By Doug Karlson
Medicinal marijuana has been legal in Massachusetts since 2012. A 2016 ballot measure, which voters approved 53.7 to 46.3 percent, paved the way for recreational marijuana. While critics have serious concerns over the negative effects of this controlled substance, such as children gaining easy access to marijuana or even nursing mothers passing THC to infants – advocates anticipate enormous economic benefits, and say marijuana should be purchased in a regulated market, rather than an illicit one. Following the vote, a Cannabis Control Commission was appointed, held public hearings and crafted regulations to govern a variety of license types, including retailers, cultivators, and processors. This past spring the licensing process began with the goal of allowing retail marijuana establishments to open by July 1. According to Beth Waterfall, managing director of the New England Cannabis Convention (NECANN), so far seven provisional licenses for the retail sale of marijuana have been granted to six companies in Massachusetts, including Verilife in Wareham and Triple M in Plymouth. Before opening, these businesses must pass final inspections, complete employee background checks, which could take months, and wait for the commission to release the seed-to-sale tracking software that all licensees will be required to use.
Marijuana retailers must also wait for testing labs to be licensed, and so far, only two labs have received provisional approval. Waterfall predicts that once more of the labs that test cannabis are up running, there will be hundreds of marijuana dispensaries in the state.
As the licensing process slowly progresses, entrepreneurs are standing by to take advantage of the opportunity. One of those entrepreneurs is Aja Atwood, of Mashpee. An engineer by training, she began using cannabis after traditional medical treatments failed to remedy her sports injuries, which include TMJ, or tightening of the jaw. Unable to open her mouth and chew food, doctors prescribed therapy and prescription drugs. When doctors suggested painkillers and muscle relaxants, Atwood turned instead to cannabis, and began growing the plant at home, which is legal. (Adults are allowed to grow up to six plants each, or 12 per household.) But growing cannabis plants at home isn’t easy. The plants tends to grow too tall and hit the ceiling or grow lamp. The plants therefore require trimming, and are less productive. In November, 2016, Atwood and partner Andres “Dre” Chamorro III founded Trella Technologies, a start-up in Bourne, and began developing prototypes of an automated. Medicinal marijuana has been legal in Massachusetts since 2012. A 2016 ballot measure, which voters approved 53.7 to 46.3 percent, paved the way for recreational marijuana. While critics have serious concerns over the negative effects of this controlled substance, such as children gaining easy access to marijuana or even nursing mothers passing THC to infants – advocates anticipate enormous economic benefits, and say marijuana should be purchased in a regulated market, rather than an illicit one. Following the vote, a Cannabis Control Commission was appointed, held public hearings and crafted regulations to govern a variety of license types, including retailers, cultivators, and processors. This past spring the licensing process began with the goal of allowing retail marijuana establishments to open by July 1. According to Beth Waterfall, managing director of the New England Cannabis Convention (NECANN), so far seven provisional licenses for the retail sale of marijuana have been granted to six companies in Massachusetts, including Verilife in Wareham and Triple M in Plymouth. Before opening, these businesses must pass final inspections, complete employee background checks, which could take months, and wait for the commission to release the seed-to-sale tracking software that all licensees will be required to use. 34 Cape & Plymouth Business | September 2018 | capeplymouthbusiness.com Cover Story horizontal plant trainer that can be used for cannabis or any tall fruit-bearing plant. “Our design makes the most out of each plant,” explains Atwood. The plant grows sideways and won’t hit the grow light or have to be manually trained.” Atwood, the company’s CEO, predicts the company’s biggest customers will be recreational cultivators, once they begin operation. She also hopes to partner with a cultivator to grow cannabis. “For the Cape, I really see a lot of potential for the local craft cultivators,” says Atwood. She attributes that potential to a strong local farm movement, and the fact that local growers must make the most of limited real estate on Cape Cod. Plus, she adds, “there’s a lot of talent here.” Atwood says she and her partner consider themselves designers of new technology, rather than manufacturers. Ultimately, she says, manufacturing will be outsourced. For now, the devices will be assembled at the company’s facility in Bourne. Trella Technologies is currently beta testing the fifth prototype with home-based growers of medicinal and recreational marijuana. The process has not been an easy one. “Massachusetts is taking too long, and putting up hurdles,” she says. For that reason, they’ve had to turn to Maine and Rhode Island to find their beta testers. The licensing process may take months. Once that happens, Atwood plans to build a research and development facility which could take six months to a year. After partnering with