Tiana Hercules might not be the person one pictures when envisioning a start-up entrepreneur in Connecticut’s new retail cannabis marketplace. As a criminal defense attorney who worked her way up out of poverty, a mother of three children, and a newly minted member of the Hartford City Council, Tiana is nothing if not ambitious.
And now she is turning her ambitions toward creating a cannabis retail business in Hartford called Lady Jane, a place she hopes will become a community space for her fellow Hartford residents – if she can navigate Connecticut’s red tape, the start-up costs and win a social equity license through a state lottery.
“Sometimes I feel like I’m in way over my head, because it’s a lot, but it’s exciting because there’s a lot of opportunity to do good,” Tiana Hercules said. “I think the possibilities are endless.”
And those hurdles can be daunting: familiarizing herself with a bill over 300 pages long, finding a retail space willing to accommodate a product that remains illegal under federal law, municipal zoning, trying to secure investors or business advisors, contracts with vendors, ensuring all her paperwork is in order and, of course, winning a license lottery.
Tiana says she spoke with a consulting firm that required $125,000 for their services, an amount neither she, nor many others, could possibly afford.
“So, you either have someone who can do this totally on their own or you have someone who has $125K, so where is that in-between space?” Tiana asked. “As educated as I am in understanding laws and things like that, the average person isn’t a lawyer, so unless you have industry knowledge it’s going to be very difficult for you to be able to navigate this process.”
Tiana says her background as a criminal defense attorney is part of what drives her desire to see communities of color, who have historically borne the brunt of the War on Drugs, benefit economically from Connecticut’s new legislation.
“I saw the industry as an avenue to help those who were harmed in the war on drugs both by directly investing in my community, through hopefully a successful business enterprise, and also a pathway for entrepreneurship and opportunity for people,” Tiana said.
South of Hartford, in North Haven, Luis Vega is just such an entrepreneur poised to convert his growing hemp business into a full-scale retail cannabis business under Connecticut’s social equity license.
Vega owns and operates WEPA Farms, a 10-acre farm in North Haven growing cannabis for legal hemp and CBD products that he ships all over the world, including even CBD high heel foot pads sold on the website Her Highness.
Vega has his own story of working his way toward a better life, as well. The son of Puerto Rican famers who moved to Brooklyn, Vega was the first in his family to graduate high school and went on to obtain his Master’s of Business Administration degree, before moving into the corporate field.
However, as a medical marijuana user, Vega says he saw the potential in a plant that has been criminalized his entire adult life. He cashed out his retirement savings in order to build his farm and now stands poised – with both the background knowledge of how to grow cannabis and years of business acumen – to merely flip a switch and leap into Connecticut’s retail cannabis industry… provided he wins the license lottery, that is.
Vega recently purchased a two-story commercial building in North Haven that contains a nail salon and a former diner on the first floor and a second floor comprised of several rooms which he and his team of 15 employees are renovating to convert to offices, rooms to host cannabis education classes and storage for his hemp and CBD products and shipping supplies.
The defunct restaurant on the first floor – another casualty of the COVID era – will be used by Vega and his team to manufacture CBD edibles.
And, like Tiana, Luis is focused on supporting the community that has long been suppressed by federal and state laws against marijuana use. He plans to use his new building to teach classes on cultivation, cooking with cannabis and other educational opportunities within the industry with a special focus on veterans.
“I’m just another normal guy who believed in it and pushed for it and I count my blessings or my lucky stars or whatever,” Vega said. “I couldn’t have done it without literally the help of the community, so I’m looking to make sure that whatever we do, we do it to the best of our ability with the ability to give back to the community that supported us.”
Connecticut legalized medical marijuana in 2015, allowing industry giants like Theraplant and Curaleaf to grow and distribute medical marijuana throughout the state. To date, four companies have licenses to grow medical marijuana and there are 18 dispensaries serving 58,000 residents with medical marijuana prescriptions.
With existent facilities and the ability to expand into the recreational retail space well in place for those companies, lawmakers were pressed by activists to ensure that minority groups who have been disproportionately harmed by past marijuana laws are able to get in on the ground floor of this new state industry.
The state purports to accomplish this through awarding social equity licenses alongside general licenses. In order to be a social equity applicant, one must have income less than 300 percent of the state median household income and be from one of 30 identified areas that have been disproportionally impacted by prior marijuana laws, known as DIAs.
For those large medical marijuana companies looking to convert to “hybrid” retailers – meaning they produce and sell both recreational and medical cannabis — Connecticut requires fees ranging from one million for dispensaries to $3 million for producers.
But for those just stepping into the industry, the application, provisional license and final license fees top out at $30,500 for a retailer and $101,000 for a cultivator. Those fees are slashed in half for a social equity applicant, although, after three years, even the social equity retailer will have to pay the full $25,000 renewal fee.
