Can cannabis social equity programs work? Palm Springs is setting one up

Willie Holland talks about his cannabis dispensary and lounge Green Dragon in downtown Palm Springs, July 21, 2020.
Willie Holland talks about his cannabis dispensary and lounge Green Dragon in downtown Palm Springs, July 21, 2020.

PALM SPRINGS, Calif. – When Willie Holland first attempted to open a medical cannabis dispensary a few years back, the city of Palm Springs denied his application.

He’d been convicted of a misdemeanor cannabis-related possession charge in the past, and its presence on his record prevented him from getting a license.

It was only in 2017, after Holland paired up with a partner who held a majority stake in their business, that he was able to move forward with Green Dragon, a recreational dispensary on Palm Canyon Drive, which opened last year.

“I was born and raised in this city, so I didn’t want to go somewhere else,” he said.

But Holland, never one to back down from his dreams, still wanted a shop to call his own. So this summer, Holland became the first to apply for a social equity cannabis license in Palm Springs. And it paid off: His dispensary, Holland Pharms, is slated to open up on Palm Canyon Drive later this year, right in the heart of his hometown.

Willie Holland will be opening a second cannabis dispensary to be called Holland Pharms at this location in downtown Palm Springs, July 21, 2020.
Willie Holland will be opening a second cannabis dispensary to be called Holland Pharms at this location in downtown Palm Springs, July 21, 2020.

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Cannabis social equity programs, like the one Holland applied to in the city of Palm Springs, aim to create a pathway to enter the legalized industry for people who have been convicted of cannabis-related offenses.

More broadly, these programs looks to open doors for all kinds of people who either could not afford the expenses associated with starting these businesses or who were disqualified from the regular application process because of cannabis-related criminal histories.

Acknowledging the need to diversify the industry, the state has awarded at least $40 million in grants to cities and counties to be put toward cannabis social equity programs in the past year. But despite the relative popularity of implementing these programs, some experts say these programs don’t go far enough to achieve parity. Advocates want to see business training and safer financing opportunities to give applicants a fairer shot at operating a legal business.

What are social equity programs?

While more than 30 states allow medical cannabis and 11 have recreational markets, cannabis is still federally illegal. As such, each state has its own individual laws and regulations to craft as they create a legalized industry.

Some states have tried to develop social equity programs with the goal of creating a pathway for people who have had cannabis-related convictions — potentially through loans or application fee grants, or reserving licenses for social equity applicants.

Palm Springs and Coachella are two of the 10 California cities and counties to receive grants from the Bureau of Cannabis Control in October to support social equity programs. Palm Springs received $100,000 and Coachella received $500,000, with the goal of providing assistance and services to local equity applicants and licensees.

As the first successful social equity applicant in Palm Springs, Holland has had at least $4,600 in dispensary application fees covered, including the license fee. The assistance is a help to social equity applicants due to the high cost of getting into the legalized cannabis business, Holland said.

“You have to come up with that first before you even submit your application,” Holland said. “That eliminates a lot of people, because they may not have the five, six grand to submit with the application.”

The Green Dragon cannabis dispensary and lounge in downtown Palm Springs, July 21, 2020.
The Green Dragon cannabis dispensary and lounge in downtown Palm Springs, July 21, 2020.

In order to qualify for the Palm Springs program, an applicant must have at least a 51% stake in a business, a move that’s meant to prevent predatory business relationships.

Coachella’s program, which has an application period that ends at the end of August, also has a similar requirement. The city had four to six equity applicants as of July.

California gave out another $30 million this spring, about $23 million of which is supposed to support zero or low-interest loans for equity applicants in certain cities. Coachella and Palm Springs also received funds in that round to help support their programs, about $94,000 and $149,000, respectively.

Out of seven cities and counties that have received some of the state grant money, there have been 1,391 equity applicants, according to a July 2020 report from the Bureau of Cannabis Control to the state legislature. The applicant pool encompasses people of different races and genders: The eligibility criteria for these programs are often based on the presence of cannabis-related convictions for the applicant or an immediate family member. They also may have income eligibility thresholds, or require residency in the city for a certain length of time.