a cultivator, she says, “I’m thinking 18 months from now we’ll have some Massachusetts– licensed recreational grower producing our first harvest.” Ultimately, she’d like to create a technology hub focused on indoor farming. “Hopefully it will be on the Cape.” BANS AND MORATORIUMS The degree to which the cannabis industry takes root on Cape Cod remains to be seen. Fearful of what freely available cannabis might mean, about half the towns in Massachusetts have opted to place outright bans or temporary moratoriums on all marijuana businesses. On the Cape, those towns include Sandwich, Harwich, and Falmouth. But in other Cape towns, such as Brewster, voters have decided against such bans. Still other towns, such as Barnstable and Mashpee, have yet to decide. The market is a large one. A survey conducted by the Massachusetts Department of Public Health, “Marijuana Baseline Health Study Report of Finding,” which was released in June, reports that 21 percent of adults in Massachusetts have used marijuana in the last 30 days. The extent to which legal cannabis will replace cannabis purchased on the black market is difficult to predict, but the report estimates that state tax revenue will increase by about $215 million in the first two years of retail sales. The report estimates that local tax revenues will range from $233,000 to $2.8 million in the first two years. The same report also reveals disturbing data about drugged driving. According to the survey, “the prevalence of self-reported driving under the influence is 34.4 percent. Overall, 7.2 percent of the adult population drove under the influence of marijuana in the past 30 days.”
THE CASE FOR CANNABIS
According to pro-cannabis advocates, banning pot in Cape Cod towns would mean losing out on a major business opportunity. They say the cannabis industry, which includes recreational and medicinal dispensaries, cultivators and processors, testing and research labs as well as the service industries that support them – like lawyers, accountants and web designers – could provide the economic growth the Cape needs. Failing to permit cannabis-related businesses, they say, will place the region at an economic disadvantage as the business simply goes elsewhere. Waterfall, a former resident of Dennis, points to Holyoke, in western Massachusetts as an example of how the cannabis industry can revive economically depressed communities. “It’s the rebirth of Holyoke. Empty mills and factories are being repurposed to house cultivation facilities. Cannabis is going to resuscitate the economy out there by providing jobs.” Everything you need to run your business. And nothing that you don’t. As a business owner, you know what you need to keep things running smoothly. And—equally important—you know what you don’t need. At The Cooperative Bank of Cape Cod, we have business products that use the latest technology. Like scanners that let you deposit checks right from your office. Online and Mobile Banking services that let you bank anytime, anywhere. Merchant and Payroll services. ACH and Wire Transfer services. At The Coop, we have what you need to get the job done: products designed to make your business banking easier. Let’s talk about how The Coop team can help you. mycapecodbank.com 508.568.3400 Banking products essential for getting the job done. 36 Cape & Plymouth Business | September 2018 | capeplymouthbusiness.com Cover Story “There are so many different companies and opportunities within this space. Its not just dispensaries, it’s not just cultivation,” says Waterfall. The larger dispensary groups and cultivators will be where most of the jobs are, she says, but on the entrepreneurial side she sees many people who are starting small or micro-businesses, such as craft growers or manufacturers of cannabisinfused products. She also sees small local businesses gearing up to assist in marketing, accounting, web design, and a host of other services. “There really is something for everyone in this industry. Any service or product that a business outside of cannabis needs, cannabis businesses need those too.” In addition to being managing director of NECANN, New England Cannabis Convention – which hosts the biggest cannabis conventions in New England, including Boston in March, and Providence and Portland in October, Waterfall co-founded a nonprofit organization, ElevateNE.org, to educate the public about cannabis. “It’s still federally illegal, but there’s a pretty ugly history behind the prohibition of cannabis. So there’s still a lot of fear and stigma that these businesses face,” says Waterfall. “Why on earth would we continue punishing people by prohibiting local access? At the end of the day, once you know the history behind prohibition and take a look at the science around this plant, how can you not welcome these businesses and allow adults convenient, safe access to the safer alternative to alcohol in your community?” she says. According to Waterfall, entrepreneurs need her organization’s support, because they’re busy building their businesses and not focused on doing the community outreach that she says is needed to win public acceptance of the cannabis industry. She describes ElevateNE as a platform for people to learn more about the industry. The organization provides both educational events as well as networking opportunities and seminars. It also advocates for the cannabis industry. Its goal is to help young entrepreneurs who are looking to start a business.
