Fred McKinney (opinion): The cannabis manifesto for social equity

A newly transplanted cannabis cutting grows in a pot at a medical marijuana cultivation facility in Massachusetts.

A newly transplanted cannabis cutting grows in a pot at a medical marijuana cultivation facility in Massachusetts.

Associated Press

In late 2021, two large regional not-for-profit organizations, The WorkPlace and CONNCORP, came together to form the Alliance for Cannabis Equity for Connecticut. The purpose of the organization is to support minority entrepreneurs, minority communities, minority workers and the state of Connecticut’s efforts to make the goal of social equity in the new adult-use cannabis industry a reality. Shortly after forming the organization, my firm, BJM Solutions, was hired to draft a report on what needed to be done to realize these lofty goals. Earlier this month, ACECT released the manifesto and the associated website ( This is a good news-bad news commentary.

The good news is that the state of Connecticut through the work of the Social Equity Council and its leadership are making social equity the priority that is stated in the law. Many of the states that legalized adult-use cannabis before Connecticut, like our neighbors in Massachusetts, only paid social equity attention only after the opening of the market when it became apparent that Black, Hispanic and lower-income residents did not have a real stake in the business opportunity legalization created. Connecticut learned from these states that if you do not make social equity a priority in the beginning, it is hard to insert it once the industry gets started. Intentionality is important when it comes to matters of equity. Connecticut deserves credit for this thoughtfulness.

Connecticut’s definition of social equity is based on residency and household income. Connecticut residents of any race, gender, nationality, household composition or criminal record are eligible if they lived the first nine of their 18 years or the last five of the last 10 years in census tracts that have been determined to be disproportionately impacted areas, and their household incomes are less than three times the median household income in the state.

Social equity businesses are businesses that meet the first two requirements and at least 50 percent of the business is owned by a social equity entrepreneur(s). The state will allocate licenses in nine different sub-industries, ranging from large scale cultivators, retailers, shippers, delivery services and manufacturers. There will be one lottery for social equity businesses and one lottery for all other (nonsocial) equity businesses. The plan is that the state will have an equal amount of social equity businesses in the industry as non-social equity (traditional) businesses.

Connecticut is about three and a half years behind the adult use cannabis industry in Massachusetts. Massachusetts provides the best guide as to what is possible here. Massachusetts is averaging about $30 million in retail sales per week. The Massachusetts cannabis industry currently hires over 23,000 workers. Cannabis is the fastest-growing industry in Massachusetts and the fastest-growing industry in the country. Connecticut has slightly more than half the population of Massachusetts. This means in a few years; Connecticut could generate $15 million a month in retail sales and over 11,000 good-paying full-time jobs. State sales taxes on cannabis will total about 20 percent including a 3 percent tax that will go to the municipalities that have cannabis operations in their towns. The total state tax revenue generated from cannabis could be about $150 million per year. Cannabis will be big business in Connecticut.

The bad news is I am afraid that the supply of legitimate social equity entrepreneurs with the resources and connections is not sufficient to meet the demand. There are similarities in how this industry is being structured and what I experienced in certifying businesses as minority owned and operated. Minority and women fronted organizations were common when large public and private sector buying organizations first implemented preferential buying programs. These were organizations that put a minority or a woman “out front” as the face of the business, but the business was controlled by nonminority financial backers. Those nonminority financial backers were willing to assume this role if it meant access to markets that they did not have as a nonminority business.

In a similar way, there will be non-social equity cannabis “investors” who will attempt to either participate in the social equity lottery at a lower cost — social equity businesses will pay half of the cost of a license as non-social equity licensees — or skip the lottery entirely. The confusing array of organizational types — social equity partners, equity joint ventures, and Section 149 firms — allows entrepreneurs and firms to bypass the lottery, or have lower licensing costs. The state’s answer to eliminating fronts is to review every social equity applicant and every equity joint venture to ensure that these frauds do not take place. I am not optimistic about the ability of the state at this point to keep these fronts out of the industry, despite their good intentions.

And there still are supply and capacity problems for social equity entrepreneurs. Where are these entrepreneurs going to acquire the capital to pay for licenses, and we have not even started talking about operational costs? Who is going to invest most of the money needed to start these businesses if they are allowed to own only 35 percent of the business? How are these businesses going to be able to assure long-term profitability when the state could control the number of competitors by providing new licenses every year? My fear is that social equity businesses might get established, but in five years, Connecticut’s cannabis industry is going to have a minimal number of social equity businesses and minority owners. There are some fixes to these problems, but they will require boldness, innovation, and changes in the cannabis law.

Fred McKinney is the co-founder of BJM Solutions, an economic consulting firm that conducts public and private research since 1999, and is the emeritus director of the Peoples Center for Innovation and Entrepreneurship at Quinnipiac University.