🔒Some of CT’s recreational marijuana business lottery winners submitted thousands of applications, raising fairness questions

Maryland resident Jusmin Patel, operator of Jananii LLC, was fortunate to win the state’s recreational marijuana cannabis license lottery twice, setting the stage for her company to potentially open both a dispensary and micro-cultivator business in what’s expected to be a lucrative new market.

But despite the lottery being a game of chance, Jananii LLC’s wins weren’t totally by luck.

Patel’s company submitted more than 2,300 license applications in the state’s lottery process, paying thousands of dollars in fees for better odds of winning.

The bet paid off. And Jananii LLC wasn’t the only company to submit a significant number of lottery applications. Seven companies submitted more than 1,000 applications each in various lottery categories, and more than half won at least once, according to a Hartford Business Journal analysis of unofficial lottery application data obtained from Connecticut’s online licensing database.

Seventy companies each submitted at least 100 different lottery applications.

The flood of applications — over 37,000 total for just 56 licenses — has angered some social equity advocates who say Connecticut’s adult-use cannabis law isn’t living up to its promise of benefiting poorer communities hit hardest by the nation’s decades-long war on drugs.

In particular, they’re frustrated that the law didn’t limit the number of lottery applications that could be submitted by companies, giving individuals with deep pockets — or deep-pocketed investors — a major advantage in winning a small pool of licenses for everything from dispensaries and grow facilities to food and beverage manufacturers and delivery companies.

At least one influential lawmaker said the state legislature will consider changes to the recreational marijuana law, including possibly capping the number of applications one entity could submit based on whether or not they’re supported by a large, multistate operator.

It’s a change some social equity advocates are pushing for.

“I submitted 10 applications because that’s really all that I could afford, but I quickly saw that it was going to become a pay-to-play scheme because there were no stopgaps built into the legislation,” said Wilton small business owner Gisele Tyler, a social equity applicant pursuing several licenses in order to enter the cannabis industry.

Many applications, few licenses

In August and September, the Department of Consumer Protection named retailers and micro-cultivators selected via lottery to move forward with the licensing process.

The state has two separate lotteries for social equity and general applicants, across eight licensing categories ranging from retailers and growers to delivery service companies and product packagers. All applications not selected in the social equity lottery are automatically entered into the general applicants pool.

In total, just 56 licenses will be doled out in this first lottery round, but the state has said there will be more lotteries in the future.

(Not all cannabis licenses are subject to the lotteries: disproportionately impacted area cultivators had a one-time window to submit applications for a grower license, and existing medical producers and retailers can enter into equity joint ventures with social equity applicants without entering the lottery pool.)

Across eight lottery categories, 37,294 total applications were filed, with 23,488 sent in for the social equity category, according to the Department of Consumer Protection, which regulates the cannabis industry.

• Chillax LLC, which names New Jersey resident Niralee Modi as principal, submitted the second-most lottery applications: 2,295 across four different licensing categories. So far, Chillax has secured provisional licenses for retailer and micro-cultivator operations, HBJ’s data analysis found.
• Divine 1 LLC, which names Pennsylvania resident Dharini Patel as principal, submitted 2,043 entries in five license categories. So far, the company has won a retailer license.
• Shangri-La CT Inc., which names Hartford resident Jocelyn Cerda and Missouri resident Kepal Patel as principals, submitted 1,171 applications, HBJ’s analysis found. In addition to securing two retail licenses, the company was also selected to move forward with a disproportionately impacted area cultivator license.
• Slap Ash LLC, which names Florida resident Ashley Vaughn and Chicago resident Amanda Ostrowitz as principals, submitted 901 entries in five licensing categories, securing two retailer lottery selections in the process.
• RAD Holding Corp., which names Hartford resident Shawn Devon Howell and Suffield resident James L. Daddario as principals, sent in 683 applications and won a micro-cultivator license.

Andrea Comer, deputy commissioner of the state Department of Consumer Protection and chair of the Social Equity Council, recently told an audience at Hartford Business Journal’s cannabis expo that she was surprised to see the staggering number of applications from some lottery winners.

