Black entrepreneurs outnumbered in cannabis sector that poses structural challenges

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This article was published 21/02/2022 (1703 days ago), so information in it may no longer be current.

TORONTO – When cannabis was headed toward legalization in Canada, Edmonton entrepreneur Keenan Pascal noticed people from every walk of life entering the industry.

Four years later, the chief executive of cannabis manufacturing business Token Naturals said the now established sector looks a lot more homogeneous — and the country’s licensing process is partly to blame.

“Once the barriers started coming up like the capital requirements and just the effort you’d have to put (in) to make a successful cannabis company, the industry became more stale. Everyone had the same background. It was all the finance people running the industry,” said Pascal.

Feeling shut out were Black entrepreneurs, who find the system often works against them in their attempts to establish a business.

If you didn’t grow up wealthy or well-connected, they say, it is tougher to pitch largely white investors on your business. A 2019 study from the Canadian Venture Capital Association showed that only eight partners at 145 private equity firms surveyed, or 5.5 per cent, were “visible minorities.” That compares with Statistics Canada data showing 22.3 per cent of Canadians were visible minorities in 2016, projected to reach 34.4 per cent in 2036.

Health Canada’s cannabis licensing process, they add, is an additional hurdle because there is a lack of guidance for applicants, who often struggle to receive security clearances once they’ve invested time and cash into businesses.

That could soon change. The federal government has embarked on a lengthy review of cannabis legislation and Health Canada launched discussions last month to uncover concerns Black and racialized communities have with licensing.

What they heard is that Black people are significantlyoutnumbered in the sector.

A 2020 study from the Centre on Drug Policy Evaluation and the University of Toronto based on responses from 700 executives and directors at 222 cannabis companies found 73 per cent were Caucasian men, 12 per cent were Caucasian women, 14 per cent were racialized men and two per cent were racialized women.

The racialized slice of Canada’s cannabis leadership was made up of 40 per cent people of South Asian origin, 19 per cent East Asian, 15 per cent Indigenous, 12 per cent Arab and 7 per cent each for those identifying as Hispanic and Black.

“It would be great to see those numbers increase,” said Sherry Boodram, consultancy business CannDelta Inc.’s chief executive. Boodram is a racialized woman who once served as a senior regulatory compliance and enforcement officer for Health Canada’s medical cannabis and controlled substances programs.

“When you see people who look like you that are in those positions, you know you could make it.”

Raising Capital

Before cannabis entrepreneurs apply for a licence, they must have a facility. Many don’t have money for a site so they turn to banks or other lenders, but don’t always have the credit history to support a loan or feel they have to clear additional hurdles because of their race.

“If you’re coming in and you’ve never been in a community that raised capital before … you don’t have a rich uncle tap into and take you by the hand and say ‘let me talk to my friends to raise more capital you’, you’re definitely at a disadvantage,” said Pascal.

When one of Boodram’s clients, a Black woman, sought funding she quickly realized investors were predominantly white men.

“She felt she had to try a lot harder, that they asked her a lot more grilling questions and that she faced a lot more scrutiny,” Boodram recalled. “It wasn’t really representative of what others would be facing that were not minorities.”

It took years for her to push past the layers of skepticism to secure financing.

Licensing

Once the hurdles of financing and securing a site are complete, the next step is licensing. The application process involves a lot of red tape and it’s common to need consultants and lawyers to navigate the process.

Boodram wishes Health Canada would offer more supports for racialized entrepreneurs seeking licensing.

“Sometimes it takes a bit longer to have Health Canada respond to them, and they’re not always willing to have teleconferences, if they’re not already licence holders … so that could be better,” she said.

She suggests the Indigenous Navigator Service, which links Indigenous entrepreneurs with a “dedicated professional,” who can guide them through the licensing process and is knowledgeable about Indigenous priorities, as a good model that could be replicated for other communities.

When asked about concerns Boodram and others have raised, Health Canada said it is still reviewing feedback from racialized communities.

“The Government of Canada has an important role in combating racism and ensuring that its programs and policies are evidence-based and do not create or perpetuate systemic barriers for racialized communities,” spokesperson Alexander Beattie said in an email.

Security

One of the final steps toward licensing — receiving security clearances — is also difficult for racialized communities, which are disproportionately affected by cannabis possession arrests.

For example, in Toronto between 2003 and 2013, Black people without criminal records were three times more likely to be arrested for cannabis possession than Caucasians with similar records, the Toronto Star reported.

“There hasn’t really been much movement on providing amnesty to groups that were targeted unfairly because of the drug laws,” said Boodram.

She recently had a client who didn’t receive security clearance because he had — years ago — had his licence revoked and car impounded for speeding. He didn’t show up to a court date, so Health Canada rejected his application, saying it couldn’t trust him to follow the Cannabis Act.

At that point in the process, companies have already spent significant amounts of cash, only to face removing the person from the business, or at the very least, limit their access to cannabis and their involvement with controlling decisions.

If the person was an investor with a large stake, they might have to slash their stake to 15 or 20 per cent and show Health Canada proof, said Boodram.

“If you get denied, it’s a huge fall.”

This report by The Canadian Press was first published Feb. 21, 2022.