In pot chase, social equity meets economic reality

Investors are ‘buying up economic empowerment applicants’

THE MESSAGES BEGAN ARRIVING last year, shortly after the Cannabis Control Commission released the names of people eligible for economic empowerment status, which would allow them to cut to the front of the line if and when they sought licenses to open marijuana businesses. “I am reaching out to everyone on the cannabis control list to see if you have any interest in financing,” a woman from Connecticut wrote via Facebook Messenger.

The man on the receiving end of these queries, Chauncy Spencer, described another offer in which a group of investors would dispatch their lawyers to help him and his partners get through the red tape of permitting in exchange for carrying their brand of cannabis products. But Spencer, who has a background in biochemistry, has developed an aeroponic cultivation system, and he hopes to produce, sell, and distribute his own cannabis products — not just be a “vape shop” selling others’ goods.

A cornerstone of Massachusetts’s marijuana legalization law is its commitment to righting the wrongs of the war on drugs, specifically the prohibition on marijuana, which fell heavily on communities of color in the form of arrests, incarceration, and lifelong criminal records. Under the social equity provisions of the law, economic empowerment applicants are to get priority license review and technical assistance aimed at giving them a leg up in the legal cannabis industry. So far, however, social equity looks a lot more impressive on paper than it does in reality. Two figures starkly tell the story: More than 120 people qualified for economic empowerment status last May; as of the beginning of this year, not a single one of them was among the scores of cannabis businesses to make it through the state licensing process.

Instead of ushering in a diverse and inclusive industry, legalization has so far underscored entrenched economic patterns. The net worth of African-Americans in the Boston area is just $8, compared to nearly $250,000 for whites, according to a 2015 Federal Reserve Bank of Boston study. Starting any business is a capital-intensive endeavor, let alone one in a heavily regulated market largely shut off from traditional bank financing and government funding due to the continuing federal prohibition on pot.

Despite its language on equity, Massachusetts’s marijuana law otherwise creates structural challenges for those with limited resources. Would-be marijuana business owners must secure a physical site and local approvals before the commission even considers them for a license. This poses a formidable barrier, especially in Boston with its costly and cut-throat real estate market. And it means aspiring entrepreneurs must negotiate the thicket of city hall politics and hammer out host community agreements, a potentially costly endeavor that favors those with deep pockets.

These constraints stand in stark contrast to the wealth surging through the wider marijuana industry. It’s not just “green rush” investors, but global conglomerates such as Constellation, the maker of Corona beer, which last year bought a $4 billion stake in a Canada-based marijuana growing company. In the US, the industry has a well-formed foundation in medical marijuana, which is legal in more than half the states. Medical dispensaries were one of the key forces behind the legalization campaign in Massachusetts, and they also receive priority review for recreational licenses. Not surprisingly, they figure prominently among the early crop of licensees.

These early rough-and-tumble days of legal cannabis in Massachusetts have exposed the tensions between growing a thriving industry, one that will boost the economy and state and municipal coffers, while also ensuring that people of color are able to share in the wealth, not just as employees but owners. The fact that there’s so much money sloshing around the nascent industry may create opportunities for minority entrepreneurs, but it also raises the prospect of exploitation; investors may regard them less as partners and more as a means to gain an advantage in a fiercely competitive market.

“There’s an imbalance in power when it comes investors in this state and entrepreneurs in this state, especially entrepreneurs of color, and especially in this industry because there are a lot of unknowns,” says Shanel Lindsay, a lawyer and entrepreneur who was a leading advocate for equity during and since the state’s legalization campaign. “All of those factors lead to a situation where people can get taken advantage of.”

FINDING LOCATIONS IS HARD

Roxbury native Albie Montgomery has been by turns a food truck operator, activist, nonprofit leader, and documentary maker. He produced a series of videos a decade ago about cannabis culture in California — “What You Smokin’ On” — that featured appearances by such luminaries in the field as Snoop Dogg and Rick Ross. As soon as the prospect of full legalization emerged in Massachusetts, Montgomery knew he wanted in. He hopes to open a cultivation and retail facility called Life of Plants, the name of the flower shop his Dad had in Roxbury back in the day.

The Cannabis Control Commission granted Montgomery economic empowerment status last spring. (Applicants must meet three of six criteria, including whether they reside in areas of disproportionate impact, parts of towns and cities that have high arrest rates; have demonstrated a commitment to empowerment programs in these areas; and are proposing a business whose ownership is majority black and/or Latino.)

Dudley Square, March 24, 2019

Albie Montgomery

Montgomery has been doggedly looking for potential properties for his business, but a pattern has emerged when he approaches landlords. “They find out what you want do and the price goes up, and now there’s a whole of bunch more people in the business,” he says. “Finding locations has been extremely hard.”

