Massachusetts Cannabis Control Commission (CCC) also provides information on the number of licensed and operating cannabis businesses in the state. As of the end of March 2022, there were 83 cultivators, up four from February 2022’s count; six couriers, unchanged from February; 12 testing laboratories, up four from February; six microbusinesses, unchanged from February; 62 product manufacturers, up one from February; 213 retailers, up 15 from February; and four third-party transporters, up one from February.
The Open Data platform provides monthly average retail flower prices for the adult use market. March 2022’s average retail flower price fell 3.2% to $339.01 per ounce and is down 5.4% this year.
Massachusetts spot prices have fallen 23.6% this year. The move lower has been attributed to bulk deals struck at lower than prevailing prices at the time of the deals. Prices are unlikely to recover to the mid-$3,000s with New York, New Jersey, and Connecticut slated to open adult use sales, which should take away some demand from residents of those states who have patronized Massachusetts retailers to this point.
The CCC recently issued guidance that conveyed a sophisticated understanding of corporate finance not typically found in such documents. The guidance was issued and opened for public response due to “the industry’s maturation and evolution,” necessitating further clarity on ownership and control of cannabis businesses in Massachusetts. “Delivery Courier and Delivery Operator” licensees were addressed specifically.
The release is an effort to reiterate legislatively mandated limits on adult use license ownership. The CCC document offers clarity on the legislative intent of rules governing this area “as a way to ensure that bigger businesses do not crowd out smaller competitors.” The matter is open for public comment between April 11, 2022, and May 2, 2022 at 5 pm. For further details and how to submit comments, see the full document here.
While the ownership guidance was clear, it seemed to be addressing corporate finance schemes perhaps created to take advantage of social equity applicants who lack access to affordable banking and who are possibly less knowledgeable about financing that might affect their ownership stake in their own businesses. In reading the guidance, questions arose regarding social equity applicants’ potential vulnerability to sophisticated lending agreements that might convey ownership to the lender at some point, as well as whether the state itself might consider financing social equity applicants so they will not fall prey to such lenders.
In an interview with Cannabis Benchmarks, the Chairman of the CCC, Steven Hoffman, acknowledged the thrust of the guidance was meant to “protect cannabis businesses and social equity applicants” undergoing “financing challenges.” When asked if multi-state operators (MSOs) were engaging in such behavior, Hoffman was clear, “the MSOs are adhering to state mandated ownership limits” and are not involved in predatory schemes. According to Hoffman, it seems “private equity are proposing predatory” lending schemes to “social equity businesses,” some of which might “trigger effective control” of such businesses. Hoffman noted the CCC has been working on issues of predatory lending and the sources and structures of such deals for some time now. Hoffman has expertise in the private equity world, which has clearly been deployed in his role as chairman. His understanding of finance and private equity is now being utilized to support and protect social equity applicants from such schemes.
When asked about the likelihood of Massachusetts starting a state bank to finance small and social equity businesses, Hoffman cited two reasons the notion of a state bank was “quickly shot down:” “the state does not want to be in the banking business” and “there was no government support for cannabis,” but rather a voter initiative that ushered in adult use legalization in Massachusetts. Hoffman said he “thinks a state bank is a good idea” and proposed it to state leaders to no avail. However, he did point to a bipartisan senate bill – S. 2801 – An Act Relative to Equity in the Cannabis Industry. The bill will create a new fund to support equity in the cannabis industry and improvements to the local licensing process.
Ranging a bit further afield, Hoffman said he was aware of the sell-off in wholesale prices and the seeming disconnect with retail prices as indicated in CCC’s monthly data. He noted that “wholesale prices are a leading indicator of retail prices” suggesting retail prices will eventually reflect the price drop on the wholesale level. When asked about last fall’s outdoor harvest, Hoffman said part of the legislative mandate was to “incentivize outdoor cultivation” through “reduced fees” for outdoor growers and such applicants “go to the front of the line.” He also noted Massachusetts will license co-ops to help support cannabis businesses. Overall, Hoffman believes the state is “undersupplied in cultivation capacity” although the state has an uncapped licensing scheme. He indicated the uncapped scheme is closely watched over and praised other legal states for advice provided to Massachusetts as they set up their adult use market, noting there is no interstate competition at this point.
Hoffman is well-studied in legacy state cannabis markets and corporate finance. He seems determined to steer Massachusetts around issues that have arisen in other states, especially in consideration of his state’s social equity mandates. Last week’s “Guidance and Control on Ownership” document makes clear that predatory financing schemes are well-understood at the CCC, and any “deals” struck with social equity applicants will be thoroughly vetted to keep social equity participants safe from those who would take advantage of them.