SEC's Proposed E-Regulation: Lawmakers Were Warned About Exploitation, Then Allowed It

New ERegulation Proposed By SEC PR 2025-027 - Backed by HB 7181 in June -Connecticut Lawmakers Warned About Exploitation — Then Allowed the Risk Anyway - With Full Support From The Social Equity Council

CT CannaTimes - 12.21.2025

Editors Note: As we reviewed the record for this article, the number of contradictions became impossible to ignore. Lawmakers warned that shortening social equity protections would increase exploitation risk, then later approved that change.

The Social Equity Council has said no change occurred while advancing a regulation that formalizes it.

Even after extensive review, we are still trying to fully understand how these positions coexist.

We are presenting the documented facts as clearly as possible and welcome any clarification that helps make sense of them.

When Connecticut legalized adult-use cannabis, lawmakers repeatedly said they wanted to protect social equity license holders from being pushed out of their own businesses.

They knew the risk. They said so out loud.

Now, less than two years later, those same protections are being shortened — and a new regulation meant to “protect” equity may actually make things worse.

The original warning: seven years was meant as a shield

At a February 22, 2024 General Law Committee hearing, lawmakers discussed whether social equity ownership protections should last seven years or be reduced to three.

Committee Chair Rep. Mike D’Agostino made the concern explicit:

“What happens when someone partners up, and then three years later here’s a check… and they say yes. That’s the problem.”

— Rep. Mike D’Agostino, General Law Committee, Feb. 22, 2024

He went on to warn that shortening the window could expose equity license holders to pressure from better-funded partners:

“I’m concerned about exploitation risk if the time frame is shortened.”

— Rep. Mike D’Agostino, Feb. 22, 2024

Despite those warnings, lawmakers ultimately passed HB 7181 in 2025, locking in a three-year post-licensure ownership restriction instead of seven.

The law quietly gave regulators sweeping power

The final version of HB 7181, enacted in June 2025, did something else that received far less attention.

It gave the Social Equity Council (SEC) authority to issue “policies and procedures” that carry the force and effect of law, with penalties up to $10 million.

That means rules written by the SEC can be enforced just like statutes — even if they go further than many people expect.

November 2025: a regulation appears

On November 28, 2025, the Social Equity Council filed a proposed regulation — PR2025-027 — through the state’s e-regulations system.

On its face, the regulation sounds reassuring. It says its goal is to stop bad actors from buying up social equity licenses and jumping the lottery system.

The official purpose states it is meant to:

“prevent the sale or change in ownership or control of a cannabis establishment license awarded to a social equity applicant to someone other than another qualifying social equity applicant”

— SEC Notice of Intent, Nov. 28, 2025

That sounds like protection.

But the details matter.

Why the regulation is broader than it sounds

The proposed rule does not just block outright sales to non-equity buyers.

It bars nearly any ownership or control change during the restricted period — including arrangements that many small businesses rely on to survive.

The regulation bans:

• selling
• transferring
• gifting
• loan agreements
• financing arrangements
• any transaction whose “purpose or effect” changes control

Even deals between two social equity operators can be blocked unless the SEC approves them in advance.

The regulation also allows:

• mandatory document production within three days

• investigations at the SEC’s discretion

• referrals that can trigger multi-million-dollar penalties

December 17, 2025: confusion at the SEC itself

At a December 17, 2025 Social Equity Council meeting, SEC Executive Director Brandon McGee was asked about the regulation.

He initially denied that anything had changed:

“We did not change the seven to three years… that is still the law. We’ve not changed anything.”

— Brandon McGee, SEC meeting, Dec. 17, 2025

He then said the regulation wasn’t even the Council’s idea:

“That’s not our proposal… that may be a part of someone else’s legislative priorities.”

— Brandon McGee, Dec. 17, 2025

Minutes later, after being corrected by staff, his explanation changed:

“I’m being corrected by my staff attorneys and legal director… three years applies to lottery license and seven years applies to EJVs… this is the same policy and procedures we’ve had since 2022 and is now a proposed regulation.”

— Brandon McGee, Dec. 17, 2025

In other words: Nothing changed — except now it’s formal, enforceable regulation, backed by statute.

Even SEC members are uneasy about process

Internal SEC meeting minutes from November 26, 2025 show council members raising concerns about process, control, and oversight in other areas of SEC authority, including grant distribution and decision-making.

Councilmember Michael Jefferson, for example, questioned how much discretion was being centralized and how decisions would be made, prompting explanations from leadership and legal staff.

While those concerns weren’t about ownership rules specifically, they highlight a broader issue:

the SEC is accumulating significant power, often with limited external checks.

Why this could hurt the very people it claims to protect

On paper, PR2025-027 looks like an anti-predator rule.

In practice, critics say it may:

• lock equity businesses into bad partnerships

• prevent refinancing or restructuring during financial trouble

• scare away ethical investors who need flexibility

• give regulators veto power over ordinary business decisions

Most importantly, it shortens the protection window after lawmakers themselves warned that doing so increases exploitation risk.

The regulation also admits it affects small businesses — about 69 equity licensees — while acknowledging:

• no outreach to those businesses
• no alternative compliance options
• no mitigation strategies

The contradiction at the heart of it

Lawmakers warned in 2024 that three years might not be enough to protect social equity license holders.

In 2025, they passed a law allowing exactly that.

Now, regulators say the new rule is just “formalizing” protections — even as it expands oversight and reduces flexibility.

What began as a shield may end up as a cage.

And for social equity entrepreneurs already struggling to survive in a capital-heavy market, that distinction matters.