The Push to Diversify Colorado’s Cannabis Industry

Like many women in male-dominated industries, Wanda James is a serial overachiever. She purged the word “can’t” from her vocabulary during military service as a commissioned officer in the U.S. Navy. Subsequent stints in the corporate world, the restaurant industry, and the political sphere imbued her with savvy. All of that proved invaluable when James decided to enter the overwhelmingly white world of legalized cannabis. In 2009, she says, she and her husband, Scott Durrah, became the first Black entrepreneurs in the country to operate a licensed dispensary, cultivation, and edibles business when they opened the Apothecary of Colorado in LoDo. Even now, James knows of fewer than 20 cannabis licenses held by Black or brown people—and that’s in a state with 2,770 marijuana licenses and more than $8 billion in sales since 2014.

The disparity is frustrating to James, because before Colorado OK’d marijuana, Black and brown Centennial Staters bore the brunt of drug enforcement efforts. In fact, according to data from the American Civil Liberties Union, Black people are nearly four times more likely than white people to be arrested for marijuana possession nationally, even though both groups use the drug at roughly the same rates. James’ own brother brought that statistic home with a possession arrest in the early 1990s. “If we paid a price on the prison side,” says James, who views legalized cannabis as a start to righting past wrongs, “we should be able to make it up on the business side.”

Yet Colorado’s cannabis industry remains dominated by white people. Data confirming the racial imbalances James says she sees every day are scarce, because neither the city of Denver nor the state of Colorado has released the demographic information it collects from license applicants. “We can’t legally require people to fill out the diversity information, and we can’t guarantee the accuracy of any information that we do collect,” says Eric Escudero of Denver’s Department of Excise and Licenses. But in late 2019, that agency conducted a Cannabis Business and Employment Opportunity Survey in which 80.1 percent of the 316 cannabis industry respondents were white (Hispanic, Latino, or Spanish respondents represented 13.9 percent; Black people or African Americans made up 6.6 percent). Those findings roughly mirror the results of a national survey conducted in 2017 by Marijuana Business Daily.

“We’ve got to find ways to encourage Black and brown ownership in the cannabis space,” says James, who now owns Simply Pure, a dispensary in LoHi. She’s not alone in that sentiment. Over the past year, an array of activists, entrepreneurs, and public entities have launched campaigns to make the local industry less exclusive of people of color. Achieving racial equity, however, will require much more than good intentions.

“The wealth gap really has a lot to do with all the systemic imbalances, and that’s true also in cannabis.”

From government licensing officials to cannabis industry representatives, many people agree the sector is ripe for a racial rebalancing. “Social equity is among Denver’s top priorities when it comes to regulating cannabis,” Escudero says. Although many Denverites don’t realize it, there’s been a moratorium since 2016 on new cannabis licenses that would result in new storefronts or new cultivation locations. In 2021, the city plans to lift that nearly five-year-long cap; however, it’s not certain exactly what licenses will be made available. Escudero says his office is currently reviewing its license cap policies and likely will offer novel license types—such as delivery and hospitality—and possibly licenses for new retail and cultivation locations. Either way, there’s been a flurry of efforts to remove some of the barriers that prevent Black and brown people from capitalizing on pot’s profit potential as new licenses come online this year. Throughout the summer and fall, Denver’s Department of Excise and Licenses’ Marijuana Licensing Work Group (MLWG), a panel of 25 elected officials, activists, industry reps, and lobbyists, met to discuss strategies for promoting racial equity in Colorado’s cannabis scene. The MLWG filed its recommendations with the Excise and Licenses’ Office of Marijuana Policy, which gave the MLWG’s suggestions to Mayor Michael Hancock near the end of 2020. At press time, any resulting changes to cannabis policy and procedure were scheduled to be reviewed by Denver’s City Council before the end of 2020.

In 2019, Colorado Senate Bill 224 created an accelerator program that allows under-resourced entrepreneurs to use already established cannabis facilities to help launch their own enterprises. Operating under what are known as micro-licenses, these entrepreneurs give a cut of their new businesses (a percentage of sales or an investor partnership, for example) to the pre-existing cannabis businesses in exchange for training and the use of equipment.

Then, this past June, Governor Jared Polis signed House Bill 1424, an initiative spearheaded by an advocacy group called the Color of Cannabis, founded in January 2020 by businesswoman Sarah Woodson. The bill established criteria for so-called social equity applicants, who may be eligible for incentives, like reduced fees. The law also granted Polis the power to pardon minor marijuana offenses and declared that any felony conviction within three years of an application date could not be the sole reason to disqualify a social equity license applicant.

