High Cost, Flood of Applicants Cut Small Business Out of Connecticut’s Marijuana Lottery

High Cost, Flood of Applicants Cut Small Business Out of Connecticut’s Marijuana Lottery

Seven years ago, Ivelisse Correa told her father that she was going to open up a marijuana dispensary.  

Correa’s father had been arrested when she was a freshman at East Hartford High School, and he’d gone to prison for three-and-a-half years, she said, after the remains of smoked marijuana was found in his car. For Correa, the prison term also meant that her father wasn’t there to see her graduate from high school.

Correa said the dispensary was a way for her to “stick it to the State of Connecticut” for her father’s arrest. She said that she would like to go into the venture with her siblings, if it’s possible, with some of the money they will inherit from their father, who died in April.

When the legalization of marijuana was being debated in the state legislature last year, it looked like Correa might finally have her chance. The new laws were supposed to prioritize precisely people like her — individuals who had been directly impacted by the “War on Drugs.”

But when the law was finally rolled out, dismayed, Correa didn’t even bother to apply. 

“It was never a fair shot,” she said. “It wasn’t meant to be.”

“Back at square one” 

Under the law passed last year, fifty percent of licenses to operate marijuana businesses — as cultivators, retailers and manufacturers  — must go to businesses owned at least 65 percent by “social equity applicants.” A social equity applicant is someone who grew up or lived for a number of years in a neighborhood that was heavily impacted by the war on drugs, such as Hartford, Bridgeport, New Haven and some of Connecticut’s other cities.

Correa, who grew up in East Hartford, qualified as a social equity applicant. With her status, she would be able to enter a special social equity lottery, separate from the general lottery, to compete for a limited number of licenses to operate a dispensary.

But the rules established under the law allow businesses to enter the lottery as many times as they want, as long as they can pay $250 for each application they enter. Correa and other advocates say that this favors large companies, many of whom come from outside the state, who can afford to put multiple applications into the pool.

The small number of licenses that the state Department of Consumer Protection has made available make the competition even more fierce. The lottery for retail cannabis shops drew over 15,000 applications competing for four licenses this year.

Andrea Comer, deputy commissioner of the Department of Consumer Protection, told CT Examiner that the department decided to limit the number of licenses initially to make sure that there was not an imbalance between growers and retail operations. 

Comer, who is also the chair of the state’s Social Equity Council, said that beyond putting up some initial “guardrails,” neither the department nor the council have much control over how the licensing is rolled out in the state. Everything from the fees that applicants have to pay, to the number of applications that companies can enter, is written into law. 

“Any sort of loophole that legislation created  in terms of allowing multi-state operators to sort of dominate the industry in Connecticut is really a function that the legislators have to address,” said Comer. 

In late April, Correa received an email from a law firm based in Missouri that asked to partner with her in applying for an equity license. In the email, an employee of  the firm claimed that the company had partnered with social equity applicants in other states, and that the firm would “take care of the financing and investing.” 

According to Correa, the firm offered her 55 percent of the venture, but after they received the license, the company would pay her for her share. (Under Connecticut law, a social equity applicant must own 65 percent of any venture that was part of the social equity lottery, and must remain the owner for three years.) 

In an email to CT Examiner, the firm’s principal, Tobias Licker, said that while the company was “open to partner with social equity applicants and help handle the application process” they did not buy out their social equity partners. 

“If a social equity partner would win a license they would have to partner with someone to provide financing and know how. That’s not us,” he wrote. 

Licker is also registered as the owner of GMT Consulting, which has applied for four dispensary licenses in Missouri, according to the St. Louis Post-Dispatch

Correa said she spent a few hours considering the firm’s offer. As a single mother, she could have used the money to spend on things for her children, or to fix the transmission on her car. In the end, though, she decided against it. She didn’t want to be used by a corporation. 

“If I win, I won’t own anything. And I’m back at square one, and all I did was become part of the problem,” she said.

“I don’t have deep pockets.” 

Correa wasn’t the only one feeling as though the cards were stacked against her. Becky Goetsch, the owner of Running Brook Farm in Killingworth, also decided not to apply for a license as a micro-cultivator. She, like Correa, was sure she didn’t have a chance.

“I don’t have deep pockets. I can’t afford to flood the lottery with numerous applications just to be competitive. I was planning on submitting one application and hoping for the best, but I didn’t even do that because the numbers creeped up so high that I felt like my chances of getting one …It was just a waste of my time.” said Goetsch, who is also president of the Connecticut Hemp Industry Association.  

Goetsch added hemp to the list of her crops in 2019. It’s a crop, she said, that could grow during the five-month period when the rest of her crops were out-of-season, making it a valuable addition to her greenhouses. She said that CBD also appealed to her as someone interested in plant medicine. 

For a hemp grower, switching to marijuana production is fairly simple – both products come from the same plant. The difference is in the concentration of one chemical component, known as THC — the compound responsible for causing people to get high. Federal law dictates that the THC concentration in hemp has to be below 0.3 percent, while marijuana has a THC concentration of above 0.3 percent. 