He views working with investors as a necessary part of getting a costly business off the ground. But so far it’s been a bitter experience. He had a tentative deal that would have involved surrendering considerable control of his business; the investors ultimately walked away after he’d done the legwork of trying to find properties, he says. (Montgomery is limited in what he can say because he signed a nondisclosure agreement.)

“The toughest part about the last group: nobody spoke cannabis,” he says. “I consider myself a connoisseur. When the corporate guys come in, they just see money.”

Montgomery attended a Boston City Council hearing in late January concerning the challenges facing city residents trying to get into the cannabis industry. A running theme expressed by the aspiring minority entrepreneurs that packed the hearing, which was convened by City Councilor Kim Janey, was that those with money and connections were making deals while they were hitting their heads against the wall.

“It’s been grueling,” says Leah Daniels, an African-American and veteran, who hopes to open a dispensary called Alchemy League. “They are putting stakes in the ground for property that they haven’t been through the state process for … That has to be the most egregious aspect of the whole thing, that they can circumvent this process while we’re following it step by step.”

Chauncy Spencer, the aspiring dispensary owner from Dorchester, proffered that these powerful figures were essentially trying to enlist people of color as fronts. “They’re buying up economic empowerment applicants,” he said. “It’s a weaponization that they’re doing.”

BEHIND-THE-SCENES  PLAYERS

Verdant Medical would appear to be a departure from the rule of a white-dominated, bottom-line focused cannabis industry. The company, which has plans to open dispensaries in Mattapan Square and Provincetown, is headed by Tito Jackson, the former Boston city councilor and one-time mayoral candidate. But in the eyes of some minority cannabis entrepreneurs, Verdant’s diversity is something of a facade. (They requested anonymity to avoid ruffling feathers while their own applications are under review.)

The financial team behind Verdant, which has not sought economic empowerment status, is made up of white men with vast experience in finance and private equity. Its founders and legal partners have registered at least 10 cannabis-related businesses in Massachusetts. Their portfolio includes Commonwealth Alternative Care, a cultivation and medical dispensary in Taunton, and Sea Hunter Therapeutics, which offers services in 10 states, from regulatory compliance to cultivation, and a line of boutique edible and topical cannabis products. Last year, Sea Hunter merged with four other cannabis businesses around the country under the name TILT Holdings, which raised $120 million in equity capital and is now listed on the stock exchange in Canada.

Former Boston city councilor Tito Jackson: A budding pot entrepreneur, but some are raising questions about the corporate structure behind him.

The company has reached out to economic empowerment applicants in Massachusetts as part of its Cannabis Inclusion Program. “Essentially what we’re looking for is individuals that really have a passion to be in this business and are also willing to work with us,” says Francesca DeMauro-Palminteri, TILT’s communication director. “We don’t own and operate their business. We support them with tools to make that happen.”

Jackson did not respond to requests for comment.

TILT has contracted with three enterprises as part of the program, including Verdant. DeMauro-Palminteri says the terms of the contracts are proprietary, but might include a requirement to carry the company’s line of products.

The proliferation of investors targeting economic empowerment applicants alarms Shanel Lindsay, the lawyer and equity advocate — though she did not single out a single group for criticism. Lindsay recently held a workshop in Roxbury offering guidance in dealing with investors as part of her work with Equitable Opportunities Now, an advocacy group she founded.

“Investors are sharp; they know how to make money. These are not passive, docile people,” she says, noting that she’s seen contracts in which out-of-state companies have demanded 80 percent of sales in exchange for funding. “We’ve been hearing this all over the country. When entrepreneurs are in a position where they have a valuable asset, like a cannabis license, then people will come out and try to take advantage of that.”

Lindsay knows her way around the cannabis industry. She founded a successful business, Ardent, which makes a device to “decarb” marijuana, heating it to an optimum temperature for use in edibles and other products. She’s also a member of the Cannabis Advisory Board, which makes policy recommendations to the state commission.

Concerns that equity will prove to be empty rhetoric or worse, that it could become a vehicle for investors to game the system, are not unfounded. In California, another state that has made minority inclusion a priority of its legalization regime, social equity programs have been dogged by complaints of mismanagement and exploitation. Some have charged that equity has been used to lend a socially conscious veneer to a profit-driven industry, as appeared to be the case in an ill-fated marijuana legalization campaign in Ohio in 2015.

For true believers in Massachusetts, equity in the cannabis industry affords the state another opportunity, in the wake of same-sex marriage and health care reform, to show how to get a progressive policy right. But Lindsay says this will take vigilance. “We need to make sure this doesn’t turn into lip service here,” she says. “There are real forces working against this push for equity, and it’s the establishment, the established medical marijuana dispensaries, especially the large ones, especially the out-of-state ones.”

ON THE EDGES

Behind a narrow unmarked storefront on a gritty stretch of Hyde Park Avenue in Roslindale is the office of Sieh “Chief” Samura. It’s here that he hopes to one day soon launch his marijuana business, manufacturing a cannabis-infused lubricant. “Cannabis oil and sex go way back,” he says. “People’d be surprised to know just how traditional it is, perhaps in their own religions.”

