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Chart: 19% of cannabis businesses are owned or were founded by racial minorities -MJBizDaily

By Eli McVey

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Think the cannabis industry is dominated by white business owners? It is, but perhaps not to the level many believe.

A Marijuana Business Daily survey of 389 cannabis business owners and/or founders found that 19% of respondents who own and/or launched cannabis companies are racial minorities.

The results are somewhat surprising, given the widely held perceptions that minorities in general have a minuscule presence in the industry.

But a deeper look into the dynamics of the cannabis sector and the differing ideas of what constitutes a racial minority offer some insight into why perceptions might differ from reality:

California has a massive influence on the marijuana industry, given that it accounts for almost a third of annual U.S. retail cannabis sales and has the largest number of MJ businesses in the country. It also has the highest concentration of minority-owned businesses in general, with some estimates putting this figure around 40%. Many minority-owned marijuana businesses also are clustered in the Golden State, having a significant impact on the overall percentage for the industry. To that end, 23% of the MJBizDaily survey respondents from California identified themselves as racial minorities.
The survey allowed respondents to indicate their race from five major categories – white, Hispanic/Latino, African American/black, Asian and “other.” Nearly 7% of survey respondents identified as “other” when asked to indicate their race, the second-largest racial category in this survey. An increasing number of people do not identify with traditional definitions of race, a trend that’s playing out across the broader U.S. population.
In accordance with U.S. Census Bureau methodology, respondents were given the option to identify as more than one race and therefore are included in each race selected. This means that each racial category is constituted by individuals that identify as either a single race or as multiple races. For example, just 50% of all Hispanic/Latino respondents in this survey identified solely as Hispanic/Latino. This leads to scenarios where – to an outside observer – an individual may not appear to be a racial minority, even though that individual identifies as such.
The percentage of cannabis companies founded or run by minorities differs greatly by industry sector and business stage. Over half of respondents to this survey own or have founded ancillary marijuana businesses. These companies – such as marketing firms or law offices – don’t actually touch the plant and can get off the ground with relatively little capital and without the need to obtain a license. Furthermore, the stage each of these businesses are at runs the gamut, with some generating six-figure annual revenues while others have yet to secure their first client.
Similar to the methodology used by the U.S. Census Bureau, an individual who identified as anything but white in the Marijuana Business Daily survey was classified as a racial minority.

Jesce Horton, co-founder and board chairman of the Minority Cannabis Business Association, said that 19% is a higher rate of minority business ownership in the cannabis industry than he expected.

“But numbers are still encouraging because we all had that feeling that it may be higher than the 1% that had been reported and repeated over and over again,” he said.

However, Horton suggests that when it comes to licensed marijuana businesses, the portion owned by racial minorities may be much lower.

“The biggest need and the biggest disparity and the biggest outrage has been the licensing process and the ability for small businesses to first get into the market, and then to survive after dealing with large taxes, huge licensing fees or all these other things that we fear are shaping up in opposition of minority entrepreneurship,” he said.

With 10% of cannabis business owners identifying as Hispanic/Latino or African-American, these two racial groups account for more than half of the minority-owned businesses in the marijuana industry.

It’s difficult, however, to assess how the rate of minority business ownership in the cannabis industry is faring relative to the broader U.S. business landscape.

The two major surveys used to measure the percentage of minority-owned businesses in the United States – the 2012 Survey of Business Owners (SBO) and the 2015 Annual Survey of Entrepreneurs – differ considerably in how they report this statistic.

For example, the SBO survey details the total number of the nation’s minority-owned businesses, while the Survey of Entrepreneurs takes a more narrow approach, reporting just the number of minority owned firms that have paid employees.

According to the SBO survey, 29% of businesses in the United States are owned by minorities. The Survey of Entrepreneurs puts this figure at 18%.

Given the nascent state of the marijuana industry – where many firms are still in the startup phase and may not have paid staff members – neither metric is well-suited to draw comparisons to the U.S. economy at large.

But rather than judge progress by the number of businesses in the cannabis industry owned by racial minorities, Horton believes what’s most important is the success of these businesses.

“Are they actually revenue-generating businesses? Are they cash positive?” Horton said. “Licensed businesses that are generating revenue and are cash positive, I think, are the ones that we have to take on and figure out a way to grow if we’re really going to get to a sustainable industry.”

Eli McVey can be reached at elim@mjbizdaily.com