Hartford Business Journal

10 HARTFORDBUSINESS.COM | JULY 12, 2021 Social equity component of CT's new marijuana law could have major impact on industry's formation By Sean Teehan steehan@hartfordbusiness.com W hen state lawmakers were debating cannabis legalization bills this year, social equity measures were front and center. From the creation of a powerful Social Equity Council to lower licensing fees for applicants who qualify for the state's "social equity" designation, the law that passed includes a host of measures meant to ensure access to entrepreneurs from communities most negatively affected by cannabis marijuana criminalization. Among those are features unseen in other legal cannabis states that encourage existing medical marijuana businesses to partner with smaller entrepreneurs who qualify for the state's social equity designation. Under the new law, medical growers and dispensaries that enter into "equity joint ventures" pay half the fee to convert their license to serve the adult-use market, and social equity applicants that partner with them get access to capital and other resources larger businesses can provide. The social equity components of the law could have a significant impact on how Connecticut's recreational market gets off the ground, and the players involved in profiting from it. "The idea was really to provide another option to allow social equity applicants to enter the marketplace," said House Democratic Majority Leader Jason Rojas, who played a key role in drafting and negotiating the legislation. "They're going to need individuals with access to capital." Access to funding remains a big issue in the marijuana industry as the federal government still considers the drug an illegal substance. That's left most banks and other regulated financial institutions sitting on the sidelines. As of March of this year, only about five of the 146 banks and credit unions operating in the state were providing financial services to licensed marijuana operators, and to a limited extent, mainly focused on deposit services and cash management rather than loans, according to an industry expert. Social equity landscape The cannabis legalization statute took effect July 1, but the state still has to iron out many regulations within the legislation. For example, regulators still need to determine how many production and retail licenses will be issued for the recreational market, but 50% will go to social equity applicants, and the other half will go to general applications. The state will use a lottery system to determine which applications they review, but social equity entrepreneurs will be put in a separate pool. Additionally, people eligible for a social equity license must earn less than 300% of Connecticut's median income, and be from an area disproportionately affected by cannabis criminalization. But what constitutes a "disproportionately affected area" won't be determined until the 15-member Social Equity Council is formed and studies U.S. Census tract data to specify which geographies apply by Aug. 1. Social Equity Council members and regulators at the state Department of Consumer Protection also still have to hammer out some of the details surrounding equity joint ventures, but the law provides a framework of incentives and requirements for them. Under the law, medical cannabis growers — of which four players currently exist, including Advanced Grow Labs in West Haven, CTPharma in Rocky Hill, Curaleaf in Simsbury and Theraplant in Watertown — have to pay a $3 million fee to expand their licenses and enter the recreational market; medical dispensary operators have to pay $1 million. But if a producer establishes two separate "equity joint ventures" with social equity applicants, the fee is reduced to $1.5 million. Retailers that establish one equity joint venture pay a $500,000 fee to convert their medical license to sell to the adult- use market. The rules stipulate the social equity partner must be either a person who qualifies for equity status, or a business entity that is at least 65% owned and controlled by people who qualify for equity status. The social equity partner must own and control at least 50% of the business for at least seven years. The Social Equity Council and DCP must approve the terms of the Jason Rojas Jason Ortiz is a longtime cannabis advocate in Connecticut and the founder of the Minority Cannabis Business Association, which advocates for diversity in the marijuana industry. HBJ PHOTO | STEVE LASCHEVER

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