A 1% solution to promote cannabis diversity

ALMOST A DOZEN adult-use cannabis stores have opened in Massachusetts, and so far there is at least one clear pattern: Not a single retail outlet is owned by empowerment candidates and none are likely to be opened anytime soon.

The fundamental obstacle is access to capital, but there is a way to tap a significant funding source: host community agreements. We’re quickly learning that those agreements – the money cannabis companies agree to pay to towns to offset costs due to cannabis operations – are arbitrary and excessive. So let’s set aside a portion of the host community fees to create a pool of capital and, with it, create genuine opportunities for minority applicants and those otherwise unfairly impacted by the draconian war on drugs. New legislation will soon be filed that would do exactly that, and, if it finds support, it promises to revolutionize diversity and equity in the Massachusetts cannabis industry.

Good intentions won’t create business formation for those left on the sidelines of the cannabis industry. Access to debt and equity will. So far, commercial lending has been non-existent in the sector. That has left the early opportunities to those with deep pockets and patient capital to ride out permitting delays and the costs of growing a company.

But there’s the potential for ample startup capital embedded in the host community agreements. Every one of the retail stores that opened in the adult-use space has signed a host community agreement requiring 3 percent of its gross proceeds to go to the community as an impact fee. This is in addition to the 3 percent sales tax, which is legislatively mandated and not opposed by anybody in the industry.

The 3 percent host community fee is tied by statute specifically to the impact that the retail store has on the community. It is plainly obvious that at least 1 percentage point of the 3 percent fee is not being used, nor ever will, to offset actual, verifiable municipal costs. Even the cost of additional police to deal with the challenges of traffic at newly opened stores isn’t coming from the host community fee; rather, retail store owners are paying additional funds for the traffic enforcement.

Clearly, the 3 percent impact fee already is being misused by municipalities. But, from that misuse comes opportunity.

We essentially have impact fees sitting idle, or worse, misappropriated. If 1 percent of the fee was set aside for an empowerment fee, millions of dollars would become available over the course of a few months. That siphoned-off money could provide interest-free loans to those who otherwise wouldn’t have access to capital.

Let’s take that 1 percent and put it into a statewide fund to be administered by the office of the state treasurer. The treasurer could administer a program of interest-free loans to qualified empowerment candidates to enter the cannabis industry.

This solves two very significant problems: the misuse of host community agreement impact fees, and the lack of empowerment candidates in the industry, a statutory mandate based on the disproportionate enforcement of cannabis laws over the last century.

Communities should welcome the opportunity to support more equity in this new industry, while still keeping 2 percent of the fee for impacts, however negligible those impacts may prove to be. The cannabis industry would be happy to know that some of its host community agreement money is being used in a meaningful way, with newly available capital being applied to the mandate of equity and fairness.

Such a plan would quickly position Massachusetts as a national leader in social equity, creating a wave of entrepreneurship that’s largely not been available in other states with adult-use legalization. A new bill soon will mandate this “1 percent solution” and provide the necessary capital to jumpstart equity in the Massachusetts cannabis industry. You can expect the industry and the empowerment community to support the legislation. We hope the communities do as well.

Jim Smith is partner at Smith, Costello & Crawford, a legal and lobbying firm active in cannabis licensing and permitting.