By Douglas Karlson
It’s called the “the green rush,” the newly legalized cannabis industry that is taking root in Massachusetts, and many expect the economic harvest to be bountiful.
One indicator that this industry is about to take off is the increasing number of “suits” attending cannabis conferences, conventions, and other industry events, says Beth Waterfall, executive director of Elevate Northeast, a networking organization dedicated to providing education for the industry.
“The crowds are larger and increasingly reflect the characteristics – good and bad – of more traditional business environments,” observes Waterfall. “Many of today’s cannabis industry participants have sophisticated skills and business experience that can really advance the industry,” “For entrepreneurs and particularly those who waited on the sidelines for legalization, stigma is waning and excitement is growing.”
That benefit is potentially very large. According to Tim McNamara, a Sandwich attorney and co-founder with his uncle of Holistic Health Group Inc. (HHG), a medical marijuana company, cannabis in Massachusetts is projected to be a $1.2 billion industry by 2022. He compares that to the state’s current agricultural industry, which totals about $480 million. That comparison is even more impressive when one considers that agriculture is heavily subsidized.
Steven Hoffman, chairman of the Cannabis Control Commission, which is charged with granting licenses and fostering the creation of a safely regulated industry, is also optimistic. He thinks the industry will meet forecasts in terms of revenue, economic growth and employment. “It’s a question of how long it will take to get to maturity,” says Hoffman.
But there’s no rush, he says. The state wants to proceed slowly and carefully.
Legalized cannabis, an overview
Medical marijuana was legalized in Massachusetts in 2012. In November, 2016, voters said recreational pot should be legal too. The first retail sales were allowed starting last November, though many towns on the Cape have passed bans or moratoriums.
Currently, the closest recreational marijuana dispensary for Cape residents is in Wareham.
In March, Mashpee selectmen considered several applications and voted to allow one recreational dispensary license. They awarded the license to Triple M, which already operates medical dispensaries in Mashpee and Plymouth. The new recreational dispensary is slated to open next door to Triple M’s existing medical dispensary on Echo Road in Mashpee by the end of the year.
Other recreational dispensaries in the Commonwealth are located in Leicester, Salem and Western Massachusetts. Closer to home, a number of medical marijuana dispensaries have received licenses, and are expected to open in Nantucket and Provincetown in the coming months.
The Cannabis Control Commission
Receiving permission to operate a cannabis business, whether as a cultivator, manufacturer or distributor, is a complicated process, and there are significant challenges when it comes to obtaining insurance and banking services.
“I do believe that every city and town is trying to make it work in the context of their city or town,” says Hoffman. “There’s also a steep learning curve. This is new for everybody.”
“We request a lot of information and we analyze it carefully, but we try to make it as easy as possible,” says Hoffman about the licensing process.
While the Commission’s regulations are well drafted, McNamara says that ultimately it comes down to local town governments to decide who gets permission to conduct business. That’s because local approval is necessary before obtaining a state license, and the local host agreement can be so burdensome and costly (such as requiring multiple, six-figure payments to the town), that only companies with deep pockets can compete. In addition, town governments may be swayed by the established track record of a large company from a state where cannabis has been legal for longer, whereas local companies have not yet had the opportunity to grow and learn.
Many of the larger companies can also afford to pay lobbyists to help gain access to markets. That’s a tactic McNamara has avoided. “It doesn’t feel right,” he says. He recommends that local companies instead focus their efforts on education, and on showing towns that they are committed to being an active member of the community.
McNamara says large companies from out of state can potentially overwhelm local start-ups. Despite the Cannabis Control Commission’s commitment to protect small, local companies, McNamara says that won’t always be the case. But according to Hoffman, no one entity can have more than three of each of the various licenses granted by the state. That should prevent a large corporation from cornering the market with dispensaries, but it doesn’t mean that a large cultivator can’t distribute to multiple dispensaries.
In addition to granting licenses, the Commission is required by law to ensure that those towns disproportionately affected by prohibition have full participation in the industry. That means that residents of those towns own licensed cannabis businesses – not just work for them. Toward that end, a sociologist hired by the state identified 29 towns and neighborhoods that have been affected.
Holyoke, a case study
One of those communities is Holyoke, which took an early lead in embracing the industry as a way to cultivate an economic revival. Alex Morse, the city’s mayor, sees the cannabis industry as a way to make use of old empty mills, and spark urban renewal and bring jobs. He was also the only Massachusetts mayor to publicly support Question 4 in 2016.
