Mass. Regulators Plan To Loosen Pot Delivery Rules
By Jack Queen
Law360 (August 31, 2020, 10:14 PM EDT) — Massachusetts cannabis regulators have approved draft changes to delivery rules that could give a major boost to companies that bring pot to customers’ doors, allowing them to buy direct from wholesalers instead of going through brick-and-mortar dispensaries.
The move by the Cannabis Control Commission at a policymaking meeting Friday could also give a leg up to economic empowerment licensees, who will have a monopoly on delivery once the first license is approved. Commissioners voted to extend that period from two years to three.
Under the state’s social equity program, economic empowerment licenses go to communities disproportionately impacted by marijuana prohibition.
“This is a big win for economic empowerment applicants on two points,” Vicente Sederbrg LLP partner Adam Fine told Law360 on Monday. “It gives them longer exclusivity and a much better chance at becoming profitable.”
The proposed changes approved Friday will still need to be finalized as part of an ongoing overhaul of the state’s marijuana regulations. Further modifications are still on the table, including elimination of the requirement that medical pot operators be vertically integrated, or own every link in their supply chain. Critics have said that structure is outdated and puts medical companies at a disadvantage compared to their recreational counterparts.
Allowing delivery companies to buy direct from wholesalers would flip the structure of the previously proposed “GrubHub model,” which some industry players said would have made the economics of delivery impossible.
The proposed change would allow them to buy, warehouse and repackage marijuana directly from growers and manufacturers. Previously, delivery services could only pick up marijuana from dispensaries and deliver it to customers for a fee — with stores keeping the leftovers.
Collecting only fees while covering the costs of vehicles, drivers and other expenses would have left delivery companies with razor-thin margins, according to Prince Lobel Tye LLP cannabis practice group co-chair John F. Bradley.
“This flips the advantage dramatically,” he told Law360 on Monday. “The delivery business is likely to end up more profitable than retail if they can keep the same variety of products.”
Economic empowerment licensees would be positioned to effectively run standalone retail operations without having to invest in storefronts and related expenses.
“By eliminating much of the capital cost to get into the business, they’ve found a potentially better way to accomplish these social equity goals,” Bradley said.
Massachusetts has faced criticism over its social equity program, with some saying applicants face greater hurdles getting off the ground in a business that is already tightly regulated and expensive to break into. Economic empowerment licensees currently make up only a sliver of the industry, according to the latest CCC data.
Bradley said equity ownership restrictions for those licenses are a part of the problem because they can be a turnoff for investors.
“Getting capital matched with that status is tough because capital wants to run the business,” Bradley said.
Fine said the proposed delivery changes would likely change that dynamic.
“I think it will now be more appealing to investors,” Fine said. “Not only is the exclusivity period longer but the economic empowerment license they’re investing in is going to be more valuable.”
The commission is still weighing changes to a host of other regulations, including rules for marijuana testing, equity ownership and the structure of the state’s medical marijuana industry.
–Editing by Abbie Sarfo.