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Ordered to close and excluded from federal aid, marijuana entrepreneurs staring down insolvency

Campaign underway for recreational businesses to be deemed ‘essential’

A sign on the front doors of Pure Oasis, the only recreational marijuana shop that has opened in Boston, stating it will be closed until April 7.
A sign on the front doors of Pure Oasis, the only recreational marijuana shop that has opened in Boston, stating it will be closed until April 7.Blake Nissen/For The Boston Globe

To open their businesses, Massachusetts marijuana entrepreneurs already had to navigate a long and expensive obstacle course, overcoming zoning restrictions, hostile neighbors, municipal demands, a plodding state licensing process, and a scarcity of financing.

Now, small cannabis companies are warning that Governor Charlie Baker’s decision to shutter recreational marijuana facilities until at least April 7 amid the coronavirus pandemic — while leaving medical marijuana operations and liquor stores open as “essential” services — could force them to give up altogether.

Compounding their plight: Because the drug remains illegal at the federal level, marijuana operations are ineligible for small business relief funds approved Friday by Congress and also cannot declare bankruptcy.

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“These businesses are in a pretty dire situation,” said Laury Lucien, a Boston lawyer and consultant who works with small cannabis firms. “If what you sell is federally illegal, you don’t have access to those funds. It really is unjust, especially for stores that just opened."

For a moment earlier this year, it seemed Massachusetts was finally making progress on its legal obligation to provide a leg up to small, locally owned cannabis businesses — especially those owned by members of communities hit hardest by the war on drugs.

The state’s first Black-owned marijuana store, Pure Oasis, opened in Boston’s Grove Hall neighborhood in early March. Meanwhile, other small businesses were beginning to win licenses, thanks in part to policies implemented last year by the Cannabis Control Commission that prioritized their applications.

The virus outbreak, however, has derailed any such momentum.

While most other states where marijuana is legal have deemed both medical and recreational operators “essential” and allowed them to continue operating, Massachusetts is allowing only medical facilities to stay open. (Only those certified by a physician and registered with the state can purchase medical marijuana.)

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Executives of smaller cannabis startups note that most medical marijuana firms are larger, longstanding, investor-backed concerns. Small companies, on the other hand, are just now emerging from a protracted licensing process, and are desperate to begin generating revenue and paying back creditors. Many already have laid off or furloughed employees, and say their cash reserves will run dry in weeks.

Meanwhile, local officials and state legislators are preoccupied with responding to the virus, delaying local licensing hearings and pushing back consideration of proposed bills that would make local approval easier and cheaper.

“Massachusetts was already really slow and expensive, and as a result the businesses are heavily leveraged,” said Adam Fine, an attorney at the cannabis law firm Vicente Sederberg, whose analysts estimate the marijuana industry will lose hundreds of millions of dollars nationally and cut thousands of jobs amid the pandemic. “This is just going to compound that, and I think new operators will face the biggest challenges.”

Angela Brown, cofounder of small Wareham marijuana processor T. Bear, said that after years of work, the cannabis commission recently gave her company final approval to ship its first-ever batch of edibles and vape cartridges to retail customers on March 25. But her hopes were dashed when Baker ordered recreational companies to close by noon on March 24.

Brown’s company has now placed its six employees on unpaid leave and is stuck with an unsellable inventory of finished products worth up to $750,000 retail; a large payment on an equipment lease is due on Wednesday.

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“We were right at the end,” she said. “We got through this crazy process, we spent the money, we have finished product, but now we can’t sell it. It was so defeating. It was the worst gut-punch we’ve had. You just feel helpless and hopeless, and there’s no end in sight.”

Caroline Frankel, who last year opened the state’s first independent recreational shop in Uxbridge, Caroline’s Cannabis, said she paid her 10 workers this week but will soon be forced to place them on leave.

“It’s heartbreaking — these are people who live week to week on paychecks,” Frankel said. “As a small-business owner, I take pride in making my staff happy. They’re like family to me."

Brown, Frankel, and other small marijuana business owners say it’s only fair for local recreational companies to be deemed “essential” and allowed to operate under similar procedures as medical dispensaries or liquor stores, which can admit small numbers of customers or offer curbside takeout. They argue that many recreational consumers are using the drug for medicinal purposes.

Entrepreneurs said that banning recreational operations will force consumers into the illicit market, the source of tainted vapes that caused a public health crisis last year. The move, they say, could also prompt customers to get certified as patients and shop the medical market, which is not taxed — depriving the state of revenue just as it faces a severe financial shortfall because of the virus.

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“I just can’t believe they’re allowing restaurants to deliver liquor but you can’t sell cannabis,” said Caroline Pineau, who plans to open a marijuana store in Haverhill soon and has been pleading with suppliers to maintain their commitments to supply her shop with inventory. “It doesn’t make a whole lot of sense.”

A spokesman for Baker pointed to comments the governor made last week, when he said the “main reason” for the shutdown is that recreational pot shops attract many visitors from nearby states. Indeed, some cannabis stores in Western Massachusetts draw most of their customers from New York, the epicenter of the outbreak.

Industry groups counter that sales could be restricted to Massachusetts residents, and that heavily regulated marijuana firms could easily adopt safety protocols used by other essential businesses.

Beacon Hill progressives have backed the push, with 12 state legislators signing a letter to Baker urging the governor to deem recreational pot “essential.” On Thursday, state Representative Chynah Tyler of Boston, whose district includes Pure Oasis, held up a package of virus-related reforms by insisting on the inclusion of an amendment that would mandate the state treat marijuana firms and liquor stores equally. The unusual effort was unsuccessful.

The opening of Pure Oasis “was a big deal in my community,” Tyler said, “and I’m trying to do everything I can on the state level to see that through. This is about making sure that we give the same consideration to these businesses that we gave to liquor stores. They’re not going to be bailed out. We have to help them somewhat.”

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While COVID-19′s rapid spread has damaged broad swaths of the economy, many US marijuana firms already were stumbling after a tough 2019, in which pot stocks were hammered and financing dried up. That makes it all the more critical, marijuana companies said, that the state provide them payouts equivalent to those offered by the federal government to other businesses, so they can keep paying workers and vendors. Some also want the commission to relax its regulations and waive fees while the crisis plays out.

In a statement, the commission said "in addition to doubling down on precautionary measures at licensed facilities, the agency is making every effort to maintain normal operations and is bolstering its commitment to building a safe, equitable, and effective marketplace.”


Dan Adams can be reached at daniel.adams@globe.com. Follow him on Twitter @Dan_Adams86.