As a way to introduce recreational marijuana dispensaries in the state, Connecticut has a lottery system in which applicants must pay a lottery fee and submit an application to be included. A report from the Hartford Business Journal is raising eyebrows after stating that the companies competing for a license submitted hundreds of applications to increase their odds at winning.
In September, the Connecticut Department of Consumer Protection selected winners in the retailer and micro-cultivator license types. According to data from the licensing database of Connecticut’s cannabis lottery system, those winners were able to increase their odds at success by submitting as many applications as they could afford. Application fees for the general lottery ranged from $250 to $1,000, depending on the license type.
A Much Too Easy Application Process
“With the fairly low price per entry combined with the no cap on the number of entries you are allowed to submit, it means you get businesses not entirely buying licenses straight away, but getting close enough to tip the scales in their favor,” John Engle, CEO of Cannabis Capital Group, said. “One group spent about $200,000 to get ten percent of the entries in the lottery. While one-in-ten still is not the best, it certainly is better, so it is disappointing in that it is structurally more difficult for entrepreneurs who want to get in on the lottery.”
With over 37,000 applications total for just 56 licenses that were awarded, the lottery process may not have been the most well thought out system. In trying to make it easy and fairly cheap for the social equity applicants, it became unbalanced and far too easy for the larger corporations to apply for an uncapped amount of lottery positions.
Two Types of Lottery Applications
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. According to the Connecticut government website, a Social Equity Applicant is somebody who:
- Had an average household income of less than three times the State median household income over the last 3 tax years;
- AND, was a resident of a disproportionately impacted area for at least 5 of the past 10 years;
- OR, Was a resident of a disproportionately impacted area for at least 9 years before the age of 18.
“This is good in the sense that a dispensary lottery process is giving everyone an opportunity to potentially participate in the license issuance process versus a first-to-file paradigm, which tends to favor those who are financially better off,” Brandon Dorsky, CEO at Fruit Slabs, said. “A first-to-file favors those who can prepare materials quickly, and fast preparation is aided by financial resources and higher knowledge, whereas a lottery system sets a date and gives everyone the same amount of time to be competitively considered.”
From an equity standpoint, a lottery is better, however how those lotteries are hosted or conducted and how the licenses are awarded may make them bring other equity considerations into mind. According to the Hartford Business Journal, social equity advocates are frustrated that the law did not 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.
Corrective Changes Could Be on the Horizon
In total, just 56 licenses were doled out in this first lottery round, but the state has said there will be more lotteries in the future. If Connecticut changes the amount of entries each business is allowed to have, that will be of value, but it all depends if the state wants to learn from its own mistakes, according to Engle.
Back in 2021, Illinois botched the first round of cannabis license lottery applications. Applicants were permitted to either submit a single application but pay multiple application fees to obtain multiple application entries in the same lottery or to submit different applications and obtain multiple application entries. When the Department posted the list of participants for the Qualifying Applicant Lottery, some participants erroneously received an extra entry, while some others did not receive an entry they paid for and identified on their application.
The state of Illinois acknowledged and corrected their mistakes, and Connecticut could very well do the same, but only time will tell. “It will depend on how much consolidation is permitted under the new model as regulatory issues gradually take shape and enforce what this adult-use market is going to look like. This is the first time since the 90’s with the software technology boom and a whole new economy is opening up and coming to life, so this is why social equity is so important because once you have industry players, it is hard to dislodge them,” Engle said.