Connecticut lawmakers are currently discussing a new proposal that could allow some cannabis business owners to sell their companies sooner than previously permitted. The proposed House Bill 7178 specifically targets equity joint ventures, which are partnerships between financially stable cannabis operators and social equity applicants—individuals from communities that have been significantly affected by the war on drugs.
State records indicate that at least 38 cannabis businesses were established through these equity joint ventures in recent years. However, many social equity applicants are now requesting permission from lawmakers to sell their ownership stakes after just three years of operation. Currently, state law mandates that they must retain their stakes for a full seven years before selling.
The establishment of equity joint ventures was designed to ensure that individuals from historically disadvantaged communities could benefit from marijuana legalization and have the opportunity to become entrepreneurs in this emerging market. To qualify for a license, social equity applicants must demonstrate they own at least 50 percent of the equity joint venture and prove their connection to communities with high rates of drug-related prosecutions.
Kennard Ray, a social equity owner, acknowledged that lawmakers intended the law to protect applicants like him who partner with wealthier companies. He expressed appreciation for the safeguards put in place to prevent exploitation by other investors. Ray, who holds ownership in a cannabis cultivation facility and multiple dispensaries operating under the Fine Fettle brand, believes that the seven-year restriction on selling ownership stakes is now too limiting.
Ray and other social equity owners have conveyed their desire for greater flexibility in selling their businesses based on financial or personal considerations. They have proposed the option to sell after three years of operations.
Derrick Gibbs, a co-founder of Budr Cannabis, highlighted during a March public hearing that the cannabis industry is rapidly evolving, and seven years is a lengthy period in such a dynamic market. He pointed out that various factors, including regulatory changes, federal tax policy, and market saturation, could significantly impact a cannabis company’s value over that time. Gibbs emphasized the need for social equity owners to have the ability to cash out when it is financially beneficial, asking, “If a business is doing well, why should a social equity owner be prohibited from choosing to cash out at a time most advantageous financially?”
In summary, the call for regulatory changes reflects the changing landscape of the cannabis industry in Connecticut, as social equity licensees seek to adapt to new challenges and opportunities.
