Marijuana delivery model seen as unworkable
Business was seen as way to give boost to social equity applicants
DEVIN ALEXANDER, 26, is the type of entrepreneur state regulators have said they hope will be able to get into the state’s new marijuana home delivery industry.
A black man from Quincy, Alexander was arrested for marijuana possession as a high school senior, derailing his plans to enlist in the Air Force. He graduated in the first cohort of the Cannabis Control Commission’s social equity program, which is aimed at helping people affected by marijuana prohibition enter the industry. He works at a Quincy marijuana dispensary and is trying to form his own delivery company, Rolling Releaf. He wants to take advantage of the commission’s decision to give social equity applicants a two-year exclusive window to get into the delivery business.
“It’s a way to be my own boss in a new industry,” Alexander said.
But for now, Alexander said, the regulations established by the Cannabis Control Commission are putting his plans in peril. “The current regulations for delivery are not financially feasible,” he said.
“My main concerns are, are these licenses actually viable,” said Chris Fevry, co-founder of the delivery company Your Green Package and president of the newly formed Massachusetts Cannabis Association for Delivery. “The people who start these companies, are they actually going to be able to survive?”
Under current regulations, a delivery company must contract directly with a cannabis retailer to deliver their products to the consumer. Retailers can apply for their own delivery licenses – although for now they must be social equity applicants to do so.
The association is asking the commission to consider allowing delivery companies to buy marijuana wholesale from a cultivator or product manufacturer, then package the marijuana, store it, and sell it to consumers at a price set by the delivery company. Essentially, that would turn the delivery company into a retailer without a storefront by letting the company buy marijuana wholesale and sell it at a higher retail price.
Alexander, who is vice president of the delivery association, said the current model is not sustainable. He said if a customer pays the retail price for the marijuana from the dispensary, and the delivery company earns money only off a delivery fee charged to consumers, there is no way for the company to earn enough money off delivery fees to recover its costs.
Due to strict safety regulations, the costs of delivering marijuana is higher than, for example, the cost of delivering food or packages. The regulations require two people in the car at all times and require the car to be equipped with GPS for tracking purposes and secure communications with the company headquarters. Delivery vehicles must also be commercially licensed and insured, delivery agents must wear body cameras, and there must be a locked storage compartment and an alarm, among other rules.
Aaron Goines said he and his wife, Janelle, who live in Abington and co-founded a company called Emerald Turtle, looked at several business models – using a delivery fee, a commission from the retailer, and a hybrid approach. In all three, he said, “It’s extremely difficult.”
Janelle Goines said when negotiating commissions with a retailer, “You’re begging for any margin.” If a delivery company can buy from a wholesaler, it puts them in the same position as a retailer – able to use any mark-up to cover their costs.
But marijuana delivery advocates say marijuana retailers have little incentive to agree to those types of commissions, since sales are already busy without delivery, and the retailers have the upper hand in negotiating contracts. Smaller stores may not be able to afford a large commission. Larger stores may want to wait until the two-year exclusivity period for social equity applicants runs out and run their own delivery services. Those retail-run delivery services would likely be less expensive since the retailer is purchasing the marijuana wholesale for their own shop.
Fevry said one retailer demanded an equity share of just under 10 percent of his company in exchange for a delivery contract.
Morriss Partee, president of Emerald River, which is applying for a retail and delivery license, said, “If a delivery company is tied at the hip to a retailer, the retailer is in control and has no incentive to make the license work well for the delivery company.”A spokesman for the Commonwealth Dispensary Association, which represents the interests of retailers, could not be reached for comment.
The Cannabis Control Commission will vote whether to approve any regulatory changes on Sept. 24.