic equity goals are met in the state.
Opportunities
New York’s anticipated rollout affords potential businesses with an opportunity to pull all of their application resources together refine them to submit a successful application. New Jersey presents a more immediate opportunity where the licensing fees are significantly lower for applications and for the business license. New Jersey’s rules and regulations were released at the end of August 2021. Those looking to take advantage of the opportunities presented in either of these two states are highly encouraged to seek consultants the services of experienced and accounting firms who know how to navigate the application, start-up, and ultimately opening and running phases of successful cannabis businesses.
We Can Help.
If you own a cannabis business or are thinking about starting a cannabis business, we’d like to help. As a partnership of highly skilled and seasoned cannabis industry consultants and advisors, Bridge West Consulting is ready to guide you through this exciting and challenging landscape. Feel free to reach out to us anytime to schedule a consultation.
