“It’s not real. It’s not happening. They’re liars. They don’t care.”
OG Article: here
View our Fair Use Policy: here
Even before cannabis was legalized in Massachusetts, Kijana Rose knew cannabis could make yoga a better time. Rose, 34, has been teaching ganja yoga for seven years and has been selling cannabis edibles for even longer. Her family is Rastafarian and she grew up with cannabis as a medicinal substance.
When the state legalized marijuana, Rose was ready to embrace the business model that was being offered to social equity candidates like her. She expected business plans, weed cookies and chill vibes—not the regulatory nightmare she became enmeshed in.
Her goal was to open up a vegan cannabis bakery in Roslindale. There, she hoped to sell customizable cannabis baked goods and hold community events like book readings. Three years later, her store has never opened under her leadership and she has gone broke in the process.
“As an entrepreneur, you know you’re gonna struggle but by the time we got licensed, I was literally sleeping on my CMO’s couch,” said Rose. “I had no home. I couldn’t pay rent. I was on food stamps. I didn’t have anything to my name. I can’t tell you how many times people on my team sent me, the CEO, money to eat because they knew I didn’t have it. That was literally the situation that I was in, and it just wasn’t worth it at all.”
She decided it was time for her to get out of the business. But that was a challenge as well. Rose had accumulated close to a million dollars in debt. When she tried to sell her license, she was told that it wasn’t worth enough money to clear her of debt.
“It was one of these situations where it’s like once you’re in, you’re in, and they don’t want you to get out,” said Rose.
It took four months—during which she continued to lose money—for her to find a buyer and she is now in the process of transferring ownership. She will only just barely pay off her debt with the money from the transfer.
Rose said she was the type of person Massachusetts wanted to enter the cannabis business, but her experience left her worse off than she would have been if she hadn’t entered the industry at all.
“They sell us a bag of dreams especially in the state. They’re like ‘Oh! you’re economic empowerment.’ There have to be diversity plans. There have to be positive impact plans,”
said Rose. “It’s not real. It’s not happening. They’re liars. They don’t care.”
Rose is not alone.
The entire cannabis industry is struggling as pot prices have plummeted and operators deal with the unique challenges of working with a substance that is illegal under federal law. But those who got into the industry based on state promises of social equity seem to be in particularly dire straits.
“By definition, the social equity candidates are the people who were harmed most by the war on drugs,” said Shaleen Title, a former member of the Cannabis Control Commission. “They don’t have access to the same resources like mentorship, friends, family that others have. That’s the whole reason why we created the social equity program.”
From the outset, there was a promise made that the state would help those who had been harmed by the war on drugs enter into and profit from the legitimate cannabis industry.
The Cannabis Control Commission created a training program to create pathways into the cannabis industry for those individuals most impacted by the war on drugs. They also created three different license types targeting social equity.
Rose qualified for an “economic empowerment” license—a type of license that is reserved for applicants who come from and who promise to employ people from communities disproportionately impacted by the war on drugs. There is also a special license type given to those who go through the Cannabis Control Commission social equity training program and another for woman-owned, minority-owned and veteran-owned businesses.
However, one thing a budding business needs more than anything else is capital—to rent a space, to buy products, pay fees and a host of other costs. Yet cannabis operators in general are often not able to get small business loans because most banks won’t do business with them since cannabis is illegal under federal law. The situation is particularly difficult for social equity businesses because they typically aren’t well capitalized to begin with.
What capital the social equity businesses had was often drained away by a cumbersome, years-long regulatory process instituted by the Cannabis Control Commission that meant years of costs spiraling upward with no revenues coming in.
Nike John, the owner of The Heritage Club dispensary in Boston and one of the inaugural cohort of the Cannabis Control Commission’s social equity program, said it took about three years for her to make it through the state’s regulatory process and open her store.
“Small businesses are already hard,” said John. “Raising money as a woman and minority and being a woman leader is hard. There’s not a single thing about this where I’m like: ‘Yeah, that was easy.’”
Lawmakers were aware of the capital challenges so they created a Cannabis Social Equity Trust Fund in 2022, which was meant to funnel a portion of marijuana tax revenues to entrepreneurs with social equity licenses. However, it took almost two years for the fund to start up and the first grants—which some operators viewed as “too little, too late”—went out in April.
