Big Cannabis, Priority Applicants, and Social Equity in the Budding Marijuana Industry
The city of Cambridge, Massachusetts recently passed an ordinance prohibiting existing medical marijuana dispensaries from engaging in the sale of recreational marijuana for two years. Specifically, the ordinance gives priority to economic empowerment applicants, defined under the state’s Cannabis Control Commission as businesses that are owned by, serve, or reside in areas disproportionately impacted by high amounts of drug-related arrests, including businesses owned by individuals of Black, African American, Hispanic, and Latino descent. For the first two years after the Cambridge ordinance’s enactment, only those economic empowerment businesses may open recreational marijuana facilities in the city. After the first two years, the application process will open to women- and minority-owned businesses, participants in the state’s social equity program, low income residents, and existing medical marijuana dispensaries. All other applicants are indefinitely excluded from the application process.
The Cambridge ordinance is not particularly unique. Multiple states and cities with legalized marijuana, or proposals to legalize marijuana, have set forth regulations that may be categorized as social equity laws; that is, laws aimed at preventing the establishment of Big Cannabis by giving preference to smaller and locally owned businesses, especially those owned by minorities, low income residents, and others considered to be the most disproportionately impacted by criminal enforcement. Recently, California Gov. Gavin Newsom signed several such bills aimed at increasing the participation of minority-owned businesses in that state’s marijuana market. Similar laws have been enacted or proposed in Michigan, Pennsylvania, and Illinois, to name a few. Notably, Democratic presidential candidate Bernie Sanders recently unveiled a plan to legalize marijuana at the federal level, which includes provisions aimed at benefiting communities most impacted by the war on drugs and preventing legalized marijuana from turning into Big Tobacco. The latter provision would include market share and franchise caps to prevent consolidation and profiteering within the marijuana market.
These social equity laws have already begun to draw legal challenges. With regard to the Cambridge ordinance, medical marijuana dispensary Revolutionary Clinics, which currently operates in Cambridge, has filed a lawsuit against the city seeking to prevent enforcement of the ordinance and thus allowing it to begin recreational marijuana sales sooner than two years. In the lawsuit, Revolutionary Clinics argues that the ordinance’s two-year ban on medical marijuana dispensaries violates state law and would cause it to suffer upwards of $700,000 in lost profits per month, based on its current medical sales and projected recreational sales.
The lawsuit by Revolutionary Clinics may serve as a test case for other marijuana businesses that could be impacted by social equity laws. While that case is based on state law, it is also easy to imagine legal challenges to such regulations based on federal and state constitutional grounds, such as due process and equal protection. Likewise, the implications of federal and state antitrust laws in the context of Big Cannabis are yet to be seen. Lawsuits involving social equity laws are likely to set important legal precedents regarding the interplay between the public policy of promoting equality while still ensuring free enterprise in this emergent industry. Marijuana businesses would be well advised to keep an eye on their state and local governments’ social equity laws, as well as the lawsuits and court decisions that will inevitably follow.