Of the 1.5 million square feet of vacant mill space in his city, Morse estimates that 40 percent is now under option for businesses in the cannabis industry. That will lead to rising commercial real estate values and increases in real estate tax revenue, he predicts. It will also lead to increased private investment in other properties for restaurants, music venues and art galleries. He projects it will result in hundreds of thousands of dollars in increased tax revenue and about 300 jobs.
“We see it as way to bring life back to downtown,” says Morse.
Morse hopes to eventually see cannabis cafes to rejuvenate the riverfront, but the state has yet to finalize regulations relating to social consumption establishments.
In addition, Morse wants the opportunity presented by the cannabis industry to provide a sort of “social justice” to minorities in his city who have previously been incarcerated for possession of marijuana.
So far, the city has no dispensaries, but it has approved four that are awaiting state licenses. One cultivator, Rise, is currently operating a medical marijuana dispensary with 40 employees, and six other cultivators are approved by the city and awaiting approval by the commonwealth.
“I’ve seen the wind shift to some extent,” Morse says of other communities’ attitudes toward cannabis. “We’re becoming a model.”
As such, he’s often invited to speak about his city’s embrace of cannabis. He tries to “flip the script,” he says.
Rather than talking about how to mitigate the negative impacts, he highlights the positives, such as cannabis’s use for medicinal purposes, and its positive impact on opioid abuse. States that legalize cannabis see a drop in opioid abuse, he says.
Reviving the city’s manufacturing industry will be good in the long term, no matter what happens to the cannabis industry in Massachusetts. “Marijuana happens to be the product with high return on investment now,” he says. But if that changes, renovated buildings in the downtown area can be used for other industries, such as food growers, he says.
Taxed, tested and safe
In addition to economic opportunity, Hoffman sees other important benefits to the legalization of cannabis.
Through regulation, he says, cannabis is taxed and tested in state-licensed laboratories.
The law mandates that more research into cannabis be conducted. Colleges and universities that receive federal funding are limited in what they can do with cannabis as long as it remains in Schedule 1 of the Controlled Substances Act, but the state can provide research licenses (not funding) to allow research labs to legally possess and study the plant. Hoffman says there are currently several licenses pending.
Research will help generate the facts needed to education the public about the benefits and risks of cannabis, and he Commission is required to promote outreach and education on those benefits and risks. That has led to the commission’s Responsible Consumption Campaign which, for example, urges people not to drive under the influence. The Commission also offers guidance to parents to help prevent those under the age of 21 from using marijuana. According to Hoffman, that’s one of the law’s most important benefits.
In addition to working to prevent underage consumption, Hoffman predicts that legalization will restrict the illicit market.
“I think we’ll diminish the illicit market. I don’t believe we’ll eliminate it.” A key variable, he says, is how large the price gap is between legal and illegal cannabis. But he notes that people will be willing to pay more knowing that their product has been tested and properly labelled.
McNamara predicts that prices for cannabis will drop once more businesses enter the market. That’s one reason his company is investing in building a greenhouse in Middleborough. Large indoor operations, or “large closets” as he describes them, produce high humidity and require expensive HVAC systems. Companies must be able to compete with other regions where labor and energy costs are lower.
Aja Atwood, CEO of Trella Technologies, a company that develops indoor growing technology, agrees, predicting that prices will come down in 12 to 18 months, affecting revenue. Companies should start small, make conservative projections, and keep an eye on expenses, she advises.
Outreach and education
McNamara is optimistic that the industry will slowly grow on the Cape. If the state of Colorado is an example, he says “towns are going to slowly allow there to be more and more.”
But for that to happen, he says patience and education are required.
“The entire nation has been informed for 50 years how horrible cannabis is and you can’t expect that to change overnight because you have a good business idea.”
Despite the inroads made by some cannabis entrepreneurs, Waterfall predicts there will be continued resistance to the granting of licenses for recreational, medicinal, growing and processing on the Cape.
“The stigma still exists despite legalization spreading across the country,” she says. “”It’s on us in the industry to proactively educate our communities, which will open the doors to economic development and improved quality of life for them.”
