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Cape & Plymouth Business: Last Word

By Mitzi Keating, Mitzi Hollenbeck, CPA .

As seen in Cape & Plymouth Business Magazine

Cannabis: a new industry blossoms

Seeing a new industry bloom is always interesting. Seeing a highly-regulated, federally-illegal industry do so is something unique. Cannabis businesses are rapidly emerging, only to face challenges every step of the way, and finding knowledgeable professional advisory is hard to come by.

Consultants from the West Coast have flocked to Massachusetts to share their knowledge, offering only a few additional years of experience, and from states with different regulations. However, we can look to our neighbors on the West Coast for ideas and to establish an idea of how Massachusetts’ market might take shape. Oregon rolled out a small business model for its cannabis businesses that quickly matured, leading to oversupply, and causing prices to plummet. This created concerns from the state’s attorney general about diversion to the black market. California started their model with local regulation, followed by a layer of state regulation. This resulted in a loss of licenses for certain entities, thereby creating a gray market, which is now having difficulty competing against the black market, while those operating under valid state and local licenses are having trouble competing with all of the above. Nevada implemented a state program with a hands-off attitude, allowing their market to regulate itself. This resulted in a quick start and slight price increase across the board in the state, showing a healthy balance of supply and demand.

In Massachusetts, concerns over the power of local regulations and municipal authority on delaying cannabis business rollout is similar to Colorado’s local control statutes. Colorado cities and towns can opt out of allowing cannabis businesses to operate within their borders, while other cities and towns have embraced these businesses. In Denver, the ‘green mile,’ a two-mile stretch in downtown, contains over 15 active dispensaries. Certain areas of that market are oversaturated and business owners cannot keep the volume up to generate enough gross margin to cover their federal tax bills.

The Massachusetts Cannabis Control Commission is doing its best to try to control these factors to allow for a sustainable market in the Commonwealth. While they can look to other states and other markets for examples, they have 351 cities and towns to manage, all creating micro-markets with many factors beyond anyone’s control.

Creating rules and regulations around a new industry is not short on challenges. With everyone doing their best, we must be careful not to create guidelines for the industry’s adolescence and maturity that may stunt the industry’s natural lifecycle and growth potential. The eyes of the other states are upon us as move forward with care.

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