When the Smoke Clears: Enforcing Social Equity Once the Smart and Safe Arizona Act Passes

By Chandler Smith. 

Arizonans should expect to see recreational marijuana legalized in the coming months. Whether this change comes in the form of a statutory amendment through HB 2871, HB 2657, or by ballot initiative through the “Smart and Safe Arizona Act,” it is on the horizon. Like HB 2871 and HB 2657, The Smart and Safe Arizona Act (hereinafter “The Act”) features a social equity ownership program provision. Social equity is a popular subject in the marijuana industry as jurisdictions seek to redress harms caused by harsh marijuana policies that have been imposed on minority communities since the War on Drugs. Localities in California, Nevada, Illinois, Michigan, Oregon, etc. have enacted social equity programs that prioritize the award of licenses for individuals with prior marijuana convictions or those from areas disproportionately impacted by harsh marijuana policies. While these programs have good intentions, the overall effectiveness varies and is widely criticized. If recreational marijuana is legalized in Arizona, the implementation of the social equity ownership program—if designed insightfully and intentionally—can provide minorities with a market share in the marijuana industry that previously incarcerated and excluded them.

 

“$5 weed bill” by the queen of subtle is licensed under CC BY-NC 2.0

States Address Inequity Following Marijuana Legalization 

To date, Arizona has one of the largest prison populations in the country. The Prison Policy Initiative reports that “Arizona has an incarceration rate of 877 per 100,000 people,” making it stand out internationally. Black people, Indigenous people, and other people of color are overrepresented in Arizona prisons; White people make up 58% of Arizona’s population but only 35% of the state’s prison population. Conversely, Latinx, Native, and Black people comprise 39% of the state’s population but 63% of the state’s prison population. For marijuana charges specifically, Arizona statistics fare no better. A 2018 ACLU analysis reported that Black Arizona residents are three times more likely than their White counterparts to be arrested for marijuana possession. Marijuana drug arrests make up 46% of all drug arrests in Arizona. This quantity of arrests is even more unnerving when reminded that “Arizona [is] the only US state where the smallest possession quantity of marijuana is charged as a felony.” Such a grossly massive prison population oversaturated with Black and Brown people must be met with an equally as aggressive revisionary social justice plan.

Arizona has the opportunity to join in on the small group of states seeking to redress these inequities through social equity programs. For example, in California, theCity of Los Angeles enacted a Social Equity Program with the goal of promoting “equitable ownership and employment opportunities in the [marijuana] industry in order to decrease disparities in life outcomes for marginalized communities.” The City of LA adopted a 3-tiered priority application process to license individuals with past marijuana arrests/convictions and those that live in low income/high arrest areas. LA’s social equity program also provides applicants “technical and business assistance to assist in navigating [the] City’s [marijuana] licensing process.”

However, the effectiveness of these programs is questionable. By far, the main impediment to their success is a lack of access to capital to support businesses in the hypercompetitive marijuana market. Marijuana Business Daily reports that “many of the licenses that have been issued . . . are plagued by corruption, including predatory investors” or by applicants defrauding regulators by falsely presenting themselves as people from areas disproportionately affected by the War on Drugs. Additionally, states that are “late to the party” in implementing these programs do a disservice to their citizens and create chaos for state departments. Nevada failed to incorporate a social equity program into its legislation before recreational marijuana was legalized in 2017. Now, Nevada only has “one fully Black-owned retailer and two Black-owned cultivation licenses out of more than 330 permits.” The state’s attempts to create an inroad for social equity programs have been described as “hectic.” Nevada allows for “vertical integration” into the market, but with so many well-established marijuana businesses, “it’s almost an impossible head start to overcome” for disadvantaged minority owners.

The Smart and Safe Arizona Act’s Social Equity Ownership Program

As it’s written, The Act acknowledges that marijuana policies have disproportionately impacted certain communities. The Act lays out a few ways to address this inequity. First, The Act designates $2,000,000 from the Medical Marijuana Fund to be transferred to the Department of Health Services (hereinafter “DHS”) to develop and implement a “social equity ownership program.” The goal of this program, like other states’ programs, is to promote the ownership and operation of marijuana establishments by “individuals from communities disproportionately impacted by the enforcement of previous marijuana laws.”

The Act states that no less than six months after DHS adopts the final rules of the social equity ownership program it shall issue twenty-six marijuana establishment licenses for qualified entities in addition to the approximately 150 allotted for all owners. The Act also establishes the Smart and Safe Arizona Fund consisting of monies from the Medical Marijuana Fund, interest, taxes, and private donations. Of the funds in excess of the actual and reasonable costs of implementing The Act, 10% shall go to another newly created fund: the Justice Reinvestment Fund. The purpose of the Justice Reinvestment Fund is to support programs and initiatives that focus on public and behavioral health, restorative justice, jail diversion, reducing the prison population, the restoration of civil rights, and the expungement of criminal records.

While The Act has many positives, including the opportunity for expungement of marijuana possession convictions, there are numerous ways the social equity ownership program can be improved. Fortunately, DHS has not announced the details and requirements of the social equity ownership program, so there is time to influence the discussion. It is imperative that the intricacies of the program address the issues of a lack of capital, investor greed, and potential for fraud. Additionally, the program must be detailed and clear enough to communicate the requirements to individuals who may lack the technical business knowledge of corporate ownership. Arizona should consider adopting corporate governance statutes to avoid attorneys and investors contracting around the benefits of the program. DHS could also establish a pairing or mentorship program with local attorneys who want to assist social equity ownership license holders with regulatory compliance. Furthermore, DHS could propose tax incentives to provide easier access to real estate for these minority-owned businesses. Applicants could also receive assistance in accounting services, human resources, leadership training, and low interest loans. Finally, the program needs to be tested before it’s launched to avoid technological flaws that could hurt hardworking applicants’ efforts.

What Now?

Now, we wait. The Smart and Safe Arizona Act will be listed as Proposition 207 on general election ballots this November. If it passes, lawmakers will have until April to establish regulations including the requirements of the social equity ownership program. The program has the potential to benefit many disadvantaged Arizona residents. Individuals whose housing, employment, or educational opportunities have been diminished by marijuana convictions must not be left behind as the marijuana market changes. Even a mere six months delay in the program is too much for individuals already centuries behind in access to corporate ownership.

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By Chandler Smith

J.D. Candidate, 2022

Chandler is a 2L pursuing a Juris Doctor and Master of Sports Law and Business. Before law school, she earned her degree in Psychology from William & Mary. Chandler is interested in practicing commercial litigation and was a summer associate at Perkins Coie following her 1L year. In her free time, she enjoys working out and trying the best food spots in Arizona.

The opinions expressed herein are those of the individual contributors to the ASLJ Blog and should not be construed as the opinions of the Arizona State Law Journal or the Sandra Day O’Connor College of Law at Arizona State University.