To boost equity, give public loans to pot startups

May 17, 2019

Despite the best intentions of Massachusetts voters and lawmakers, the recreational marijuana industry hasn’t developed as hoped. The 2016 legalization referendum, with legislative tweaks approved in 2017, was supposed to create a framework that would economically benefit communities and individuals disproportionately impacted by marijuana prohibition and enforcement.

Instead, the nascent legal pot industry is dominated by white players and out-of-state corporations.

Enter state Senator Sonia Chang-Díaz. Now the Senate’s chairwoman of the joint committee on cannabis policy, Chang-Díaz filed an innovative two-part amendment to the Senate budget that would make it easier for small-business owners and people of color to access capital for pot startups.

The numbers show the need. Of the more than 120 applicants that the Cannabis Control Commission certified as economic empowerment applicants, giving them priority status, only five have filed completed applications with the state, according to Chang-Díaz’s office. None has yet opened an establishment. Last year, the commission surveyed individuals who requested economic empowerment status and it found that nearly 44 percent of them hadn’t applied for a license yet because they’ve had difficulties raising capital for their businesses.

Because marijuana is an illegal substance at the federal level, banks cannot offer loans to finance a pot business. Cash is king in the marijuana industry, and a lot is needed: anywhere between $1 million and $5 million just in startup costs. Chang-Díaz’s amendment targets this major obstacle.

The amended bill would create a trust fund to issue interest-free loans to economic empowerment applicants and to those who participate in the state social equity program, a first-in-the-nation initiative that will provide assistance to eligible prospective business owners from certain disenfranchised communities. According to the state’s definition, these are heavily black and Latino areas that have been disproportionately impacted by high rates of arrest and incarceration for drug offenses under state and federal laws.

The fund will draw capital from both private contributions and public sources — it would redirect 10 percent of the cannabis excise tax toward the fund, which would be roughly between $8 million to $10 million in the next fiscal year if projected revenue figures hold. The Legislature would provide a one-time allocation of $1 million for startup costs to create the fund, and then “leverage private donations on a 2:1 or higher match rate.” The fund would be managed by the secretary of housing and economic development. In total, Chang-Díaz’s office estimates, the fund could reach anywhere from $20 million to $40 million in its first few years.

The commission voted on Thursday to ask the Legislature to pass Chang-Díaz’s funding amendment, and has supported similar ideas to advance equity. For instance, the commission recently voted to issue marijuana home delivery licenses exclusively (for at least two years) to applicants disproportionately affected by the war on drugs. Yet more needs to be done.

“I think the Legislature and [commission] have barely scratched the surface in terms of the support we can provide to these entrepreneurs with skills and business acumen,” commissioner Shaleen Title said in a statement. “Exclusive access to delivery licenses is a great start, along with loans and technical assistance, but we should continually be implementing more ways to provide support and repair the past harms of the drug war.”

Chang-Díaz’s amendment is a step in the right direction — it would move Massachusetts closer to reaching its goal of a truly equitable cannabis industry.

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Sen. Sonia Chang-Diaz, D-Boston, a former Education Committee chair and a leader on education funding reform, said, “This bill stands as our commitment that, in Massachusetts, zip code must not be destiny.”

"Our session today continues nearly a half-century of work for educational equity. And this bill would not exist without the generations of Bay Staters who tirelessly and passionately kept the cause alive. Who saw the work ahead and never gave up, even when political insiders believed the issue was dead."

Fulfilling the promise of public education as the great equalizer is our next big goal. Bay Staters believe in it. It’s a goal our constitution anchors us to. Now, that collective effort in advocating, crafting policy, and working together has given us a chance to deliver on it.

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Office of State Senator Sonia Chang-Díaz

MA State House, Rm 111

24 Beacon St, Boston, MA 02133

(617) 722-1673 | sonia.chang-diaz@masenate.gov