Connecticut Legislates Equity, But Not a Share of the Profits for Marijuana

In an effort to open up the new legal marijuana market to those most disadvantaged in the years it was criminalized, Connecticut lawmakers set strict standards for who can own start-up businesses.

But they didn’t legislate anything about benefits.

Last month, the state’s Social Equity Council approved the applications of 16 marijuana growers and disqualified 25. Several were disqualified for failing to comply with a provision that says a company can only have financial sponsors if 65 percent is owned by the so-called social equity. partner: Someone who lives in a community with a historically disproportionate number of convictions for drug offenses.

But owning and making a profit are two different things, and the law does not stipulate how a small business owner and a large sponsor must split what they earn.

A spokesman for Gov. Ned Lamont confirmed that the law does not address profit-sharing agreements.

Kristina Diamond, head of communications and legislative programs at the Social Equity Council, said the same.

The board “does not have any rules that address profit sharing,” Diamond said in an email.

That makes sense, said DeVaughn Ward, senior legislative counsel for the Marijuana Policy Project, a Washington, D.C.-based national nonprofit group that was founded in 1995 to lobby for reduced penalties for the cultivation, sale and use of marijuana. marijuana

“It wasn’t specified in the statute for equity applicants to have an opportunity to find partners,” said Ward, a Connecticut resident who has been working to legalize marijuana in the state.

“The Legislature designed the law to give financiers and partners flexibility in a way that advocates for both,” Ward said. “The state could have allowed bonding to start these businesses, or it could have funded them in some way, but the state chose not to. Instead, the state decided to start partnerships and encourage sponsors to invest in these companies.”

The law is seen as a social experiment, Ward said.

“Forcing people with financial resources to work with social equity partners is a new idea,” he said. “A radical idea to a certain extent. No state has done it this way before.”

The result is that social equity entrepreneurs and financial backers must structure their own profit-sharing arrangements, Ward said. If the law had established profit-sharing rules, the companies probably wouldn’t go ashore, he said.

“The state says to these financial backers, ‘OK, come out and finance a $10 million or $20 million operation, but you can only have a 35 percent stake in the company,'” Ward said “If the state had then said, ‘Oh, and your benefits are going to be limited,’ that would have been a very hard sell.”

Still, eyebrows were raised when the Social Equity Council announced its approval of 16 marijuana grower applicants on July 12.

Applications were from growers intending to plant more than 15,000 square feet. Applicants are subject to background checks now, and those accepted must pay a $3 million fee to obtain a provisional license.

One of the applicants under consideration is Shangri-La CT Inc., which according to the state business registry lists one director with a Hartford address and another as an executive of Shangri-La Dispensary, a Missouri company.

Other applications include wealthy backers such as Art Linares, a former Republican state senator and husband of Stamford Mayor Caroline Simmons, a former Democratic state representative.

According to the state business registry, Linares is a director of a company called Linares Faye LLC, which is a director of a holding company that is the parent of Connecticut Social Equity LLC, the applicant on track to obtain a grower’s license of marijuana

“People with money are getting into a type of license that requires a lot of money. That’s not a surprise to me,” Ward said. “These people could make a lot of money or they could lose their shirts. Do you want people who have nothing to lose everything they have? Or do you want people who can stand to lose a couple of million, lose a couple of million?

It’s risky business, according to a June story in US News & World Report.

Corporations are gaining interest in the marijuana industry, the story says, but the profit opportunities are “dark,” especially since the federal government has not legalized marijuana.

Thirty-eight states have legalized marijuana for medical use and 19 states for recreational use, according to the June news release. And while the US House of Representatives passed a federal legalization measure in April, so far the US Senate has not moved.

There are other obstacles, according to US News & World Report: Legal marijuana companies face competition from “illicit sellers,” and because of all the uncertainty in the industry, banks are hesitant to lend money and insurers are reluctant to cover the companies.

Still, investors are drawn to the possibilities. Legal marijuana sales are expected to grow more than 16 percent annually to reach $51 billion by 2025, Bankrate reported in May, citing growing use of products made with cannabidiol, or CBD.

Ultimately, Ward said, “people who have money will find ways to access it,” but Connecticut is balancing that with plans to divert tax revenue from marijuana companies to communities hardest hit by aggressive enforcement. of drugs and clearing people’s records. convicted of certain marijuana offenses.

Ward said he has encouraged social equity entrepreneurs to seek licenses for marijuana businesses other than cultivation. The state offers retailers, manufacturers, packers, delivery and other types of licenses.

“Grower licensing is the jewel in the crown – it’s a highly regulated specialist business that requires a lot of equipment and expertise,” Ward said. “People in social equity shouldn’t be making big, risky investments. I was trying to push them into delivery and retail licenses, which require a lower capital investment initially. It’s an easier way to get into the sector”.

In Connecticut and other states with social equity programs, some investors seek community partners who meet residency and income requirements.

Some of the companies approved so far, for example, list one principal with a Connecticut address and another principal with residential and business addresses in New York or Massachusetts or Pennsylvania, state business records show.

“Fishing for social equity partners absolutely happens,” Ward said. “We need to arm social equity partners for when people with business acumen come in. The state needs to do a better job of helping them.”

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