She attributes the anti-cannabis stigma on the Cape and Islands largely to the older voting population and the fear-inducing efforts of special interest groups. She says more outreach is needed by licensees and hopeful licensees alike to make seniors aware of the science and benefits of cannabis. Because of that, she says growth of the industry will be slower on the Cape than in other parts of the state. But, Waterfall, says,
Cape towns won’t be able to ignore the green rush for long as their voters watch towns across the bridges benefit from increased revenues.
An opportunity for medicine?
Navigating the complex world of cannabis regulations to start his company, HHG, gave him so much experience and knowledge that McNamara now helps other small businesses in the cannabis industry do the same.
HHG is currently breaking ground on its headquarters and greenhouse in Middleborough after losing a bid to open a facility in Mashpee. Medical marijuana dispensaries are required to be vertically integrated, meaning they must grow and process the cannabis they sell. Only 30 percent of a medical marijuana dispensaries products may be sourced elsewhere.
“I’m generally a small business guy and I want to see other small businesses succeed,” says McNamara, who also advocates for the industry with Regulate Cape Cod and Cannabis Cape Cod.
McNamara says he has experienced firsthand the benefits of medicinal marijuana. He has a cousin who has encephalitis, and so suffers multiple daily seizures. Medical marijuana has largely eliminated them.
F
or medicinal marijuana, he foresees a great opportunity for Massachusetts, given the state’s leading role in biotech. “The future is not about smoking and vaping. I think the future of the industry is going to be driven by companies like ours that are focused on medicinal marijuana.”
While he can’t predict how the journey will end in terms of treatment for diseases such as cancer and Alzheimer’s, he says “I think it can be a game changer.”
He hopes his company can contribute to cannabis’ medicinal potential. “This is going to be an invaluable product. It will be interesting to see where this journey ends.”
Entrepreneur Spotlight: Aja Atwood, Trella Technologies
Like most Massachusetts cannabis companies, Trella Technologies, founded by Mashpee entrepreneur Aja Atwood, is still in the growth phase. The company is now in its first public investment round. Interested investors may find information on the company website (https://www.startengine.com/trella)
Trella Technologies produces sustainable and automated plant training systems and recently celebrated a major milestone with the development of technology that uses machine learning (a.k.a. artificial intelligence) to monitor the growth rate of cannabis plants based on environmental conditions such as temperature, humidity and carbon dioxide.
According to Atwood, when Mashpee approved recreational cannabis (it agreed to grant one recreational dispensary license), “that was huge for me. It opened a new door.”
Trella is currently operating from various remote locations, and is seeking a permanent home for its research and development activities. Because the facility will grow cannabis, they will require a host agreement from the town where it’s located, yet they have not yet identified a suitable 3,000 square foot location on the Cape. Actual manufacturing and assembly, of their products is currently done in-house but will eventually be outsourced to contract manufacturers.
Atwood is optimistic about both her company and the industry as a whole, but says more education is needed to change the stigma associated with cannabis.
“It’s a new process, it’s a new industry. It needs patience and diligence and an understanding that not everyone moves as quickly as we want them to, and that’s OK,” says Atwood.
Entrepreneur Spotlight: Alan Batson, Great White Gallery & Smoke Shop
You don’t have to sell medical or recreational marijuana to be part of the cannabis industry. Just ask former executive chef Alan Batson, owner of the Great White Gallery and Smoke Shop, which opened last September on Center Street in Hyannis.
The store sells a diverse range of products to an equally diverse clientele. There’s metal and glass sculpture as well as hand-blown glass pipes and CBD oil. “We sell funky art, we’re not just a head shop,” he says.
Many of his vendors are art glass blowers who produce both sculpture and pipes. “There’s really kind of a Renaissance of American glass blowers,” he observes.
According to Batson, most of his customers are over 45. Some come to collect expensive glass sculpture, other seek CBD oil or glass pipes. “We’ve got a lot of closet smokers coming out now, the guys who were at Woodstock.”
Often, Batson has lengthy discussions with customers who come in for one thing, and end up gaining an interest in the benefits of CBD oil. “Customers are dying for information,” he says, so the shop also serves as a community learning center.
“The CBD market’s so strong now,” he says.
So strong that the business has teamed up with Cape Cod Hemp of Harwich and will soon introduce its own line of CBD oil, which will be called Zane’s Organics. It’s named after Batson’s son, Zane, who has special needs. Ten percent of the profits will go to Cape Abilities.
“Legalization has definitely improved my business,” says Batson, who was eager to move from the highly seasonal hospitality industry to a line of work that could support him year-round. “It’s not taboo anymore.”
