top of page

Corporate marijuana dispensaries flex financial muscle, overtake Arizona’s social equity program

by Natasha YeeJuly 27, 2023

Denzel Mason was halfway through his Friday shift as an assistant manager at Phoenix Relief Center, a marijuana dispensary in southwest Phoenix, when his phone rang with the news.

He had spent much of the day in April 2022 hustling between the retail floor and his office in the adjacent suite, unable to tune into the digital lottery drawing livestreamed by the Arizona Department of Health Services.

Mason meant to watch the drawing, but got called to the sales floor to help a customer.

Across town, a computer had randomly chosen 26 winners from among 1,301 applications seeking one of the state’s highly coveted social equity licenses—golden tickets that would, at least in theory, allow people from communities excessively affected by past marijuana laws to open dispensaries of their own.

One of those winning applications was Mason’s.

“I called my mom and I was like, ‘I just won the lottery!’ She’s like, ‘You won the lottery?’ And I was like, ‘No, yes, but no,’’ he recalled with a smile.

It was six months before that day when Mason, a then-25-year-old Black man living in South Phoenix, would learn about the social equity program after answering a knock on the door of his friend’s home. He found a flyer lying on the porch about a program called Your Bright Horizon, a Copperstate Farms initiative that invited people from marginalized communities to partner on an ownership stake in Arizona’s marijuana industry through the social equity program.

“OWNING A DISPENSARY CAN BE MORE THAN A DREAM,” read bold text on Your Bright Horizon’s website below a large photo of a smiling Black man—a man that looked like him.

The social equity program was part of Proposition 207, passed by voters in 2020 to legalize recreational marijuana. To participate, applicants had to meet certain requirements involving income level, ZIP code and past marijuana convictions. Prop. 207 also outlined a path to expungement, allowing those with low-level marijuana charges to seal their records and restore their civil rights. Each social equity applicant could submit two applications.

The program was designed to “promote the ownership and operation of marijuana establishments and marijuana testing facilities by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws,” according to Prop. 207.

But, less than two years after its inception, 11 of the 26 social equity licenses are now owned by Arizona’s corporate dispensaries, with some purchased at a fraction of their purported value, an AZCIR review of corporate filings, license applications and outreach to dozens of social equity applicants found.

Another seven licenses are owned by a mix of private investors and other Arizona dispensaries, with more than half of those tied to a string of shell LLCs that further shield the public from knowing who or what entity is actually benefiting from the program.

Among the eight original lottery winners who still have an equity share in their license, corporate dispensaries have a stake in at least two of the businesses. Both of them, including Mason, are now ensnared in court proceedings about who can do what and how.

The most substantial barrier facing social equity licensees is an established industry that has helped shape Arizona’s recreational marijuana program from its conception. From millions in funding to get the initiative on the ballot to a vague outline of social equity in Prop. 207, the industry has wielded its influence throughout the multiyear process to legalize marijuana.

As a result, some Arizona dispensaries have become even wealthier, partially by barring competition, but also by securing additional licenses that were supposed to uplift communities disproportionately affected by the War on Drugs.

“The reality is money buys influence. It also affords the opportunity to hire experienced individuals to lobby on (corporate dispensaries’) behalf, navigate the process and change and eliminate competition,” said Frederika McClary Easley, the director of strategic initiatives at The People’s Ecosystem, which advocates for people of color, women, the disabled and other marginalized groups within the cannabis industry.

Social equity operators often enter the cannabis industry years after medical dispensaries had already built a loyal customer base and secured optimal locations, she explained.

“Black and Latinx communities were disparately impacted by the War on Drugs—severely impacted—and that’s individuals and communities. The purpose of social equity programs should be to set intention to acknowledge that harm and set intention on repairing harm,” McClary Easley said. “That can be for individuals who wish to become entrepreneurs in this space and it should also include the communities that have been impacted for 40-plus years.”

“Black and Latinx communities were disparately impacted by the War on Drugs—severely impacted—and that’s individuals and communities. The purpose of social equity programs should be to set intention to acknowledge that harm and set intention on repairing harm,” FREDERIKA MCCLARY EASLEY | THE PEOPLE’S ECOSYSTEM

Social equity programs have popped up throughout the country as states steadily legalize medical and recreational marijuana. But the jury is still out on their efficacy.

According to a 2022 report by the Minority Cannabis Business Association, Arizona fares better in some areas than others. Its $4,000 application fee, for example, isn’t the cheapest in the nation, but it’s also more accessible than the tens of thousands charged by other states. Arizona is not among the states that offer fee waivers to eligible applicants, however, and it doesn’t extend technical support and funding to social equity licensees, either.

