By Omar Sacirbey
The opening of two new dispensaries in Massachusetts since the start of the year has buoyed hopes that the state’s medical cannabis industry has moved past a serious bottleneck and that more storefronts will launch in the coming months.
Don’t count on it.
Observers expect that only a handful of new dispensaries will open between now and the end of the year, as many businesses are running into issues at the local level.
What’s more, at least a few dispensaries that are far along in the licensing process may have to pull out completely because they are running out of capital and can no longer afford to wait to get their final licenses. Many of them secured investments and have been spending money on leases, personnel, and other costs for a couple of years now – but have yet to generate any revenue.
“I expect at least a few people to pull the plug,” said Robert Carp, an attorney in Massachusetts who works with cannabis companies.
He described the situation as “desperate” for some aspiring dispensaries, several of which have approached him in search of investors to partner with. Some groups that may have to abandon their projects already spent between $2 million and $3 million, Carp said.
Carp predicted that even with an abundance of good fortune, maybe about a dozen more dispensaries will open by the end of the year, but realistically it will probably be about half as many.
The number of dispensaries opening will continue to be small for the near future because those that are furthest along in the licensing process are from a small group that won provisional licenses in 2013.
At that time, state rules capped the number of licenses it would award at 35, but officials granted only 15. Because of inexperience and an overabundance of caution, Massachusetts moved slowly in awarding licenses: just six dispensaries have opened so far.
“In 2013, the prior administration (of Gov. Deval Patrick) stumbled through the process and as a result they didn’t issue enough provisional licenses,” said Adam Fine, managing partner of the Boston office of the Vicente Sederberg law firm. “Had they issued more provisional licenses, we’d see more people getting licenses today. We don’t have enough people in line to open up.”
Massachusetts eliminated its cap in 2015, and there are now about 160 applicants seeking licenses. The vast majority of them, however, are still in the early phases of the licensing process.
But while state inaction was the source of the dispensary bottleneck in the past, observers said nowadays it is local towns that are causing the delays, both for applicants who applied under the 2013 rules and those who applied under the 2015 rules.
“Many towns don’t want to host dispensaries, and that’s what making things challenging this time around,” Fine said.
In 2013, when an applicant didn’t have a so-called “letter of support” or “letter of non-opposition” from a municipality, the application penalty was small and the applicant still could have scored enough points in other areas to be awarded a license, and then seek local approval later. Under the 2015 rules, if a town refuses to issue a letter of support, then an application cannot go forward, end of story.
“This application requirement has essentially given towns the power to ban dispensaries,” Fine said.
Some towns have also demanded that dispensaries sign so-called “community hosting agreements,” which essentially require a business to share a certain amount or percentage of revenue.
“Earlier in the process what these towns were asking for wasn’t impossible,” Carp said. “But as you’ve gotten later in the process, people (in towns) start to smell blood.”
That means they’ll ask for higher percentages of revenue while offering less in terms of services.
“It’s been a combination of capital formation, fundraising, local permitting delays, local regulatory delays, negative media,” said Kris Krane, president of 4Front Ventures in Boston, a cannabis consulting firm. “The combination of all of this was a perfect storm making it hard for this program to get up and running.”
One of 4Front’s clients, Healthy Pharms, originally sought to settle in the town of Haverhill. But the town only allotted locations that Healthy Pharms found unacceptable, so the company pulled out and relocated to another town- but only after 18 months of legal wrangling.
“Now we’re about a year-and-a-half behind,” Krane said.
Given that municipalities can accept or reject a dispensary, what can a cannabis entrepreneur do to win over locals?
“It’s all about the ground game and talking every day to people and building grassroots support, those are the applicants that are finding success at the local level,” Fine said.
He said firms need to lobby political officials, business association and other local leaders to get them on their side.
“There are still a lot of opportunities out there, it’s just how hard a group is willing to work, that’s what makes the difference,” Fine said.
But resolving local issues won’t exactly ensure smooth sailing.
Under the 2015 rules, if an applicant doesn’t have a provisional license a year from the time it submits a management and operations profile to the state – the third of 11 steps – the business will have to start all over to reapply with the state, Fine explained.
“If more letters of support and non-opposition aren’t going to be issued over the next several months, we’re going to see a pivotal event where folks are going to have a real problem, because if the state doesn’t extend that deadline, they’re going to have to start all over after working so hard for so many years of trying to get through the process,” Fine said.
Omar Sacirbey can be reached at [email protected]