A unique feature of Massachusetts’ adult-use cannabis industry is the effort to foster “social equity” statewide. Social equity is intended to improve access to cannabis business opportunities for those hit hard by past cannabis over-criminalization, as well as businesses that are majority-owned by underrepresented minorities, women, LGBT and military veterans. Specifically, the 2017 legislation required the newly created Cannabis Control Commission (CCC) to encourage disproportionately impacted and underrepresented people and groups to participate in the program.
Overview of Social Equity/Diversity Initiatives
The CCC has sought to meet these obligations using various regulatory mechanisms. Here are some highlights of CCC initiatives and the winding road to progress after two years’ experience with its adult-use regulations.
– Communities of disproportionate impact: The CCC designated 29 municipalities as “areas of disproportionate impact” entitled to receive contributions from adult-use cannabis licensees. To achieve these benefits, the rules require each applicant to submit a plan outlining how its business will positively affect one or more disproportionate-impact areas. The CCC does not specify the nature of the contributions; however, it requires the plan to state what steps the applicants propose to take and subjects the plan to ongoing self-review and possible modification. The CCC also maintains a diversity plan requirement designed to support hiring from underrepresented groups.
– Economic empowerment licenses: The rules include an “economic empowerment” category for those who met at least three out of five requirements linked to: (a) living or working in disproportionate-impact areas; (b) having past drug-related offenses; or (c) being of “Black, African American, Hispanic or Latino descent.”
Certified economic empowerment licensees are entitled to waived license fees and expedited license processing.
– Social equity status: A social equity designation is available to businesses owned by Massachusetts residents who lived for at least one year in a disproportionate-impact area or experienced a drug conviction for themselves or a family member. Social equity applicants may receive fee waivers and participate in CCC training and professional development opportunities.
– New license prioritization: After lengthy license processing delays in all license categories (except economic empowerment and medical-use licensee affiliates), the CCC in fall 2019 granted expedited processing to social equity, microbusinesses and outdoor cultivation applicants and those qualifying under state law as minority-, women- and veteran-owned businesses, all of which attracted small and often diverse businesses.
– Initial limitation of new license categories to economic empowerment and social equity applicants: To support diversity in the burgeoning Massachusetts cannabis industry, the CCC’s November 2019 rules initially limited new delivery-only and social use (cannabis cafes) license categories to social equity and economic empowerment applicants for an initial two-year period, subject to extension.
– Municipal initiatives: At least two cities have provided exclusive application windows to CCC-designated social equity or economic empowerment applicants before permitting applications from other cannabis businesses.
Progress of Social Equity/Diversity Initiatives
Progress at promoting social equity and underrepresented groups in Massachusetts has been limited. After two years, CCC data indicates that such businesses account for approximately 15% of the operating cannabis businesses and 20% of businesses with pending CCC applications.
The reasons for this slow, winding road to progress likely include:
– Underperformance of the economic empowerment license category: The economic empowerment category has yet to live up to expectations. Hundreds of applicants were certified in the limited window, which closed in early April 2018, but few transformed their status into successful licenses, forcing the CCC to make up lost ground by expanding prioritization categories in late 2019. Limited access to capital and lack of experience navigating a complicated regulatory scheme by anyone but the most sophisticated multi-state operators likely contributed to the slow start.
– Burdensome municipal processes: Massachusetts law requires applicants to agree to a municipal host community agreement (HCA) before filing with the CCC. This bottleneck led to a difficult and expensive start — or complete roadblock — for many applicants. The demand by some municipalities for payments of more than the required fees and taxes, and to make excessive contributions, gifts or grants, favored the most capitalized applicants. Eventually, legislative scrutiny and a U.S. Attorney criminal investigation into the extent of HCA misfeasance led many municipalities to walk back extreme demands. Additionally, Boston’s inability to develop protocols for deciding between competing applications resulted in few applicants and virtually no licenses, despite numerous interested EE and social-equity participants.
– Burdensome application processes: Applicant resources were further strained by the complex CCC regulatory scheme involving multiple license stages; extensive and expensive security requirements; and close CCC scrutiny of 15 to 20 required policy summaries/plans covering all aspects of operations — with no exemptions for small operators.
Additionally, the near-absence of viable economic empowerment priority applicants meant that most of the CCC’s attention in 2018 and the first half of 2019 focused on meeting its prioritization obligations for the new adult-use licenses submitted by the 30-something medical licensee affiliates. Given that the CCC was a brand-new agency, it also was likely short on fully trained staff until mid- to late-2019.
– It’s too soon to determine results of plan-based contributions: The aggressive CCC requirements for positive impact plans and diversity policies are likely providing benefits to the 29 designated communities and diverse potential employees, but more evaluation is needed to quantify the effects of such contributions.
Despite the current COVID crisis, favorable conditions should help social equity businesses make additional strides in late 2020 and beyond. Municipalities are being more cooperative, social equity applicants and other smaller license categories now have processing priority, the CCC is more staffed-up, diverse groups have a minimum two-year window to enter the new delivery and social-use license segments, and the percentage of social equity business applicants is increasing compared to established licensed businesses.
In late June 2020, the CCC announced it was working on revising the rules for social equity, economic empowerment and underrepresented categories to help those applicants achieve long-term success in the Massachusetts cannabis industry. Signs are good that CCC efforts to facilitate underrepresented entrants will take hold in Massachusetts, but only time will tell if the initiatives prove to be fruitful.
Robert J. Munnelly is a regulatory lawyer at the Boston law firm of Davis Malm. He has extensive experience dealing with legal issues faced by clients in highly regulated industries such as electricity, communications, natural gas and water. His experience in these areas led him to representing existing businesses and those seeking to do business in the emerging Massachusetts cannabis market.