Black businesses feel shafted as N.J. gets set to choose who can grow and sell weed legally

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Rapper Young Dolph’s chart-topping single “Get Paid” blared over the speakers in a large convention hall in New Orleans, where hundreds of Black and brown entrepreneurs gathered mid-November for the Black CannaConference to hear from business pioneers in the cannabis space.

Up next for the keynote address was Al Harrington, an Orange native who leveraged his NBA stardom into a fast-growing, multi-state cannabis business.

That “Get Paid” was the soundtrack before he approached the stage wasn’t lost on anyone.

Just over 24 hours earlier in Memphis, Dolph had been shot and killed. He was known for rapping about the travails of using the drug trade as a way toward economic mobility. To those who knew the meaning of his hit song, it was an overt ode to what the conference was going to cover:

Black people getting legally paid to create wealth from growing and selling a plant they had been disproportionately locked up over.

Harrington, 41, for instance, had cemented his place as a Black cannabis operator in multiple markets in an industry with an estimated 2% Black ownership. His Los Angeles-based Viola and Village Brands, had recently applied for a cultivator and dispensary license in New Jersey.

For all of the talk of social equity and decriminalization, the average prospects for Black ownership equity in America was 1 out of 20 and 1 out of 50 in the cannabis industry, according to statistics released by cannabis platform Leafly.

With the state opening applications for cultivators, manufacturers and testing labs Dec. 15, BIPOC cannabis business owners are questioning whether the CRC will live up to its mission to prioritize minority applications. Roughly a week ago from that date, 30 dispensary licenses were awarded.

In October, at MJBizCon in Las Vegas, known worldwide for being the industry’s largest cannabis conference, a myriad of vendors and speakers spoke of unlimited opportunity to a mostly white audience. In New Orleans, a much different sentiment was evident. Industry leaders and attendees of color spoke with guarded optimism — and frustration over how licenses are awarded.

Harrington had just recently lost in the cannabis application process for the state he grew up in. Black and Hispanic demographics not being adequately represented in the most lucrative licenses did not come as a surprise to Harrington.

“It’s been happening for 400 years, that’s the American way,” he said in an interview after his keynote. “We just have to figure out how to work within it or be disruptive and figure out a way to work without it.”

The New Jersey Cannabis Regulatory Commission had touted on Oct. 15 how diverse the businesses being awarded vertically integrated and medical cannabis licenses are.

Except most, if not all, of those minority license winners were white women. In the following days, applicants of color would go on to claim that they had not received accurate points for being “minority” applicants in the scoring and award process.

Al Harrington was one of those Black-owned businesses.

Companies invest millions of dollars into compliance for the regulations, an indicator of how hard it is to win a license when they’re restricted, said Harrington’s application writer Jamil Taylor.

“It’s sad how they’ve structured the process, but that goes to show how valuable these licenses are,” he said. “They’re limiting vertical integration, but they’ve already given vertical integration to the majority white companies.”

Microlicenses, smaller businesses that could apply for cultivation and other aspects of the cannabis industry, would be open for all, but limited in the number of square feet to build and the amount of cannabis they could grow with a maximum of 10 employees.

Those licenses with vertical integration and access to making their own supply of cannabis are some of the most economically valuable ways to get into the cannabis industry — and to create generational wealth.

There’s an imbalance, Taylor said: “To be clear white women were not the targets of the War on Drugs,” he said.

When asked directly on the number of Black and Hispanic owned-businesses, the commission has not provided those numbers and instead opted for saying that there have been three businesses out of 15 certified as a “minority business enterprise” a category in which people of color would normally qualify, during a Dec. 7 meeting. The commission has not said which of those MBE’s, if any, were Black or Hispanic.

Among the five New Jersey state regulators, only Commissioner Charles Barker voted against awarding the recent licenses. Barker, a former U.S. Sen. Cory Booker staff adviser, is the sole Black male on the CRC. He was not Gov. Murphy’s first choice when he was appointed to his seat in March. Advocates and civil rights groups threatened to sue the state because there was no Black male and advocacy group representation on the panel.

The CRC won’t disclose why there’s disagreement.

“Commissioner Barker, nor any of the other commissioners, cannot provide comments concerning discussions/reasons related to matters that come before the Commission for a vote. These internal discussions/reasons are part of the deliberative process that takes place before a vote and therefore privileged,” emailed CRC spokesperson Toni-Anne Blake.

How many rounds?

