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OPINION

For a more equitable marijuana industry, the state should bankroll loans

It shouldn’t surprise anybody why equity remains elusive: People of color simply face too many barriers to raise the enormous capital needed to enter the cannabis space.

Marvin Gilmore, right, co-founder of Western Front, assists a customer on opening day in the Chelsea store.
Marvin Gilmore, right, co-founder of Western Front, assists a customer on opening day in the Chelsea store.Athel Rogers

It took Western Front, Chelsea’s first recreational marijuana retail store, almost three years to open its doors since the company was formed in early 2018. During that time and before they could sell a single edible, its founders and investors — a majority of whom are Black and Latinx — burned through approximately $3.5 million.

High upfront costs — such as leasing a storefront and hiring attorneys to navigate local permitting and zoning laws are the norm in the tightly regulated cannabis economy. Those costs are one of the main reasons why it’s been so hard for entrepreneurs of color to break into the industry, which was supposed to create economic empowerment opportunities for them in particular. Less than a handful of marijuana retail stores certified under the state’s economic empowerment program, established as a way to uplift communities of color in the industry, have managed to open. Western Front is one of them.

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Nearly five years after voters legalized recreational marijuana with the central premise of inclusion, perhaps it shouldn’t surprise anybody why equity remains elusive: People of color simply face too many barriers to raise the enormous capital needed to enter the cannabis space. One straightforward way to lower some of those access barriers is by establishing a state fund that would issue public loans for qualifying marijuana startups owned by people of color. It’s a long overdue measure that lawmakers on Beacon Hill ought to swiftly enact.

American poet Ralph Waldo Emerson once said that “money often costs too much,” and the phrase rings particularly true for aspiring Black and Latino entrepreneurs attempting to enter the cannabis industry. “You have to make sure you’re going to be able to afford carrying costs through a long time,” said Dennis Benzan, CEO and one of the founders of Western Front, in an interview. The municipal permitting process can take months. Typically, before applying for local permits, a location has to be leased. That means paying for months and months of rent, said Benzan, who is Afro-Latino of Dominican and Puerto Rican descent. That’s essentially lost money.

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“When local communities became gatekeepers, that added a lot to the process,” Jim Smith, a local cannabis attorney, told me in an interview. “I won’t take a client until they have a location and that’s very hard to find. Once they find it, landlords typically add the marijuana premium and . . . inevitably raise the rent.” Attorneys like Smith are part of that overhead cost, as well.

What compounds these challenges for people of color seems self-evident. There are no commercial loans available from banks because marijuana remains an illegal substance under federal law. “People who will lend you money [charge] enormous interest rates,” said Smith. Attracting investors is a possibility, of course, but minority investors or firms “have the burden of continuing to establish that they are minority-majority control,” said Benzan. “If I want to sell my interest, I need to find another minority investor, and there aren’t many with that kind of wealth to begin with.” That’s another irony of the equity conundrum in the cannabis space. “This was supposed to be how [people of color] build wealth,” Benzan told me. “But a lot of minority companies, as they crawl along to get open, they’re incurring debt on a daily basis.”

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Two years ago, state Senator Sonia Chang-Díaz filed a budget amendment that would have established a government-managed trust fund to issue interest-free loans to economic empowerment applicants (like Benzan’s Western Front) and participants in the Cannabis Control Commission’s social equity program, which provides technical assistance to qualifying business owners from communities of color. The amendment didn’t pass. But there are currently four bills that would establish some form of social equity public fund.

The Legislature’s Joint Committee on Cannabis Policy held a hearing last week on such bills. Nurys Camargo, member of the CCC, testified in favor of setting up a state fund “that can offer capital to get business off the ground,” she said in her remarks as reported by the State House News Service. “Only 10 equity program participant licenses have opened for business,” Camargo said at the hearing.

It’s a no brainer. “If we’re going to do a social equity program, it takes capital,” Smith told me. “And there’s money at the state level. . . the state is taking too big a piece,” in cannabis tax revenue, he said. ”Put aside one of those tax percentage points to fund the equity loan program.” Do the math: Recreational cannabis gross sales recently surpassed $1.5 billion in gross sales since retailers first opened in November, 2018.

Indeed, the Legislature should make it a priority this session to get a state-run loan fund up and running. Otherwise the promises of equity, restorative justice, and economic empowerment inherent in the Massachusetts cannabis law will never be realized.

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Marcela García can be reached at marcela.garcia@globe.com. Follow her on Twitter @marcela_elisa.