The biggest thorn in the side of social equity applicants like Tiana Hercules and Luis Vega, however, is the lottery system for awarding licenses. The Department of Consumer Protection offers only a limited number of licenses and social equity applicants will be approved based on a lottery system, leaving the fate of applicant to a “roll of the dice,” to use Vega’s words.
“I’ve invested ultimately my entire life into hopefully this moment, and I’m stuck because I have to rely on a lottery,” Vega said. “In my point of view, I’ve worked for so long and many others have worked for so long to get to the point we are right now just to be subject to a roll of the dice to be honest. It makes it very rough.”
On February 3, 2022, the DCP announced opened its first round of applications for general and social equity licenses for cannabis retail, micro-cultivation, production, manufacture delivery, food and beverage, product packaging and transportation. In total, there were 28 licenses available for general license applicants and 28 available for social equity applicants.
Social equity applications are open for 90 days, after which will be the lottery, although officials on the Social Equity Council said there’s a possibility general licenses will be approved earlier. To date, there have been 75 social equity license applications and 492 general license applications, according to the Social Equity Council.
Hercules says securing funding or investors for her start-up is difficult when her license application is subject to a lottery.
“It’s a little confusing to me how you have a lottery in a system that really does have to have some merit base,” Hercules said. “Let’s say I did have the $125k, what would be the point of me paying that if it’s just going to be a blind process? Those things to me are still a bit of a mystery.”
Andrea Comer, executive director of Connecticut’s Social Equity Council, says the lottery process was added by lawmakers in order to ensure fairness in the process. Essentially, so that there can be no accusations of favoritism in licensing.
As of this writing there have not been many social equity applicants, increasing Tiana and Luis’s chances in winning the lottery. However, the application window remains open for a few more weeks.
“Will there be a rush of applications as it gets closer, entirely possible,” Comer said. “Part of the reason we made the applications so comprehensive is for exactly that reason; we want people to be successful, we want to make sure they have all their proverbial ducks in a row.”
Another aspect Hercules finds concerning is social equity applicants must maintain a 65 percent stake in the business, limiting how much ownership an investor can have in a retail cannabis business.
“How enticing is it for somebody to give you a million dollars for only 35 percent of a company?” she asked. “Obviously I want to be the owner of my company, but I recognize I don’t come from a wealthy family. I definitely am going to need outside investment, and you have to make it enticing for people too because they want a return on that investment, and they want their investment to grow.”
Social equity applicants also cannot add investors after they submit their application. Comer says this is to ensure that the equity licenses remain in the hands of verified equity applicants.
“All of the backers have to be stated at the time of application because we’re using those backers to determine if they are social equity applicants from an ownership and control perspective, and if they change their backers it can change the calculus of a complicated issue,” Comer said.
The DCP says they expect to launch a second round of license applications during the second half of 2022, but Vega is skeptical, noting that Connecticut only held one round of applications for medical marijuana growing licenses, approving four, despite the law allowing 10 medical licenses.
“There’s no set amount of lotteries,” Vega said. “So, if they do one lottery, they’ve fulfilled the requirement.”
The other part of the problem, Vega says, is that Connecticut has identified 30 disproportionately affected areas, but is only offering, for example, 2 delivery general licenses and 2 delivery social equity licenses during its first round of licensing.
“If we’ve identified thirty DIAs then we should be able to do thirty licenses in the state, but they only issued four,” Vega said. “So now those four companies could literally have a monopoly on delivery of cannabis in the state.”
In essence, the first lottery license winners will have a natural leg-up on any future competition, provided there is opportunity for future competition.
But that’s not the only issue facing smaller, social equity applicants: the medical marijuana industry in Connecticut already has a leg up through both financial resources and the way in which Connecticut’s licensing system has been constructed.
“In the current legislation all the medical facilities will dominate the adult use market here,” Vega said.
That’s because Connecticut law allows for limitless “equity joint ventures” between social equity applicants and established medical marijuana companies looking to expand from cultivation and production of medical marijuana into the adult use recreational market.
While Connecticut attempted to create a bill that would encourage small businesses and start-ups by residents of adversely impacted areas and minority groups, in some cases critics have alleged the equity aspect is only skin deep, advantaging larger established medical marijuana businesses and creating a barrier to social equity applicants.
On the other hand, it could be seen as an opportunity for entrepreneurs to partner with big businesses and make money without having to jump through the hoops of creating a new business from scratch.
Under Connecticut law, the four established medical marijuana growing companies can partner with at least two social equity applicants who are allowed to use a portion of their grow space. In exchange, the medical marijuana companies’ have their license fee reduced from $3 million to $1.5 million and are exempted from the lottery process.