However, she said the “legislation was silent” on limiting the number of license applications that could be submitted by prospective businesses and that regulators had no choice but to follow the law approved by the state legislature.

Changing the process

Tyler, a Stamford native with an eyelash extension business in Wilton, submitted applications for retail, hybrid retail and food and beverage cannabis licenses. She said she saw a sibling struggle with drug abuse and incarceration, so she understands the desire to tie social equity goals into the legal cannabis law.

“I really experienced the atrocities of disparate incarceration and how drugs flooded our streets,” Tyler said.

But Tyler said Connecticut’s law didn’t allow for true social equity in this lottery round. She compared Connecticut’s social equity program to that of New York state, which works with existing business owners hoping to branch off into the cannabis space.

“If the state really wanted to do this in earnest, and really see an equitable carve-out of the cannabis market, (state lawmakers) would have sought out all the thousands of Black and brown business owners in the state and worked with them if they wanted to enter the market,” Tyler said.

House Majority Leader Jason Rojas (D-East Hartford) said he thinks the state’s legal cannabis law will undergo changes before legislators get it right. He said part of the reason application fees were put into the law were to prevent one applicant from submitting tens of thousands of applications.

But he acknowledges that might have missed the mark.

“We know that some folks on the social equity side of things didn’t want any fees at least for social equity applicants, but fees were put in place hopefully to ensure that applicants had some skin in the game at the time that they were making applications in an effort to not have people just submit 10,000 applications,” Rojas said. “So it might be that the fees weren’t enough of a deterrent for that to happen, or perhaps we need to look at some other potential solutions.”

Fees for different license application types range from $125 to $750 per application, depending on whether a company is entering the social equity or general lottery.

One change, Rojas said, could be limiting the number of applications submitted by companies supported by a large, multistate operator. He said he expects the legislature to continue to tweak the cannabis law as it learns more about the legalization process.

Meanwhile, getting the state’s business accelerator and low interest loan technical assistance programs up and running are also key to social equity, Rojas noted.

“If we want to ensure equity, we have to put money on the table so that people can actually access capital to open these kinds of businesses,” he said.

DeVaughn L. Ward is a Hartford-based attorney and senior legislative counsel at the Marijuana Policy Project, which lobbied for the recreational market in Connecticut.

He said “the idea in writing the law was that the barrier to entry would be very low for the lottery system until you’re selected. But the more lottery tickets you buy, the better chance you have.”

Ward said one alternative to Connecticut’s lottery-based licensing system is a merit-based process, in which companies follow a rubric of criteria and earn points for things like social equity status, where they live and what their plans are. The top-scoring applications get license approval.

But that is often criticized as a “pay-for-play” system as well, he said, because applicants have to put up thousands of dollars to hire professional application writers, consultants and other experts to perfect their paperwork.

“I certainly think there should have been a cap on the number of individual license applications that any one person could have submitted,” Ward said. “It’s definitely an oversight, but the alternative to the lottery system would be a merit-based application.”

However, the cannabis industry is hard to be successful in, Ward emphasized, so an entrepreneur who has a partner with capital and experience isn’t necessarily a bad thing.

“It’s a tough environment to compete in,” Ward said.

Also, Ward noted, application fees go into a pool of money earmarked for social equity-related efforts and programs, which some view as a positive.

“It’s important to remember that this is round one (of the lottery), I suspect there will be many more rounds of applicants,” Rojas said. “So, to the extent that people have legitimate concerns about the corporate takeover of cannabis that we’ve seen in other states, it’s something we need to be sensitive to and make adjustments — as we said would be necessary when we passed the bill.”

But, Tyler said, if future lotteries don’t have a cap on the number of applications one entity can submit, the state will run into the same criticism it’s facing now.

“If (Gov.) Lamont’s intention was to fund this (social equity) slush fund in order to live up to his promise of technical assistance and funding a lot of these Black or brown social equity businesses, well he absolutely succeeded,” Tyler said. “But what he did at the same time is dash aspirants like me who have stood up and successfully run a business in this state for 20 years, had funding and had a tried-and-true retail model that was going to guide me through.”