The market itself dealt a blow to social equity license holders who survived, as marijuana prices plunged. When many operators made the decision to get into the business, marijuana prices were much higher. In January 2020, the average price per gram was $14.68. This March, it was only $5.34. In the time it took for many businesses to open, the projected profits had evaporated.
“How much you make off a gram of weed is actually not worth it,” said Sean Hope, the owner of the Cambridge dispensary Yamba. “It’s so hard to open a dispensary. People don’t know that. It’s their life dream and they want to get there. But the pot of gold is not at the end of the rainbow.”
According to the Cannabis Control Commission, 38 licenses have already been surrendered, not renewed or revoked—more than twice the number reported by the Boston Business Journal in November of last year. Operators across the state are saying that something needs to shift or many more businesses will start to fold in the coming year.
Dennis Benzan, the owner of the cannabis company Western Front, said the challenges are enormous. “In this industry, you truly feel like you’re a sharecropper,” he said “You’re really just paying an enormous amount of taxes, you’re paying vendors and you’re paying landlords. We’re so regulated, we can’t access capital markets. Hence, we’re trapped.”
When it became clear that his business was not profitable and that it was woefully undercapitalized, Benzan began to explore different options. He hired consultants who looked into exit options and different ways to access capital. Because the profit margins are so slim for standalone operators in the cannabis industry and the particular challenges of operating as an undercapitalized social equity business, the valuations of the company were not as high as they were expected to be.
With no way to access capital through banks or through the government programs, Benzan turned to larger private companies. But those companies were unwilling to invest cash in the company unless they were given a big chunk of the ownership.
“If you’re not running a profitable business, exiting of course would be difficult because your valuation will be low,” said Nike John. “And so when you have social equity businesses that haven’t been properly funded, their valuations are low. They might even be lower than the amount of money they raised to get into this. So when they don’t have access to capital, your pool for purchase is smaller.”
Benzan and other cannabis operators say one potential solution to the missing exit ramp problem would be to change the law to increase the cap on how many licenses a single company can have. Currently, the cap is set at three and Benzan would like to see that number doubled.
Increasing the license cap is pitched as a way to open the pressure valve and allow struggling operators to sell their businesses to those companies that are looking to expand.
However, the license cap is one of several policies that the state has implemented to keep large cannabis companies from coming in and cannibalizing the entire market or creating monopolies.
“We don’t want to end up in a situation where someone gets a preferential license and then they immediately sell it to a bigger company,” said Title. “That one person gets their money but now the industry is set up to fail as a monopoly, which long term has a lot of harms to consumers and to society at large.”
Nike John suggests other policies that will help keep social equity operators in the game and even make them profitable—eliminating licensing fees for equity operators, changing the standards for testing and changing badging requirements for dispensary employees. Of course, the biggest thing she and other social equity operators stressed is increasing access to capital.
She says that there are disagreements within the industry on what policies people should support, but she is optimistic that there are ways that people in the industry can come together to tackle the problems at hand.
“I think there’s a lot of consensus in the industry even though there might be different opinions,” said John. “Everybody’s on the same page on the things that we all need help with. We all have to survive in the same jungle and we know how wild it is out here and we just have to work together.”
Many operators in the social equity space, including Benzan and Rose, think the Cannabis Control Commission isn’t presenting a realistic picture of the market to equity candidates. They said the state is still promoting training programs for social equity applicants who will never get their businesses off the ground.
“You can’t encourage people to join a program that is upside down because you’re selling them a pipe dream,” Benzan said,
The Cannabis Control Commission just accepted applications for the fourth cohort of its social equity program in April.
“There are a lot of businesses who I’ve spoken to that are struggling to either keep doors open or to turn a profit,” said Ryan Dominguez, the head of the Massachusetts Cannabis Coalition. “There were predictions earlier last year about a lot of places closing down, and I’m hearing from people that that is still going to happen because so many businesses aren’t profitable.”
The Massachusetts Cannabis Coalition launched this year and social equity cannabis operators are organizing as well. Different cannabis groups are all on the same page in response to the growing pressures in cannabis businesses—that both the Cannabis Control Commission and the Legislature need to start paying more attention to the struggling industry
Comments