Mass Cannabis Social Equity

(This is the second article in a series detailing issues in the Massachusetts cannabis market.)

New Jersey could learn from Massachusetts, where regulations and price have made it difficult for social equity entrepreneurs to get the local approval necessary to apply to the State for a cannabis license.

The Garden State is currently experiencing a land grab where applicants are looking for friendly towns to have their business. However, the towns are receiving absolutely no guidance from the NJ Cannabis Regulatory Commission (CRC), which is soliciting their input at its Tuesday meeting. The lack of guidance is causing many to ban dispensaries and other cannabis businesses.

Massachusetts has been dealing with this issue for some time now.

Massachusetts Cannabis Reform Coalition (MassCann) President Grant Smith-Ellis said Massachusetts has a bifurcated licensing process whereby applicants need to obtain a local license first before applying for a license from the State. The problem for some entrepreneurs is Social Equity priority status only qualifies them for special status in the state licensing process. Thus, companies that qualify for that status are having a harder time obtaining property and receiving town approval to operate there before applying for a State cannabis license.

The Massachusetts Land Grab Fight

Smith Ellis said the corporate cannabis companies want to dominate the industry to sell an inferior product at exorbitant prices. He explained they do so by taking properly zoned land, gobbling up Host Community Agreements (HCAs), and encouraging high barriers of entry to the market to prevent competition.

Cannabis consultant and MassCann board member David Rabinowitz faulted the Mass Cannabis Control Commission (CCC) for issuing many of the early licenses to large companies that have dominated the market.

Many companies wanted one of the limited cannabis licenses. Towns imposed zoning that limited where a licensed cannabusiness could be based, making it even more difficult for social equity applicants.

New Jersey is now dealing with the same issue.

Rabinovitz said that Massachusetts had a two-year process to get a license with very few social equity applicants successful in the end. Retail was the license class where they were locked out the most.

“Retail is one license class where we had very restrictive license caps,” he noted.

Rabinovitz said since there was a license cap, it has made it especially hard for Social Equity applicants to obtain a license.

New Jersey’s legalization implementation law has no cap on dispensaries. However, there is a cap though on large scale growing for two years at 37 licenses, with 17 of those licenses already taken by the existing license holders and the nine that will be granted when the 2019 license round is resolved.

A Fight for Property for Social Equity Applicants

Landlords took advantage of the rush for a location and began charging very high prices that only the MSOs could afford the high rates for rent and keep renting empty spaces that weren’t producing revenue.

He said many small companies have gone bankrupt on property holding fees waiting for decisions to be made.  Some businesses were paying $5,000 a month to hold space.

“The landlords became the ultimate gatekeepers,” Rabinovitz said. “Towns didn’t select the best operator.”

“Up until COVID, it was a boom for the landlords,” he added. “Many paid thousands of dollars for nothing.”

Some companies have had to cope with two and a half years of holding costs.

The only people who can compete are those who can hold the property for the time necessary to secure the license Rabinovitz noted.

Interim President of the Massachusetts Cannabis Association for Delivery (MCAD) Aaron Goines said his company went to a town where there was a sliver of land where a dispensary would be allowed. Large MSOs were renting the only two properties that qualified to lock up space and hold it until they could apply.  

“It doesn’t take a lot of effort if you have the balance sheet to do so,” Goines said.

Some towns were charging $10,000 for a letter of intent because they knew cannabis operators would pay money for the letter to apply for a license from the State.

“As long as real estate is the leash on the process, the landlords will pick who wins. Social equity will be forced to the sidelines,” he added.

Rabinovitz said Maynard, MA, a small mill town said they would approve a dispensary if an applicant could find a location. A company had six months to find a location. But the landlord wanted a lot of money and didn’t negotiate in good faith.

The Massachusetts Supreme Court heard the case Mederi Inc. v. City of Salem and CommCan, Inc. v. Town of Mansfield, whereby applicants need a Host Community Agreement to apply for a license. Towns are charging exorbitant fees to operate.

The Law provides for the first five years towns could charge a three percent community impact fee to offset the documented impact. To secure a location within towns, companies are making donations to non-profits that function like bribes. The Supreme Court has yet to decide on the case.

Local Host Community Agreement Issues

The towns allowing dispensaries are only doing so usually after an elaborate and costly application process that favors corporate cannabis companies, and not smaller entrepreneurs.

Curaleaf, in effect de facto, bribed an official in public, and no one cared, Rabinovitz said. He explained that Ware, MA in central Massachusetts is a small old mill town in a rural area, decided to allow a dispensary which they needed for the tax revenue. They previously allowed a Lowes and a Walmart to open in town, and it killed their downtown.

Ware decided only two dispensaries would be allowed in a two-week application process. There were then three competitors in the town meeting, a mother-daughter team, Rabinovitz’s company, and Curaleaf.

Initially, a mother-daughter team won the first license. However, Curaleaf’s consultant then spoke at the Selectmen (town council) meeting. He declared small operators wouldn’t make the town money.

Rabinovitz recounted that he said, “We are prepared to do things. We will prepay $50,000 of our community impact. As soon as we get a license, we’re going to give $15,000 to a local charity.”

Curaleaf then donated to a school that was a Selectwoman’s pet project. Thus, they ultimately received the license last year.

“They bought it by offering to prepay,” Rabinovitz said.

Donation washing” is an issue whereby they donate to equity and causes to look better while they do other things. The problem is a donation is something that is supposed to be given freely. However, when you need to donate to get an HCA, it’s not a donation.

Rabinovitz noted many towns have a Not In My Back Yard (NIMBY) attitude towards cannabis. In addition, neighbors complaining is always an issue. Thus, they are making it difficult for many to get a Host Community Agreement. For example, Webster, MA allowed only one plaza in a decrepit or industrial park to be available for a cannabis company. Rabinovitz said the landlord auctioned it $25 a square foot, which is steep.

The City of Westfield, MA said that cannabis companies needed to pay, in addition to the State tax:

  1. The town tax
  2. Community impact fee
  3. A mandatory donation

New Jersey’s legalization law imposes a reasonable tax that should not be overly burdensome on consumers since legislators want the legitimate market to be able to compete with the underground market.

Smith Ellis explained that Cambridge, MA sought to allow Host Community Agreements for social equity applicants. However, a few companies, including Ayr Wellness (which bought Garden State Dispensary), tried to stop social equity applicants from receiving prioritization in the application process. Revolutionary Clinic sued Cambridge and told the judge an equity applicant was “racially discriminatory.” They ultimately dropped the case after losing an appeal.

Rabinovitz said the NJ CRC should inform the towns to pick the best team first who could then obtain the real estate easier. He said it would be easier to get the license first and then find a location.

“Think about zoning in a totally different way,” Rabinovitz added.

Rabinovitz said cannabis businesses should be able to go anywhere a liquor store could.

Goines said if you get the market wrong, you get bad products and market forces ruining it for everyone, for social equity applicants.

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