Wanda James, the founder of Simply Pure in Denver, alongside her husband became the first Black person in the country to own a legally licensed dispensary, cultivation facility and edibles company when Colorado opened up its market.

As a Black woman, a Navy veteran and a restauranteur, James fit the bill for multiple categories in the Minority, Women, and Veteran Owned classifications. She too had problems being scored accurately in the category after she applied for a cannabis license in New Jersey during a previous round, she said.

The process fit an overall national pattern, James said.

“Every one of these states has worked out a way to not give licenses to Black and brown people en masse,” said James, who decided to enter the cannabis industry after her brother was given a 10-year prison sentence for pot possession. “Every time there is a Black person who is applying for the full vertical, billions of dollars in licenses, we never get it. They always say ‘well, wait until next time, until you can get a microlicense.’”

Small cannabis businesses are good, James said, but not at the expense of being told it’s the only available way for people of color to win permits to operate.

“How dare this process say all you can be is a small business,” she said. “It’s just insulting,” she added.

Without being vertically integrated, microlicenses are also going to struggle with generating revenue, said James, who owns one dispensary.

“You can’t own one dispensary in this industry and be profitable,” she said. “It’s damn near impossible given the size and the scope of the industry right now. The only reason our one dispensary works is because we’ve got a little bit of fame.”

Taylor noted a similar dynamic.

For dispensaries without access to cultivation, they will be dependent on the current slate of cultivators. Most dispensaries in that position will have to make money through scale and expansion, something that would no longer qualify a business as a microlicense, Taylor said.

“If I’m an individual dispensary I at least have to buy now from those companies, at least for two years,” he said of the current cultivators.

Straight from the horse’s mouth

New Jersey has yet to award all of its regular cultivation licenses, which are currently capped at 37 with the exception of microlicenses.

If one can get any glimpse of who the limited license market benefits, investor statements give an accurate summary.

Beyond the PR press releases that companies push out, statements made to shareholders offer insight into what companies tell those who have bought into their assets.

At least one multistate operator Green Thumb Industries (GTI) in New Jersey, which grows weed and opened three dispensary locations — Bloomfield, Paramus and Paterson — has acknowledged that oligopolistic and monopolistic markets are a part of its June 2018 investment strategy.

“Ultimately, (GTI’s parent company) VCP seeks – and has successfully secured and operates in – markets that are monopolistic or oligopolistic in nature, where there is limited supply and thus limited competition.”

In an email sent to NJ Cannabis Insider this month, GTI stated it wants to support an equitable market.

“Green Thumb strongly supports creating a more diverse and equitable cannabis industry and believes there is tremendous opportunity for all in this growing industry,” said Shannon Weaver, the company’s communication director.

Curaleaf has a similarly worded paragraph in its listing statement.

“The company maintains an operational footprint dominated by limited-license states, with natural high barriers to entry and limited market participants,” the statement reads. “The majority of the markets in which the company operates have formal regulations limiting the number of cannabis licenses that will be awarded, helping to ensure the company’s market share is protected in these limited-market states under the current regulatory framework. However, in Oregon, there exists a free market dynamic with low barriers to entry.”

Curaleaf sent a statement indicating that the wording pre-dated their corporate social responsibility plans and would change the language in their upcoming 2021 filing.

“Curaleaf believes in a healthy, inclusive, well-regulated marketplace, and we have been actively lobbying for social equity provisions so there can be a fair and just opportunity for everyone to participate in the cannabis industry,” said Curaleaf spokesperson Stephanie Cunha. “We are committed to helping equity applicants obtain licensing in states that legally allow assistance, which includes New Jersey, where we will partner with several social equity applicants in 2022.”

A lot of companies use social equity as a PR stunt, Harrington said.

“I get it from the standpoint that sometimes you can’t help everybody, but I feel like right now, it is a box checking exercise,” he said. Economic justice is the cornerstone of fighting back against those exercises, added Harrington, who pledged earlier this year to help create 100 Black millionaires.

“We can march until we’re blue in the face, but until we have an economic impact, nothing gets done — generational wealth is definitely a focus, I feel like cannabis can do that,” he said.

Municipal promise and peril

Another cog in the equation is how municipalities will treat this new industry.

More than half of New Jersey opted out of allowing cannabis within the borders of their town altogether. For the ones that have, they can set caps on the number of cannabis businesses they will approve and levy extra fees on applicants.

In addition to the CRC application process, municipalities must also give their blessing. That blessing comes in the form of fees, some of which are non-refundable regardless of whether applicants win a license from the CRC.