But it also eats up a lot of the available licenses.
“It leaves it where the four facilities now have their medical, their adult-use, as well as their two micro-cultivator joint ventures, as well as their equity partner,” Vega said. “So, out of this whole process, a very small portion [of licenses] come from the lottery pool, the rest are coming from the medical portion.”
“I know there are places they could have been a lot more equitable,” Vega said.
Comer acknowledges that the law as it currently exists does allow for such joint ventures to consume available equity licenses and the Social Equity Council has submitted recommendations to the legislature to revise the law and limit the number of joint ventures.
“It has become clear to us from legislators we’ve spoke to that the intent was for the number of [equity joint ventures] to be limited. Unfortunately, that’s not what the language of the bill says,” Comer said. “We recognize that the way the bill is structured, even in terms of the MSOs going first, that could have a tremendous impact on the equity intent.”
For someone already well into the cannabis space, albeit in hemp and CBD, Vega has the ability to start selling recreational cannabis fairly quickly. He has the infrastructure in place, years of growing experience and a plan. While he lacks the resources of the established medical marijuana industry, his hemp business can help bolster his hopeful entry into the recreational use market.
Tiana, on the other hand, is trying to start something from the ground up. It’s not easy with any business, but Connecticut’s cannabis law adds complexities to what would already be a difficult process. She has already secured a letter of intent to lease store front property on Pearl Street in downtown Hartford, a board of advisors and is even working with a firm out of California that specializes in designing retail cannabis space – but it does cost thousands of dollars.
“Starting a business is tough, probably from any perspective. Starting a business in this industry is even more tough because it’s a new thing and it’s highly, highly regulated and is illegal from a national perspective,” Tiana said. “So, folks are trepidatious to invest in it, which is understandable, but I think there’s been enough of a track record around the country to show that with the right team in place the right tools and foundation these can be very successful businesses.”
The overall bill legalizing cannabis for retail sale is complicated, sometimes appearing to even confound even the state officials charged with overseeing the program. Potential business owners have a lot of questions and sometimes the answers can be unclear as everyone jockeys for position in an emerging industry.
Connecticut tried to avoid some of the criticisms leveled at other states that legalized cannabis for recreational sale – namely that merely legalizing it for sale allowed big business to capture a huge amount of market share — but in doing so, may have ended up with the same result via a more complicated process.
To date, eighteen states have legalized cannabis for adult-use sale with possible federal legislation legalizing marijuana waiting in the wings, something that would open cannabis businesses to much-needed capital from traditional banks, which cannot currently have “any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant operational and regulatory risk,” according to the American Banking Association.
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Aside of finding funding, investors, locations, access to banking and the state’s lottery system, both Luis and Tiana also have to navigate the municipal zoning landscape as towns across the state decide whether or not to allow cannabis retail businesses in their municipalities. There is a payoff for cities and towns if they allow businesses to be established: they get to collect a portion of the tax revenue.
But a number of towns have rejected the possibility, establishing moratoriums on allowing cannabis businesses in their borders.
The state anticipates tax revenue from cannabis sales to reach $73 million by 2026, according to the fiscal note on the bill. Tax revenue would find its way into the General Fund, municipalities, the Special Transportation Fund, the Municipal Revenue Sharing Account, Prevention and Recovery Services Fund and the Social Equity and Innovation Fund, which would be used to help support start-up businesses like Tiana’s and is bolstered by the state with a $50 million bond.
Both Tiana Hercules and Luis Vega have submitted their applications for social equity licenses and await the results of the lottery which will come sometime in May.
For Vega, if he misses out on the lottery, he will continue building out his hemp business and working with the cannabis community to educate the public. But he won’t be giving up any time soon.
“I believe in this plant so much that even as convoluted and complicated that it can be, I will just fight through that – in my lane, not negatively – but I will put all my best efforts to make sure that, in whatever standing it is, we will be able to do adult-use cannabis,” Vega said. “So, if it means we have to find a million dollars, guess what? I’ve heard that there’s funding out there, let’s go find a million dollars.”
Tiana, on the other hand, would continue her legal work and position on Hartford’s City Council, but hopes that her community will see the benefits of legalized cannabis in Connecticut, not only through decriminalizing marijuana but also through building businesses in Hartford that will create economic benefits.
Even if she doesn’t get a license for Lady Jane in the first round of licensing, she hopes that future rounds of licensing may finally give her a shot.
“Some days I’m like what the heck am I thinking? I’m so passionate about this, it’s just such a difficult process,” Tiana said. “But I’ve done hard things before. I passed the bar exam while homeless for goodness sake, there’s no way I can’t figure this out, right?”