Massachusetts could become major marijuana business hub if legalization succeeds

recreational marijuana

By Omar Sacirbey

If Massachusetts legalizes recreational cannabis next year as some expect, the state could become one of the biggest marijuana markets in the country.

Bigger than Colorado and Washington State, even.

Massachusetts’ dense population and proximity to New York, New Jersey, Pennsylvania and other large markets – coupled with widespread use of marijuana and the state’s popularity among tourists – could help the industry get off to a rapid start and generate hundreds of millions of dollars in revenues quickly.

“The potential for tourism revenue because of cannabis will dwarf anything we’ve seen in any of the other states to date,” said Kris Krane, managing partner at Boston-based 4Front Advisors, a cannabis business consultancy. “We may be looking at Massachusetts as the biggest marijuana market in the United States other than California.”

The opportunities for entrepreneurs could therefore be immense, though at first the industry would largely be limited to companies that have already applied for medical marijuana licenses in the state.

A confident campaign

The Campaign to Regulate Marijuana Like Alcohol, the group behind a proposal to legalize recreational cannabis, is awaiting for official word on whether it submitted the required 64,750 signatures to go before the state legislature.

Backers submitted over 103,000 signatures and are confident that they have more than enough of a buffer to surpass the requirement once officials throw out those that aren’t deemed valid.

If the measure clears the signatures hurdle, lawmakers will have until May to adopt the proposal as law. Should they opt not to push through the measure (the most likely outcome), the legalization campaign would need to collect another 10,000 signatures by June to get the initiative on the November ballot.

Massachusetts Gov. Charlie Baker and Boston Mayor Marty Walsh have stated their opposition to legalization. Other than those two individuals, however, there doesn’t seem to be a group potent or well-financed enough to effectively campaign against legalization – at least right now.

“It has a very good chance, but everybody who supports it has to get out and engage and educate people,” said Adam Fine, an attorney in the Boston office of Vicente Sederberg who helped draft the proposal, known as the Regulation and Taxation of Marijuana Act. “I don’t want to sound overconfident, but of all the states trying to legalize, Massachusetts should be in the winning camp.”

A vote could be tight.

A Suffolk University/Boston Herald poll from January 2014 found that 53% of state voters supported legalization, while a Boston Globe poll from July 2014 found that 48% supported legalization while 47% opposed it.

But the head of the campaign, Will Luzier, said the positive experiences of legalization in Colorado, Washington and Oregon – as well as pending legalization in Canada – is winning over Massachusetts voters who may have had concerns over cannabis.

“All of these things are increasing the acceptance and understanding of marijuana,” said Luzier, a former Massachusetts assistant attorney general.

First-mover fortunes

Under Massachusetts’ current medical marijuana program, which mandates vertical integration, 17 companies have received provisional licenses, while more than 150 applications have been submitted.

Many of these companies would have a huge leg up under the recreational program.

If the recreational measure passes, only companies that submitted applications by Oct. 1 of this year – and that ultimately receive at least a provisional license by December 2016, when the new law would take effect – would be allowed to apply for adult-use licenses.

That’s similar to how Colorado handled the implementation of its rec industry as well, given that it only allowed licensed MMJ businesses to apply at first.

Massachusetts would start accepting applications for retail and grower licenses from MMJ businesses in October 2017, and consultant Krane expects 70 to 100 applicants would initially win permits.

After that, the state could start taking new retail applications in October 2018 and new cultivation licenses in October 2019.

The cost for a license would be relatively low -$15,000 for retail, cultivation and product manufacturing permits – at least compared to some fees in newer medical cannabis states. So scores of companies could throw their hats in the ring at that time.

Some critics, however, are unhappy with the preference given to medical cannabis companies initially, saying it gives them an unfair advantage.

Steven Epstein, one of the organizers of a competing campaign that failed to get enough signatures, told Boston.com earlier this month he would “use every skill in my power” to oppose the measure, which he said is a “bad law.”

But supporters counter that the measure just gives companies who followed the rules a chance to recoup their investments, while opening up the market in two to three years.

“If you were to just all of a sudden open this up to everybody you would make it really hard for these businesses that were playing by the rules set up under the medical system to recoup their initial investment,” said Krane, whose firm is involved with seven companies that have submitted 18 MMJ applications between them.

While Krane acknowledged that MMJ companies would have an advantage, he said it would only be temporary.

“If you do have these 70 to 100 companies, that’s enough competition where you’re not going to see price gouging or anti-competitive forces at work,” Krane said. “New entrants are going to have to compete to take away some of that existing business, but there’s enough room in the market to sustain additional players in the market once this happens.”

Differences

Backers of the Massachusetts initiative say it is different in a couple of significant ways from some other states that have legalized marijuana.

Luzier said that the proposed tax on marijuana of 12% is much lower than in Colorado or Washington State, for instance. That will undermine the illegal marijuana market, which has been a problem in some other states.

“Having a low tax level is important to drying-up the illicit market,” Luzier said. “You need a tax that allows you to keep legal marijuana prices lower than black market prices.”

Another feature of the ballot measure is that it would allow customers to consume cannabis in businesses where they purchase it, so long as the businesses set up a lounge or smoking area. A town, however, would have the right to prohibit in-business consumption.

“Very few locations are going to do it straight off the bat,” Krane said, but he added that this would change as people became increasingly comfortable with legalization.

While the campaign has had to fend off accusations that its ballot measure is in the hands of moneyed interests, supporters believe they have made the case that they have found a balance between tight regulations that allay voter fears and creating a free market that smaller businesses will be able to access.

They also believe that most activists who supported the other measure that didn’t muster enough signatures will back their initiative.

“I have no worries that this will be a unified effort,” Fine said. “This is not Ohio. That was pay to play. Here you have more than 150 applicants and more to come in a couple of years. This is not industry-driven. Some people have industry ties, but it’s mostly policy that’s driving this.”

Omar Sacirbey can be reached at [email protected]

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