Cannabis Commission may be scrambling for funds

THE STATE COMMISSION CHARGED with implementing the new legal marijuana law is starting its work with no money in its coffers and uncertainty about whether it will have sufficient funds to set up the permitting process needed to oversee a billion-dollar industry from scratch.

State Treasurer Deborah Goldberg, whose office was given autonomy over the Cannabis Control Commission by voters but was then shoved aside by the Legislature, had estimated she would need more than $10 million for the first year. But the Legislature appropriated just $2 million for this year, which remains frozen in a reserve fund overseen by the Executive Office of Administration and Finance. Gov. Charlie Baker has also asked the Legislature for authorization to spend $300,000 that was earmarked for the commission last year but went unspent. There doesn’t appear to be any appetite for appropriating additional funds.

“The administration looks forward to working with the five newly appointed members of the commission to responsibly implement the recreational marijuana law and, as with all appropriation items, A&F will review any requests from the commission for funding,” Sarah Finlaw, a spokeswoman for the office, wrote in an email statement.

The $2 million, or $2.3 million if the extra $300,000 is approved, will not stretch far. About $750,000 in salary and benefits will go for just the five commissioners. The commission will still need to hire an executive director and clerical and administrative staff. It will also need to procure office space and purchase computer equipment and software. And the commission has to staff up quickly because it has less than 300 days before the first retail marijuana store is slated to open on July 1, 2018.

According to Goldberg’s estimates, the commission would have required $4.2 million in operational costs for the first year and $6.1 million in one-time costs, mostly in administrative expenses associated with processing and vetting the initial wave of applicants.

Officials in the treasurer’s office say that estimate is now moot with the board now set up as an independent commission with its own budget. Commission officials have declined comment so far, but many are skeptical that a successful launch can be accomplished with just $2 million.

“The very basics of getting it going? Maybe $2 million is enough,” said Jim Borghesani, a spokesman for the group behind the ballot question passed by voters last fall. “But that’s not going to be nearly enough to meet the requirements of a July 1 retail sale. The treasurer’s office said seed to sale and licensing is estimated to cost $5.5 million itself.”

The Massachusetts Gaming Commission, which was used as a template by the Legislature to shape the cannabis board, was started with a $15 million loan from the state’s rainy day fund, which has since been paid back. The Gaming Commission has an annual budget of $18.5 million for regulatory costs, not including other money from the Gaming Control Fund for the attorney general’s office and several other gaming-related enforcement and oversight programs.

Under the new marijuana law, all money generated by the legal sale of pot, including fees and taxes, goes into the Marijuana Regulation Fund. Subject to appropriation by the Legislature, all regulatory and administrative expenses for state and local governments are paid out of that with any money left over at the end of the year going into the state’s general fund.

There is no definitive estimate yet as to how much revenue marijuana sales will generate, but the Legislature raised the excise tax on retail pot to 10.75 percent on top of the state sales tax of 6.25 percent. In addition, cities and towns can assess a local option tax of 3 percent, for a total of 20 percent.

The law also set fee limits for license applicants at $3,000 and $15,000 each for retail, manufacturer, and cultivation licenses. Hundreds of licensees are expected.

Borghesani, whose group on Tuesday called on newly appointed commission Chairman Steven Hoffman to make a direct appeal for funding to the Legislature and the governor, said he was concerned the commission would lack the resources to get the industry off the ground.

“It’s a chicken and egg problem,” said Borghesani. “You’re going to rely on the fees to fund the process, but you’re not going to get fees until the process is in place and you’re not going to get a process until you have a system set up. And all of that depends on money. Nobody yet has definitely said (the commission) will get the money they need.”