Opening an RMD: How to Venture into the Massachusetts Cannabis Industry
Although not yet federally legalized, individual states are permitted to enact legislation allowing for the recreational use, sale, and possession of cannabis for adult use. Since question 3 passed in 2012, adults in Massachusetts can possess up to 10 oz. of cannabis for medicinal use every 60 days, provided a showing of recommendation from a doctor a nurse. However, following the passage of question 4 in 2016, adults ages 21 years or older can now possess up to 10 oz. of cannabis for recreational use. The passage of question 4 was monumental for the cannabis industry in Massachusetts, as it provided licensed businesses with the legal right to cultivate, manufacture, and sell marijuana product for adult use. Now that recreational cannabis for adult use in Massachusetts has been legalized, there is great opportunity for businesses to venture into the Marijuana Establishment (“ME”) industry. With recreational cannabis sales from registered marijuana dispensaries (“RMD”) in Massachusetts surpassing over $1 billion since 2018, now is an opportune time for potential ME’s to venture into the cannabis industry in Massachusetts by opening a RMD. This paper will address (1) the step-by-step process required in Massachusetts by the Cannabis Control Commission (“CCC”) in order for a ME applicant to be approved for a RMD, and (2) the key operational requirements a ME must follow in order to be in compliance with the CCC.
Before diving into the step-by-step process required in Massachusetts by the CCC in order for a ME applicant to be approved for a RMD, I would like to briefly detail other options, aside from opening an RMD, for ME applicants to venture into the Massachusetts cannabis industry. These options include a Marijuana Cultivator (indoor or outdoor), a Craft Marijuana Cooperative, a Marijuana Product Manufacturer, a Marijuana Microbusiness, a Social Consumption Establishment Pilot Program, an Independent Testing Laboratory, a Marijuana Retailer, a Marijuana Transporter, a Marijuana Courier, a Marijuana Delivery Operator, and a Marijuana Research Facility Licensee. For those interested in any of these other options, please refer to the CCC’s regulations in order to be in compliance with your application.2 For the remainder of this paper, I will focus on the process of applying for a ME and operating a RMD.
Selecting Your ME’s Business Entity Structure:
The first step in the process of opening your own RMD in Massachusetts is deciding, after an analysis of tax considerations, which business entity structure to formulate your ME under. “A Marijuana Establishment is required to be registered to do business in the Commonwealth [of Massachusetts] as a domestic business corporation or another domestic business entity in compliance with 935 CMR 500.100 and to maintain the corporation or entity in good standing with the Secretary of the Commonwealth, DOR, and DUA.”3 In Massachusetts, permitted business entity structures are (1) corporations, (2) cooperative corporations, (3) limited liability companies (“LLC”), and (4) limited liability partnerships. Although there are four different entity structures available, selecting the right entity is crucial for the success of your ME and RMD.
If you choose to operate your business under the corporation entity structure, you will need to select and have a Board of Directors, a Chairman, a CEO, a COO, and a CFO. Under the LLC entity structure, you will first need to decide the management structure of the company, that is, whether the company will be manager-managed or member-managed.
A member-managed LLC anoints management authority in the owners of the LLC— the “members.” Under this management structure, each member will have a say in the decision-making process. Usually, the amount of say under a member-managed LLC will either be (a) equal to that of each owner—regardless of ownership stake in the LLC, or (b) the amount of say will be proportionate to the level of ownership in the business. For example, if you are one of the members in the LLC and you own 50% of the company, you will either (a) have equally-weighted say as every other member for management decisions—despite owning 50% of the LLC, or (b) your say will account for 50% weight in all management decisions. Naturally, under a member-managed LLC, if you own a significant stake in the LLC and would like to have as much control over the company as possible, you should structure the LLC’s operating agreement so that the level and weight of voting in the decision-making process is proportionate to ownership stake. The LLC member-managed entity structure should still employ a CEO, COO, and CFO.