In small, rural Humboldt County, unregulated cannabis cultivation has been going on since the 1970s, making it a focal point for drug-related policing.

The county’s Local Equity Program aimed to aid former disenfranchised community members by basing eligibility on a number of factors, including living in an area with a 17% or higher poverty rate, having a non-violent cannabis-related arrest, running a small-scale grow less than 10,000 square feet, identifying as a woman or LGBTQ, and working in the cannabis industry.

Out of a demographic tally of 75 applicants and licensees, 53 people were white, according to the BCC’s report. One person was transgender and 29 were women. Twenty-six applicants had annual incomes of $39,999 or less.

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Myriad barriers to entering legal industry

Running a legal cannabis business means dealing with taxes, payroll and typical business protocols — plus the bevy of regulations that govern cannabis sales in California around testing and tracking.

It’s not for everyone, Holland said. But his background has given him a leg up: He studied business management in college and previously ran a U-Haul rental company, as well as a Boost Mobile. And he said he was fortunate to have friends in the industry that helped him learn what the new legal industry was requiring of operators.

“There’s things you have to do, or you’re going to lose your license,” Holland said. “It’s not just getting up and selling weed to somebody. You have to pay your employees, pay your taxes. This is a full business.”

The Green Dragon cannabis dispensary lounge area is under construction in downtown Palm Springs, July 21, 2020.
The Green Dragon cannabis dispensary lounge area is under construction in downtown Palm Springs, July 21, 2020.

Keyva King, the owner of Royal Highness, a dispensary in Palm Desert off of El Paseo, said there’s already an uneven playing field to enter the multi-billion dollar cannabis industry that results in unequal representation: Marijuana Business Daily found in a 2017 survey that 81% of cannabis business owners identify as white.

King points to the racial wealth disparities that exist in the United States, and the systemic racism that dates back generations, as reasons for the disproportionate figure.

“The head start goes hundreds of years back,” King said.

The California Budget and Policy Center said the median wealth of a white family in 2016 was about $171,000, compared to about $17,600 for a Black family.

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King, one of a handful of Black women to own a dispensary in Southern California, said it didn’t come easy.

The license fee alone can be a barrier to entry. Before King secured a license in Palm Desert, she recalls spending $4,000 on a credit card to apply for a license in Pomona, where there were hundreds of applications.

“It hurt,” she said. “I wasted money I don’t have.”

Some cities’ application processes are complex and could cut out people who don’t have sophisticated business teams, King said. There may be merit-based applications that give people more points based on their existing ties to the industry.

“You have people winning that already owned 30 or 40 stores,” she said.

Can cannabis social equity programs work?

King said she believes social equity programs can be successful if they have the right training components. A friend of hers, who was awarded social equity applicant licenses in Oakland, is running a successful dispensary, she said.

But that program offered technical training, which King said isn’t always the case.

“They set up equity applicants to fail, because they have no experience running a store,” King said.

Bonita Bo Money, the founder and executive director of the National Diversity and Inclusion Cannabis Association (NDICA), a group that advocates for diversity in the cannabis industry, noted how social equity programs can be abused against the backdrop of financial and legal barriers to entry into the industry.

Money, cited instances of investors partnering with social equity applicants to get a license, and then locking out the applicant from receiving a proper share of the business.

“I’ve just seen all these loopholes for investors to come and take advantage of these programs that weren’t designed for them,” Money said.

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Yvette McDowell, a former prosecutor who consults for social equity applicants and sits on the board of the California Cannabis Industry Association, said there’s no successful model for a social equity program to date.

McDowell, who also chairs the social equity committee for the International Cannabis Bar Association, said programs in California and elsewhere have too many loopholes that allow applicants to be taken advantage of. Or they don’t have the technical assistance and business training to make their venture a success, she said.