“The licensing [moratorium] is to be lifted in 2021, but if we don’t figure out the equity thing, I would have to vote to extend the moratorium,” says City Councilwoman Candi CdeBaca, who was on the MLWG. CdeBaca favors restricting any new retail or cultivation licenses to social equity applicants; she would also prefer to end license resale and instead put discarded licenses back into the pot for new applicants. “There’s a lot of pushback on that,” she admits. But selling licenses to the highest bidder abets what CdeBaca calls “the Walmarts of the sector” rather than small businesses that are more likely to be owned by equity applicants.

“The wealth gap really has a lot to do with all the systemic imbalances, and that’s true also in cannabis,” says Woodson, who owns Kush & Canvases. Before she launched her toking-and-painting business, she worked for 15 years as a paralegal, owning and running Colorado’s largest pro se bankruptcy business. Wealth creation, then, has long been Woodson’s focus, and once she entered the cannabis industry, she devoted energy to helping people of color cash in on marijuana.

Legislation matters, says Woodson, who promotes a 1:1 policy that would reserve one social equity license for every “standard” license that’s approved. But it takes money to earn money—and communities of color don’t always have access to deep-pocketed friends and relatives they can tap for startup capital. Furthering the problem, banks are hesitant to lend to cannabis entrepreneurs because the drug is federally illegal. That’s why the Color of Cannabis—and individuals like James—seeks to create new funding pathways to help people of color start businesses.

James says funding is the crux of the disparity. “Offering equity licenses without low-interest loans or grants is meaningless,” she says, because a dispensary she spent $250,000 to establish during the industry’s early days could cost up to $5 million today. Caps on the number of available licenses have spiked their resale value, so that now even a struggling dispensary business might sell for $750,000, while a blockbuster venture might be valued anywhere from $15 million to $140 million.

Based on input from the MLWG, Denver’s Department of Excise and Licenses’ license cap policies may see changes. However, no matter what the policy changes might be, equity applicants still would need significant financial support to launch cannabis businesses, even with the new license types (such as delivery) that demand less startup capital. Some capital, Woodson suggests, could come from city and state governments that might provide zero-interest loans to equity applicants. Borrowers would have to retain 51 percent ownership, she cautions, in order to avoid the kind of predatory lending practices that have torpedoed equity startups in states such as California. Or, Woodson says, Denver could reallocate a sliver of its $533 million public safety budget to an equity fund that would support small-scale cannabis ventures. “Let’s say the city spends $5 million on marijuana arrests, and we know that a majority of those involve Blacks,” she says. “So, how about we take a million or two from that to invest in a few [Black] businesses?”

Woodson also seeks partnerships with cannabis businesses that are willing to fund racial equity as part of their existing community give-back programs. Native Roots, for example, lends financial support to the Color of Cannabis and has conducted training workshops for prospective equity applicants. “Colorado did not implement any of these opportunities on the front end,” says Native Roots spokesperson Shannon Fender. “But you can’t talk about cannabis legalization without talking about its criminalization, and people of color were most impacted in that chapter. So, it’s important for us to give back.”

Other major cannabis companies, such as Colorado-based MedPharm and Lightshade, have teamed up with the Black Cannabis Equity Initiative (BCEI). This advocacy group was founded in 2019 by John Bailey, a social equity consultant who chairs the Colorado Black Round Table, a group of Black community leaders, elected officials, citizens, and business owners. The BCEI developed a report card cannabis operators can use to assess and improve their racial inclusivity. In addition to offering an employment referral service that matches job candidates with cannabis companies that are committed to hiring people of color, BCEI also hosts monthly meetings where 75 to 100 industry players discuss diversity, equity, and inclusion issues.

Lisa Gee, Lightshade’s director of marketing and corporate social responsibility, has been impressed with the monthly gatherings. “There are amazing, awesome ideas coming up during these calls,” she says. For its part, Lightshade developed an in-house mentoring and promotion program for employees of color, and it sponsors expungement clinics organized by the Color of Cannabis that help people get marijuana convictions erased. Bailey believes that one option for helping under-resourced entrepreneurs would be for established cannabis businesses to pay into an enterprise fund to assist Black- and brown-owned startups. Such a fund could be managed by what he calls a “cannabis control commission” made up of state and city employees as well as appointees from the cannabis industry. “We don’t need legislation for that to happen,” Bailey says. “We need the will of the industry to do the right thing.”

Wherever the seed money comes from, Woodson says, it’ll be up to people of color to grow it into profit. “People think social equity is some type of handout,” she says. “It is absolutely not. It’s simply opportunity.” With that opportunity comes the possibility of real earnings. “This industry has the potential to create 100 Black millionaires,” she says. “When you’re looking at the wealth gap, that could make a huge difference.”