Risk of federal prosecution weighing on Mass. pot industry
The already risky marijuana business has become even more hazardous in light of shifting federal government guidance, but the industry is left with only uncertainty as it tries to discern how the change in policy will affect them moving forward and whether to apply for retail licenses beginning on April 1.
U.S. Attorney General Jeff Sessions earlier this month revoked an Obama-era policy of looking the other way in states that had legalized uses of marijuana and gave U.S. Attorney for Massachusetts Andrew Lelling and his counterparts in other states discretion over enforcing federal marijuana laws in the Bay State, where voters in 2016 legalized marijuana for adult recreational use.
Lelling's insistence that he will not rule out bringing federal charges against state-legal marijuana businesses drove most of the state's medical marijuana dispensaries back to cash-only operations, spurred state leaders who opposed marijuana legalization to publicly back the growing pot program, and threw a major new consideration into the mix for businesses and entrepreneurs looking to break into the newly legal industry.
"Anybody who was feeling a little bit comfortable or starting to feel comfortable now is no longer feeling comfortable," Shanel Lindsay, the founder and president of Ardent Cannabis and a cannabis industry consultant, said. "For cannabis businesses, that means being back in the area you're used to, which is that everything is very volatile."
Ardent Cannabis manufactures and sells decarboxylators, devices that maximize the amount of cannabinoid available in marijuana and prepares marijuana to be used in edibles, extracts or tinctures. Lindsay said her business has not been directly impacted by Sessions' announcement, but heard from others that they were concerned that Massachusetts might either stop or drastically slow down its implementation of a legal marijuana market here.
"We saw that answered pretty quickly," Lindsay said, when the Cannabis Control Commission pledged it will forge ahead undeterred and Gov. Charlie Baker suggested that Lelling's "limited resources" would be better spent going after deadly opioids like fentanyl.
Businesses that aren't exclusively cannabis-related have also noticed some changes in the wake of the attorney general's decision to adopt a new federal policy. Chuck Siegel, president and CEO of Natick-based LED grow light manufacturer BloomBoss, said his company also has not been directly affected but has heard from some clients who are afraid.
"We've noticed customers who are hydroponic stores, who are closer to the customer, are most definitely fearful and concerned about the future of legal cannabis," Siegel said. "These people have developed a business and deployed capital in a state legal system — and this is not just in Massachusetts — and now they're waking up every day saying, 'Am I going to have a bust and get raided?' "
Siegel said his company, which is not strictly a cannabis business, has received a more-than-usual amount of resumes since Sessions' announcement on Jan. 4, with many of them appearing to come from people who currently work directly with marijuana.
"The feedback we hear is that people are a bit concerned about waking up one day and going to work and having the [U.S. Drug Enforcement Administration] come in and arrest them," he said. "Some of them might be looking to come one step out away from the plant and into a more horticultural space."
Lindsay said she had been encouraged by the way ancillary businesses like banks and payment processors had begun to embrace marijuana businesses. Now that the federal picture has shifted, the already-difficult challenge of finding a bank willing to work with marijuana businesses could be even more problematic.
She said her cannabis business has never relied on traditional banks or traditional sources of financing. Her conversations with investors since the Sessions announcement, she said, revealed that while some financiers are worried that more federal scrutiny might mean a slower rollout of the legal market and therefore more time before they can see a return on their investment, others are doubling down.
"Some investors are saying, 'OK the slowdown, if there is one, would benefit the businesses that are already open as long as they're not getting raided or directly impacted,' " she said. "Where there is restriction in this business, there is always opportunity for some other people."
The state's top marijuana regulator concurred and said the abrupt shift in the federal government's approach to marijuana law enforcement means investors in the state-sanctioned Massachusetts pot market could see greater returns on their investments.
"There's a different calculation in terms of what the risk are, no question," Steven Hoffman, chairman of the Cannabis Control Commission, told WGBH's "Greater Boston" during a Jan. 9 appearance. "But there's also a different calculation in terms of what the returns are because fewer people potentially will enter the business, therefore the potential returns are greater."
Hoffman on Wednesday expanded upon his comments from "Greater Boston" — he jokingly said host Jim Bruade "forced me into it" — and added that his comments were not based on anything he's gleaned from his roughly five months helming the CCC.
"That's economics 101, which is that if people are more concerned about risks they're going to look for a higher return in exchange for those risks and if more people, because of risk, stay out of an industry there's more money to be made by the remaining participants," said Hoffman, a former Bain & Company partner. "I'm not speculating on what any individual will do. All I'm saying is if I was an investor — which I am not allowed to be — I would be looking at risk and return, and it would change based upon the risks going up."
Will Luzier, political director for the local arm of the Marijuana Policy Project, echoed a similar sentiment about the potential for investors who are willing to take a greater risk potentially setting themselves up for a greater reward.
"There's always been risk in this commerce and I think there are some people who are risk comfortable and there are other people that are risk adverse," he said. "There may be some companies that are risk adverse that don't want to participate in this commerce and that's unfortunate."
For Lindsay, the lingering uncertainty has led her to shore up her company's contingency plans. She said he expects most cannabis businesses are doing the same to try to be as prepared as possible for future changes in the industry.
"A lot of the cannabis business strategy is about risk mitigation and, absolutely, that's been the move over the last couple of weeks," she said. "I definitely think that's the kind of thinking you start doing, trying to stay ahead of the game."
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