Massachusetts: Opportunities in the land of progressive puritanism

Regulatory red tape could hold back the cannabis industry

Forget what you think you know about the Commonwealth of Massachusetts. Despite its reputation as a liberal state, Massachusetts suffers from a harmful affliction: progressive puritanism. Symptoms include the desire to do right, but the unwillingness to do so because of the fear of the unknown. Marijuana policy is a perfect example.

In 2008, 63% of Massachusetts voters chose to decriminalize possession of less than one ounce of marijuana. In 2012, again, 63% of the voters were in favor of legalized medical marijuana. This fundamental change in Massachusetts’ drug policy should have gone through the state Legislature, but was instead initiated through the commonwealth’s imperfect ballot process. In 2016, despite a publicity war waged against cannabis by alcohol distributors and those suffering from progressive puritanism, 54% of voters ended prohibition.

Medical marijuana

Like many jurisdictions’ medical marijuana programs, the commonwealth’s start was rocky. With 181 applications submitted in 2013 and only 20 licenses awarded in January 2014, lawsuits and newspaper articles attacking the program and the winning applicants were common. Patients waited for access, but the program was stalled in 2014 as the Department of Public Health defended its licensing selection for some applicants, while removing others from the program. Ultimately, successful lawsuits against the Department of Public Health allowed the program to move forward with regulatory compliance as the touchstone for success.

Massachusetts has the makings of a successful medical marijuana industry, scoring high on three out of four criteria that make a good program: the list of qualifying conditions is the most liberal in the U.S.; there is no limitation on forms of ingestion or levels of THC; and the price of medical marijuana is not inflated by burdensome tax rates. Despite these positives, however, progressive puritanism has infected our municipal zoning. Frequently the only place allowed for a marijuana business is in the back of an industrial park, marginalizing sick people and perpetuating the stigma against marijuana use.

Adult-use

With the passage of Question 4 in the November 2016 election, an adult over 21 may cultivate six plants at home, with a maximum of 12 for their household. Adults may also legally carry up to one ounce of cannabis flower outside the home, possess up to 10 ounces at home and gift up to one ounce to another adult. Even these basic personal use criteria were hard for the drafters of the initiative to agree upon. Some wanted unfettered cultivation and possession, and others, like this author, understood that robust regulations would make the campaign successful.

The Massachusetts Legislature has since made substantial amendments to the voter initiative, including delays to the dates of implementation, altering the process for the creation and oversight of the state agency overseeing the program, the Cannabis Control Commission, and defining the role of medical marijuana operators in the adult-use program. For example, the adult-use program allows for optional vertical integration, with the ability to co-locate medical and adult-use sales. That is, unless adult-use business is banned or delayed in a community — a real threat as more and more towns across the commonwealth hold special votes on moratoria or outright bans of cannabis-related businesses.

Immediate opportunities

While the Cannabis Control Commission works on regulations, opportunities exist now for getting involved in Massachusetts, with and without touching the plant. A property-only investment, for example, offers the security of owning title to the property. This may include financing the build-out and leasing back to the cannabis business. With the value of improvements, and by amortizing the cost of the buildout over the first term of the lease, a property could be worth far more than comparable real estate.

Lending money to an operator is another option. High interest loans with the licensed entity, and assumption of control as a remedy for default, offer significant return to a lender while providing some security.

Ancillary businesses are another opportunity. Whether it be an innovative technology solution like proper data analytics or simply acting as an architect, engineer, accountant, attorney or security consultant, operators need professional and compliant service providers with industry expertise.

With a population of 6.8 million people, applying for a license in Massachusetts is also a great option. First, build a team of successful individuals free of excluding convictions and significant outstanding tax debt. Then get commitments on capital to cover the costs of application fees, property acquisition, consultants and counsel, build-out and equipment purchases. Temper the desire to have all the capital available immediately with the risk of crippling interest accruing on loans from money that was borrowed too early. Finally, obtain a binding agreement on appropriately zoned property in a jurisdiction where progressive puritanism hasn’t mortally harmed the chances of taxing and regulating cannabis in that municipality.

If allowed to flourish, the Massachusetts adult-use market may easily exceed $1.2 billion in sales in the coming years.

Valerio G. Romano is a Partner with Vicente Sederberg LLC in Boston, Massachusetts. He is admitted to practice law in California and Massachusetts. He works with open medical dispensaries, dispensary applicants and registration holders and ancillary businesses. He can be reached at valerio@vicentesederberg.com.

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