The Great Divide

Cannabis is projected to be a $70 billion market by 2028—yet those hurt most by the war on drugs lack access

Who can sell cannabis legally?
Who can sell cannabis legally?

As a cannabis entrepreneur based in Long Beach, California, Edgar Cruz's work in the industry's social equity space is personal. 

At 15, Cruz had his first run-in with the law when he was arrested and charged for illegal possession of marijuana. That charge, he tells CNBC Make It, has influenced his decision to not only be involved in the now legal market, but to also ensure that entrepreneurs like himself have equal access to the billion-dollar industry. 

Today, 18 states, two territories and the District of Columbia have passed legislation to allow adult recreational use of cannabis in the U.S. And 36 states and four territories have passed legislation to allow medical use, according to the National Conference of State Legislators. This increased legalization has put the legal marijuana market on track to be worth $70.6 billion globally by 2028. In the U.S., where marijuana is still illegal at the federal level, legal marijuana sales are expected to hit $24 billion in 2021 alone.

"To see how lucrative the industry has become and who's profiting from these legalization changes versus who is still suffering because of the history behind it is very frustrating," says Cruz, who has been trying to get his cannabis brand Ekstrepe off the ground for three years now. 

In 2017, 81% of marijuana business owners in the U.S. were white, 5.7% were Hispanic, 4.3% were Black and 2.4% were Asian. Cruz, along with several other equity advocates in the cannabis space, says the lack of diversity in the industry is at least partly due to the lasting impact of the war on drugs. And while many cities and states have launched equity programs to try and close this gap, Cruz, who is a participant in Long Beach's Cannabis Social Equity Program, says these programs have often failed due to local government regulations and a lack of resources and capital for budding entrepreneurs.  

Edgar Cruz, CEO of the cannabis brand Ekstrepe.
Photo courtesy of CNBC Make It video.

Impact of the war on drugs

In the early 1970s, President Richard Nixon announced the "war on drugs," kicking off a global campaign to increase federal drug control agencies in order to reduce the production, distribution and consumption of illegal drugs. Following this campaign, which still has lingering effects today, the U.S. prison population skyrocketed, and Black and Latino communities were disproportionately impacted by drug arrests and racial profiling. 

From 1980 to 1997, the number of people behind bars for nonviolent drug offenses increased from 50,000 to over 400,000, according to the Drug Policy Alliance. Today, drug offenses are the leading cause of arrest in the U.S., with more than 1.5 million people arrested for drug law violations in 2019. 

Black Americans are now 3.6 times more likely to be arrested for marijuana than white Americans, despite having similar usage rates, reports the American Civil Liberties Union. In some counties, the ACLU reports that Black residents are "20, 30, 40 or even 50 times more likely" to be arrested for marijuana than white residents. These arrests, according to the data, can lead to life-altering circumstances, such as families being evicted from public housing, parents losing their children due to court orders and long-term difficulty in finding employment. 

New York State Senator Liz Krueger, who played a critical role in passing New York's Marijuana and Taxation Act in March, says she first wanted to end the war on drugs when she looked at the data and saw the disproportionate impact marijuana arrests were having on communities of color in her state. 

Towards the end of New York City Mayor Michael Bloomberg's administration in 2012, Krueger says roughly 50,000 arrests were being made per year in the city for marijuana possession. Many of these arrests were young people of color whose lives were turned upside down because of a run-in with the law for a low-level drug offense. 

"These young people who weren't doing anything else wrong were suddenly being caught up in the criminal justice system because they had some marijuana cigarettes," she says. "And when we looked at the data statewide, it trended the exact same way. No matter what the population ratio was in any given area of the state where people were getting arrested and dragged into the criminal justice system [for marijuana], the courts were full of young people of color, and so I knew we had to do something."

With the recent passing of the state's Marijuana and Taxation Act, Krueger says she and other New York lawmakers worked to ensure that racial equity stayed at the forefront of their plan. In addition to expunging the records for those previously convicted of marijuana possession under the now-legal amount of three ounces or less, the state says it will invest 40% of the revenue from the legal marijuana market back into the communities hit hardest by the war on drugs, another 40% into public schools, and 20% into drug treatment and education. Krueger also explains that 50% of the state's cannabis licenses will go to social equity applicants. 

New York's goal, she says, is to learn from the frustrations of other states that have previously legalized marijuana, but have failed to equalize the playing field with their social equity programs and funding. 

"We've seen in lots of other states that big pharma, big tobacco, alcohol and large companies are all prepared to move in and just take over right away," she says. "We don't want that to be the story in New York. We want the story to be small mom-and-pop community-based businesses starting and growing and expanding…[and] we want people who are selling in the communities that they live in in the illegal market out of the illegal market."

Edgar Cruz, CEO of cannabis brand Ekstrepe.
Photo courtesy of CNBC Make It video.

Barriers to equity

Many states that have legalized marijuana, including New York, have worked to enforce social equity programs, which are initiatives put in place to address the long-standing impact marijuana enforcement policies have had on communities of color. 

In 2018, when Long Beach announced the launch of its cannabis equity program, Cruz was one of its first participants. To qualify, applicants had to have a family income that was at or below 80% of the Los Angeles, Long Beach, Glendale area median income, which is adjusted based on family size. Applicants also had to satisfy at least one of three criteria: being a resident in Long Beach for a minimum of three years; being arrested or convicted for a crime related to the possession, sale or use of cannabis in Long Beach prior to marijuana being legalized in the state in 2016; or being a Long Beach resident currently receiving unemployment benefits. 

