Colorado’s Accelerator Program Paves Way for a Social Equity Program

By Danielle Moore on July 31, 2020

Posted in Regulatory Compliance, State Law

On June 29, 2020, Colorado adopted a statewide social equity program (SEP) for permitting cannabis operators.[1] More specifically, House Bill 20-1424 (HB 20-1424) “defines social equity licensees, and modifies and expands the marijuana accelerator program to make it available for social equity licensees and retail marijuana stores.”[2] The new law enables a social equity licensee to participate in the state’s accelerator program, which, as managed by the Colorado Office of Economic Development and International Trade, supports cannabis business development.[3] Colorado’s accelerator licensing program, originally slated to go into effect July 1, 2020,[4] pairs low-income entrepreneurs with existing cannabis businesses and, under the new law, effective January 1, 2021,[5] accelerator licenses will now be available to social equity applicants.[6]

Colorado’s SEP provides cannabis social equity licenses and support services, such as mentorship programs and financial incentives, for entrepreneurs to kickstart their cannabis businesses. Under HB 20-1424, a social equity licensee must be a Colorado resident who: (a) has not been the owner of a revoked cannabis license; and (b) can demonstrate at least one of the following: (1) residency for at least 15 years in an area designated as an opportunity zone or a disproportionately impacted area, as defined by the Marijuana Enforcement Division, between 1980 and 2010; (2) the applicant or a member of the applicant’s immediate family was arrested for or convicted of a cannabis offense or was subject to civil asset forfeiture related to a cannabis investigation; and (3) a household income in the previous year did not exceed an amount to be determined by the Colorado Department of Revenue.[7]

Low-income applicants face significant financial costs in obtaining a cannabis license, as opening a retail cannabis store requires paying an application and license fee totaling $7,000.[8] To address this, Colorado’s SEP provides reductions in application or license fees.[9]

As implemented elsewhere in the U.S., SEPs are commonly designed to allow those who live in communities disproportionately impacted by the “War on Drugs” or who have been previously arrested for cannabis-related crimes to participate in a multi-billion dollar industry. Introduced a week after the murder of George Floyd by a police officer in Minneapolis,[10] Colorado’s SEP in part acknowledges age-old racial inequities, where the Black community has been disproportionately punished for petty drug crimes and non-marginalized races profit in the new cannabis economy.

However, like most SEPs, Colorado’s SEP, has its limits. Colorado led the nation in the legalization of cannabis, passing legislation in 2012[11] and commencing recreational sales in 2014.[12] Although Colorado’s SEP will provide social equity licensees with new business opportunities, it is helping the eligible applicants enter the cannabis marketplace 7 years after marketplace legalization and, with the help of possible competitors, has the potential of creating inherent barriers to success.

Even more, racial disparities in arrests for cannabis have persisted. According to a 2018 Colorado state report: “The number of marijuana arrests decreased by 56% for Whites, 39% for Hispanics, and 51% for Blacks. The marijuana arrest rate for Blacks (233 per 100,000) was nearly double that of Whites (118 per 100,000) in 2017.”[13] Just as legalizing cannabis has not eliminated racial disparities, it is unlikely that simply granting social equity licenses will eliminate the racial inequities in the criminalization of cannabis. However, unlike some other states with SEPs, Colorado has gone a step further, permitting the governor to grant pardons to those who were convicted of the possession of up to two ounces of cannabis.[14] In addition, Colorado’s SEP seeks to address the racial disparities in cannabis arrests by modifying the felony requirement. Previously, a person convicted of a felony in the three years prior to their application was ineligible to receive a cannabis license.[15] However, under HB 20-1424, a cannabis conviction can no longer be the sole basis for license denial.[16] The effectiveness of any SEP is determined by how it redresses the historical wrongs and, as various state departments shape Colorado’s SEP, we will have to wait and see if they get it right.