Conversely, under a manager-managed LLC, the owners of the LLC elect a manager(s) to handle the decision-making process for the majority of business decisions while allowing the owners to retain some authority over specified business decisions set forth in the operating agreement. Under this structure, owners of the LLC will not have to be consistently involved in the day-to-day operation of the business—leaving operative power to the elected manager(s) who still must act on behalf of the LLC in good faith while functioning within the LLC’s operating agreement. For owners of the LLC who would like to be removed from day-to-day decision making, the manager-managed LLC entity structure may be more appealing. The LLC manager-managed entity structure should have the members employ a manager(s), chairman, CEO, COO, and CFO.
Lastly, you could choose to operate your business under the LLP entity structure. In Massachusetts, LLPs are formed by registering with the Secretary of Commonwealth. The benefit of operating under an LLP is that it limits the personal liability of a partner only to debts, obligations, and liabilities from tort, contract, or otherwise from omissions, errors, wrongful acts, or negligence. However, a partner in an LLP cannot eliminate liability for his or her own negligence. Essentially, an LLP is an entity that is significantly more protective of partners than that of a partnership, while also being classified, for Massachusetts tax purposes, the same way that LLCs are classified for federal income tax purposes. An LLP is required to file an annual report with the Secretary of Commonwealth.
Preparing Your ME Application:
Because electing a business entity structure in the form of an LLP has become increasingly popular, specifically in the context of opening up a ME in Massachusetts, the rest of this paper will operate as if an LLP was the selected business entity for your ME. After selecting your business entity in the form of an LLP, the next step is to prepare for the application process. The application process in MA requires the LLP to identify all of the persons and entities having direct and indirect control over the operations of your ME.5 A person or entity deemed to have direct control over the operations of your ME is:
(a) any owner possessing financial interest in the form of equity of 10% or greater;
(b) any person or entity possessing voting interest of 10% or greater in the ME or has the right to veto any significant event;
(c) any person who holds a relevant managerial, operational, or financial interest in the business and, because of this interest or power, has the authority to significantly influence the management, operations, or finances of the ME, MTC, or Independent Testing Laboratory (“ITL”); (d) any person or entity having the authority to control and execute (i) decision-making, (ii) appointing more than 50% of directors, (iii) appointing or removing C-level officers, (iv) and exclusive contracts in aggregate of at least $10,000;
(e) any person or entity earning 10% or more of the profits or collects more than 10% of the dividends;
(f) a court-appointed or assignee; or
(g) a third-party technology platform provider (“TTP”) that holds any financial interest in a Delivery Licensee.
A person or entity deemed to have indirect control over the operations of your ME is:
(a) any person with a controlling interest in an indirect holding or parent company of the applicant;
(b) the CEO and executive director of those companies; or,
(c) any person or entity in a position indirectly to control the decision-making of your ME.
After establishing all of the persons or entities within the LLP that have direct or indirect control over the over the operations of your ME, the next step is to ensure that your LLP is following the control restrictions set forth by the CCC. First, regarding your Independent Laboratory or Standard Laboratory Licensee, no licensee—or any person or entity having direct control of the ME—can have a license in any other class. Further, regarding your ME’s cultivation facility, all Licensees and persons or entities having direct control of the ME cannot exceed 100,00 sq. ft. of Canopy and cannot be distributed across more than three cultivation Licenses. Further, regarding Delivery Licensees, a TTP cannot be an original Licensee or a person or entity having direct control of your ME.
In sum, as required by the CCC as part of your ME application, you must give notice of (a) all persons or entities having either direct or indirect control of your ME, (b) all labs
with interest in specific license types, (c) compliance of your ME cultivation facility not exceeding 100,00 sq. ft. of Canopy, and (d) all delivery licensees and/or TTPs. As part of the suitability standard for licensure and registration, a designated enforcement staff must conduct background checks of your team and all persons or entities having direct or indirect control of your ME. The background check allows the designated enforcement staff to determine the ME’s suitability. After this check, the designated enforcement staff will make a recommendation for suitability or will find an adverse suitability recommendation.