In some cases, those fees can even exceed what the CRC charges for their application.

Even the CRC has noted concern at one point or another.

“I’m not sure the municipality process — whatever the fee structure (is) they’re going to come up with will have the same spirit that we at the CRC have,” said Commissioner Sam Delgado in a November interview.

Edmund DeVeaux, president of New Jersey CannaBusiness Association which acts like a chamber of commerce in the cannabis space, likened the process to redlining. He said he was exploring legal options to bring lawsuits to municipalities that engage in the practice.

“I’m willing to go to the mat on this,” he said.

DeVeaux pointed to the town of Bayonne as one example, which can charge as high as $40,000 depending on the license applied for.

That $40,000 with a potential for up to $10,000 in nonrefundable fees represents the majority of household income in Bayonne.

The estimated household median income in Bayonne is $63,000 in a state where the same measure is estimated to be as high as $82,000, according to the U.S. Census Bureau statistics.

Such a fee would represent something most residents would have a hard time affording if they wanted to apply for a small cannabis business on top of the legal and real estate fees that come with preparing a cannabis license, DeVeaux said.

“Bayonne people are not wealthy people, so you’re purposely excluding your own residents from applying for a license,” he said.

“The whole industry is a free for all basically, no one’s being held accountable,” said Chirali Patel, a cannabis attorney for Pashman Stein Walder Hayden and founder of cannabis education platform Blaze Responsibly.

“There’s issues with people getting ripped off completely,” she said.

Patel pointed to the commission’s working groups tackling issues of small business support and social equity as good initiatives, but something that should be in place beforehand.

“Why not get that up and running first so that people actually have a shot,” she said.

If the majority of municipalities pursue such high licensing fees, it doesn’t bode well for many of the microlicense applicants, said Lindabury, McCormick, Estabrook & Cooper attorney Robert Anderson.

“I understand the tax side of it, that you want to give municipalities some ability to get a benefit from additional jobs in the area,” he said. “But it would have been nice to protect against these situations that could work directly against all the effort you’re making to promote these social equity businesses.”

The towns can undermine equity efforts if they go with the highest bidder, he said.

One solution, Anderson said could rest with the CRC slowing the number of licenses they approve to big cannabis companies.

“There’s certainly going to have to be smaller operations that are going to fill up the demand,” he said. “What towns are going to let them operate — that’s the question.”

If municipalities go into the direction of levying high fees, it results in a market that’s hostile to small business, DeVeaux said.

“You’ll get one of two results, either complete exclusion of people of color and small businesses or you will force these businesses to partner with multistate operators or venture capitalists in order to get in,” he said.

“They either get excluded or they get used,” Deveaux said.

Life changing

Even in Massachusetts, Reginald Stanfield, his state’s first Black cultivator, and billed as the first one on the East Coast overall, noted that cultivation by people of color is the key to supporting their cannabis businesses.

Even if one went to a Black owned dispensary to buy weed from majority white companies, such a setup is not the most effective way to economically support Black populations, he said.

“That’s not buying Black, the middleman is Black ... you’re buying indirectly white,” he said.

When microlicense restrictions become too cumbersome, they can run the risk of restricting applicant options in negative ways, he said.

“It’s not going to save us because you don’t have the opportunity to attack the market any type of way you want,” he said.

As for the cap on employees, Stanfield said 10 employees is going to be a heavy lift for a business that wants to grow cannabis and that support will be key.

“You’re talking about 10 people to be the CEO, CFO, COO, marketing, sales, packaging, trimming, compliance out the wazoo. How am I going to get all of that done with ten people?” he said.

Darrin Chandler Jr., president of Premium Genetics, is a New Jersey 2019 Black applicant who recently lost in the process, and is moving to apply for cultivation in the Dec. 15 round of licensing and operate in Ewing.

“It’s a tragedy that in one of the most diverse states in the country, there’s a lack of Black people who have won vertical or cultivation licenses currently. We hope to make a positive change.”

“We’re 100% Black-owned and family-owned,” Chandler added.

Representation in the market is critical, Chandler said.

“As a social equity applicant it is our responsibility and obligation to help those most affected by the War on Drugs and who else to better do it than people who represent that demographic,” he said. “We just don’t want to employ minorities, we want to help others become owners in the space.”

Jelani Gibson is content lead for NJ Cannabis Insider. He may be reached at [email protected]. Follow him on Twitter @jelanigibson1.