Why Are Black Entrepreneurs Struggling To Succeed In The Cannabis Industry?
Racial Disparities In The Cannabis Industry
There is a long history of discrimination toward minorities in the United States even before the war on drugs was declared. The people who were most affected by the "War On Drugs" are the same people who lack access to the billion dollar cannabis market today. In the late 1980's, when this war was declared, drug arrests for white and black juveniles were essentially the same. However, in the 1990's drug arrests declined for white juveniles while black juvenile drug arrests steadily grew.
Currently marijuana is legal for recreational use in 18 States in the U.S (including Washington D.C) and 19 states for medicinal use. This trend towards legalization should create great opportunity for minorities to profit from the legal sale of of the same product that landed many people of color in jail. Unfortunately, many black entrepreneurs are finding it hard to succeed in the cannabis industry. Studies have shown that only 29% of cannabis businesses in the U.S are minority owned. Los Angles, the largest cannabis market in the world, has 200 cannabis dispensaries, and only 6 of them are minority owned. Many black and brown entrepreneurs are awaiting assistance from equity programs and while doing so they are running out of funds. Forcing them to partner with rich white people. Why is this the case?
Minorities are finding it hard to pay for the essentials of owning a cannabis company due to the cost of expenses such as licensing and permits. In the state of Pennsylvania one has to submit a permit application:
Non-refundable fee $5,000.
$30,000 for a permit fee that is refundable if the permit isn't granted.
Proof of $150,000 in Capitol.
(Be aware that these numbers are drastically different in other states.)
For a small business owner, these numbers can be discouraging. NBCNews interviewed Tauhid Chappell; a media professional, member of the Philadelphia Association Of Black Journalists, and a medical marijuana user. Chappell educates minorities in the community on how to get into the cannabis industry.
“So many states are already making it so cost prohibitive that it’s not even worth trying to spend six figures to apply for a license… A lot of the talk now is how do you become more of an ancillary business. An example would be a wellness center that signs up medical marijuana patients or provides educational programming for people who have not seen a doctor but want to become medicinal marijuana patients, or creating curricula for universities.”
Low Income/No Loans
Minorities struggle for approval of small business loans due to lower net worth and a lack of assets and collaterals. African-Americans and latinos wealth level is reported to be 11-16 times lower than whites. In 2016 it was documented that white business owners start their new company with an average of $106,720 in working capital, compared to $35,205 for African-American business owners.
Traditionally Banks are less compelled to loan money to applicants with little to no collateral, and significantly lower cash to spare. As a result of Redlining in the U.S, African-Americans are less likely to own property that banks might use as collateral. "The lower net worth of minority business owners suggests that minorities are less likely to own homes or other expensive assets that banks can sell if the applicant defaults on a loan.
Because of these disparities in wealth, starting and sustaining a business is much more difficult for minorities vs. their white counterparts. According to findings from the U.S. Department of Commerce Minority Business Development Agency, "When minorities businesses do get approved for loans, they are likely to receive lower amounts at higher interest rates.This process of discrimination makes minority business owners less confident in applying for loans and grants out of fear of being rejected.”
Jared Weitz, Forbes.
Poor/Little Credit History & Struggling Credit Management
The average credit score of a small minority business owner is 707, which is 15 points lower than the average small business owner in the U.S.. This is critical because a great credit score can help business owners receive bank loans. Minority owned businesses have struggled when it comes to managing credit and delinquency rates are also a big issue for minority small business owners. Studies have shown that 1.2% of minority businesses had at least one business account that was severely delinquent for 90+ days. 8.3% had at least one consumer credit card account that was also severely delinquent for 90+ days. Experian has made it one of their primary objectives to educate small business owners on the importance of maintaining a positive credit profile.
Location/Real Estate Fees
Owning a dispensary could be imperative for most minority owners because it could provide a safe space for other minorities to purchase and experience the benefits of safe and legal cannabis products. Location is important when you open a new business. A majority of minority owned businesses are located in poorer, and urbanized areas. Choice of location presents additional problems. Location also plays a huge role in gaining approval for a business loan.
“Poorer communities need small businesses to bolster their economies, but big banks do not
typically craft their business funding programs with long-term goals in mind.”
Jared Weitz, Forbes.
When a small business owner does find their perfect location they still have to worry about the real estate fees which can easily cost over $50,000.
“Easily $50k-$100k on an annual basis for the rental of an average sized facility in a moderately competitive market. You will likely also face an additional $25k-$100k in renovation costs to finish the space in the style you desire – more to make it really stand out from the crowd.”
It is legal for dispensaries to market themselves, but there are many regulations. Because cannabis is not federally legal, there are numerous restrictions on the local, state and federal level.
Paid Marijuana Advertisements
Allowed in certain states
Have to follow local laws, and regulations
Proof of license
Have to advertise in an area that mainly exposes people over 21 years and older
Allowed in certain states
Have to follow local rules and regulations
- License can be revoked if an error is made
Allowed under certain circumstances
Has to be proven that the print is targeted to people over 21 years old
One of the most popular search engines
- Follows federal law
- Can not promote cannabis products through them
Can promote Hemp products
Make sure you know the rules and regulations to avoid legal issues
Governed by federal law
Can not promote cannabis products
images , and languages are scanned and if cannabis or weed is found your content can be flagged, removed, or your social media account can be deleted
There are numerous challenges minorities face when starting a business. Those challenges are especially difficult when the business you’re trying to succeed in is not legal under federal law. To open a minority owned dispensary and sell cannabis products requires large capital investments. As a black owned company, Sufuria Life is struggling with many of the same problems mentioned in this blog. It is important that black business owners are afforded the same opportunities to start and maintain successful businesses.
Sufuria Life is making it our mission to create a safe space for minorities to learn about cannabis and have access to safe cannabis products. It is Sufuria’s goal to de-stigmatize the use of marijuana and hemp and educate consumers about its many uses and benefits.