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May 5, 2022

Entrepreneurs frustrated with flood of retail cannabis applications

HBJ PHOTO | steve laschever Jason Ortiz is a longtime cannabis advocate in Connecticut and the founder of the Minority Cannabis Business Association, which advocates for diversity in the marijuana industry.

As the first lottery application window for retail cannabis businesses closes, many applicants are weary of the process that has thousands of social equity candidates competing for just six licenses.

Retail applications had to be submitted to the state by midnight Wednesday, and at least 12,000 new entries were submitted between last week and the closing for both the social equity and general lottery.

Overall, there were 15,602 applications submitted for retail licenses, including more than half (8,357) from social equity applicants.

Only 12 licenses will be doled out during the first lottery round -- six for general applicants and six for social equity applicants. 

More lotteries will be held in the future for retail and other licensing types, the Department of Consumer Protection has said, but some who entered this first application round are frustrated with the flood of applications in recent weeks making the chance of someone who submitted just a single social equity application roughly 0.07%.

Matt Epstein, a financial backer of a social equity applicant, said the Social Equity Council has a difficult task ahead of it dealing with so many submissions for just a limited number of licenses. Epstein, like others, expressed concerns that social equity candidates backed by large operators and financial entities could have an oversized presence in the lottery, since an unlimited number of applications can be submitted so long as the fee is paid.

“The SEC should publish statistics on how many distinct, unrelated entities are behind those applications, and once the provisional licenses are awarded, how many of the ‘winning’ applications were disqualified for not meeting the standard set by the law,” Epstein told the HBJ. “It is clear to me that if the SEC does its job correctly, there will be very few legal arrangements that actually permit social equity participants to maintain a 65% controlling interest in their entity, receive 65% of both the operating free cash flow via distributions and salary, as well as 65% of the capital gain value creation over the first three years of existence.”

Multistate operators have been buying up cannabis businesses as more states continue to legalize marijuana, and there’s been concern they’ll do the same in Connecticut’s market. Some have pointed to Connecticut Innovations recent $1.25 million investment in 1906 as an example of the state welcoming out-of-state companies into the market ahead of Connecticut residents impacted by the war on drugs.

“The environment of scarcity should have never been created in the first place starting with the limited number of licenses,” said Tiana Hercules, a social equity applicant pursuing several licenses to operate in Hartford. “A true equitable process would have prioritized those impacted by drug convictions, veterans, the disabled and minority owned businesses.”

Hercules and others involved in the industry have taken to an email chain that was initially started to publicize the Social Equity Council’s informational online webinars to air their concerns about the process to SEC members. Others spoke up during the SEC’s meeting May 3, to talk about the issues they’ve had.

“True social equity is one ticket per person period. Then it's an even playing field,” Bloomfield Attorney Aaron Romano wrote in the email chain. “I have clients who qualify who did not apply because the system is rigged. This is a failure.”

Hercules said that a true social equity applicant doesn’t have the resources to put in hundreds of applications for a retail license.

“When you create more scarcity in an environment riddled with poverty and scarce resources you create opportunity for exploitation,” Hercules wrote in an email. “What this process has revealed is that a highly-educated Black woman cannot be trusted to start a business, in an industry that she knows a lot about in a community she is part of and loves without partnering with someone with very deep pockets who will likely reap most of the profits from her labor, credibility, and intellect.”

Hercules said she hopes the DCP and SEC go back to the drawing board in future lotteries in response to applicants’ concerns. Jason Ortiz, director of Students for Sensible Drug Policy and former president of the Minority Cannabis Business Association, said he and other groups alerted Gov. Ned Lamont about their concerns back in February. He recommended significant changes to the next lottery round.

“They should make the next lottery round unlimited in the number of licenses they will give out, but only 1 per person/entity. That one seemingly small change would radically alter the marketplace, allow for small to large scale operations to grow and work together, and provide a clear onramp for our legacy market operators to transition from the shadows into the legal and regulated market,” Ortiz said. “Lamont could have made that choice from day one, so we have to ask, why didn't he choose to provide equity and opportunities for all from day one?”

Epstein said the SEC should make it clear how many entities submitted several applications for the same business license.

“Sunlight on this part of the process is the only way any type of real social equity will be achieved,” Epstein said.

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