News / Media Hits / CT Mirror | Can marijuana bring about social equity? In Massachusetts, a case study
July 3, 2022
CT Mirror | Can marijuana bring about social equity? In Massachusetts, a case study
WORCESTER, Mass. — In the industrial kitchen at Major Bloom, staff are assembling joints using a gadget that turns out nearly 200 so-called “pre-rolls” in one go. A large bag of multi-colored fruit cereal sits ready to be baked into marijuana-infused treats. And owner Ulysses Youngblood is explaining the business philosophy he subscribes to, a “blue ocean” strategy.
“Blue ocean is basically like saying that there’s enough space for everybody to have their own lane, essentially,” he says. “There’s enough water in the sea for us to kind of sail and do our own thing.”
In the fledgling cannabis industry, large companies have quickly risen to dominate the market in states where pot is now legal. But Youngblood says he believes there’s room for everyone, if they think about cannabis as a blue ocean, like he does. “That’s what’s important, you know. You don’t look at anyone as direct competition.”
But as state regulators begin awarding licenses to select adult-use operators and businesses scramble to build out capacity, cannabis entrepreneurs, customers and communities around the state are increasingly concerned about equity — whether there really is room for everyone.
Some are already raising questions about the licensing process in Connecticut. The application to enter a lottery for the limited number of available licenses was cumbersome and the paperwork requirements extensive. Fees to enter the lottery varied by business type, but some applicants argued the process favored those who could afford to apply more than once. Already to some, the odds seem stacked against those without significant financial resources.
And that’s only the first step. Those lucky enough to win the lottery have to formally apply for a license. Then the real work begins: raising capital to start a business and trying to turn a profit in a highly regulated and complex industry.
Setting sail
In Connecticut, as in Massachusetts and several other states that have legalized recreational pot, lawmakers designed “social equity” programs to create opportunities in cannabis for those who’d experienced the negative effects of its prohibition.
Connecticut intends to award half of the few dozen newly available licenses to entrepreneurs with lower incomes, who have resided in areas with high unemployment or a high historical conviction rate for drug-related offenses. The state has also been offering workshops for applicants, and it plans to provide technical assistance for recipients of social equity licenses.
Massachusetts also has a social equity program, providing technical assistance and waiving some fees for applicants that meet similar criteria. So far, only a few of the program’s participants have gotten cannabis businesses off the ground.
“A lot of the people who qualify for social equity and who are from these communities do not have the background and the resources that it takes to get into this industry,” said Julia Agron, project coordinator for the Cannabis Education Center at Holyoke Community College in Massachusetts. “So when they, in good faith, come to these classes or participate, the gap between what they think is being offered them and what it really means to enter this industry can be huge.”
As of June, the Massachusetts Cannabis Control Commission had approved 1,399 applications for licenses. Of those, 235 were social equity program participants and 94 qualified for “economic empowerment” priority status; fewer than three dozen of those have commenced operations.
All licensees in Massachusetts have to include plans for how their businesses will have a positive impact on the community and promote diversity in the industry. Aside from the social equity program, the state cannabis commission also gives priority status to businesses owned by women, minorities and veterans.
But equitable licensing programs alone likely won’t fix decades of social disparities and injustice. Agron said she’s seen many people looking to start up a cannabis business get discouraged — or, worse, lose everything. Since few traditional banks will lend to marijuana entrepreneurs as long as pot remains illegal at the federal level, business startups have to find financing elsewhere. That makes them vulnerable to predatory lenders.
“Part of the problem is that people don’t see what their other options are,” Agron said. “They see that something may not be the best deal, but they’re not sure what else to do.”
Frank Dailey, co-owner of Boston Bud Factory in Holyoke, recalls being turned away by at least eight different financial institutions when the business was starting out. A handful of locally based banks in Massachusetts do provide depository services to cannabis businesses, Dailey said, but the fees are high, and it’s difficult to get loans or lines of credit at affordable rates.
Dailey sought out a lender when Boston Bud Factory wanted to purchase an extractor to make cannabis concentrates (used in vapes and a range of other products), but the only rates available were over 50%, he said. Another financial institution offered Dailey similar terms on a $30,000 line of credit, which the businesses had planned to put toward purchasing inventory and materials. Dailey decided against it.
“The rates are just ridiculous,” Dailey said. “We’re just two small guys trying to survive.” Ultimately, Dailey and his partner Carlo Sarno resigned themselves to self-funding most of the business. But he knows that’s not an option for many budding entrepreneurs.
Youngblood said he met with angel investors, venture capital and private equity firms and banks, “you name it, most of those fell through.” Major Bloom is a certified “economic empowerment” business within the state’s social equity program, but Youngblood and his business partner Valentin Faybushevich ended up raising the capital they needed primarily through friends and family. That included $50,000 of Youngblood’s own money.
Bruce Stebbins, a commissioner with the Massachusetts Cannabis Control Commission, said in light of the financial issues social equity applicants have faced, state lawmakers are considering legislation that would establish a “Social Equity Trust Fund” to provide funding support for those entrepreneurs.
“We’re hoping that if that gets signed into law, and the fund is created, that we’ll be able to see more social equity applicants get to the finish line,” Stebbins said. The deadline for the legislature is July 31.
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