The state’s Cannabis Control Commission on Thursday vowed to implement stricter scrutiny of large marijuana companies that attempt to exceed the cap on how many licenses they can control under state law.
The five-member panel also said it will consider harsh penalties, including a possible five-year industry ban, on applicants that mislead the commission about their ties to national firms that are trying to circumvent the state’s three-license limit.
“We have always been committed to enforcing our regulations,” said commission chairman Steve Hoffman, but “we’re sending a strong signal, because this issue is on the table.”
A recent investigation by the Globe’s Spotlight Team exposed how Sea Hunter, Acreage Holdings, and other national marijuana companies are using onerous management contracts, financing and product purchasing agreements, shell companies, and other questionable tactics to quietly gain substantial power over numerous marijuana licenses seemingly held by independent firms.
The state’s marijuana law limits each company to control of just three recreational or medical marijuana licenses of any type, including stores. The rule aims to protect smaller, local players from being shut out of the market by conglomerates trying to dominate the industry with cheap product and ubiquitous retail outlets.
While noting such practices are already prohibited and that the commission has long been concerned with questions of ownership and control, the commission’s five members on Thursday signaled a newly heightened focus on the issue.
It began when commissioners reviewed recreational cultivation, manufacturing, and retail licenses sought by Health Circle Inc. in Rockland.
Health Circle — which currently holds provisional medical marijuana licenses and is also seeking to open a recreational shop in Marshfield — works with a management company that has close ties to Acreage, a national operator with dispensaries in 19 states.
State records show Health Circle’s management company, MA RMD SVCS LLC, is managed by three Acreage employees, including Acreage chief executive Kevin Murphy.
In light of that, the commission issued provisional recreational licenses to Health Circle, contingent on the company submitting all its management contracts and a memo describing its relationship with Acreage, among other demands. Commissioner Britte McBride said Health Circle needed to disclose everything about who manages and controls the firm — whether that control is “implicit or explicit.”
Commission staff suggested that if Acreage were found to essentially control Health Circle, the company could be “added” to the license application. Acreage executives would then have to undergo background checks, and any licenses obtained by Health Circle would count against Acreage’s three-license limit.
That would be a major setback for Acreage, which has told investors it will directly operate three stores in Massachusetts under the Botanist brand while “supporting” nine other recreational retailers.
The agency has already said it is investigating large operators for possibly exceeding the license cap.
Industry experts said the commission’s move sends a clear signal that it will not ignore contracts and other arrangements that could obscure control of a company.
Jim Smith, a Boston attorney representing numerous marijuana firms, said that the commission must be firm with companies that try to break the cap in order to maintain fairness.
“Three is plenty in this business,” Smith said. “I encourage the commissioners to be as aggressive as they can be, because it makes for a much healthier industry for everybody. The cap has to be hard, and there has to be significant punishment for violations.”
The commission on Thursday also moved toward requiring every company seeking a recreational or medical license to submit any management contracts as part of their applications, and to disclose any agreements that could give another entity control — direct or indirect — of their operations.
The agency currently has the power to request such agreements during inspections; the proposed change, likely to be finalized next month, would make disclosing them an automatic requirement.
The agency’s final warning to large operators Thursday came from Commissioner Kay Doyle, who suggested tweaking the rules so that any company that violates control and ownership regulations could have its licenses revoked or applications for licenses or renewals denied.
If approved in a vote expected to take place in May, Doyle’s proposal would also slap anyone involved in such a scheme with a five-year ban on participating in the Massachusetts cannabis industry. It would prevent rejected entities from reconstituting themselves under a different name and applying again.
While Doyle stressed that the agency already has the power to take those actions, she said making them explicit would give the license cap new weight and discourage companies from testing the limit with what she termed “corporate shenanigans” that give them “indirect control or shadow control” of licenses.
“We do need to put express teeth behind an ultimate determination [by commission investigators] that someone has engaged in malfeasance,” Doyle said during the meeting. “I want to make clear that in Massachusetts, we want you to follow the rules, and if you don’t, there’s a consequence.”
Marijuana advocates cheered the commission’s actions, saying tight enforcement of the license cap is vital if state programs aimed at boosting participation in the industry by members of disenfranchised groups and benefiting communities disproportionately affected by the war on drugs are to succeed.
“It tells me the commission is trying to level the playing field and make sure no one has an unfair advantage,” said Kamani Jefferson, president of the Massachusetts Recreational Consumer Council. “These big companies — it’s like, you’re already well-financed, you already have top-tier consultants, and now you’re trying to open way more than three stores while we’re struggling to raise $10,000? This is the right thing to do.”