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High expectations for Massachusetts’ marijuana industry

Do small businesses have a chance?

A dispensary in Canada.

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As Massachusetts’ marijuana market is poised to move from street corners to store fronts, investors are starting to see green — and it’s not just the plants.

The Bay State will be the first on the East Coast to tap into the legal weed market and industry experts predict big payoffs. By 2020, marijuana sales in the state will top $1.1 billion and it will be a $21 billion market nationwide, according to market research data by New Frontier. But with this much money at stake, some are wondering what role small businesses will play in this modern-day gold rush.

Long a hub for the tech and medical industries, Troy Dayton, CEO of the Arcview Group, which analyzes the marijuana markets, predicts Boston could soon become a hub for marijuana too.

“Unlike other places where cannabis is legal, Boston is within driving distance of many of the most populous places in America. This will make Boston the cannabis capital of the world in short order,” he said.

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The potential for this budding industry has not been lost on big-money investors.

The Yes on 4 campaign launched in 2014 with the goal of passing a referendum that would legalize recreational marijuana for adults over 21, allowing possession, growing and selling of the plant and infused products.

Over the two years it took, the campaign raised more than $6.4 million. Of that, 81 percent was funded by New Approach, a Washington-based pro-pot political action committee. And who is behind that money? A search of the group’s IRS tax filings shows it’s a group of billionaires with ties to Silicon Valley.

“Big pot” as it’s been dubbed, has left its mark on other states where recreational marijuana is already legal. A recent report by the Denver Post revealed 20 percent of the city’s retail market is owned by just 10 people.

But in Massachusetts, where the requirements on licenses and regulations on retail businesses have yet to be inked, pot proponents said they have the little guys in mind.

“We were very deliberate about making the adult-use industry more accessible for small businesses,” Shaleen Title, a marijuana entrepreneur and an architect of referendum.

It’s not easy going green

Most small businesses are finding that high costs are the biggest deterrents of getting into the pot game.

The national average cost for starting a marijuana dispensary is about $325,000 when you add up application and license fees and the cost to open, according to the 2016 Marijuana Business Factbook.

Massachusetts legalized medicinal marijuana in 2012, but to date only nine dispensaries have opened up statewide.

It’s indicative of a process hampered by intense regulation, said Jeffrey Roos, CEO of Mass Medi Spa, a medicinal marijuana company that has been working to open dispensaries in Norwell and Nantucket for almost five years.

Mass Medi Spa is in the final phases of approval with the state and is building a medical dispensary off of Route 3 in Norwell, which he hopes to open later this year. Roos wouldn’t divulge how much he’s spent so far trying to open, but said compliance is a major cost.

“Compliance itself is a fulltime job — we have a compliance officer on payroll,” he said.

“I think medical and recreational will both be highly regulated so you’re not going to see any fly-by-night operations. It’s going to be the people who have the skill set and resources to put together a business that are successful.”

Looking out for the little guy

Factoring in the costs of compliance, Harvard economics professor Jeffrey Miron, a longtime advocate of legalization said it’s regulation that will drive out small business.

“Small businesses will do just fine in this industry, as in most industries so long as regulation is modest. If regulation imposes large costs or barriers to entry, then big businesses will rule,” he said.

Lawmakers have filed more than three dozen bills that would, among other things, give the state and local municipalities greater regulatory control.

Much of what will happen in terms of regulation, however, lies in the hands of the Cannabis Control Commission, which will be appointed by the state treasurer by October. The regulatory board has large oversight on licensing requirements and what regulations will hit retail dispensaries and other marijuana-centric businesses.

Current law directs the commission to erect policies that will “promote and encourage full participation by people from communities that have been previously disproportionately harmed by marijuana prohibition and enforcement.”

Shanel Lindsay, another small business owner and architect of the pot referendum, said she wants to see opportunities for small businesses. She said she advocated to keep licensing fees relatively low (a retail dispensary license will cost $15,000), but she said public participation is still needed to ensure a fair business climate.

She urged the business community to speak up and ask for less regulation as the Cannabis Control Commission sets its agenda later this year.

“There will be hearings as we saw with the medical marijuana program and locally the most important thing people can do is speak up, have their voices heard,” she said.

Boston city councilors are also joining the conversation, advocating for local and minority-owned businesses.

“It’s a billion-dollar industry and I’d love to see local residents in the city of Boston take advantage of this,” LaMattina said. “It shouldn’t be big companies controlling the marijuana business here.”

 
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