“Of the 15 state social equity programs, not one has resulted in an equitable cannabis industry across all four pillars of equity (industry, justice, community, and access),” the report concludes.

Equity for capital

For Mason, the flyer on his friend’s porch represented the opportunity for an escape from a generational cycle of poverty and hardship. Growing up in hardened neighborhoods of urban Chicago, he and his seven siblings often bounced from one school to the next, as eviction after eviction forced his family to move. At one point, state officials placed the children in foster care after finding drugs in the family home.

It wasn’t until Mason’s family relocated to South Phoenix that he would find some stability. After graduating from Cesar Chavez High School in 2013, he worked his way toward landing a job as a budtender at a local marijuana dispensary in September 2019.

To be an owner of such a business, Mason recalled, would be exactly the “dream” the Your Bright Horizon website described. While he met the criteria to qualify for the Arizona program, he was unsure of how to navigate the process on his own.

Phoenix resident Denzel Mason poses for a photo at a park near his South Phoenix home on June 1, 2023. Mason was one of 26 recipients of a social equity license to open a recreational marijuana dispensary based on Arizona’s Proposition 207, which legalized adult-use cannabis in 2020. Photo by O’Shea Tometi | AZCIR Contributor

Like other applicants who became eligible because their income was less than 400% of the federal poverty level, Mason didn’t have $8,000 to spend on two applications for the license lottery. He saw Your Bright Horizon as a way forward, and applied the next day.

“A lot of people went looking for investor partners,” explained Demitri Downing, the founder and president of Arizona’s Marijuana Industry Trade Association. “Some went to grandma, some went to dispensaries, some went to intelligent investors from dispensaries, some went to their friends. ‘Give me $4,000, I’m going to apply, you own this percentage.’”

Marijuana industry giant Copperstate Farms ran the Your Bright Horizon program, which promised a path to partnership with social equity license applicants, including “financial aid” to help defray application costs. The corporation would help applicants expunge any marijuana-related criminal records, and it would “…BUILD A BUSINESS TOGETHER,” according to the program website, which featured an image of a pair of shaking hands, one Black and the other white.

Application fees are lower in states like Arizona that select social equity license holders through a lottery system, making the application process more accessible for lower income individuals.

But lower fees also “make it easier for highly-capitalized applicants to submit more applications, thus increasing their chances of obtaining a license over individuals without similar access to capital,” the Minority Cannabis Business Association report says.

In exchange for Copperstate’s services, Mason agreed to give up 49% ownership of his license if his name was drawn.

As Mason would soon learn, the partnership would cost him much more—including the ability to make crucial decisions as the majority shareholder of his business.

Betting big on lucrative licenses

Prop. 207 limited the number of marijuana dispensaries allowed to operate in Arizona: one dispensary for every 10 pharmacies. This limited structure made each license extremely valuable.

In 2021, for instance, Illinois cannabis company Verano Holdings bought a Phoenix dispensary for $17 million. In December of that same year, Curaleaf, a company headquartered in New York with a presence in 23 states, acquired a dispensary in Safford, Arizona, for $13 million.

With 26 new social equity licenses added to an already limited market, existing dispensaries moved quickly to secure even more of the state’s thriving, billion-dollar cannabis industry.

Prior to the lottery, dispensaries scoured neighborhoods like Mason’s seeking partners. Billboards promising to help eligible applicants through the process popped up along Arizona freeways. Canvassers knocked door to door in eligible ZIP codes. The same neighborhoods received flyers in the mail and on their front porches. Some dispensaries even set up expungement clinics to help potential applicants clear previous marijuana charges.

On the surface, the cannabis industry’s involvement in the social equity program offered those eligible a chance to take part in a burgeoning field, which established dispensaries would help them navigate. The state’s program allowed social equity applicants to partner with investors, as long as the qualifying applicant owned at least 51% of the business.

Existing cannabis businesses took advantage of the rule by leveraging their deep pockets: Dispensaries had a stake in more than a third of the 1,301 completed license applications ADHS received.

Copperstate Farms, which runs a 40-acre cannabis greenhouse in Snowflake and operates five Sol Flower dispensaries in Arizona, submitted 106 applications alongside its social equity counterparts. Mason represented two of them.

Mohave Cannabis Co., with three Arizona dispensaries and operations in California, submitted 322 applications.

The Mint Cannabis, with five Arizona locations, four Michigan dispensaries, a Missouri store and plans to expand to Illinois, Massachusetts and Nevada, submitted 59 applications.

