A Look Back on One Year of Recreational Marijuana Sales in Massachusetts
By Valerio Romano, Partner
Jan 6, 2020
Massachusetts voters passed Question 4 to legalize adult-use marijuana in 2016, but, for various reasons, the actual rollout has been slow. While the first sales of legal recreational cannabis didn’t take place until two years later, the industry has grown consistently. Since those first sales of MA legal recreational cannabis on November 20, 2018, consumers have spent over $393 million on marijuana products and the number of retailers grew from just two to more than 30 in one year.
As with any new industry, there have been some growing pains, especially for one that is so regulated. Let’s dive into some of the pain points, the successes, and the future of Massachusetts’ legal cannabis industry.
First, A Look at the Numbers
Did you know that trim can sell for in excess of $1,000 per pound on the wholesale market in Massachusetts? Now I have your attention!
So, why the high prices?
In Massachusetts, the Cannabis Control Commission is tasked with licensing cannabis establishments. So far there have been 627 complete applications submitted. Of the 98 final licenses awarded thus far, 36 are for dispensing, 31 are for cultivation, 26 are for product manufacturing, and the balance are for marijuana transporter, testing laboratories, and one micro business.
Massachusetts has a population of 6.9 million people... and there are only 33 dispensaries. That’s not a good ratio for the consumer. Let’s compare that with Colorado’s population of 5.7 million. According to the Colorado Marijuana Enforcement Division’s website, there are 574 retail licenses, 684 cultivation licenses, and 288 product manufacturing licenses in Colorado.
“Well, Colorado passed adult-use in 2012... of course they have more licenses,” one might respond. The next set of numbers will really show how the glacial-paced rollout in Massachusetts has affected the market. In December 2015, three years after adult-use cannabis was legalized in Colorado, the state had 408 retailer licenses, 512 cultivation licenses, and 160 product manufacturers licensed. That’s 11 times more licensees than Massachusetts in a similar timeframe.
Given those numbers, it is no wonder that in Massachusetts, a state with almost 20 percent more people than Colorado, the cost of wholesale cannabis is so high. In MA, the cost of wholesale flower can exceed $4,000 a pound. Yes, you read that right- wholesale!
A Look at the Law in Massachusetts
In many of the most important ways, Massachusetts has a great cannabis law! Here are some reasons why:
No limitations on methods of consumption
No prohibitions on high THC, although the serving size for infused products is limited to 5-milligrams
Vertical integration is permitted
No residency requirement
There are some limitations though; including:
Canopy sizes are capped at 100,000 square feet, exclusive of clones
No individual or entity may control more than three of any license type
An applicant must have local support, tied to a specific address, before applying at the state level
Also, as a co-author of the ballot initiative that ended cannabis prohibition in MA, I can state confidently that one of the goals of the law was to eliminate the unregulated market. In this regard, the industry in Massachusetts has utterly failed. The legal market is undersupplied, prices are high, and the dispensaries are few and far between.
Joining the Industry can be Expensive, Especially for Medical Marijuana Businesses
Voters in Massachusetts approved medical cannabis in 2012 by 63 percent. In 2016, adult-use was approved by just 53 percent. The majority of people of Massachusetts obviously support medical cannabis, but if you look at the current state of the MA medical cannabis program, you can see that the program is unwell and could use some of its own product.
Unfortunately, the medical cannabis rules in Massachusetts make it far more difficult to site a medical marijuana business than an adult-use one. Medical cannabis requires vertical integration. That means an operator can’t simply develop an interesting brand, create infused products, and then wholesale those products to distributors in the medical market. That operator must find a retail location and build out cultivation too!
In Massachusetts where it can be 5 degrees Fahrenheit with 5 feet of snow on the ground during part of the year, and 90 degrees with 90 percent humidity in other parts of the year, a cultivation buildout takes a significant investment in engineering and HVAC. It can cost in excess of $6 million to build out 30,000 square feet of growing space here! It is simply unreasonable to expect a small operator or social equity applicant without funding to break into the Massachusetts medical market.
Additionally, our licensing and renewal fees are far higher for medical operators. For a medical license that requires vertical integration, application fees are $31,500, and renewal fees are $50,000. If you have three medical licenses you are paying $150,000 a year to the Commonwealth, and that can be for provisional licenses that aren’t even operational! These high costs are causing some medical operators to focus solely on the adult-use market.
As a comparison, for a 20,000 square foot facility, the application fees for cultivation, product manufacturing and dispensing in the adult-use program are only a total of $3,600. Renewal fees for all three are $25,000. When you combine the above-mentioned medical cannabis license fees with property carrying costs and compliance with local permitting, it is no wonder that medical applications and licenses are being abandoned in favor of the adult-use market in Massachusetts.
Participating in the Massachusetts adult-use market can be prohibitively expensive too, given the licensing fees, voluminous regulations, the slow roll-out, and the requirement that applicants maintain property just to apply. Although not the focus of this piece, the repercussions of those factors are particularly drastic when one looks at numbers of licenses awarded to minority-owned businesses. Only three percent of all provisional and final licenses in Massachusetts have been awarded to minority-owned businesses, despite efforts by the Cannabis Control Commission and other industry participants and advocates to bring those communities into the industry.
The Massachusetts Legal Cannabis Market is Untapped
Despite seven years since the passage of the law enabling the medical cannabis program, and three long years since the passage of adult-use, the Massachusetts market remains untapped. As multi-state operators and individuals looking to get into the cannabis market seek out new jurisdictions, Massachusetts should not be ignored. As described above, the law does not have product limitations that could destroy a market, the population is high, and competition is low.
Plus, the Commission is working on ways to streamline the application process, and they recently approved a new policy to expedite the review process for social equity program participants and minority/women/veteran-owned businesses.
Even with the many barriers to entry, the market is growing steadily, providing ample business opportunities in the Massachusetts cannabis market for years to come.