- Posted by Ryan Reaves
- On February 12, 2018
- California, cannabis, commercial cannabis, community development, equity, marijuana, policy, war on drugs
Featured Image: The Hood Incubator Community at the 2017 Oakland Townie Awards, June 2017 in Oakland, CA.
Commercial Cannabis Regulations and Equity
Equity programs in California’s commercial cannabis market are an attempt by incorporated governments within the state to address the disproportionate impact of the War on Drugs on communities of color and to broaden avenues of access to business ownership for people directly affected by the War on Drugs. Consistent with California state law, local city and county governments have ultimate say over regulations within their authority. State law does not require local governments to have equity programs. As cities and counties can move to outright ban commercial cannabis activities, they can also voluntarily develop policies for addressing equity issues.
Why Equity Programs Matter
There is a long-standing history of drug laws in the United States which were essentially targeted at communities of color, who have felt the effects of disproportionate enforcement practices by law enforcement. The United States has the highest incarceration rate in the world. In 2016, there were more than 2.1 million people in federal, state and local prisons, and jails. (Drug Policy Alliance) Statistics provided by the Drug Policy Alliance indicate that in 2016 there were more than 1.5 million drug-related arrests, of which 84% of arrests were for possession only, and although people of color sell and consume drugs at similar rates to whites, they make up 57% of people incarcerated for drug offenses. (Drug Policy Alliance) An extensive report by the ACLU found that African-American people were nearly four times as likely to be arrested for cannabis possession than Whites. (ACLU)
The War on Drugs is decades old, and the impact of the War on Drugs has attributed to multi-generational trauma and community destabilization. Some cities in California have produced Equity programs adjacent to their local commercial Cannabis regulations in an attempt to address this injustice and create access to the industry for people harmed by anti-drug laws and unequal enforcement practices by police departments.
California Equity Programs
The City of Oakland developed one of the first Equity programs to emerge from a municipal government. The Equity program launched on May 23, 2017 when the city began its permit application process.
“An eligible Equity applicant is an Oakland resident who either has a cannabis conviction in Oakland after November 5, 1996, or has lived for 10 of the last 20 years in the police beats with disproportionately higher number of cannabis-related arrests.” Equity applicants must also show an annual income at or less than 80 percent of the 2016 Oakland Average Medium Income relative to household size.
Equity applicants will be eligible to utilize the Equity Assistance program, which will include industry specific technical assistance, business ownership technical assistance, no interest business start-up loans, and waivers from City permitting fees. Oakland’s commercial cannabis regulations reward general applicants that provide free space and “incubate” equity applicants. General applicants acting as incubators get priority application processing over other general applicants.
The City of San Francisco is “committed to helping communities hit hardest by the War on Drugs”.
Eligibility for Equity Applicants in San Francisco must:
– Have assets, excluding non-liquid assets and retirement accounts, below asset limits established by the Director of the SF Office of Cannabis.
– Be any of the following: the business owner, own at least 40% and are the CEO, own at least 51% of the business, or on the board of a not-for-profit cannabis business where most of the Board also qualify as equity applicants.
Equity Applicants must also meet “3 of 6” equity conditions:
- Have an annual income below determined amounts specific to household size.
- Have been arrested from 1971 to 2016 for the sale, possession, use, manufacture or cultivation of cannabis.
- Had a parent, sibling or child arrested from 1971 to 2016 for the sale, possession, use, manufacture or cultivation of cannabis.
(NOTE: Conditions 2 & 3 are NOT limited to San Francisco residents.)
- Lost housing in San Francisco after 1995 through eviction, foreclosure or subsidy cancellation.
- Attended school in the San Francisco Unified School District for a total of 5 years from 1971 to 2016.
- For a total of 5 years from 1971 to 2016, have lived in San Francisco census tracts where at least 17% of the households had incomes at or below the federal poverty level
Eligibility for San Francisco’s Equity Program requires meeting the first two conditions and 3 of the 6 “equity conditions”. Although a report on cannabis equity was produced for San Francisco providing policy recommendations specific to the proposed equity program, explicit benefits of equity eligibility have yet to be made available on the SF Office of Cannabis website. San Francisco will only accept new business equity and equity incubator permit applications in 2018 however, the office has yet to announce a specific date when the application period begins.
An Equity Incubator is a cannabis business that agrees to the following (within 3 years of opening): 1) have local residents perform 30% of all work hours, 2) have half of your employees meet at least 3 of the 6 “equity conditions,” 3) provide a community investment plan with businesses and residents within 500 feet AND must also do one of the following:
- submit a plan to the Office of Cannabis for providing guidance to Equity Applicants running a new cannabis business (like business plans, operations consulting and technical assistance); or
- provide an Equity Applicant rent-free commercial space to run their new cannabis business, which must be equal or exceed 800 square feet, or be at least 10% of the Incubator’s space, and include use of the Incubator’s security services.
1/26/2018: CannaBusiness Law has reached out to the SF Office of Cannabis to inquire on the planned benefits for eligible Equity applicants and will update this blog accordingly when a response is received.
The City of Los Angeles Equity Program breaks down eligibility into three Tiers. All Social Equity Applicants will receive priority processing. 