Collectively, the three companies were tied to 37% of all applications, each of which represented a $4,000 bet to share a larger slice of the profitable Mary Jane pie in Arizona. When the licenses were drawn through the April 2022 digital lottery, that bet seemed to pay off.

Mohave partnered with five of the 26 winning applications, Copperstate with three and The Mint with two. Since then, eight of the original social equity recipients are no longer associated with those licenses. The two that remain, including Mason, are embroiled in legal battles to hold on to what was supposed to be a life-changing opportunity.

“Sadly, the social equity program is working as intended by allowing the industry to capture additional licenses while appearing to support social equity” K.M. BELL, ACLU OF ARIZONA

“Sadly, the social equity program is working as intended by allowing the industry to capture additional licenses while appearing to support social equity,” said K.M. Bell, a staff attorney with the ACLU of Arizona, a progressive nonprofit that focuses on systemic injustices.

The ACLU of Arizona supported Prop. 207, calling it “the first step voters can take to begin to repair the decades of harm that the War on Drugs policies have inflicted on people of color.” Arizona’s National Organization for the Reform of Marijuana Laws (NORML) also backed the measure.

But after voters passed the initiative, both groups brought concerns to ADHS as it crafted the program.

The ACLU of Arizona pointed out that lottery winners could immediately transfer their licenses to those who did not qualify for the program. NORML asked ADHS for funding for social equity applicants, as well as a way to keep the requirements both broad enough to accommodate true social equity applicants and narrow enough that dispensaries would be deterred from entering the program. It also requested the creation of a public-facing advisory committee to assess the program’s success or failure. But Julie Gunnigle, the legal director at Arizona NORML, said the request went nowhere.

Tom Herrmann, an ADHS spokesman, insisted the agency “made some key changes” to program rules based on public feedback collected via in-person and virtual sessions. It required applicants to have lived in Arizona for at least three of the previous five years, for instance, and raised the income cap from twice to four times the federal poverty limit.

Still, Gunnigle said the social equity program ultimately empowered big dispensaries, something voters did not intend.

“You can see that in how many of the bigger players ended up submitting hundreds of applications into that lottery and becoming business partners with so many people,” she said.

Copperstate Farms and The Mint declined to comment for this story. Mohave Cannabis did not respond to repeated attempts seeking comment.

Legal intervention and a looming deadline

Before the lottery took place, Copperstate required that Mason sign an operating agreement to submit his application. He didn’t think to have an attorney look over the paperwork.

“They were going to host some webinar but they were like, ‘Sign the document before the webinar and you can ask any questions. We’ll have someone there to answer questions,’” Mason recalled.

Among other stipulations, the operating agreement states that “organizational expenses of the Company, including without limitation the expenses incurred relating to participating in the Social Equity Program, shall be funded by Copperstate Farms, LLC and shall be treated as a loan solely to the Company and not the Members, secured by its assets.”

Mason thought this meant Copperstate would loan him the money to find a location, build and open a store, he said.

After he won the license, Copperstate offered him $2.4 million to purchase his ownership share. The offer, according to Downing, was notably less than the $7-9 million valuation the Marijuana Industry Trade Association claims each social equity license is worth.

Though Copperstate’s other two social equity partners took the buyouts, Mason was not interested in selling. Instead, he wanted to operate the business and make a positive impact on the surrounding community.

“I didn’t really have a lot of victories in life, so this is a win for all of the losses I’ve taken. And this is a win that can really do something, not just for me,” he said.

Sign up. Get engaged.

Get AZCIR’s latest investigations and updates delivered straight into your inbox.

So in July 2022, Copperstate asked Mason to sign a promissory note and security agreement to move forward with the dispensary. The note stated that Your Bright Horizon 192, the LLC owned by Mason and Your Bright Horizon, owed Copperstate up to $3 million.

More than $800,000 would go toward a portion of what the company spent to take part in the social equity program—costs allegedly split between Copperstate’s three social equity licensees. Court documents obtained by AZCIR reveal that those expenditures included $566,000 in community outreach, a $50,000 “staff success fee” and nearly $180,000 in fees paid to ADHS as part of the social equity program. Other costs ranged from postage to “government relations.” The remainder was capital Copperstate predicted it would need to spend to locate and operate a store.

This time, Mason was hesitant to sign the documents without an attorney present.

“I never remembered getting invoices or approving any money that was being spent,” Mason said. “So it was a little bit alarming for me, because it seemed like a large amount of money and I didn’t have a store opened or really a location or anything.”

It was at this point that Mason realized he needed a lawyer. After a months-long search of potential firms, he found Christopher Kaup and C Reginald Davis.