ElevateNE is also focused on helping those who use medicinal marijuana. Waterfall is herself a medicinal marijuana patient treating a longstanding sports injury. She says it’s hard for medicinal patients to know what’s best for them. When medicinal marijuana was legalized in 2012, patients’ only option was to obtain cannabis from caregivers who had permission to grow for one patient. The first medical dispensaries opened in 2015, in Brockton. Medical marijuana dispensaries were required to be vertically integrated. Waterfall explains that such an approach was limiting in product selection, and made it very expensive to open a dispensary, because they had to grow and process everything they sold. But now businesses can obtain licenses for either cultivation or sales, and cultivators can sell to dispensaries. New licenses now allow for medical dispensaries to expand their businesses to include recreational marijuana. One such dispensary is Triple M, which operates medical dispensaries in Plymouth and Mashpee. In August, it received permission to expand its Plymouth location to include the cultivation, processing and sale of recreational marijuana. It plans to open in October.
ADVOCATES FOR CANNABIS
Adam Higgins, a digital marketing consultant, and Spencer Knowles, a former wine distributor who has recently joined the cannabis industry, are the founders of an advocacy organization called Regulate Cape Cod. Its mission is to promote safe, regulated access to cannabis for responsible adults 21 and over, from Bourne to Provincetown. Prior to Regulate Cape Cod, the two also formed a stakeholder group called Cannabis Cape Cod. They formed Regulate Cape Cod in the spring of 2017 after Falmouth and Sandwich voted to outlaw recreational marijuana facilities. Higgins and Knowles decided that more outreach was needed to convince towns that the cannabis industry should be embraced, not rejected. The way they saw it, two large towns had closed the door on a lucrative opportunity without sufficient public dialogue or education. By that time, Harwich and Chatham had also voted to ban the cannabis industry. “That really woke us up. We realized we need to engage town leaders and voters,” says Higgins. Higgins and Knowles are concerned that towns, fearful of how public recreational dispensaries might affect the town’s image or lead to increased marijuana consumption by children, might ban all aspects of the cannabis industry, rather than simply limit public dispensaries. Their efforts are, therefore, focused on educating town leaders about the economic potential of other marijuana license types that govern enterprises other than dispensaries. “The headlines say ‘pot shop banned,’ but the reality is that the entire industry has been banned in these towns. That includes testing and research facilities, distributors, transport, and manufacturing, essentially banning major opportunities,” says Higgins. “I guarantee the majority of folks, including town leadership, probably didn’t fully understand what all those license types were.” They worry that if Barnstable and Mashpee ban cannabis, businesses in Plymouth and the South Coast will capture the Cape market. “They say we can come back in a few years and take another bite of the apple. Those apples will be gone. Those apples will be on trees in Plymouth and Wareham,” maintains Higgins. “The first mover advantage is critical.” Following bans in Falmouth and Sandwich, Higgins and Knowles focused their efforts on the town of Brewster, which had placed a cannabis moratorium on its Town Meeting warrant. Higgins and Knowles considered Brewster a strategic gateway to the Outer Cape. “That would have really created the illicit market pocket that we’re trying to avoid,” explains Higgins. They began holding public meetings to discuss the economic benefits of legalized marijuana, and enlisted the support of A.J. Luke, owner of Luke’s Liquors. Their message was simple: prohibition failed, regulation can succeed. Brewster residents voted against the ban. Now, Regulate Cape Cod is focused on Barnstable, which has yet to