Massachusetts has a long way to go to realize dream of equity in Cannabis Industry
Massachusetts Focus on Equity
In 2016, Massachusetts voters made history by legalizing recreational marijuana with a focus on equity. The ground-breaking ballot initiative included language which would require the state to develop its equity programming alongside the legislation required to bring recreational cannabis to the state. These equity programs were a recognition of the long disproportionate impact of cannabis criminalization and drug policies on communities of color. In response, Massachusetts developed a three-pronged approach to ensuring equity in the cannabis industry.
A special cannabis licensing system for minority applicants which assists people of color, women, people with disabilities, and formerly incarcerated business owners, in acquiring their cannabis license and providing support in business training.
The economic empowerment program expedites applications for a cannabis permit in communities historically impacted by the Drug War. To qualify for this program, applicants must have a majority ownership of people of color and promise to employ at least 51% of people who are disenfranchised or living in a community impacted by the Drug War.
Massachusetts requires all business operators to include a diversity plan with their application, which includes a plan to: hire a diverse workforce, promote minority workers, and develop a system to measure and track their efforts.
The inclusion of these equity priorities is the result of successful advocacy in Massachusetts by community leaders and members; however, their vision for equity has not yet been fully realized. In an industry that requires anywhere from $1-$5 million in startup capital, not surprisingly, the cannabis industry in Massachusetts is overwhelmingly white (73%) and male (64%). Despite investing in pathways that create equitable access to permitting, Massachusetts has created a complicated process to open a cannabis business which is too burdensome and too expensive to allow for anyone, except for those who are incredibly well-resourced, to open their doors. Compounding this expensive process is a non-existent lending environment for cannabis businesses due to the federal prohibition on cannabis. In short, increased access to permits in Massachusetts has not resulted in viable business opportunities for minority applicants because they lack access to the necessary capital to formally open.
Barriers to Entry and Legislative Solutions
One of the largest up-front expenses for a cannabis business is the real estate. To be granted a permit, an applicant must have control of the real estate they intend to use for their business. This means that an applicant may need to secure and pay for real estate for up to a year before earning any revenue. This combined with the host community fees, enhanced security measures and systems, and other expenses required to open a cannabis business are proving to be a barrier to success for minority applicants.
The numbers support this story. As of July 2021, 862 licensing applications have been approved by the Cannabis Control Commission (CCC). However, of the 289 licenses granted via equity programming, only 29 have fully opened. Despite all intentions and investments in equity applicants, a mere 10% of the approved applicants were able to successfully launch a business. Advocates, business owners, and even members of the CCC itself, have pointed to solutions which put capital in the hands of minority business owners, including more public private partnerships and the creation of a social equity trust fund.
Cannabis is a heavily taxed commodity in Massachusetts, with over 2 billion in revenue in 2021 and at least 20% going back to the state. The law in Massachusetts created very specific provisions for how to spend the tax revenue, including an investment in “industry specific technical assistance, and mentoring services for economically-disadvantaged persons in communities disproportionately impacted by high rates of arrest and incarceration for marijuana offenses.” (See M.G.L c.94G §14) There are currently several proposed legislative solutions pending in front of the Joint Committee on Cannabis Policy – including three bills which specifically call for the creation of a fund which will make no-or-low interest loans to cannabis businesses. H.158 and H.177 both establish the creation of a Cannabis Social Equity Trust Loan Fund to make no-interest or forgivable loans/grants to economic empowerment and social equity program participants. Similarly, H.178 establishes a Cannabis Community Empowerment Fund to offer no-or-low interest loans to eligible businesses as startup or expansion capital. These bills differ slightly on details like administration of the fund, but are aligned overall on the need for a state-funded loan program for minority applicants.
This type of solution is in response to the lack of available small business loans from banks, and is modeled after programs in Illinois and Oakland, California that are giving equity applicants six-figure loans. This capital goes a long way, because it can be leveraged by individual entrepreneurs to secure other private investments. Arguably, these programs should continue to exist for minority applicants even if banks begin to make loans after the federal prohibition on marijuana is lifted. People of color, who are formerly incarcerated, and other minorities are less likely to qualify for a traditional banking loan, and therefore, state-funded loan programs are way to continue to ensure equitable access to financial resources needed to start a cannabis business. There is also movement at the federal level for similar initiatives that are moving alongside the effort to end the federal prohibition on marijuana. For example, the National Cannabis Industry Association (NCIA) also supports the MORE Act, federal legislation which would decriminalize cannabis and allow the Small Business Administration to make loans to cannabis businesses.
While Massachusetts has made progress in ensuring equitable access to the cannabis industry, there is still a long way to go. Access to permits alone is not enough. As we have learned over the past few years, access to financial capital is truly the path to equity in almost every aspect of our society. For too long, BIPOC communities have been left out of pathways to wealth, and it can be different for cannabis entrepreneurs in the Commonwealth. The legislature must act to establish a fund that will grant loans to equity applicants, and grant true access to the cannabis industry once and for all.
For More Information See Consulted Resources:
Dan Adams, Five years later, legal marijuana remains unfinished business in Massachusetts, Boston Globe, November 7, 2021. Accessed via: https://www.bostonglobe.com/2021/11/07/marijuana/five-years-later-legal-marijuana-remains-unfinished-business-massachusetts/?event=event12
Steven J. Hoffman and Shaleen Title, Communities of Color need access to Cannabis Economy, Boston Globe, July 17, 2020. Accessed via https://www.bostonglobe.com/2020/07/17/opinion/communities-color-need-access-cannabis-economy/?event=event12
Melissa Hanson, Why the cannabis industry remains primarily white and male, MassLive, August 5, 2021. Accessed via https://www.masslive.com/cannabis/2021/08/why-the-massachusetts-cannabis-industry-remains-primarily-white-and-male.html
Kira Kay, Jason Maloney, and Zachary Green, Minorities struggle for headway in the legal weed business, PBS News Story, July 31, 2021.
Massachusetts Cannabis Control Commission Website
Seth Richtsmeier, Cannabis Creative, Equity not Equality: How Massachusetts is Ensuring a Diverse Cannabis Industry, Blog Post. Accessed via: https://cannabiscreative.com/blog/equity-not-equality-how-massachusetts-is-ensuring-a-diverse-cannabis-industry/
Shira Schoenberg, Minority marijuana businesses seek state-backed capital, Commonwealth Magazine, June 15, 2021. Accessed via: https://commonwealthmagazine.org/marijuana/minority-marijuana-businesses-seek-state-backed-capital/
Colin Young, State urged to form equity fund to address cannabis industry access, Metro West Daily News, June 16, 2021. Accessed via: https://www.metrowestdailynews.com/story/business/2021/06/16/massachusetts-equity-fund-address-cannabis-industry-access/5294925001/