Securing Real Estate:
The next step in anticipation of applying for your ME is to secure real estate in a location where that city or town allows marijuana businesses to operate. To ensure your purchasing real estate in a suitable location, you should first look at the CCC’s Marijuana Zoning Tracker. However, finding real estate in an approved city or town that allows marijuana businesses to operate is not enough on its own. You must also ensure that your real estate location satisfies the CCC’s buffer zone requirements. Your proposed ME real estate location cannot be located within 500 ft. of pre-existing public or private schools that provide education in kindergarten through grade (i.e., preschool through high school), unless that city or town adopted an ordinance or bylaw that reduces this buffer zone requirement. According to the CCC, to determine this buffer zone distance requirement, distance is measured in a straight line from the nearest point of the proposed ME property line to the nearest point of the property line where the pre-existing public or private school is located. It is recommended that all applicants review the municipal zoning ordinance in the city or town where your proposed ME real estate will be located to ensure that you are in compliance with other local buffer zone requirements.
Community Outreach Meeting:
Within six months of filing an application for your ME, you must submit documentation of your plans to hold a Community Outreach Meeting.In this notice, you must include the meeting time and location, as well as the meeting’s subject matter and the proposed address of your ME. At least seven calendar days prior to your Community Outreach Meeting, your notice must be published in a newspaper of general circulation in the city or town of your proposed ME, and be filed with the town or city clerk, the planning board, the contracting authority for the municipality, and the local licensing authority for adult use of cannabis.21 On top of these filing requirements, you must also mail notice—at least 14 calendar days prior to the Community Outreach Meeting—to all abutters of the proposed ME address, owners of land directly opposite of your proposed ME on any public or private street or way, and any abutters within 300 ft. of your proposed ME property line as they appear on the most recent tax list.
Prior to the Community Outreach Meeting, it is highly encouraged that you prepare a presentation for the meeting that details, among other things:
(a) a description of the owners, their backgrounds, and their values;
(b) an overview of the LLP’s mission and values;
(c) the type and location of the proposed ME;
(d) information supporting that your proposed ME is in compliance with that town or city’s buffer zone requirements, zoning ordinances and bylaws; (e) how your ME will not create a nuisance at or near its proposed location; (f) information supporting that your proposed ME location is in compliance with the CCC’s security requirements;
(g) steps taken to ensure that minors (i.e., anyone under the age of 21 years) will not have access to the ME or any of its products; and,
(h) how your proposed ME will positively impact and benefit the community and city or town.
With your presentation preparation now complete, you should attend the Community Outreach Meeting prepared to present, while also being prepared to address any and all questions asked by the attendees. For the sake of efficiency during this meeting, it is also recommended that the ME representatives create a concise visual representation to support the presentation for the attendees to observe and to look back upon throughout the meeting.
Operational Requirements:
Assuming that you successfully attended the Community Outreach Meeting and that your ME application has been reviewed and approved, the next order of business is to understand the CCC’s operational requirements. Of the list of operational requirements, I will focus on (1) the written operating agreement, (2) ME agent training, (3) the safety and sanitation requirements, and (4) marketing and advertising.
Written Operating Agreement:
In drafting your ME’s written operating agreement, it should address, among other things, (a) your security and safety operating procedures, (b) your personnel-related operating procedures, (c) your hours of operation, (d) strain description, (e) price list, (f) your policy and procedures for handling cash on the premises of your RMD, (g) the storage of your marijuana product, (h) your recordkeeping protocols, and (i) your policies and methods for energy efficiency and conservation.
In the operating agreement, your security and safety procedures should detail all of the measures you will take to ensure security of your RMD and your employees against crime or in the event of an emergency. Further, you should address how you plan to prevent crime at your RMD and how you will prevent all sales to minors. Lastly, you should address
how you will ensure quality control of your product while remaining compliant with the standards set forth under the Occupational Safety and Health Act of 1970. Regarding personnel-related operating procedures, you should detail your staffing plan and how you will keep track of your staff record, and how you will ensure an alcohol, smoke, and drug-free workplace. Further, you should detail your policy for the termination of any employee or agent who has violated the law. Lastly, if you have not done so on your ME’s website, you should list off all of your ME’s board members, executives, and members.
Next, you should detail your ME’s hours of operation, as well as the contact information for any after-hour inquiry. Then, you should detail each of the various strains and its form of your product that is cultivated, processed, or sold at your ME, along with how you plan to store each product. It is important that you also provide a price list for all of your products sold at your ME—even if it does not contain marijuana. The same type of price list should be listed for patients or consumers with a Verified Financial Hardship. From there, you should then detail your recordkeeping policies and procedures in place for how your ME will handle all funds. Regarding cash transactions, you should detail how you plan to store it, its collection frequency, and how you plan to transport it to financial institutions.