Once accepted into the program, participants who want to work in cannabis receive assistance with landing a job in the industry and those who want to start their own business receive assistance with navigating the city's application process in order to receive licensing. Of the 93 participants who have gone through Long Beach's equity program since its launch in 2018, only one has received a license, says Cruz. 

Across the country, data shows that many states and cities have seen less than satisfying outcomes from their social equity initiatives. In Massachusetts, only 1.2% of businesses are owned by racial minorities despite their social equity efforts. In Illinois, where 89 dispensaries exist, none are minority-owned. And in Chicago, where 16 dispensaries exist, just two are located in Black and Brown communities, according to The Chicago Reporter.

Some of the biggest barriers to accessing a license in the legally regulated cannabis market are capital and local government regulations, says Cruz. Both have impacted his ability to successfully launch his own company in Long Beach. 

Currently in Long Beach, the only way to legally sell cannabis is through a dispensary. Though city officials are currently pushing for more dispensaries in the area, Cruz explains that even before the Long Beach equity program was started, a 2016 voter-approved legislation capped the number of dispensaries in the city at 32. Today, all of those dispensaries are open or in the process of opening, according to Long Beach Post News. None of these dispensaries are Black-owned.  

Securing cultivation and manufacturing facilities also presents a barrier to entry. Right now, opening your own cultivation facility in the city can easily cost up to $1 million, says Emily Armstrong, Long Beach's cannabis program manager. In addition to allowing more dispensaries, city officials are also working to allow shared-use manufacturing facilities — which would allow multiple businesses to work out of the same location and share costs — and delivery-only licenses. These options, according to advocates, will help reduce the financial barrier for entrepreneurs who are looking to start their business but don't have the capital needed to open up a storefront of their own.

"There's a huge barrier to entry for almost anyone to get into the space," says Kyle Kazan, CEO of the Glass House Group, an integrated cannabis brand based in California that owns two marijuana farms and sells cannabis products. As a seasoned investor and manager of private equity funds, Kazan says he was fortunate enough to enter the cannabis market when it became legal in the state in 2016 due to his relationships and access to capital. 

"By the time we were all said and done, to get the first 500,000 square feet in both farms, we were over $20 million in purchase price and also retrofitting costs," he says. "And that was money raised in cash. If I didn't have a long track record with a lot of investors successfully deploying capital and returning good returns, I'd have zero chance of doing it."

Today, Kazan is working with Cruz to provide him with the space, capital and guidance to grow his products and his business. As an industry leader, who previously served as a Los Angeles police officer, Kazan says he understands the profound impact drug enforcement policies have had on communities of color and he's not proud of his "zealous participation in the drug war."

"Just from my observations in my life experience and being a business person, we need to rebuild and offer opportunities to these areas that were so decimated by the war on drugs," he says, while explaining that he and his team members at Glass House are also working with community leaders and advocates to "get people out of prison for violating the same federal law that I am violating right now."

Glass House farm in California.
Photo courtesy of Glass House.

Additional solutions

While states are slowly legalizing the recreational and medical use of marijuana for adults, many advocates are calling for the federal legalization of cannabis as well.

In early June, advocacy groups like ACLU and the NAACP called on congressional leaders to pass the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which is a comprehensive marijuana policy that would remove marijuana from the Controlled Substances Act, allow people with cannabis charges to have their records expunged and create a federal tax on marijuana with the funds going to community reinvestments. The act, which was approved by the House last year, is being reintroduced at a time when Senate leaders say they are also drafting up a bill to legalize marijuana.

In April, Senate Majority Leader Chuck Schumer (D-NY) said he's willing to move forward with a legalization bill even if President Biden continues to oppose.

But, in addition to federal legalization and the need for more capital, Cruz says another big piece to closing the opportunity gap in cannabis is education. 

After noticing the struggles that Long Beach was having with its cannabis equity program, Cruz took matters into his own hands last year. He partnered with equity assistance programs like United CORE Alliance to launch an equity oversight committee in Long Beach called the Long Beach Cannabis Commerce Council (LBCCC). 

"We were awarded the solicitation to pilot one program, which is called the Entrepreneurship Academy Program for Cannabis Equity, which provides workforce development, business development, business plan development [and] technical assistance," he says. "Social equity recipients have tough times getting over these hurdles."

The first class for the academy was held on June 5, says Cruz. And, Long Beach's cannabis equity department gave him $25,000 to help further LBCCC's efforts. 

Right now, Cruz says he has put developments for his own brand on hold so that he can focus on LBCCC and its work to help existing equity program participants get the support they need. 

"We don't need anybody that's coming in here just for the financial aspect," he says. "We all understand that this is a cash cow now. What we need is support for our communities to make sure that we are included in this kind of cultural-based industry."

Video by: Alysha Webb

Check out:

Why Black workers still face a promotion and wage gap that’s costing the economy trillions

Why restoring voting rights to former felons is “one of the key civil right issues of our time”

Why the homeownership gap between White and Black Americans is larger today than it was over 50 years ago

Homeownership and America's growing wealth gap
Homeownership and America's growing wealth gap