Tom Howard – collateralbase: Social Equity After the Harvard Case


By Tom Howard

In the new Students Fair Adm. v. Harvard, 600 U.S. 181 (2023), case handed down last summer, Chief Justice wrote “eliminating racial discrimination means eliminating all of it.” The case overturned affirmative action in college admissions, which later got rebranded as ‘social equity.’ Social equity in cannabis is required in many states like
Illinois, New Mexico and Maryland.

The program seeks to redress the harms visited on people of color by the failed drug war, with historical data proving black and brown people are 3 to 6 times more likely to be arrested than whites despite similar cannabis usage rates. And the new Harvard case really reigns in public policy programs that are not very narrowly tailored to achieve the results of righting the wrongs visited upon people by the cannabis crimes. While some states zeroed in on the cannabis arrest, many of them focused on long term (typically 5 of the past 10 years) residency in neighborhoods with higher than averagecannabis arrests, or poverty statistics called disproportionately impacted areas (“DIAs”).

For example, Maryland requires a social equity applicant to have long term residencies in a zip code of the state with 150% of the average level of cannabis arrests as one of its methods of establishing social equity status. Without having this, you cannot apply for a cannabis license in that state. The same goes for Illinois, while New Jersey dispensary licensing does something different entirely.

Assuming these programs do not bring scores of lawsuits seeking to invalidate social equity cannabis programs based on race in violation of equal protection, which ones are providing the desired goals of the legislation by including people harmed by cannabis prohibition in the growing cash flows of the legal and licensed cannabis industry. By and large, all of them are failing to launch for many of the same reasons. In fact, in Illinois where all 192 of the dispensaries awarded in 2022 went to social equity applicants, only about 25% of them are operational.

First, states like New Jersey prioritize processing social equity applications for people arrested for cannabis. After award of a conditional license, the applicants find themselves in a legal limbo of trying to become an operational license. As of the last reported data in December of 2022, 75% of all conditional applications were not social equity. Most, 72% in fact, are the next priority, diversely owned businesses, and then the next priority DIAs. The same statistics appear in the operating licenses awarded. So most people simply went around the social equity aspect of being a victim of the failed policy. Instead they used their race or gender to get access to their license, which certainly raises the specter of an equal protection challenge. Illinois required both the arrest and the long term residency in a DIA to qualify for its
social equity application. Without that status, you cannot apply for a dispensary license in Illinois. As a result, you do not have over 70% of the applicants being a minority like in New Jersey. Instead, you have 100% social equity applicants that either have been arrested or their spouse, parent or child has. What policy uses race in a more narrowly tailored method? Illinois because it has to do with an arrest and not a minority owned business. Additionally, it injects social equity into all of the licenses awarded, which serves the policy goal of including people harmed by the former cannabis laws in the industry.

Maryland has its own definition of social equity and a pre-qualification method used by states like Arizona, California and Massachusetts in their social equity programs. These states have their own administrations picking and choosing which eligible candidates qualify for social equity status and Maryland dispensary licenses. This sample set of pre-qualified candidates could be reviewed for its racial composition and trigger as applied equal protection challenges to purportedly race neutral qualifications based on long time residency in a DIA with higher than average marijuana arrest rates. If the sample set of qualified social equity applicants are over 90% black, while the state of Maryland’s base rate for the demographic is only about 30%, then their system could not only face an equal protection challenge, but also challenges from the Dormant Commerce Clause and also Article 41 of its own constitution that bans monopolies in the state.

The monopoly ban under Article 41 was recently used to enjoin the hemp provisions of Maryland’s new cannabis laws, but the legal theory applies to the monopoly enjoyed by social equity applicants that make it through the state’s prequalification and pass/fail application process. The court held that there was no rational basis related to redressing the harms by having only people that resided in DIAs eligible for licensing, at least not for hemp. Whether this will be applied to its new adult use licensing scheme remains to be seen.

Besides Maryland, many other states require a social equity applicant to stay on the license even during the transfer and sale of it to a new buyer, which also raises equal
protection questions. For example in Missouri, for their microbusiness licenses, you can sell 49.9% to anyone. But the other 50.1% can only be transferred to another eligible social equity applicant. Missouri defines social equity in such a broad way that about one in three Americans is eligible because of their income and wealth levels. How does requiring someone to demonstrate poverty redress the harms of the drug war? Were people not poor before cannabis prohibition? Did cannabis prohibition contribute to poverty in the United States? The rational basis to pick and choose who may be a majority owner of a cannabis company based on wealth alone Social Equity scope creep is going beyond the arrest visited on individuals and their families from cannabis prohibition and extending into race, gender, where people live, and even how little money they have. A narrowly tailored social equity policy that discriminates against individuals to redress the harms of the failed war on cannabis would only include those ensnared into the justice system. The rest are open to challenges based on equal protection, or even anti-monopoly statutes.

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Carl L Rowley -Thompson Coburn LLP

Jerry Chesler – Chesler Consulting

Ian Stewart – Wilson Elser Moskowitz Edelman & Dicker LLP
Otis Felder – Wilson Elser Moskowitz Edelman & Dicker LLP
Lance Rogers – Greenspoon Marder – San Diego
Jessica McElfresh -McElfresh Law – San Diego
Tracy Gallegos – Partner – Fox Rothschild

Adam Detsky – Knight Nicastro
Dave Rodman – Dave Rodman Law Group
Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

Neal Gidvani – Snr Assoc: Greenspoon Marder
Phillip Silvestri – Snr Assoc: Greenspoon Marder

Tracy Gallegos – Associate Fox Rothschild

New Jersey

Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

New York
Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
Tim Nolen Tesser, Ryan & Rochman, LLP
Cadwalader, Wickersham & Taft LLP

Paul Loney & Kristie Cromwell – Loney Law Group
William Stewart – Half Baked Labs

Andrew B. Sacks – Managing Partner Sacks Weston Diamond
William Roark – Principal Hamburg, Rubin, Mullin, Maxwell & Lupin
Joshua Horn – Partner Fox Rothschild

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Teddy Eynon – Partner Fox Rothschild