Lastly, you must detail your policies and procedures in place to ensure energy efficiency and conservation. To that end, it is required that you identify potential energy use reduction opportunities, including, among other things, natural lighting, heat recovery ventilation and energy efficiency measures, and how you plan to reduce your electric demand. Once establishing these different opportunities to reduce energy use, you must detail your plan for implementation of these measures. Even further, you must include consideration of opportunities for renewable energy generation. If applicable, submit your ME’s building plan with the points where you could feasibly input energy generators on site, along with your written rationale as to why you chose not to input the generators there.
ME Agent Training:
With the operating agreement now complete, the next operation requirement is your ME agent training. Required by the CCC, all current ME agents involved in the handling or sale of marijuana at the time of licensure or renewal must have attended and successfully completed a Responsible Vendor Training Program. First, all ME agents must take the Basic Core Curriculum. Upon completion of the Basic Core Curriculum, the ME agent(s) is eligible to take the Advanced Core Curriculum. Further, the CCC requires that all ME agents receive 8 hours of training annually. This annual training is tailored to each
agent’s role and responsibilities of his or her job function. Further, this annual training includes, at a minimum, four hours of training from the Responsible Vendor Training Program course. This program requires at least 2 hours of instruction time, and must be taught in real-time in an interactive classroom setting so that the instructor can verify each individual attending the program, and certify that each individual completed the program. Attendance must be consistently updated and each attendee must pass the program’s test with a score of 70% or better.
The CCC requires that once a licensee is designated a “responsible vendor,” all new employees involved in the handling and sale of marijuana must successfully complete the Responsible Vender Training Program within 90 days of being newly employed by the ME. It is important to note, however, that all administrative employees—that is, employees who do not handle or sell marijuana at the ME—are not required to take the Responsible Vendor Training Program. These administrative employees are still required, however, to fulfill the 8-hour annual training requirement. In order to ensure compliance with the Responsible Vendor Training Program, your ME must maintain recordkeeping of this program for the most recent 4 consecutive years. This recordkeeping must be made available for licensed inspection upon request.
Safety and Sanitation Requirements:
It is crucial to understand that ME agents are essentially categorized as food handlers—that is, ME agents are required to comply with the food handler regulations in 105 CMR 300.000. If you are an ME agent whose job requires contact with marijuana or non edible marijuana products—either cultivation, production, or packaging—you must follow the Massachusetts food handler regulations. Further, any ME agent who works in direct contact with preparation of marijuana or non-edible marijuana products must conform to the standard sanitary practices that food handlers follow. That is, your ME agent must maintain adequate personal cleanliness and wash hands thoroughly in an adequate area before starting work at any time. This includes at the start of the day, after a break period, and even where an ME agent’s hands have become soiled or contaminated in any fashion.
Regarding your ME location’s water supply, you must have an adequate supply of water sufficient for all necessary operations of the ME. If your ME has a private water source, that source must be capable of providing a safe, potable, and adequate supply to meet your ME’s needs. As for your ME’s plumbing situation, the plumbing must be of adequate size and design, and must be properly installed and maintained on a consistent basis. The plumbing must not be cross-contaminated with your ME’s water supply.
Like any other business, your ME must maintain its physical facilities and bathroom area in a sanitary condition consistent with Massachusetts’ regulations. To that end, your ME
must have handwashing facilities with adequate running water at a suitable temperature and must be located in all areas where your employees are required to consistently wash their hands. Further, your ME must have adequate safety lighting in all processing and storage areas, and anywhere where equipment and other tools are required to be consistently cleaned. Lastly, regarding waste removal, you are required to dispose of all waste in an efficient time and manner to prevent any form of odor or the attraction of insects, rates, and other pests.
