The DCC is committed to promoting equity for communities harmed by cannabis criminalization. We support local communities who share these values by lifting practices that are making a difference. By talking to business owners affected by the War on Drugs and asking them what policies have helped them start or grow their business, we are gathering information on ways to advance California’s commitment to equity.

Promising business practices for equity entrepreneurs

Promising business practices that support equity ownership are intended as an informational resource for equity licensees and applicants in the cannabis market as they consider investment opportunities and assess whether those agreements support their business interests.  

An important element of any business venture is understanding the design and ownership structure of the business and how that impacts you as an equity licensee or applicant who operates a cannabis business (an “equity operator”). The DCC has identified some key business questions equity operators may wish to consider when entering into partnership agreements to guard against potentially predatory practices. Equity operators may also wish to consider some of the practices local jurisdictions are incorporating into their codes to support equity operators. 

Equity operators often face difficult choices when considering whether, and under what conditions, to accept outside investment. On the one hand, outside investors may provide important capital and other resources. On the other hand, some outside investors may seek to displace an equity operator’s control over the equity business in ways that equity operators may not anticipate—ways that may be in tension with the goals of state and local equity programs. 

When assessing whether to enter into an investment agreement, equity operators may wish to consider the following areas as best practices to help make an informed decision about how to run their businesses: 

Equitable voting

Does the equity operator have decision-making authority in aspects of business development, including, day-to-day business operations, retention and supervision of the executive team, and the implementation of policies that are proportionate to the ownership interest they have in the business?

Equitable profits

Are dividends, distributions, or other payments between the equity operator and the outside investor proportionate to the overall ownership interest in the cannabis business?

Equitable sale

Are the proceeds from the sale of the business’s assets, liquidation of the business, merger of the business into another business, or another transaction that would signify the end of the original business, distributed proportionately to the ownership arrangement in the original cannabis business?

Equitable exits

In case of incapacity or death, does the agreement allow the equity operator to appoint a successor in interest? Are there other conditions in the agreement by which the equity operator’s rights (including ownership interests) can be involuntarily transferred to another party or are eliminated or limited?  

Equity operators may also wish to consider some of the practices local jurisdictions are incorporating into their codes to support equity operators.  

Promising practices adopted by local jurisdictions

The City of Los Angeles enshrines equitable profit distribution and voting rights into their Municipal Code and all equity businesses are reviewed for their compliance with these “Equity Share Requirements.” Violations of the Equity Share Requirements in agreements between equity owners and equity investors may result in suspension of the local license.  

The City and County of San Francisco guarantees that the equity operator serves as the Chief Executive Officer of their cannabis business or holds a majority ownership interest in the business. Changes in ownership that decrease an equity operator’s ownership interest must be approved by the local regulators and must demonstrate a substantial commitment to equity by the cannabis business. 

If you are an equity entrepreneur not doing business in the City of Los Angeles, or the City and County of San Francisco, you may wish to consider whether these programs offer a potential model for your business to follow.  You can also contact your local jurisdiction to identify what promising practices exist in the local cannabis program. If you are doing business in one of these local jurisdictions, make sure you comply with all applicable laws. 

Promising practices for local equity grant programs  

Through discussions with equity licensees, we are uncovering the most effective and innovative equity policies from jurisdictions throughout the state. This list of promising practices will help local jurisdictions develop equity resources that fit the needs of their local cannabis businesses.    

These promising practices also serve business owners looking for equity programs and can be used by regulators looking for ideas on how to achieve equity goals.  We’re happy to share these stories as we work together to continue supporting local efforts.  

Contact us

Email questions to info@cannabis.ca.gov or call 1-844-61-CA-DCC.

Related resources

Discussions with equity entrepreneurs

California’s state and local jurisdiction equity programs