Social Equity applicants face many hurdles, I’ve hit most of them trying to start a delivery business in Mass
Cannabis has been a significant part of my life for more than 50 years. The journey has been extremely interesting to say the least, some serious highs and some serious lows, but never dull.
My adventure started in 1969 as a recreation, then became a business, and later on it evolved into a medicinal benefit. Today, I live in a decriminalized state where cannabis is all of that and more. But to me, the legal industry has become a challenge and a major disappointment.
I am a federal cannabis felon (“conspiracy with intent”). I was a first-time offender of a nonviolent crime and the price I paid was both prison time and loss of assets. My conviction met the criteria for the social equity program with the Massachusetts Cannabis Control Commission (CCC). This should be an opportunity, but it is starting to become more of a nightmare.
The social equity program feels like a cruel joke to me. It’s supposed to help even the playing field and allow the individuals that have been hurt the most from the “war on drugs” to have an opportunity to get into the legal industry. Unfortunately, the efforts of the CCC and the legislature have fallen short of what was truly needed, a significant social equity fund from the beginning. While there are a few operating social equity owned businesses, some people have resources, some have family and friends with resources, and others had the timing, talent, and luck to find a funding partner.
The legal cannabis industry is just like every other industry. The “$haves” and the “$have nots.” It’s all about the money to play.
I am an experienced entrepreneur with a number of businesses/projects over the last 50 years. Presently, I am working at a delivery operator license in Massachusetts, which is exclusive to the social equity program. A delivery operator buys wholesale, stocks a warehouse, sells via online apps, and delivers directly to consumers recreational cannabis products.
Initially, this pursuit went fairly smoothly for me. I did my homework, read the regulations, and found a location. I then negotiated a deal with the town where my warehouse is located for a Host Community Agreement (HCA).
So, what am I lacking?
Simple: the resources necessary to get a cannabis business ready to be operational.
In Massachusetts, the CCC has a licensing process, which has a number of steps leading to a “provisional license” which allows you to create the business soup to nuts.
This means you must accomplish everything—special permits, buildout of the warehouse, the security and office equipment for the warehouse. In addition, you need delivery vehicles with complete security setups. Additionally, there is staff, staff training, and inventory, not to mention all of the business necessities like a website, insurances, and marketing. The CCC will not inspect the business unless the entire operation is set up. Once you pass inspection, then the CCC votes on granting an operational license.
Helping to make life more difficult is the real estate piece of the puzzle. This affects most prospective licensees, but social equity/economic empowerment applicants have an even bigger challenge.
A lease normally is a business expense, but the IRS has regulations which do not allow deduction of normal business expenses for a cannabis business. To a social equity business, it’s a heavy yoke around your neck, carrying a lease, with the knowledge that a cannabis license is not guaranteed added to the fact that the lease expense is not allowed.
Every cannabis business needs a location. The process to find a location can be problematic—even with resources.
First, there are limited locations for a cannabis business; not all towns or cities allow them within their borders. The ones that do require the business to be in limited zones again limiting options.
Next, not all landlords want to do business with a cannabis establishment, which is their choice. There are many reasons, some of which are old misconceptions based on misinformation spread for decades.
Some landlords that are open to entertaining a cannabis business can’t because there may be a mortgage on the property. Banks, mortgage companies, and other financial institutions will not allow them to lease to a cannabis business due to the current federal status of cannabis. Meanwhile, some landlords that are willing to lease desire a premium to do so, because it’s a cannabis business.
If you still manage to secure a location that meets the necessary criterias, that’s when the fun starts. It can be costly given that once a lease is signed you will need to add to the mix utilities and items like basic liability insurance required with a lease, not to mention the many other policies needed to run a cannabis business properly. A cannabis business has higher premiums (new industry, no history, the belief that cannabis businesses have loads of money, etc.).
That last one really bothers me, because a startup is not getting what they pay for since the startup is not really a cannabis business until granted a license. Again, that process generally takes one, two, and even three years to be in position for an operational license. Many times, it’s the social equity business that takes the longest because they need to find funding. MSOs (multi-state operators) and well-funded entities generally don’t have the same issues.
Along the road, many cannabis businesses get nickeled and dimed, again more of an issue to the SE/EE prospective licensees. For example, the cost of having a bank account …
Once again, there is a limited number of banks that are willing to do business in cannabis in the first place, and many of them have substantial monthly fees ($2,000 in some cases) just for having an account, not to mention fees for extras. The same principle as insurance—you are not an operational cannabis business yet. My current bank, Northern Bank, recognizes this and holds off the fees until operational.
None of this may not be a killer issue to MSOs and well-funded folks, but to the small operator it all adds up to make that yolk around your neck heavier and heavier.
While the system says it wants to support social equity, they’ve done very little to actually make it a reality. Access to capital for social equity participants is also a problem. I work every day at trying to find the “right” funding partner for the business;
I’m going to need help, or my clock will run out (agreement with town expires if not operational) on what I’ve accomplished so far.
This means that the resources that I have put into the business won’t have an opportunity for any return. This would be painful. It would be the death of a cannabis dream.
It seems only reasonable to work at a business in an industry that I have supported since the late 1960s. If some people should have an opportunity to make some legal income from cannabis in Massachusetts, I should be on that list.
I’m ready to work, lead, and help others.
Rob is still trying to build Many Rivers Delivery. If you’re the “right” partner you can reach him at rwperlman@gmail.com
