[co-author: Gabriel Amatruda]
Five years ago, on November 8, 2016, Massachusetts voters passed Ballot Question 4, which established the legalization, regulation, and taxation of adult-use marijuana for consumers 21 years of age and older. The subsequent rollout of adult-use marijuana businesses, and especially retail dispensaries, has been bumpy, to say the least. (The first sales didn’t occur until 2018). But now, five years in, the Commonwealth has seen the most significant growth in both the number of businesses and sales, and the market continues to expand and provide new opportunities.
Tremendous Growth in Cannabis Sales and Licensure
In September 2021, the Cannabis Control Commission (the Commission) reported that the Massachusetts recreational marijuana market exceeded $2 billion in gross sales over the first three years, with consumers spending $1.2 billion on adult-use marijuana and marijuana products in 2021 alone. Overall, sales in the second quarter of 2021 increased 377.9% over sales in the second quarter of 2020. This reflects the exponential growth of adult-use dispensaries and cultivation and production facilities across the state.
From the beginning of 2020 to mid-October 2021, the number of final licenses issued by the Commission for adult-use marijuana establishments jumped from 98 to 365. Of those final licenses, six are for marijuana couriers, eight are for independent testing laboratories, 92 are for cultivators, 66 are for product manufacturers, 182 are for retailers, and five are for microbusinesses.
The increased number of operational cultivation facilities and total square footage of cultivation canopy have also led to reductions in prices. The monthly average cost of an ounce of marijuana in September 2021 was $362, down from the monthly average cost of around $390 per ounce in late 2018. In early 2020, the cost of wholesale marijuana flower could exceed $4,000 per pound, whereas the average wholesale price of flower in Massachusetts as of October 2021 was approximately $3,591 per pound.
Importantly for consumers, operational retail dispensaries have more than quintupled from 33 to 169 during that same period. Consumers now have far greater access to adult-use marijuana and a wider variety of strains and available products than a few short years ago. And with 464 provisional licensees pushing towards final licensure, that impressive growth is sure to continue.
Over the past two years, we have also seen a sharp increase in the number of investment, merger, and acquisition transactions, as more business ventures (particularly from outside of the Commonwealth) seek to acquire ownership and control of licensed marijuana businesses in this expanding market in Massachusetts.
The growth in Massachusetts is also particularly impressive considering that adult-use retail dispensaries were shut down by order of Gov. Baker at the beginning of the coronavirus pandemic in early 2020, and the ongoing pandemic continues to make business operations difficult in various ways.
Humble Beginnings for Cannabis Delivery
Although contemplated in the initial Ballot Question 4, we have only recently seen progress in developing and expanding home delivery directly to adult-use consumers. Initially, only a limited delivery-only license type was contemplated. However, the Commission voted to amend its regulations to create an additional delivery license type, and there are now two different types of delivery licenses available:
Marijuana Courier — The “DoorDash” model in which the courier picks up an order that has been placed by a consumer with a marijuana retailer and delivers the order from the retailer directly to the consumer’s residence
Marijuana Delivery Operator — The “wholesale-warehouse” model in which the delivery operator purchases wholesale finished marijuana and marijuana products from licensed cultivators and product manufacturers, stores the product in the delivery operator’s own facility, receives home delivery orders from consumers, and delivers the orders directly to consumers at their residences.
So far, four marijuana courier licensees are currently operational, and one delivery operator applicant has received a provisional license. We expect these numbers to rise dramatically in the near future, as at least 73 courier applicants and 45 delivery operator applicants have been pre-certified for licensure by the Commission.
Only time will tell how profitable these delivery businesses will be in Massachusetts, particularly the marijuana couriers. These businesses only receive fees from retailers for performing home delivery services and are not permitted to resell finished products purchased wholesale. While reduced overhead and less burdensome operational requirements likely give delivery operators an advantage over brick-and-mortar retailers, delivery licensees are still required to sign Host Community Agreements with their municipalities, subjecting these businesses—which may already be operating on tight margins—to community impact fees that impact profitability.
Increased Diversity, Equity and Inclusion in the Massachusetts Cannabis Industry
Over the past five years, the Commission has also made significant progress towards its statutorily mandated goal of ensuring broader participation in the adult-use marijuana industry by diverse individuals and individuals from communities that have been disproportionately impacted by the War on Drugs and marijuana prohibition.
For the first three years, delivery licenses are limited to applicants that are majority-owned and controlled by Commission-certified Social Equity Program participants and Economic Empowerment Priority Applicants. The three-year period begins after the first marijuana delivery operator receives approval to commence operations. This approval to commence has not yet occurred but is expected to happen within the next several months. As more businesses obtain delivery licenses and commence operations, the Commission and social equity activists alike expect that this exclusivity period will work to ensure that members of communities most affected by marijuana prohibition will have increasing opportunities to participate in and benefit from this new industry.
In addition to Social Equity Program participants and Economic Empowerment Priority Applicants, the Commission has also expanded the types of applicants that are eligible to receive advantages and benefits (such as “expedited” application review and reduced application and license fees) to include minority-, woman-, and/or veteran-owned businesses, marijuana craft cooperatives, microbusinesses, and craft cooperatives.
The Commission reports that the percentage of applicants whose license applications were prioritized or expedited due to their status has steadily increased over time and accounted for 36.7% of total license applicants as of early October 2021. While there is still more work to make the cannabis industry in Massachusetts more diverse, inclusive and equitable, the progress made over the past five years has been undeniable.
Hazy Timeline for Social Consumption in Massachusetts
Like home delivery, social consumption establishments were initially contemplated in Ballot Question 4 and are limited to equity applicants for the first three years. However, unlike delivery, very little progress has been made over the past five years to license social consumption establishments and enable such businesses to commence operations.
The Commission’s regulations do provide for a Social Consumption Pilot Program, where a limited number of social consumption establishments would operate in a select number of municipalities. And while some of the more progressive municipalities—such as North Adams, Amherst, Springfield, Provincetown, and Somerville—have expressed interest in participating in the pilot program, the Commission stated that a change in state law granting municipalities the right to authorize social consumption is necessary before that can happen. Several bills to enact this change have been introduced in the state legislature but have yet to gain serious traction. And even after state law is changed, it will likely take at least several years for the Commission to create and implement a license application and inspections process to begin authorizing social consumption establishments to commence operations.
Over the past five years, the adult-use marijuana market in Massachusetts has experienced substantial growth in sales, licensure and social equity. The market is, indeed, more saturated, and prime facility locations are less available than five years ago. However, as demand and supply for marijuana and marijuana products continue to climb, and as the Commission continues to improve and streamline its regulatory processes, we anticipate that opportunities for individuals and entities seeking to participate in this rapidly growing industry will continue to expand.
Determined and well-financed individuals and entities, and especially social equity participants and applicants, have the opportunity to find success in the market. And for those seeking to enter the Massachusetts cannabis market by investing in or partnering with an existing licensee rather than applying for a license themselves, more and more options are available as additional licenses continue to be issued by the Commission.