One intriguing aspect of Massachusetts’ adult-use marketplace has been the evolving provisions governing home delivery. The Cannabis Control Commission declined to utilize its authority to regulate adult-use cannabis delivery in the March 2018 initial regulations but, since then, has taken a steady, incremental approach by introducing two different license types in subsequent regulatory amendments. After some fits and starts, delivery looks poised to offer a new sales mechanism for Massachusetts consumers and an exciting new revenue stream for local cannabis businesses.
Evolution of Delivery License Provisions
Despite possessing express statutory authority to implement delivery, the CCC omitted delivery licenses from the initial adult-use rules in March 2018, stating it needed more time to study the implications of home delivery on public health and safety, as well as to ensure inclusion and equity.
Following a detailed review process, including a public notice and comment period and analysis from a state Cannabis Advisory Board report to the CCC, the regulatory agency promulgated amended regulations, effective in November 2019, that included a new delivery-only license category. This enabled a licensee to obtain cannabis products from licensed retail stores and deliver within municipalities permitting retail sales. Additionally, delivery licensees include microbusinesses that grow or process cannabis and obtain a separate delivery endorsement from the CCC.
As approved, delivery-only licenses and delivery endorsement microbusinesses had noteworthy attributes and limitations, specifically:
– For an initial two-year period, delivery licenses were only available to applicants that were majority controlled by one or more persons qualifying for the CCC’s economic empowerment or social equity programs. The exclusivity period sought to provide diverse businesses with an opportunity to get a foothold in the Massachusetts delivery industry before larger and more capitalized businesses could enter the market.
– Delivery-only licensees could only obtain cannabis or cannabis products from marijuana retailers and certain microbusiness licensees with which they had a delivery agreement, and could then charge a service fee to suppliers, end-user customers, or both.
– Safeguards in the delivery regulations included: having consumers pre-verify their government-issued identification with the retail store or microbusiness; verifying the consumer’s age and identity to the delivery driver again at the time of delivery; limiting deliveries to the residence address provided by the consumer upon pre-verification; prohibiting delivery at college or university housing, federally subsidized housing and hospitality operations (hotels and bed-and-breakfasts); limiting delivery hours to between 8 a.m. and 9 p.m.; and requiring extensive delivery vehicle protections (including GPS tracking and required use of body cameras).
– The regulations permitted, subject to safeguards, developing third-party, internet-based applications to facilitate ordering and delivering cannabis and cannabis products to consumers.
– Although cash payments were permitted, delivery licensees were required to use every effort to minimize the amount of cash carried in a delivery vehicle at one time, including implementing electronic payment platforms.
Licensing applications to prospective delivery-only marijuana establishments and microbusinesses seeking delivery endorsements first became available in May 2020.
In January 2021, the CCC subsequently approved the expansion of delivery regulations by establishing the delivery operator license and renaming the delivery-only license to marijuana courier.
The new delivery operator license authorizes the licensee to purchase wholesale and warehouse cannabis products from cultivators and product manufacturers and then deliver the products directly to consumers at prices set by the delivery operator. In addition to the traditional safeguards, delivery operator licensees are required to comply with stringent public safety regulations related to warehousing and inventorying products, as well as safe delivery protocols. The CCC also clarified that delivery licensees may hold up to three retail licenses and up to a combined total of two marijuana courier or delivery operator licenses.
The CCC also extended the exclusivity period for economic empowerment and social equity applicants to three years, beginning on the date when the first delivery operator commences operations (which has not yet occurred, as of late August 2021). Economic empowerment and social equity applicants must go through a pre-certification application process in advance of applying for the delivery license, which involves more than merely establishing that the applicant qualifies as an economic empowerment or social equity applicant. It also requires submitting detailed business plans and policies that are normally not required until applying for a provisional license.
Challenges and Opportunities with new Massachusetts Delivery Licenses
– Delivery options may help create a Door Dash, Uber Eats or Amazon-type convenience model for home cannabis deliveries that will open a new sales outlet to expand the $1 billion per year Massachusetts industry.
– The three-year license exclusivity period to diverse but sometimes undercapitalized economic empowerment and social equity applicants has potentially slowed the rollout of the delivery courier license type, especially given market limitations on the ability to earn revenue because of high delivery fees and, conversely, high costs associated with the rigorous and expensive, multi-stage Massachusetts licensing process.
– Early delivery couriers have used third-party web applications to increase efficiency and customer convenience (notably the Lantern app, offered by a sister company of popular alcohol delivery service Drizly).
– The delivery operator category should have substantially more upside once new CCC requirements are clarified in practice during the licensing process, as licensees can purchase, warehouse, sell and deliver cannabis products without incurring costs of maintaining a retail storefront.
– Based on the early licensing successes and volume of applications in process for both the marijuana courier and delivery operator licenses, prospects appear strong that delivery options led by diverse applications will take hold in Massachusetts in the coming years.
Other aspects of the delivery licensing scheme approved by the November 2019 amendments largely remained intact.
Licensing Progress to Date
Progress with the delivery courier and microbusiness delivery endorsements has been surprisingly slow but is expected to accelerate. As of late August 2021, only two marijuana courier and one microbusiness delivery endorsement are operational. Seven additional marijuana couriers are provisionally licensed and need to complete buildouts and/or inspections to commence operations. Seven additional applications are pending approval for provisional licenses and 79 applications for pre-certification have either been approved or are pending endorsement.
Since the delivery operator license category was approved in January 2021, and the CCC only circulated application forms in June 2021, it is understandable that no delivery operators are operating as of late August 2021. Nevertheless, 24 delivery operators have been pre-certified by the CCC, 20 have pending pre-certification applications and six have pending operator license applications, with many more in the wings.
Robert J. Munnelly is a regulatory lawyer at the Boston law firm of Davis Malm. His extensive experience dealing with legal issues faced by clients in highly regulated industries led him to represent businesses in the emerging Massachusetts cannabis market.
Courtney A. Simmons is a litigator at Davis Malm, assisting clients in commercial litigation and real estate disputes. She counsels cannabis clients on municipal approvals of host community agreements; local siting, zoning and permitting requirements; and environmental issues affecting developers, landlords and tenants.