Tier 1 Eligibility Requirements:
1) Have an annual income 80 percent or below the Area Median Income for Los Angeles based on the 2016 American Community Survey and a prior California Cannabis Conviction, or
2) Have an annual income 80 percent or below the Area Median Income for Los Angeles based on the 2016 American Community Survey and a minimum of five years cumulative residency in a Disproportionately Impacted Area (DIA). 
A Tier 1 Social Equity Applicant shall also own a minimum of 51% equity share of the business that would benefit from the issuance of the license.
Tier 1 Benefits: 1) business licensing and compliance assistance, 2) expedited renewal processing, 3) program site specific conditions, 4) the potential for fee deferrals if the City Council adopts a fee deferral program, and 5) access to an Industry Investment Fund if established.
Tier 2 Eligibility Requirements:
- Have an annual income 80 percent or below the Area Median Income for Los Angeles and a minimum of five years cumulative residency in a Disproportionately Impacted Area; or
- Have minimum of 10 years cumulative residency in a Disproportionately Impacted Area.
A Tier 2 Social Equity Applicant shall also own a minimum of 33 1/3 percent equity share of the business that would benefit from the issuance of a license and enter into a Social Equity Agreement with the City to provide business, licensing and compliance assistance to Tier 1 Social Equity Program participants.
Tier 2 Benefits: 1) business, licensing and compliance assistance, 2) expedited renewal processing, and 3) program site specific conditions.
Tier 3 Eligibility Requirements:
A Tier 3 Social Equity Applicant shall enter into a Social Equity Agreement with the City to provide capital, leased space, business, licensing and compliance assistance to Tier 1 or Tier 2 Social Equity Applicants. A Tier 3 Social Equity Applicant shall provide Tier 1 Social Equity Applicants access to property with no rent and with prorated utilities for a minimum of two years. 
Tier 3 Benefits: 1) expedited renewal processing and 2) program site specific conditions.
Explicit Exclusions to Licensing
There are typically restrictions that could make a person who would otherwise be eligible as a Social Equity Applicant, ineligible to apply for any license at all. Applicants in Los Angeles seeking a Type 7 Manufacturing license should be aware that you are ineligible to apply for a license if you were “convicted of illegal volatile Cannabis manufacturing under Health and Safety Code Section .11379.6 for a period of five years from the date of conviction.” Existing non-compliant cannabis businesses in Los Angeles should also be aware that you will be ineligible to apply if you’ve been “convicted of conducting any illegal Commercial Cannabis Activity after April 1, 2018, for a period of five years from the date of conviction.” The full list of ineligibility criteria is outlined in Los Angeles municipal code Section 104.03 (C).
Amendment Recommendations from Oakland based CBO
Many Cannabis Equity programs are new and are likely to evolve over the coming years. Municipal governments committed to addressing equity benefit from industry feedback. An Oakland based non-profit called The Hood Incubator, whose mission is “to increase the participation of Black and Brown communities in the legal cannabis industry”, provides policy recommendations for “increasing the overall efficacy” of Oakland’s existing Equity program.
These recommendations include:
- Directing city staff to release the request for proposal for the technical assistance consultant. “A targeted outreach effort needs to take place to reach both equity applicants & incubator applicants. The RFP needs to be released so that an organization can be capitalized to take on that task.“
- Direct city staff to add additional items to the list of supporting documentation for equity applicants.
- Direct staff to form an inter-departmental working group in collaboration with each other and with experts and stakeholders to support staff in applying existing codes (especially Building & Fire) to specific cannabis uses based on their zones and specific structure types.
- Direct city staff to clarify the income threshold for equity applicants.
Equity programs are an essential policy tool in expanding access to cannabis business licenses for people harmed by the War on Drugs. No two equity programs are identical, and many are only freshly minted. Advocates and industry people need to continue to engage with local governments to improve existing Equity programs and promote the creation of Equity programs where they are still needed.
 Tier 1 Social Equity Applicants shall receive priority processing for Retailer Commercial Cannabis Activity Licenses (Types 9 and 10) and for Microbusiness Commercial Cannabis Activity Licenses that include retail (Type 12) on a 2:1 ratio with all non-Social Equity Applicants (including Applicants issued Licenses pursuant to Section 104.07). Tiers 1 through 3 Social Equity Applicants shall receive priority processing for all non-retail License types on a 1:1 ratio with all non-Social Equity Applicants (excluding Applicants issued Licenses pursuant to Section 104.08) based on License type category.
 A DIA in Los Angeles is defined as “eligible zip codes based on the “More Inclusive Option” as described on page 23 of the “Cannabis Social Equity Analysis Report” commissioned by the City in 2017, and referenced in Regulation No. 13 of the Rules and Regulations, or as established using similar criteria in an analysis provided by an Applicant for an area outside of the City”.
 The minimum requirements of the property provided to the Tier 1 Social Equity Applicant shall be: 1) Cultivation – minimum 500 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises, whichever is greater 2) Manufacturing – minimum 800 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises, whichever is greater; 3) Testing – minimum 1,000 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises 4) Distributor – minimum 1,000 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises 5) Nonstorefront retail – minimum 1,000 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises 6) Storefront retail – minimum 1,000 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises, whichever is greater) 7 Microbusiness – minimum 800 square feet or 10 percent of Tier 3 Social Equity Applicant’s Business Premises, whichever is greater.