“We now have here in Arizona a situation where 24 of 26 of these social equity licenses are now fully controlled by companies or people who do not belong in these special groups to get this license.”

Arizona lawmakers are pushing to return social equity licenses for marijuana dispensaries to their original owners, alleging private investors and cannabis corporations used predatory tactics to seize control of nearly all the lucrative licenses.

Senate Bill 1262, introduced by Republican Sen. Sonny Borrelli, seeks to restore power to those the state’s social equity program was actually meant to benefit: people from marginalized communities disproportionately affected by past marijuana convictions. It would also allow the state Attorney General’s Office to investigate and punish entities that exploited those individuals.

“What we have here is an injustice that needs to be fixed,” Borrelli, of Lake Havasu City, said during a February 13 Senate hearing. “We now have here in Arizona a situation where 24 of 26 of these social equity licenses are now fully controlled by companies or people who do not belong in these special groups to get this license.”

The legislation comes less than a year after extensive reporting by AZCIR showed the social equity program—part of a 2020 ballot initiative that legalized recreational marijuana in Arizona—was not working as intended, with powerful players hijacking much of the process.

Today, just one original applicant fully owns their social equity license and has opened a dispensary independent of large cannabis companies. Another two partnered with prominent brands to launch dispensaries, though they still have equity in their licenses. The other 23 licenses are owned by investors and corporations that go by familiar names like Sol Flower, Mint Cannabis, Mohave Cannabis, JARS Cannabis and Story Cannabis.

“The way this social equity license thing is supposed to work is that people that apply for it are supposed to maintain that 51 percent ownership,” Borrelli said. Instead, many applicants signed agreements with financial backers who later “muscled” them out, he explained, echoing one of AZCIR’s key findings.

“Technically, the people that are supposed to have a social equity license don’t get it. The ones that do have the social equity license would not qualify for it in the first place,” Borrelli said. “Whether you agree with the [marijuana] business or not, it’s completely unfair.”

Though SB 1262 advanced out of the Senate’s Health and Human Services Committee with unanimous bipartisan support, the bill faces a steep climb. Because it involves a voter-backed initiative, it will require the approval of three-quarters of the House and Senate to become law.

But if it succeeds, the measure will create a new state-backed avenue for squeezed-out social equity license holders to fight back.

Last July, for instance, AZCIR detailed the story of Denzel Mason, a South Phoenix resident recruited by cannabis powerhouse Copperstate Farms to apply for a social equity license. Copperstate, which has one of the largest indoor grow facilities in the country and nine Sol Flower branded dispensaries throughout Arizona, found Mason and other potential partners through a program dubbed Your Bright Horizon, ultimately submitting 106 applications alongside its social equity counterparts.

When the Arizona Department of Health Services chose winners from more than 1,300 applicants in its April 2022 lottery, Copperstate and its partners secured three licenses—including the one it applied for with Mason, who’d worked in the cannabis industry for years and intended to open his own dispensary.

But the parties soon ended up in a legal battle involving an operating agreement Mason had signed prior to the lottery, with Copperstate claiming the LLC Mason jointly owned with Your Bright Horizon owed the company up to $3 million. About $800,000 would’ve partially reimbursed Copperstate for what it allegedly spent to participate in the social equity program, including the community outreach efforts it used to recruit Mason and others.

The court eventually sided with Copperstate after Mason balked at those terms, temporarily removing Mason as a manager in the business. A few months later, Copperstate bought Mason’s stake in the license for an undisclosed amount.

Mason did not respond by press time to a request for comment on SB 1262, which would give him and other original license-holders a way to report and potentially take back control from investors and corporations they believe targeted them with predatory agreements.

SB 1262 defines a predatory agreement as “any agreement signed before or within 12 months after a social equity license was issued that required the original principal officer or board member…to sell, transfer or give control of the officer’s or member’s ownership interest for less than minimum fair market value.”

The “fair market value” element could be particularly relevant in another case highlighted by AZCIR, that of Tucson resident Anavel Vasquez.

Vasquez was one of 140 social equity license applicants who partnered with investor Michael Halow through his Wyoming-based LLC, Helping Handz—and one of five in that group that prevailed in ADHS’s digital lottery. But Vasquez, who is not a native English speaker, no longer has a stake in her license.

Though she did not initially enter into an operating agreement with Halow, she did sign a contract stating disputes would be handled through arbitration. And in July 2023, an arbitrator decided to transfer the social equity license, which Vasquez had moved to another business, back to Helping Handz.

So far, Vasquez has not been compensated for her majority share of the license, according to arbitration records obtained by AZCIR. Instead, the arbitrator ruled that Vasquez must pay Halow’s attorneys fees.

“SB 1262 will absolutely help all the social equity winners that were subjected to predatory agreements get their licenses back,” said Rene Mendoza, Vasquez’s longtime partner. “[This program] is supposed to be for social equity, not for rich people who already have licenses.”

Advocacy groups warned officials about vulnerabilities in Arizona’s social equity program long before lawmakers intervened. In November 2021, Acre 41 and the nonprofit Greater Phoenix Urban League sued the state, predicting that Arizona’s 26 social equity licenses would land in the hands of big cannabis.

That case was dismissed, but Acre 41 has continued to speak out against what it perceives as mismanagement of the state’s program in recent years. Now, it’s throwing its support behind SB 1262.

“Today, we live in a reality where the social equity program, rather than leveling the playing field, has enabled well-capitalized entities to dominate the market further,” reads a web page the group created to promote the legislation.

In a statement to AZCIR, Acre 41 activist Celestia Rodriguez said the “end goal is to right the wrongs of the administration of the [social equity] program.”

Concerns about bad actors abusing the program extend beyond the predatory agreements that constitute the primary focus of Borrelli’s bill. During the February hearing, for example, the senator highlighted an investor who holds five social equity licenses, claiming the individual had a felony record in violation of program application rules.

SB 1262 seeks to address these additional problems by removing licenses from those with certain felonies, as well as those who violated marijuana laws.

“Bottom line is, we have convicted felons who muscled out someone that was supposed to have a social equity license,” Borrelli said.

Another four licenses, three of which are owned outright by Mint Cannabis, are listed at the same address inside an El Mirage strip mall—an apparent violation of what a former ADHS spokesman told AZCIR in 2023, that “two licenses cannot operate at the same address.”

Mint Cannabis did not return repeated requests for comment.

The Department of Health Services, which oversees the program, also did not respond to multiple requests for comment regarding the deadline and other alleged violations.

“Things need to work fairly. And when they don’t, it’s our job as legislators to be able to step in and say, ‘This is what needs to be done,’” Sen. Lupe Diaz, one of the bill’s three Republican co-sponsors, told AZCIR. ”The enforcement on the bill itself will help that.”

Source: marijuanamoment.net