“There is not one program I can hold out here on a pedestal and say, ‘This is the model,’” McDowell said.

In an industry that is ramping up in the aftermath of an era of prohibition, where there were instances in which people of color were overcharged or more severely sentenced than their white counterparts for violating similar drug-related offenses, McDowell wants to see automatic expunging of cannabis-related crimes, and people released from jail. The Last Prisoner Project, which advocates to release people incarcerated on drug-related crimes, says there are more than 40,000 people in jail cells nationwide due to cannabis-related charges.

A Black person is 3.64 times likely to be arrested for cannabis possession than a white person, even though people of both races use it at similar rates, according to a report released earlier this year by the American Civil Liberties Union.

“Why should that have to continue to hang over somebody’s head?” McDowell said. “What good is having people locked up for these cannabis offenses doing anyone? It’s destroyed families. It’s destroyed communities. Let people go.”

Fifteen states currently have some sort of expungement policy, including California, according to The National Conference of State Legislatures. Proposition 64, the ballot measure that led to legal recreational cannabis in California, also required “resentencing and destruction of records for prior marijuana convictions.”

The state’s Department of Justice has a system in place for reviewing cases that are potentially eligible for resentencing, but prosecuting agencies can challenge whether they think the person should be released.

“Social justice and social equity go hand in hand, there can’t be one without the other,” Money said. “We need to make sure we’re paying attention to that.”

Aspiring owners can grapple with financing

In addition to more well-rounded social equity programs, some cannabis industry advocates and officials believe access to traditional banking will help more people of color get into the industry. Because cannabis is still federally illegal, traditional banks aren’t giving out loans or doing business with cannabis businesses for fear of reprisal from the federal government.

Money suggests the creation of a zero- or low-interest loan fund to support equity applicants, so they can cover application and license fees without having to rely on outside investors.

On the legislative front, The SAFE Banking Act is a much-eyed proposal that stalled in the Republican-controlled Senate after passing the Democratic-controlled House of Representatives — it would prevent federal regulators from penalizing banks for doing business with state-legal cannabis companies. Some supporters pushed for its parameters to be included in the next coronavirus pandemic response legislation, though those efforts have stalled.

California State Treasurer Fiona Ma testified in favor of the proposal in February. A former member of the State Board of Equalization that administers taxes, she said federally regulated banks and financial institutions risk severe penalties if they work with cannabis companies because of the plant’s illegal status.

This keeps people out of the industry who don’t have other funding opportunities, she explained in an interview earlier this month with online trade publication Cannabis Wire. “The smaller, more marginalized social equity applicants just can’t make it without some sort of assistance,” Ma said. “And so we’re not seeing a very robust social equity program in California as Prop 64 intended.”

For Holland’s part, working with his partner Manuel Semerdjian at Green Dragon has been a successful endeavor. They’re working on developing a new lounge above the shop where people will be able to partake in cannabis consumption once such activities are permitted under the public health guidelines of the coronavirus pandemic.

“I was fortunate enough to have someone good partner with me, where we were able to come together and make it all work,” he said.

Ultimately, Holland, a father of four who has deep ties to Palm Springs, hopes to generate enough profits through both of his dispensaries so that he can contribute scholarship money for students through the Negro Academic Scholarship Fund. The organization has provided scholarships to students from Palm Springs, Cathedral City, Desert Hot Springs and Rancho Mirage high schools for 50 years.

And while Holland sees a long road ahead for social equity applicants to get a foothold in the cannabis industry, he said he is grateful to the city of Palm Springs for having a program that’s delivered after years of conversations around trying to start a dispensary.

“My whole thing is to give back to the community,” he said. “I’m trying to build something up.”

Melissa Daniels covers economic development, hospitality, and local business in the Coachella Valley. She can be reached at (760)-567-8458, [email protected], or on Twitter @melissamdaniels.

This article originally appeared on Palm Springs Desert Sun: Can social equity programs solve the weed industry’s race problem?