Equity Promises Fall Flat in Massachusetts Marijuana Industry
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Commentary

Equity Promises Fall Flat in Massachusetts Marijuana Industry

Despite priority application review, burdensome licensing process keeps low-income, minority applicants locked out of the industry.

Marijuana regulations in Massachusetts came with big promises of equity and inclusion. Priority review for applicants disproportionately impacted by previous drug war policies was touted as offering “redress for past prosecution.” The promises have so far fallen flat—only three of these applicants have even completed their applications.

Legislation legalizing recreational marijuana in the Bay State requires that residents of communities disproportionately impacted by drug war policies be included in the new industry. The state’s Cannabis Control Commissions plans to fulfill this mandate through a few different programs. First, priority review is granted to economic empowerment applicants, those with “experience in—or business practices that promote—economic empowerment in communities disproportionately impacted by high rates of arrest and incarceration.” They must meet at least three out of six criteria to qualify.

When applications for marijuana licenses opened in April, only medical marijuana dispensaries and economic empowerment applicants could apply. General applicants could apply for all license types in June. Despite this head start, only three economic empowerment applicants completed the application process. This is in comparison to 57 medical dispensaries and about two dozen regular applications currently under review.

The difficult application process helps to explain the disparity. Complex regulations naturally benefit those with more capital and experience. Large companies can use attorneys to fill out applications and are better equipped to wade through layers of bureaucracy. As summarized by economic empowerment applicant Kijana Rose: “It just feels like the process was kind of set up to make it easier for the well-resourced individuals to get right on through.” After struggling in the application process, Rose decided to pause her application.

Rose’s experience was not unique. The commission sent out a survey to 326 people who had previously applied for economic empowerment designation. Of the 63 responses, the main roadblocks were that the applicant was having difficulty raising funds, still working on their business plan, or having difficulty obtaining local approval. All three of these obstacles can be blamed on or at least have been exacerbated by the application process.

Commissioner Shaleen Title was not surprised that applicants were struggling to come up with funds: “It’s very difficult to find capital in an industry where you can’t go to the bank and get a loan,” Title said. “That’s one reason why we have such a striking lack of diversity.” Another reason might be the stifling fees to enter the industry—most application fees range from $100 to $600 and licensing costs between $625 and $25,000 annually.

Economic empowerment applicants are exempt from monthly program fees for the state’s seed-to-sale tracking program. Although few make it far enough in the application process to benefit.

Similarly, the state’s complex licensing process adds to the burden of developing a business plan—already a difficult task for first-time entrepreneurs. Applicants must submit three different packets: an “application of intent” which requires detailed lists of all sources of financial capital, a background check, and a “management and operations profile” including a comprehensive business plan and timeline—in addition to many other details.

Even policies meant to help minority communities end up making the process more difficult. All applicants must submit a plan “to positively impact areas of disproportionate impact” and a separate diversity plan. Positive impact plans may include hiring from these communities or providing capital. Businesses cannot satisfy this requirement easily. According to the commission, plans “should include both qualitative and quantitative measures that relate to whether the goals were achieved…For example, surveys and focus groups can measure the culture of a company.”

Local governments can impose more fees and add another bottleneck to the application process. Under current regulations, all applicants must conduct a community outreach meeting and enter into a host community agreement. As part of the agreement, municipalities can charge marijuana businesses a community impact fee of up to 3 percent of gross sales as long as the fee is “reasonably related” to the costs the business imposes on the community. There is evidence that some municipalities are instead using host community agreements “to extract maximum and significant revenues,” says Jay Youmans, a founder of the Massachusetts Cannabis Business Association.

Local approval has been especially problematic for economic empowerment applicants. When Kirby Mastrangelo went to meet with her locality after being awarded economic empowerment status, she was told by the town manager that “your priority status means nothing with us.” Mastrangelo told MassLive that the town was in discussion with large-scale operators instead.

The Cannabis Control Commission plans to address these problems with guidance for municipalities and by better leveraging a social equity program to provide technical assistance and training. While the social equity program could elevate some financial burden by waiving application fees, not all economic empowerment applicants qualify.

Further, economic empowerment applicants should not have to rely on government to push them over the hurdles created by bureaucracy. The inadequacies of this approach can already be seen in the delays in implementing the social equity program.

Redressing the harms of the drug war is a noble goal. Yet adding extra complications and costs to the legal market ends up hurting the same people that it’s designed to help. Big companies can endure the complex application process, but first-time entrepreneurs will have a much harder time. Fundamentally opening up the marijuana industry with a simpler application process and fewer costs would provide far more opportunities.

Allie Howell is a research intern at Reason Foundation.