Connecticut’s Social Equity Council rebuffed a suggestion that it should ease its tax disclosure requirements for investors looking to partner with equity applicants, during its monthly meeting on April 6.
“We’re saying we want to eliminate the submittal of three years of tax returns for financial backers?” asked Social Equity Council member Avery Gaddis. “I’m not going to support that.”
Attorney Komla Matrevi, who recently joined the SEC, argued the Council should consider easing reporting requirements for financial backers to entice more participation in the market.
“We’ve heard from social equity applicants about the hesitation from potential investors to back them because of its requirement,” he said.
Matrevi also argued that the requirement to provide tax returns was beyond the scope of the SEC’s authority. The SEC is charged with crafting cannabis regulation, including the rules that govern licensing.
“There are other agencies that are involved in this process. The Social Equity Council is simply reviewing the Social Equity applicants to determine if the individual qualifies for this criteria. That’s all that it is,” he said. “I believe we need to focus on what is the main purpose of the Social Equity Council.”
SEC member Ed Shirley explained that the disclosure requirement was getting in the way of social equity applicants from finding financial support.
“It would appear that that requirement hindered some social equity applicants in getting the backers to participate with them. They didn’t want to show their tax returns,” he said. “We were proposing that we remove that requirement.”
Council member Avery Gaddis was emphatic in his opposition to any loosening of reporting requirements for financial backers.
“We need to make sure people aren’t gaming the system. Tax returns tell a very vivid story,” he said. “At the end of the day we need to be able to verify where this money is coming from. Tax returns are good information and I don’t think we need to be making this easy for folks.”
As Feb. 3, the 90-day window was open for social equity applicants to apply for a cultivation license. Existing medical license holders can also enter into Equity Joint Ventures to get into the adult use market. In both cases, the financial backers must submit three years of tax records.
A spokesperson with the state’s Department of Consumer Protection said that the number of cultivation applicants would not be released until after the application window closes.
With about a month left before the first window closes, the state had received a total of 455 applications as of April 7, according to state data. Of those, 53 were equity applicants while the remaining 402 are general lottery applicants.
SEC Chair Andrea Comer noted that the state regulations required that a license for an equity applicant be issued for every license issued to a non-equity applicant. This means that without equity applicants, the state may not be able to issue non-equity licenses.
“We’re hoping that the social equity applicants will consider these license types,” said Comer.
At the time Comer said that, there were no social equity applicants for food and beverage manufacturing, packaging, medical-adult-use hybrid or transportation. As of April 7, there were still no equity applicants for a packaging license, while the other categories had one equity applicant.