decide about cannabis, and Mashpee, which is expected to vote on the issue in October. “I’m interested in making sure the business hub of the Cape doesn’t ban a $1.8 billion industry,” says Higgins, referring to Barnstable. “We’re an aging and declining population, so we need to take action to address that, because the reason is there’s no economic opportunity. Cannabis can turn that around,” argues Higgins. He advocates what he describes as a smart, safe and de-risked approach. They recommend that if town leaders in Barnstable are unsure of what to do, they consider a temporary moratorium on retail dispensaries, while allowing the other non-customer facing businesses in the industry, such as labs, cultivators, and manufacturers. That way, they say, entrepreneurs won’t be left at a disadvantage. “Let some entrepreneurs get their foot in the door at this ground level time that we’re in that you only get once,” says Knowles. “It’s a huge opportunity for micro businesses. “One of the larger manufacturers in California does $280 million worth of business per year. Barnstable can charge a 3 percent tax. That’s $8.4 million,” says Higgins. “It’s a big opportunity. It’s a way to bring money and jobs to the Cape.”
Waterfall cautions that if cannabis entrepreneurs want to be successful, they need to understand the industry, and the extensive regulations that govern the cannabis industry. Despite the opportunities, engaging in or serving an industry that deals with a federally illegal substance involves complex tax and legal challenges. Mitzi Hollenbeck is a partner at the accounting firm Citrin Cooperman, and heads the firm’s Cannabis Advisory Services practice. As a selectman in Lakeville, Hollenbeck first became aware of the opportunities, and challenges, facing the cannabis industry. “It’s not legal,” from a federal tax perspective, she says. She set up her firm’s practice to advise clients regarding tax nuances and inventory tracking requirements, among other issues. “It’s an industry that needs CPAs,” she says. Her firm guides cannabis businesses through the tax issues and helps implement systems to meet inventory-tracking regulations. Because cannabis is federally illegal (selling it is considered trafficking in a controlled substance), cultivators and dispensaries can’t deduct the usual expenses like other businesses. Rather, expenses must be captured under the only deduction allowed: cost of goods sold. Doing so requires specialized accounting advice. It’s not just businesses that deal directly with cannabis that face challenges. Businesses that serve customers in the cannabis industry – whether contractors, suppliers or service providers – must understand the issues. Banks sometimes refuse to accept checks paid by cannabis companies for services rendered, and close accounts. That’s because payments may be considered receiving funds from a federally illegal operation. While many banks don’t want to open accounts for cannabis businesses, Waterfall says there are banks, credit unions and payment processors that have become involved in the industry. She cites Century Bank as the primary resource in Massachusetts. Additional banks are expected to begin serving cannabis businesses in the coming months, she reports. In addition to limited banking, employees of dispensaries and cultivators may find it hard to get a mortgage or a car loan because their income doesn’t qualify. Insurance companies may refuse to provide coverage. Without managing finances correctly, Hollenbeck says many start-ups fail to make enough gross profit to pay their taxes, and go out of business. “People have inherent biases related to the cannabis industry. As it becomes more widespread and accepted, I think people’s perception will change,” says Hollenbeck. She reports that her firm is now signing new clients every week, and has hired additional staff to handle the workload. She estimated they have 30 clients in Massachusetts alone, and more nationally. “There’s such a need,” she says.
The Business of Cannabis – A Window of Opportunity for Our Region
By Doug Karlson