Black cannabis entrepreneurs account for less than 2% of the nation’s marijuana businesses

A 2017 survey from Marijuana Business Daily found that 81% of American cannabis business owners and founders were white and 10% of cannabis business founders identified as Hispanic/Latino or Black. As of last year, despite Black people representing approximately 13% of the population, they accounted for only 1.2% to 1.7% of business owners in the industry, per Leafly’s Jobs Report 2021. 

The prevalence of Black entrepreneurs in the cannabis industry varies from state to state, but few states meet a 5% Black ownership rate. In Colorado, Michigan, and Nevada, Black entrepreneurs account for 2.7%, 3.8%, and 5.1% of cannabis business respectively, according to Marijuana Business Daily’s 2021 Women and Minorities in the Cannabis Industry Report. In Colorado’s capital, Denver, only 5.6% of cannabis business owners are Black, and the majority—75%—are white, according to a 2020 survey by the Denver Department of Excise and Licenses. 

And while Massachusetts was the first state in the nation to require that equity and inclusion be part of its legal cannabis framework—and the first to launch programs specifically designed to assist entrepreneurs from marginalized communities—the state’s efforts to diversify cannabis entrepreneurship mirrors that of states with less robust initiatives. Even with diversity efforts, in 2020, only 11 total licenses had been granted to the 143 participants of the Massachusetts social equity program and the 122 certified economic empowerment applicants, as reported by WGBH News. As of 2021, 73% of active owners, employees, executives, and volunteers of cannabis establishments in Massachusetts were white, and 64% were male, according to the state’s Cannabis Control Commission data. In addition, Black people held a mere 5% of senior-level positions at Massachusetts-based cannabis businesses, according to a 2021 study published in Cannabis Magazine. 

So the question is: Why don’t more Black entrepreneurs have licenses or cannabis businesses? 

Many Black cannabis businesses can’t secure funding

“One of the reasons I think we see Black ownership decreasing over time has to do with regulatory requirements and access to capital,” Perry Salzhauer, founding partner of the Green Light Law Group, a law firm for the marijuana and hemp industries, told Fortune. 

Ignite Daniel, a neighborhood liaison for Gorilla Rx, a California-based Black-owned cannabis company, noted that startup capital played a huge role in whether or not the company would be able to become a successful business. 

“There’s definitely a disadvantage for Black business owners as far as the barriers for getting into the industry,” Daniel told Fortune. “There are a lot of things that aren’t lined up in our community, for us to really flow and be natural. Even if you are business-savvy, then maybe the capital is not there, and even if you do have the funds with all the unexpected fees and everything that just goes along with it, it just causes a lot of headaches.”

In many states, such as California, social equity programs do not assist with the financial side of business ownership, and associated costs for legal cannabis businesses are astronomical. For example, in California you can expect to pay about $250,000 up front to open a dispensary. In addition, cannabis warehouses for rent in California can cost six figures per year and often have multiyear leases. These challenges often prove insurmountable for Black marijuana-related businesses already struggling to secure funding. 

“There is a general pattern of awarding cannabis licenses to BIPOC entrepreneurs—social equity licenses—with the assumption that this is enough,” Courtney Mathis, co-CEO of Cannabis Doing Good, a female-founded company emphasizing racial and social justice in the cannabis industry, told Fortune. “Most folks who are part of the regulated and legacy market are keenly aware that a license alone is not sufficient. Leasing or buying a building, lighting and other equipment, staffing and software, legal and accounting support, et cetera, all require vast amounts of capital. Not just up front, but likely for the life of the business. Without credit worthiness and thus traditional financial history, it is exceedingly difficult to demonstrate to investors that their investment is a lucrative one.”

Many minority entrepreneurs, like Joy Hollingsworth, the Black female founder behind the Seattle-based Hollingsworth Cannabis Company, received no government or federal support and had to privately fund their business.

“High startup capital places a large barrier,” Hollingsworth told Fortune. “We were lucky to pull together our father’s retirement and bootstrap the project by trial and error. We became very resourceful quickly.”  

Federally speaking, marijuana is still illegal, and as a result, reputable banks won’t provide loans for cannabis-related businesses. Additionally, due to racial bias, it is notably harder for Black businesses to secure investors than their white counterparts. Moreover, licensed cannabis businesses face taxes as high as 40%, as reported by The Guardian. Given the financial obstacles and large amount of startup capital required, Black cannabis companies sometimes have the conundrum of being granted a license but not being able to afford running a marijuana business. 

On the other hand, some Black business owners have trouble getting a license at all. As of January 2021, of the Los Angeles applicants initially approved for the first 100 retail store licenses, an estimated 11 Black business owners were accepted, per Pewtrusts.org. 

Getting a license has strings attached

One area of difficulty around getting a cannabis license is that businesses with high amounts of disposable income get fast-tracked. And many Black marijuana businesses don’t meet that criteria. To sell cannabis in Massachusetts, for example, a marijuana business has to sign an HCA—host community agreement—with the city or town they’ll be operating in, and the majority of agreements include offering large bonuses to the community such as tens of thousands of dollars to local charities, citing WGBH News. Without a pricy contribution to their intended neighborhood, businesses applying for legal marijuana licenses in states like Massachusetts can expect to wait a minimum of three months, long enough for many small operations to go defunct. Often, businesses with the available funds to make a philanthropic gesture get expedited reviews of their applications, which are prioritized over their lower-income counterparts.

So what are states trying to do to help?

As of 2017, Ohio created provisions in its marijuana laws that included racial quotas. In the state, it is a legal requirement that 15% of the state’s MMJ (medical marijuana) licenses be awarded to one of four economically disadvantaged minority groups: Hispanics, Asians, Blacks, or Native Americans. However as of 2018, a state judge ruled that use of race in Ohio medical marijuana licensing was unconstitutional. That same year, the city of Oakland, Calif., approved the Equity Permit Program, which stipulates that half the city’s marijuana business licenses go to people who have been convicted of marijuana-related charges. 

This idea of giving priority to weed retailers who have been convicted of a marijuana-related offenses is expanding from cities to states. As of this month, New York is the latest state to initiate a social equity program for former convicts who would like to participate in the legal cannabis industry.

“And this is a good way to segue into what New York is getting right,” Salzhauer told Fortune. “They’re staffing their marijuana regulatory board with local activists. They’re making sure that the people who are chosen to run OCM (the Office of Cannabis Management), government employees as they may be, are people who understand the mission, and they launched the mission with equity in mind. And in a landmark for social equity in cannabis in the United States, they are launching an early licensing program—basically, conditional retail dispensary licenses—which are only being distributed to those who have been disproportionately harmed by cannabis and have former convictions.” 

Heavy-handed policing in communities of color, according to Salzhauer, has led to both higher arrest rates for minorities and stark disparities in cannabis business ownership. In his opinion, laws that truly contribute to social equity in the cannabis industry will also set aside funds to help historically disadvantaged and specifically minority-owned and women-owned businesses overcome their access to capital challenges, which is why he approves of New York’s new $200 million social equity fund. 

“I have friends who did time in prison for cannabis,” Michael Mack, a co-owner of the New York–based Black-and- minority-owned company Cigalar Brand, told Fortune. “So I like the fact that they’re giving the first 100 licenses in New York to Black people with cannabis-related felonies. I mean, I’m not a felon, but the fact that they’re doing that means they’re giving back. I would call it some sort of reparations.” 

Correction, April 27, 2022: At the time of publication the article noted Ohio’s provisions in its marijuana laws that included racial quotas. The article has been updated to reflect that the provisions were appealed in 2018.