The Massachusetts Senate passed S.2801, An Act Relative to Equity in the Cannabis Industry. Through the creation of a new fund that aims to support equity in the cannabis industry and improvements to the local licensing process, the bill levels the industry playing field to help members of communities disproportionately harmed by marijuana prohibition and enforcement take part in the Commonwealth’s growing cannabis market.
Social Equity Fund
The bill builds upon existing Massachusetts law, which legalized adult-use cannabis and made a first-in-the-nation commitment to equity in the cannabis industry. A combination of high entry costs and lack of access to capital have kept many would-be entrepreneurs from taking part, resulting in fewer than seven percent of cannabis licenses in Massachusetts going to social equity businesses.
Opening an average cannabis retail shop can require $1 to $1.5 million in liquidity, and the numbers are even higher for manufacturing facilities –at around $3-$5 million. Since federal cannabis laws prevent these businesses from accessing traditional bank loans, lack of capital can pose an insurmountable barrier, leaving many entrepreneurs vulnerable to predatory financial deals and damaging equity partnerships. The social equity fund, created by the legislation, would facilitate new access to capital by making grants and loans, including forgivable and no-interest loans, to equity applicants. The fund has the support of the Cannabis Control Commission (CCC), whose commissioners voted unanimously to endorse the idea earlier this legislative session. The fund will receive ten percent of annual revenue collected from the marijuana excise tax (an estimated $18 million for FY2023). Massachusetts is poised to join a handful of other states in pioneering this program.
Host Community Agreements
The bill also responds to concerns about the process of negotiating Host Community Agreements (HCAs), which have been identified as a key factor in keeping industry entry costs high. The bill re-affirms that fees in HCAs cannot exceed three percent of a cannabis business’ annual gross sales and must be reasonably related to the costs associated with hosting a cannabis business in a city or town.
Other components of the bill include:
- Incentives for municipalities to prioritize equity, through a portion of the marijuana excise tax that is distributed to cities and towns that host social equity marijuana businesses. This is cost-neutral to the consumer.
- A requirement that the CCC establish rules and regulations for municipalities to promote full participation in the industry by previously harmed communities.
- Clarifications to the existing law’s authorization of social consumption businesses, clearing a path for municipalities to permit on-site cannabis consumption businesses in their city or town via local ordinance as well as local referendum. Currently, many residents, particularly renters and those who live in public housing, do not have a location where they may legally consume cannabis products, even nine years since voters approved medical marijuana and five years since the approval of adult use.
The bill now moves to the Massachusetts House of Representatives for further consideration.