Brant Smith, who owns the company Hydroclonix LLC and whose growing facility is located in Cheshire, said he believes the local hemp farmers should have been grandfathered in along with the medical marijuana companies. Instead, he said, the market was primed to favor growers coming in from out-of-state, as well as the existing businesses that grow marijuana for medical dispensaries.   

Hydroclonix LLC growing facility located in Cheshire

For Smith, transitioning to marijuana farming would mean a huge increase in profit – he could go from making $400 per pound of hemp flowers to making $3,000 a pound. 

Smith also said that although he was located in Cheshire, the majority of his workers were from Meriden, which is identified as a disproportionately impacted area, according to the social equity council. Smith said that while he supported the idea of social equity, he felt that the way the licensing lottery was set up, it would favor large corporations using social equity applicants as “figureheads.” 

“I’m all for social equity, but every license that they’re going to hand out cultivation-wise, except for the medical marijuana people who are grandfathered, is going to be, in my opinion, a social equity person as a figurehead and a large multi-state operator behind them, or a wealthy person,” said Smith. “It’s not what they intended at all, I don’t believe.” 

State Rep. Anne Hughes, D-Easton, said that one way to fix the lottery system would be to run an initial round of applications specifically for small farmers and social equity applicants, and require the larger operators to wait until a second round to apply. Hughes said that large, multi-state operators were already buying up tracts of property in Connecticut in preparation for when they could begin cultivating the plants. 

A bill signed into law this year establishes a working group to study the feasibility of integrating hemp farmers into the cannabis market. Goetsch said that, ideally, she’d like to see Connecticut take up a law similar to the one passed in New York, which grants already-established hemp farmers a temporary license to grow the plant. Goetsch said she also felt that licenses should be limited to only Connecticut-based operators. 

“My most sincere hope is that hemp farmers can benefit and social equity can benefit from taking a step back and trying to figure out how to really foster a craft industry in the state,” she said. 

From “outlawed” to “gentrified” 

Apart from the lottery, Social Equity Applicants can also partner with a company in what is called an equity joint venture, in which a social equity applicant and a dispensary or producer each own half of a business. Those applying for equity joint ventures are exempt from the lottery process. 

Benjamin Zachs, chief executive officer of Fine Fettle, a company that operates medical marijuana dispensaries in Stamford, Willimantic and Newington, is one of the companies that plans to enter into equity joint ventures as they apply for licenses to sell recreational as well as medical marijuana. 

Zachs said that Fine Fettle is able to enter into up to six equity joint ventures — two per license, under the new law. He said that the company saw this as an opportunity to partner with local partners — people his company has worked with and known for a long time. 

“We think that it allows for us to work with budding entrepreneurs and people who we honestly love and care about,” said Zachs. 

Entering into an equity joint venture would also cut the fees the company would have to pay for a license conversion in half, from $1 million to $500,000 per license. 

Hughes and Jason Ortiz, co-founder of the Minority Cannabis Business Association and current president of Students for Sensible Drug Policy, said they find the idea of equity joint ventures problematic.

Ortiz said the equity joint ventures gave large multi-state companies too much power, allowing them to own 50 percent of the social equity market without any assurance that they would complete their obligations to their social equity partners. 

“If one of the MSOs goes out of business or just doesn’t follow through on what they’re supposed to do, there’s very little recourse for those partners to be able to move their business onto their own terms or find new funders,” he said. “They’re pretty much locked in with those partners. And that means they’re in a very difficult power dynamic where the fate of their business is locked into somebody that has far more resources and not necessarily their best interest at heart.”

Zachs disagreed.

“Some people don’t like the equity joint ventures, but at least if we’re willing to do it with people, there’s a guarantee that they have a license and there’s value in that,” he said. 

Comer said that the Social Equity Council recommended to the legislature that the number of equity joint ventures that one company could enter into should be capped at two, and the recommendation was written into law this year. 

State Rep. David Michel, D-Stamford, told CT Examiner he felt that not just the process, but the definition of a social equity applicant needed to change. He said that under the current law, someone making nearly $200,000 a year could qualify as a social equity applicant if they lived in the correct part of the state. 

Correa said that social equity for her meant that people from neighborhoods in Hartford would have the opportunity to operate legitimate businesses  in the eyes of the state. 

“When I think about social equity, I think about regular people from Hartford and hood kids,” she said. “We know how to work with concrete cash, and these people have concrete cash and want to pay taxes … the marijuana industry has gone from being something that’s outlawed to being something that’s gentrified.” 

Correa said she was frustrated with the Social Equity Council, which was supposedly created to make sure that people who were disproportionately harmed by the war on drugs were able to participate in the market.

But Comer said that the Social Equity Council was also limited in its role under the law. For example, the council is responsible for verifying that social equity applicants qualify under the law, but the council does not choose who will ultimately get the licenses. 

“It’s always interesting to me when people say, well, like, why is the social equity council not doing anything? Because we literally are playing the hand we were dealt,” she said. 

Comer said the department does plan to open a second lottery later this year. 

As for Correa, she still plans to find a way to own her own dispensary – regardless, she said, of what laws have to change. 
“This doesn’t stop until I can own one, and people like me: who are determined, who saved their money, who can qualify for loans. When regular people can enter the market, especially those from areas that have been impacted by the war on drugs – that’s when we have equity. But right now there is no way to be competitive.”

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