Marketing and Advertising:
With marketing and advertising crucial for the growth of any business, let alone a ME, it is important to ensure that you are acting within the CCC’s marketing and advertisement regulations. If your ME develops a brand name, it is permissible to use that brand name in labeling, signage, and other relevant materials. In order to best protect your brand name, you are encouraged to register your brand name as a trademark. At minimum, you should protect your brand name with a common law trademark within the state of Massachusetts. It is important to note, however, that your ME’s brand name cannot include medical symbols, images of marijuana, marijuana products, or other related paraphernalia images. Further, your brand name cannot include images that are appealing to persons younger than 21 years of age, nor can it contain any colloquial references to marijuana or cannabis.
It is permissible for your ME to sponsor your brand name, that is, paying a third party in exchange for that third party’s sponsorship of your brand name at specified events. However, there are specified regulations in place by the CCC regarding which events you can engage in brand name sponsorship, and how you can engage with that third-party. If your ME engages in a brand name sponsorship, you must retain documentation of reliable, reasonable audience composition data that is the basis for allowing any such advertising or branding for a period of one year, or longer if otherwise required by the CCC, or a court or agency with jurisdiction. If your ME wants to provide sample displays at events for advertisement, you must display your sample in a secure, locked case. If prompted, an ME agent may remove a sample of your ME’s marijuana product from the case to allow a potential customer to inspect the product, however, that potential customer may not consume the sample.
In short, your ME is allowed to engage in advertising practices provided that these practices are not prohibited by the CCC or other Massachusetts laws, they do not jeopardize the public health, welfare, or safety of the general public, and they do not promote the diversion of marijuana or marijuana use in individuals that are younger than 21 years of age. If you do choose to advertise your ME’s product, your advertising must include the statement “please consume responsibly” in a conspicuous manner on the face of the advertisement. Further, all advertising produced by or on behalf of a ME for marijuana or marijuana products must include the following warning, including capitalization, in accordance with M.G.L. c. 94G, §4(a½)(xxvi):
“This product has not been analyzed or approved by the Food and Drug Administration (FDA). There is limited information on the side effects of using this product, and there may be associated health risks. Marijuana use during pregnancy and breast-feeding may pose potential harms. It is against the law to drive or operate machinery when under the influence of this product. KEEP THIS PRODUCT AWAY FROM CHILDREN. There may be health risks associated with consumption of this product. Marijuana can impair concentration, coordination, and judgment. The impairment effects of Edibles may be delayed by two hours or more. In case of accidental ingestion, contact poison control hotline 1-800-222-1222 or 9-1-1. This product may be illegal outside of MA.”
There are, however, specific ME advertising practices that are prohibited by the CCC. Among other practices, ME’s may not advertise in a manner that is deemed to be deceptive, false, misleading, or fraudulent, or tends to deceive or create a misleading impression, whether directly, or by ambiguity or omission. Further, your ME’s advertising cannot make any false or misleading statements concerning other licensees and the conduct and product of such other licensees—including statements made by a licensee. Additionally, your ME’s advertising cannot assert that its products are safe, or represent that its products have curative or therapeutic effects, other than labeling required by law, unless supported by substantial evidence or substantial clinical data with reasonable scientific rigor as determined by the CCC. With regards to advertising by means of television, radio, internet, mobile applications, social media, or other electronic communication, billboard or other outdoor advertising, or print publication, ME’s must ensure that its audience consists of at least 85% of people ages 21 years or older. If the audience is less than 85% of people over the ages of 21 years or older, this form of ME advertising is deemed prohibited. Overall, there are numerous other forms of prohibited ME advertisement practices defined by the CCC, which I encourage you all to look at prior to implementing your ME’s advertisements so that you can remain in compliance with the CCC.
Conclusion:
Now that recreational use, sale, and possession of cannabis is legal in the state of Massachusetts for adults, the opportunity to venture into the Massachusetts cannabis industry, although timely and costly at the onset, provides a new way to enjoy long-term financial prosperity if you establish your ME with the correct business plan in compliance with the CCC. With recreational cannabis sales from RMD’s in Massachusetts surpassing over $1 billion since 2018, now may be the time to venture into the cannabis industry before
the market in Massachusetts becomes oversaturated with licensed dispensaries. If you believe in your business plan, and are committed to following the CCC’s regulations from the onset of your business formation, you could be well on your way to running a successful ME with the opportunity for widespread and long-term growth.