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Social-equity founders in America’s state-level cannabis industry are facing a myriad of challenges despite enjoying purported industry support. Social equity refers to a set of policies designed to give people who were disproportionately affected by the drug war a leg up in the cannabis industry.
These policies are meant to give communities that endured over policing and harsh sentencing for decades due to prohibitionist cannabis laws a chance to benefit from a drug that was once used to persecute them. However, despite the good intentions behind social-equity provisions, founders from communities of color and lower-income communities still struggle to carve a space for themselves in the lucrative marijuana sector.
Lack of capital is one of the chief issues hindering the success of social-equity founders. Although social-equity provisions allow them to get their foot into the door, they offer little support afterward.
Social-equity applicants have an even harder time securing capital because cannabis is still illegal at the federal level and applicants have extremely limited options for sourcing capital. This makes it difficult for social-equity founders to open and grow businesses in the cannabis sector, especially since they often have to pay extremely high state taxes and fees.
Limited connections also hinder the growth of cannabis businesses owned by social-equity founders. Since they often come from lower-income communities with little generational wealth, these founders typically don’t have the connections they may need to navigate the cannabis industry.
Without the right connections, these individual may struggle to source capital, secure deals and find more opportunities for growth.
High taxes prevent social-equity, founder-owned businesses from achieving their true potential. America’s state-level cannabis industry is notorious for its complicated and costly taxes, with cannabis businesses in most states paying more taxes compared to the alcohol industry.
Cannabis’s status as a federally prohibited drug also deprives cannabis businesses of tax benefits, such as tax deductions for certain expenses.
Furthermore, local and state governments often enforce excise taxes in ways that favor larger businesses over small businesses, which tend to be owned by social-equity founders. High taxes at every step of the value chain increase operational costs and raise prices, making it harder for social-equity founders to compete with illicit sellers who can price their products significantly cheaper.
Misreading contracts can be a costly mistake for social-equity founders. As they often struggle to access capital, these founders are more likely to do the majority of the work themselves, including the legal work.
Retaining a cannabis attorney may be a little costly, but it will ensure that paperwork is handled efficiently and save the potential financial and reputational cost of misreading contracts.
Long-term resources will be critical to the survival of social-equity, founder-owned businesses in the cannabis space. Navigating the cannabis industry can be a significant challenge, and even large businesses with major financial backing have seen their fortunes turn. With little to no connections and limited access to capital, social-equity businesses face a high risk of bankruptcy or closure.
As these challenges are gradually addressed, equity businesses could thrive and create more business opportunities for ancillary entities such as Advanced Container Technologies Inc. (OTC: ACTX) that sell cultivation equipment and other products designed to meet the needs of marijuana-touching businesses.
NOTE TO INVESTORS: The latest news and updates relating to Advanced Container Technologies Inc. (OTC: ACTX) are available in the company’s newsroom at https://cnw.fm/ACTX
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