Jay-Z is launching a fund to invest in minority-owned cannabis startups to bolster Black participation in the industry.
The rapper and entrepreneur says he is motivated by an imbalance in the marijuana business: People of color, who have been disproportionately punished for involvement in the drug where it is illegal, comprise only a small number of those making money from the multibillion-dollar market in legalized pot.
“It’s really unbelievable how that can happen,” said the musical artist, born Shawn Carter. “We were the ones most negatively affected by the war on drugs, and America has turned around and created a business from it that’s worth billions.”
In the 25 years since California first legalized medical marijuana, cannabis has grown into a $20 billion legal business in the country that could surpass the $70 billion market for U.S. wine by 2030, according to an estimate by the New York investment bank Cowen & Co.
Mr. Carter, who is starting his fund with $10 million in seed money received as part of a merger, joins a broader push for equitable economic opportunity in the cannabis sector, as studies show that minorities have been punished more than whites for using drugs.
A 2017 study for the National Institutes of Health found that Black people were incarcerated at rates between five and seven times those for whites convicted for similar drug-related offenses.
In November, voters in Arizona, Montana, New Jersey, and South Dakota approved recreational marijuana use, while Mississippi approved medicinal use, bringing to 35 the number of states that have legalized cannabis in some form. This month New York Gov. Andrew Cuomo announced a legalization proposal for the state, including the creation of an office to target licensing and business assistance for people of color.
New York is following a template used in other states—including California and Illinois—that have created programs for minorities in the cannabis business.
In Massachusetts, where cannabis has been legal since 2016, fewer than 6% of the almost 7,000 agents registered to sell or grow cannabis in the state are Black. In Denver, where cannabis sales have been legal since 2014, Black ownership of cannabis businesses is under 6%, while in Washington State the share is roughly 3%, according to state statistics. Around 10% of businesses in the U.S. were Black-owned in 2017, the most recent year for which numbers are available from the Census.
Black people were nearly four times as likely as whites to be arrested for marijuana possession in the U.S. in 2018, despite statistics showing that whites have higher lifetime rates of pot usage, according to the American Civil Liberties Union.
Mr. Carter’s fund grew out of the $575 million acquisition in December of California-based cannabis companies CMG Partners Inc. and Left Coast Ventures Inc. by Subversive Capital Acquisition Corp., a Vancouver-based special purpose acquisition company. In October, Mr. Carter launched the cannabis line Monogram, which will be a joint venture with the merged company, to be named TPCO Holding Corp.
As part of the Subversive deal, TPCO will seed Mr. Carter’s fund with $10 million and inject another 2% of net income every year thereafter.
The fund will be run by Mr. Carter and Desiree Perez, chief executive of Mr. Carter’s Roc Nation entertainment conglomerate and recipient of a pardon from Donald Trump on the last day of his presidency. It will invest as much as $1 million in each startup cannabis company they choose.
“I wanted to do something in a real, concrete way, where I do my part,” said Mr. Carter.
Mr. Carter said he and Subversive’s chairman, Michael Auerbach, were influenced by investor Robert Smith’s “2% Solution,” a proposal for corporations to channel 2% of their net income to Black-owned businesses.
Spurred by a national debate about systemic racism following the killing of George Floyd, companies including JPMorgan Chase & Co., Netflix Inc., and Walmart Inc. pledged more than $35 billion toward racial equity last year in programs to create more economic opportunities for minorities and build wealth in their communities.
Apple Inc. announced last week it will invest $35 million in early-stage venture capital firms that provide funding for minority-owned businesses, among other measures.
Legal cannabis differs from other businesses because of its associations with the war on drugs, said Mr. Carter. He knows several people who spent time in jail for marijuana crimes, including Kareem “Biggs” Burke, one of the co-founders of Mr. Carter’s record label, Roc-A-Fella Records, who was incarcerated for almost five years.
“It’s not a spreadsheet, it’s real people,” said Mr. Carter.
Amber Littlejohn, executive director of the Minority Cannabis Business Association, a Eugene, Ore.-based trade group, said most independent cannabis entrepreneurs struggle to access capital and meet regulatory requirements. California requires individual businesses to sign storefront leases before they can apply for dispensary licenses to sell pot. In Nevada, license applicants need at least $250,000 in liquid assets to qualify.
Those sums are difficult to access for small-business owners, particularly because national banks won’t lend to a cannabis sector that remains federally illegal. Aspirants also aren’t eligible for loans from the Small Business Administration.
Ms. Littlejohn said many minorities have trouble reaching networks of deep-pocketed investors, which makes it harder to fund their fledgling businesses.
Whitney Beatty, age 42, grew up in Detroit in the 1980s during the height of the drug war. Seeing police break into neighbors’ homes and make arrests for marijuana possession was common, she said, adding that friends have spent time in prison and have had their lives marred because of it.
Today, Ms. Beatty is trying to launch a dispensary in Los Angeles and runs an online store called Apothecarry, selling high-end humidors for marijuana storage. Her family tried to dissuade her from entering the business because they were afraid she could get in trouble even though pot is legal in the state, she said.
“They told me that this is only something for white people,” she said. “These thoughts are going to keep us locked out of this huge business that’s just coming online.”