Minority marijuana businesses seek state-backed capital
Start-up money cited as top barrier to opening
ALL THE STATE’S social equity programs are worth nothing if entrepreneurs of color cannot access the money they need to start a business.
That was the message from marijuana entrepreneurs – and one state regulator – who testified at a hearing of the Legislature’s Joint Committee on Cannabis Policy on Tuesday.
“You need dollars to open, and a state mandate to have restorative social justice and empower people who were harmed by the failed drug war means nothing if there aren’t dollars,” said cannabis attorney and entrepreneur Blake Mensing.
The hearing centered primarily on several bills that would create some form of state-sponsored fund to help marijuana businesses owned by those disproportionately affected by the war on drugs – primarily racial minorities – access capital. But while there was general agreement that a fund would be beneficial, many details remain to be worked out, including how a fund would operate and where the money would come from.
Today, state statistics show the cannabis industry is overwhelmingly white and male-owned.
The Cannabis Control Commission grants some level of priority status in licensing to economic empowerment and social equity applicants – people disproportionately affected by the war on drugs.
Commissioner Nurys Camargo said 500 applicants have received benefits or training under these programs, but only 10 social equity businesses have actually received permission to open so far, and only 19 businesses owned by women, veterans, or minorities have gotten permission to open.
“The numbers are not where they need to be,” Camargo said. “Too many individuals still face extensive barriers to taking part in the industry, and they deserve access to it.”
Camargo said the biggest barrier is access to start-up capital. Massachusetts has strict security and environmental regulations, and Camargo said complying with those are not cheap. Since marijuana is still prohibited on a federal level, applicants often cannot get bank loans.
“They need access to a state-administered fund that can offer capital to get businesses off the ground,” Camargo said, adding that state government has historically offered assistance to small and medium size businesses in other industries.
Rep. David Rogers, a Cambridge Democrat and former chair of the cannabis policy committee who sponsored one of the bills establishing a social equity trust fund, said it costs around $1 million to open a retail marijuana store.
Because it is so difficult for entrepreneurs to access capital, lenders – including companies seeking to get into the marijuana industry themselves without priority status – have been trying to loan social equity businesses money with predatory terms.
Lorna McCafferty, an activist with the Massachusetts Cannabis Reform Coalition, said she is aware of a company that offered to pay the borrower a six-figure salary, but all the company’s profits would go to the lender – essentially turning the social equity business owner into an employee. Scholange Smith, a participant in the commission’s social equity program, commented, “Although they say we should not work with all these predatory lenders, that’s all we have to work with.”
Several people who testified worried that passing a bill with no funding source or with an uncertain funding source – like private donations – would be ineffective. “Anybody who works with bills knows to bring forth a bill that provides funding with no revenue source is irresponsible and a waste of this committee’s time,” said Averyl Andrade, a farmer seeking to grow marijuana.
But some also worried that the funding sources identified in the bills may not be sufficient. For example, one bill proposed using community impact fees paid by marijuana companies to capitalize a fund – but that money is supposed to go only to reimbursing municipalities for costs generated by the marijuana companies.Peter Bernard, president of the Massachusetts Growers Advocacy Council, appeared at the virtual hearing with a Zoom background of a circus. He said unless lawmakers create a fund to give entrepreneurs a financial leg up, “we can go in this tent behind us and watch the greatest dog and pony show ever made.” He explained that the Cannabis Control Commission can develop ways to make sure investors do not have managerial control over a company – but lenders will still find ways to write loans that hobble the social equity owner’s ability to do business without essentially becoming an employee of the investor.
Even if a social equity entrepreneur obtains priority status, Bernard said, “What does that really help me with? If I don’t have the means and don’t have the technical support to get there, it doesn’t mean a lot.”