The Highs and the Lows of the Adult-Use Marijuana Social Equity Program

By Chloe Plaisance.

Introduction

In November of 2020, Arizona voters passed Proposition 207, also known as the Smart and Safe Arizona Act (the “Act”), which legalized adult-use marijuana for individuals 21 and older. Proposition 207 defines the terms of legal possession of marijuana and sets forth guidelines for retail establishments which intend to sell marijuana. In addition to regulating the use and sale of marijuana, Proposition 207 goes one step further to aid those who were previously impacted by marijuana laws. First, the Act allows for certain individuals to petition for expungement of their criminal records pertaining to certain marijuana related offenses. Second, the Act creates “social equity licenses” for adult-use marijuana establishments.

Social Equity Licenses

The social equity program created by Proposition 207 is intended to make adult-use marijuana establishment licenses available to individuals and communities that have been negatively impacted by the enforcement of previous marijuana laws. In furtherance of that goal, the Arizona Department of Health Services (“ADHS”) adopted the final program rules setting forth eligibility criteria in June of 2021. The qualifying criteria generally fall into three different categories: Business-Related Criteria, Personal Criteria, and Disqualifying Criteria.

Business-Related Criteria: Eligible applicants must 1) complete a training course provided by ADHS before submitting the application, 2) own at least 51% of the business entity applying for the license, and 3) only be removable from their position with their own consent.

Personal Criteria: Eligible applicants must 1) have an annual household income below 400% of the poverty level, 2) have been negatively impacted by previous marijuana laws, either with respect to their own criminal offenses or a family member’s, and 3) reside within a zip code that ADHS has identified as having been disproportionately impacted by the enforcement of previous marijuana laws.

Disqualifying Criteria: Applicants will not be eligible if they 1) were ever convicted of a felony violent crime or 2) were convicted of a felony violation of federal controlled substance laws and completed their sentence less than 10 years ago.

Benefits and Drawbacks of the Social Equity Program 

First and foremost, the creation of a social equity program is an impressive first step toward reforming marijuana laws and creating equity. This program makes opportunities available, not only to those who previously couldn’t afford it, but to those who were directly impacted by the outdated laws. Instead of being met with prejudice for their previous offenses, qualified applicants are given a chance to expunge those offenses from their records and to benefit from the industry.

To further increase the accessibility of these licenses, those who apply for an adult-use marijuana establishment license under the social equity program are entitled to a drastically reduced application fee. Instead of the $25,000 fee paid by other applicants, social equity applicants need only pay $4,000 to apply for a license. Additionally, the ownership and removal requirements should help to ensure that applicants are not exploited for their eligibility. These requirements make sure applicants have a say in the operations of their businesses and retain their positions of authority.

Initially, the public was worried about the transferability of these licenses. Members of several pro-cannabis groups expressed concern that, because the licenses are transferable, the program would certainly fail. The fear was that recipients of these extremely valuable licenses would immediately turn around and sell to those who were not otherwise eligible to apply, rendering the program ineffective in its efforts to promote equity. In response to this, ADHS updated the program rules to require that applicants do not have any pre-arranged agreements to sell or otherwise limit their ownership of the licenses upon receipt.

It is undeniable that the social equity program is aimed at creating opportunities which may not have existed without it, but it is certainly not perfect. The social equity program has been met with criticism for not doing enough to truly create equity. For example, the rules do not address the disproportionate effect of marijuana laws on different racial groups. In 2018, the ACLU found that Black people are 3.64 times more likely to be arrested for marijuana related offenses than White people, despite similar rates of marijuana use. However, no portion of this program is aimed at mending racial inequity.

Secondly, there are simply not enough licenses to create the kind of equity Arizonans are seeking. Under Proposition 207, there are only 26 licenses available to be allocated to qualified applicants. This is problematic for two reasons. First, ADHS has identified 87 zip codes representing communities that have been disproportionately impacted by the enforcement of previous marijuana laws. With only 26 licenses to give out, less than one-third of the disadvantaged communities will be able to participate in this program. Second, ADHS is expecting thousands of applications which will all be submitted along with a non-refundable fee. The State of Arizona is guaranteed to make anywhere between $8 and $20 million in application fees, but each applicant has about a 99% chance of losing $4,000 (or more when adding up application fees, attorneys’ fees, and other business expenses).

Lastly, even for those lucky 26 recipients of social equity licenses, applicants are limited in where they can operate their establishments. Many, if not most, jurisdictions do not permit the operation of marijuana establishments that only sell adult-use marijuana. This means that if an applicant receives a social equity license and intends to use it in such a jurisdiction, they either need to find a different city or become dual-licensed to operate their adult-use establishment in concert with a medical marijuana facility. Either of these options can be costly, and increasing costs for these individuals does not conform with the purpose of creating equity.

Creating Equity on a Larger Scale

The concerns addressed above show that there is more to be done. Creating social equity is much easier said than done, but there are steps the legislature can take to address the main issues set forth in this article. First, when creating new equity programs, the legislature should take an intersectional approach when determining which individuals and communities have been the most disproportionately impacted. This means not only considering socio-economic status, but race and ethnicity as well.

Second, upon successful implementation of the social equity program, the legislature should increase the number of licenses available to reach more individuals and more communities. Alternatively, or additionally, the fee structure could be modified. If the application fees were refundable, or even partially refundable, the program could avoid perpetuating inequity by putting disadvantaged people at an even bigger financial disadvantage.

Lastly, the jurisdictional restrictions on adult-use only establishments show that granting a license may not be enough. An applicant may receive a license and be unable to use it due to jurisdictional and financial constraints. To fully effectuate the social equity program, jurisdictions should be required to allow adult-use only establishments, at least in some areas.

Conclusion

The creation of the social equity program was a crucial step on the path toward equity, but there is much more work to be done. This program undoubtedly increases opportunities for a handful of individuals and communities negatively impacted by the previous enforcement of marijuana laws. To truly create equity, however, there needs to be an increase in accessibility and more opportunities for those who need it most.

"LEGAL Colorado Marijuana Grow" by Brett Levin Photography is licensed under CC BY 2.0

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By Chloe Plaisance

J.D. Candidate 2023

Chloe is a 2L at ASU’s Sandra Day O’Connor College of Law and a Staff Writer for ASLJ. She is from Denver, Colorado, and earned her BA from the University of Colorado at Boulder. Chloe’s legal interests include commercial litigation, real estate, and land use. Outside of law school, she enjoys painting, watching movies, spending time with her dog, and soaking up the Arizona sun.

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.