Issue 2 and Social Equity

Marijuana laws have been enforced in a discriminatory manner against people of color in the United States. Despite similar usage rates across races, Black people are almost four times more likely than white people to be arrested for marijuana possession nationwide.

Legalizing marijuana without addressing these past injustices risks reinforcing the decades of disproportionate harm communities of color have faced and endured. As a result, legalization advocates support reinvestment in the communities most harmed by discriminatory enforcement, and express procedures governing police interactions with those suspected of marijuana offenses.

Ohio’s Social Equity and Jobs Program

Issue 2 – the adult use marijuana legalization proposal passed by Ohio voters on November 7, 2023 – includes exactly these types of provisions in addition to provisions meant to ensure those groups that have been harmed disproportionately by prohibition are represented among Ohio’s marijuana license holders. Indeed, in implementing a Social Equity and Jobs Program (the “SEJP”), Issue 2 identifies several express policy justifications, including among them:

• Individuals who have been arrested or incarcerated due to drug laws suffer long-lasting negative consequences, including impacts to employment, business ownership, housing, health, and long-term financial well-being;

• Family members, especially children, and communities of those who have been arrested or incarcerated due to drug laws, suffer from emotional, psychological, and financial harms as a result of such arrests or incarcerations;

• Certain communities have disproportionately suffered the harms of enforcement of marijuana-related laws. Those communities face greater difficulties accessing traditional banking systems and capital for establishing businesses;
• Individuals who have resided in areas of high poverty suffer negative consequences, including barriers to entry in employment, business ownership, housing, health, and long-term financial well-being;

• Promotion of business ownership and employment by individuals who have resided in areas of high poverty and high enforcement of marijuana-related laws furthers an equitable cannabis industry; and

• Therefore, in the interest of remedying the harms resulting from the disproportionate enforcement of marijuana-related laws, a cannabis social equity and jobs program shall provide financial assistance and license application support to individuals most directly and adversely impacted by the enforcement of marijuana-related laws who are interested in starting or working in cannabis business entities.

R.C. 3780.18.

The SEJP will be funded by 36% of new tax revenue generated by adult use marijuana sales in Ohio. It will be administered by the Ohio Department of Development, which will adopt rules governing certification of individuals to participate in the SEJP. To participate, an applicant must show both social and economic disadvantage.

Economic disadvantage can be based on:

• Wealth of the business seeking certification, as well as the personal wealth of the owner or owners of the business; or

• Certain economic or business size thresholds and other eligibility criteria “designed to stimulate economic development through license awards to businesses located in qualified census tracts.

Social disadvantage can be based on:

• The business owner or owners demonstrate membership in a racial minority group or show personal disadvantage due to color, ethnic origin, gender, physical disability, or long-term residence in an area of high unemployment; or

• The owner or owners, or their spouse, child, or parent, have been arrested for, convicted of, or adjudicated delinquent for a marijuana related offense as determined by rule by the department of development prior to the effective date of this section.

R.C. 3780.19(B)(1)-(2).

The Department of Development is also charged with re-evaluating SEJP goals to ensure that the program is achieving its goals, and also to implement an outreach program to educate potential participants about the SEJP. R.C. 3780.19(B)(4)-(6).  Finally, the Department must also create an “advisory group” which may develop and submit recommendations related to the SEJP to the Department R.C. 3780.19(F).

Social Equity Licensing

Issue 2 provides for the issuance of 50 new adult use dispensary licenses, as well as 40 new “Level III” cultivation licenses (authorized to develop 5,000 square feet of cultivation area) with a preference to SEJP participants. License preferences, however, must be based on “substantiated evidence that the preference is needed to address the goals” of the SEJP. R.C. 3780.19(E). This evidence is required so that the SEJP can survive legal scrutiny, the lack of which doomed the 15% set-aside for economically disadvantaged groups for medical marijuana licenses in Ohio several years ago.

The Department of Development must adopt a process to transfer a license from a SEJP participant to a non-SEJP participant, which process cannot undermine the goals of the SEJP. R.C. 3780.19(B)(7).

Issue 2 requires adult use license applications be made available to prospective applicants by the Department of Commerce before June 2024. If the Department takes longer than 3 months to act on such application, the applicant may file an action in court against the Department. If the applicant holds a corresponding certificate of operation for a medical marijuana license at the same location, then the applicant may also, if certain criteria are satisfied, begin operating under a temporary license while the license application is pending. R.C. 3780.28(B).

Social Equity Impact

The SEJP will be able to use the tax revenue generated by adult use sales to accomplish a wide range of goals designed to remedy the discriminatory effects of marijuana prohibition, including:

• Providing financial assistance, loans, grants, and technical assistance to SEJP participants;

• Encouraging employment practices in which an adult use cannabis operator can demonstrate a plan of action to inform, hire, and educate minorities, women, veterans, and persons with disabilities, engage in fair labor practices, and provide worker protections;

• Studying and funding judicial and criminal justice reform including bail, parole, sentencing reform, expungement and sealing of records, legal aid, and community policing related to marijuana;

• Studying and proposing policy reforms to address the social and economic impacts of the enforcement of marijuana laws and to track and prevent underage use of marijuana; and

• Funding direct investment in disproportionately impacted communities to enhance education, entrepreneurism, legal aid, youth development, violence prevention, and the arts related to the program.

R.C. 3780.19(B)(8)-(13).

Some in Ohio’s legislature have criticized the SEJP, while other legislators have lauded Issue 2’s social equity provisions. As the Ohio General Assembly considers amendments to Issue 2, prospective SEJP applicants and social equity advocates should watch these developments closely.

If you have questions about Issue 2 and its social equity provisions, or if you are interested in applying for one of the new cultivation or dispensary licenses authorized by Issue 2, please don’t hesitate to reach out to Tom Haren or another member of Frantz Ward’s Cannabis Law Practice.