Samura, a military veteran whose father is from Sierra Leone, was involved in the marijuana economy long before it became the concern of lobbyists and lawmakers. He’s hosted a cannabis club, in which members get together and smoke (nothing is sold but donations pass hands), and he’s brazenly offered delivery services for medical marijuana patients.

Sieh Samura hopes to open a business manufacturing cannabis-infused lubricant. “Cannabis oil and sex go way back,” he says.

Samura is not exactly impressed with the way the state’s legal cannabis industry has taken shape thus far. “It’s all this commercial activity that they want to force down people’s throats. This is kind of where a lot of this unfairness is coming from. Not everyone is doing commercial activity,” he says while rolling a large blunt. “They’re creating a new structure of legalization for new populations and different people who do things differently and relate to weed differently.”

A growing number of cannabis entrepreneurs appear to be taking a page from Samura’s book and are plying their trades on the edges of the legal market. Gifting services, in which marijuana might be delivered gratis along with a ridiculously overpriced bottle of tea, openly operate online. With decriminalization, marijuana-related crime has become a relatively low priority for law enforcement, which has helped the grey and black markets to flourish.

“There’s still a booming illicit market from Mattapan to Springfield,” says Kamani Jefferson, the president of the Massachusetts Recreational Consumer Council, which has pushed for an inclusive marijuana industry.

Jefferson, however, doesn’t think law enforcement’s mellow attitude toward unlicensed marijuana commerce will persist. “How sustainable is the illicit market? In California what we’re seeing is folks who spent $1 million to get a license are going to police and saying you need to shut down the illicit market,” he says. “That will happen here in Massachusetts — it’s probably already happening. There’s going to be more of a crackdown on the illicit market now that there are legal dispensaries. I’m not trying to go to jail. I know they arrest people like me.”

Samura, for his part, is committed to going legit. He recently completed a business accelerator program run by Sira Naturals, an established dispensary company with three locations in the state, and his bid for a cannabis manufacturing license is moving forward with the city, if slowly.  “Legal and licensed is safe. I don’t want to be criminalized anymore,” he says. “I feel like I’m standing up for grandma.”

EQUITY OPTIONS

For some equity advocates, nothing short of a loan fund will suffice to bridge the capital gap and enable people of color to participate in the legal cannabis market. “You need a couple million dollars or more to play this game,” says Horace Small, a longtime community activist and a member of the Cannabis Advisory Board. A state loan fund, however, would require legislation, and so far the concept hasn’t made it beyond the drawing board.

Other components of the state’s social equity policy, such as technical assistance programs, are just now getting underway. Given the demographic make-up of current marijuana licenses holders, as well as those in the pipeline, some equity advocates say more immediate measures are in order. They’re pushing to give minority applicants an exclusive claim to certain licenses, at least for a limited period of time. The Cannabis Advisory Board recently voted to recommend that economic empowerment applicants get a special carve-out for licenses for social consumption — pot cafes and the like — and delivery, which has long been backed by equity advocates as a more accessible (if less lucrative) path into the industry for those with limited resources.

In early February, Janey, the Boston city councilor, proposed what could be a bold corrective to some of the grievances voiced by aspiring cannabis entrepreneurs: an ordinance that would create a city cannabis board that for a two-year period would only grant licenses to “equity applicants,” and then award them on a one-to-one basis to equity and non-equity applicants. The measure would follow the lead of Somerville, which has enacted a policy limiting marijuana business approvals for the next two years to local and economic empowerment applicants.

Boston Mayor Marty Walsh, who had distinguished himself as an outspoken opponent of legalization, has more recently touted his commitment to equity. Alexis Tkachuk, the director of the city’s Office of Emerging Industries, which oversees marijuana business applications, says the city’s review process had been slow-going in part because the city lacked a diverse pool of applicants.

This has changed in recent months, Tkachuk says, pointing to the recent approval of five host community agreements, including the city’s first economic empowerment applicant, bringing the total to nine completed agreements. And there are several economic empowerment applications in the pipeline, including for dispensaries on Blue Hill Avenue and in Egleston Square in Jamaica Plain.

As for Janey’s proposal, Tkachuk says: “The Walsh administration is looking forward to any sort of dialogue that lends itself to best practices for this industry.”

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Time will tell whether this call for dialogue will satisfy the restless and frustrated minority entrepreneurs who have so far felt stuck on the sidelines of the city’s cannabis industry.

Lindsay, the attorney and equity advocate, says now that Walsh has made a public commitment to equity, he is going to be held to account. “I don’t think we’re necessarily going to get this transparent procedure that everyone wants — because it is Boston,” Lindsay says. “But I think there’s going to be real hell to pay if this doesn’t come out the right way.”