Cannabis regulators approve home delivery
Retailers threaten lawsuit to block new rules
THE CANNABIS CONTROL COMMISSION on Monday approved new regulations that should, within months, let recreational marijuana consumers in Massachusetts get legal marijuana delivered to their home.
The final decision to license marijuana delivery companies marks a major shift for the industry, and a victory for minority entrepreneurs. But it also brings with it the threat of a lawsuit from retailers who will face heightened competition if delivery moves forward.
Chris Fevry, president of the Massachusetts Cannabis Association for Delivery, called it a “monumental” vote. “I’m really glad the commissioners listened to public comment and listened to reason and thought ‘hey, we’re in the middle of a pandemic. Delivery is needed. Let’s move forward,’” Fevry said. Fevry said he hopes by the middle of next year, consumers “will have compliant and safe delivery options.”
The Commonwealth Dispensary Association, which represents marijuana retailers, said the commission’s decision “will not be the final word on delivery.” “The very real concerns of introducing online retailers should be heard and addressed,” the association said in a statement. “To that end, we are prepared to contest the matter to ensure that policy continues to adhere to the statute and that the market is not upended.”
Hoffman said the new delivery companies will provide convenience for consumers, while helping social equity entrepreneurs. “I fully expect existing retailers are going to adapt to the new competitive circumstances,” he said.
Commissioner Shaleen Title, a strong advocate for minority entrepreneurs, said while she would not comment on the threat of a lawsuit, “In general, if you don’t want a market to change, I think the cannabis business may not be the right business for you because this is absolutely an industry that is going to change. There’s a lot of room for innovation, there’s a lot of room for new licenses.” Title said retailers would be more successful working with delivery companies than trying to block them.
The state law that legalized recreational marijuana in 2016 also authorized home delivery. But state regulators initially postponed allowing delivery to get the industry started in a more limited fashion with brick and mortar stores. Two years after the first recreational marijuana stores opened, Monday’s decision will allow the commission to begin licensing home delivery operations.
The vote to approve the regulations was 3-1, with Commissioner Jennifer Flanagan dissenting. Flanagan, a former state senator appointed to the commission for her public health expertise, has been vocal in saying it is too soon to allow home delivery.
Delivery licenses will be restricted for the first three years to social equity and economic empowerment applicants, which are groups given priority in state licensing because they are from communities disproportionately affected by prior enforcement of drug laws. These include racial minorities, people with past marijuana arrests, and people living or working in areas with high drug arrest rates.
There will be two types of licenses – a courier license and a delivery operator license. A courier will function similar to an Uber Eats model, where a consumer orders from a retailer, and the courier picks up the marijuana from the retailer and delivers it. The delivery operator license will allow a company to buy marijuana wholesale, then warehouse it and sell it directly to a consumer.
While the application process for couriers is already underway, Hoffman said applications are expected to be available beginning in January for the delivery operator license, and it will take “a few months” for companies to be approved, then begin operating. Hoffman predicted delivery services could be up and running around the middle of 2021.
Kevin Conroy, a partner at the Boston law firm Foley Hoag who was hired by the Commonwealth Dispensary Association, said state law requires that if delivery is allowed, existing retailers must be allowed to deliver – which would undercut the licensing scheme giving exclusivity to social equity applicants for three years. Conroy bases his argument on the law’s definition of a retailer as an entity licensed to deliver marijuana products.
“We have a situation where the CCC has issued regulations that specifically violate its statute,” Conroy said of the cannabis commission.
Conroy is not the only attorney to raise potential legal issues. In public comments submitted to the Cannabis Control Commission in October, James Smith and other attorneys at Smith, Costello and Crawford said the law established marijuana retailers as the only entity allowed to sell directly to consumers. “The new delivery license types…cannot allow for delivery directly to consumers because only marijuana retailers can deliver directly to consumers under the law,” the attorneys wrote.
In an interview, Smith said no one opposes helping social equity businesses, but the retailers he represents worry that the rules will inadvertently turn the marijuana industry into the liquor industry. There, powerful distributors act as middlemen between manufacturers and retailers, creating an added layer of cost. He worries that powerful delivery services will create a similar model, where a marijuana retailer can no longer buy directly from a cultivator, but will have to pay a middleman. Smith worries that the regulations will help larger delivery companies, letting a small handful dominate.
“The real hope is to get a good delivery model that helps social equity candidates and doesn’t create this extra layer that is just going to cost consumers,” Smith said.
In mid-November, Howard Cooper, an attorney with Todd & Weld who also represents marijuana retailers, wrote to the Cannabis Control Commission, “We believe the proposed regulations are unlawful and that, if adopted, they will be subject to immediate legal challenge.” Cooper argues that state law says clearly that retailers “are the sole and exclusive licensees entitled to deliver cannabis products to consumers,” and any attempt to exclude retailers from delivery while creating delivery-only licensees would be illegal.
Not all retailers oppose the new license type. The Massachusetts Cannabis Business Association, a trade association that represents growers, retailers, and other marijuana businesses, supports the delivery license as a way to diversify the industry. The association’s president and CEO, David O’Brien, said so far, black and Latino entrepreneurs, those with drug records, and those with limited access to start-up capital have been largely left out of the industry.
“These regulations are a major step towards the equitable cannabis industry that was envisioned by voters and lawmakers when they established the adult-use cannabis market in Massachusetts,” O’Brien said in a statement. “Delivery businesses will provide a new outlet for existing dispensaries and cultivators to sell their products, while satisfying consumer demand that, four years after voters supported legalization at the ballot, is still being met by the unregulated and untaxed illicit market.”
Assuming the delivery rules get past any legal challenge, delivery entrepreneurs still face hurdles to getting up and running. Devin Alexander, vice president of the Massachusetts Cannabis Association for Delivery, recently told the Codcast that one major obstacle is negotiating host community agreements with municipalities.
Title told reporters after Monday’s commission meeting that the delivery regulations represent “a huge step forward for equity,” but “not a cure–all.” “The work starts right now, this afternoon, in terms of making sure we are providing education and resources and guidance to municipalities in particular and prospective applicants,” Title said.
The vote on the new marijuana regulations was the final vote taken by Commissioner Britte McBride, who is resigning from the commission after three years.
Commissioner Kay Doyle left in May, so the five-member commission will now have just three members, one of whom – Title – is serving past the end of her term as a holdover.Commissioners are appointed for their expertise in a segment of the industry. McBride held the public safety seat, appointed by Attorney General Maura Healey. Doyle held a seat reserved for someone with experience overseeing a regulated industry, and Title holds a social justice seat, both of which are appointed jointly by the governor, attorney general, and treasurer.
Hoffman said he worries about having only three commissioners and he would like to see the appointing authorities appoint new members quickly. But, he said, “As long as we have three commissioners, we have a quorum and we can do our work.”