29/03/2023

UDS-Biz

Growing Your Income

No easy answers as Boston officials ask: How many marijuana stores is too many?

Instead, the interviews revealed that municipal leaders face hazards on both sides: Approve too few retailers and the vast illicit market will happily make up any shortfall in legal supply with cheaper, more convenient offerings. Green light too many and the businesses will cannibalize each other, eventually leading to public and industry pressure for dramatic course corrections such as licensing moratoriums that freeze out new operators.

“In Denver, a lot of dogs are fighting over a few bones — it’s a mature market with very few spots left on the board,” said Truman Bradley, executive director of the Marijuana Industry Group, a Colorado trade association. “Some regulators and industry members believe in the free market through and through and say that will take care of it. Others want to see small businesses succeed and may want to keep density in mind from the outset.”

Boston today isn’t exactly awash in marijuana stores: Four years after recreational sales began in Massachusetts, just 11 retailers are currently open for business in the region’s most populous city, compared to roughly 1,400 liquor permits. The slow start can be attributed in part to a total overhaul of the city’s approval process in 2019, along with the difficulties marijuana companies face in securing financing, locating viable properties, and winning over neighbors.

While the city will eventually need to approve a little over 50 pot shops to meet a legal state minimum, Boston still falls far short of peer cities by any measure of pot saturation. In comparably sized Denver, for example, more than 100 retailers were up and running within weeks of the Jan. 1, 2014, start of recreational sales in Colorado, and today around 200 are active. The situation is similar in Portland, were there are 218 recreational stores and weed is dirt cheap.

Massachusetts consumers might think that’s a good problem to have. Yet all is not well in either seeming pot paradise.

After years of steady growth, marijuana revenues in both Colorado and Oregon declined sharply in 2022. Experts said the downturn is largely due to an overabundance of marijuana companies, plus a decrease in pot tourism as more states legalize the drug.

That mirrors developing trends in Massachusetts, where every neighboring state besides New Hampshire is implementing legal sales and cannabis prices are nose-diving amid increasing competition and supply. State regulators are increasingly concerned about saturation, with Cannabis Control Commission member Kimberly Roy recently saying the agency should study license caps and other policies that act as a brake on the market.

“A few years ago . . . there was not enough supply and prices were considered too high to compete with the illicit market,” Roy said in an interview. “Now, the supply chain is really voluminous. It’s important to see what mature cannabis states are doing . . . Maybe at some point the commission will decide action is necessary.”

Oregon, which has an ideal climate for growing marijuana outdoors, offers a preview of the consequences of excessive growth. The state is several years into a massive production glut that has sent prices crashing and pushed both growers and retailers into survival mode, according to local industry groups. Officials and business leaders say the problem is exacerbated by the federal ban on interstate cannabis commerce, which means excess cannabis can’t be offloaded to other states with less supply.

In response, Oregon lawmakers in 2019 approved a bill that would allow the governor to negotiate pot export agreements with other states if national restrictions are loosened. And earlier this year, responding to pleas from established operators, they took the even more drastic step of halting approval of applications for any kind of marijuana business license submitted after Jan. 1.

Cannabis firms in Colorado are now calling on their state to implement a similar moratorium, while Denver’s City Council recently voted to block any new pot operators except those designated as social equity applicants — entrepreneurs from communities hit hardest by drug arrests — until at least 2027.

Put simply, there does appear to be such a thing as too many pot stores, at least in the aggregate.

“We should have put more restrictions in place to stop density from very beginning,” said Molly Duplechian, who oversees cannabis businesses in Denver as the executive director of the city’s excise and licenses department. “We’ve had to go back and attempt to fix that after the fact.”

Industry support for such strict controls represents a striking turnaround. In Portland, marijuana companies initially protested the city’s 1,000-foot buffer between marijuana stores, while existing medical dispensaries in Denver successfully lobbied to be exempted from a similar buffer policy meant to stop stores from clustering in any one neighborhood.

Now, even though officials in both cities say cannabis shops haven’t caused any increases in crime or other detrimental impacts as some initially feared, there is regret on the part of both operators and regulators about allowing so many to proliferate. These leaders of early legal pot markets — all of whom are white — also conceded they failed until recently to consider equity in licensing, an idea embraced by Massachusetts and Boston policy makers in acknowledgement of decades of racially disproportionate marijuana arrests.

“Hindsight is 20-20,” said Amy Margolis, an attorney who founded the Oregon Cannabis Association. “Even with the [buffer], Portland is still hypersaturated with dispensaries. It creates intense competition that has a real economic impact on each business. And if even the well-capitalized people are struggling to succeed, what happens when you throw people from communities with much less access to capital into that dynamic? It’s extremely challenging.”

There is also such a thing as too few retailers, however, as illustrated by the explosion of illicit cannabis sales in large swaths of California where local governments have banned marijuana stores.

“We have huge ‘access deserts’ where there’s been a proliferation of illicit pop-up dispensaries that have no license at all,” said Lindsay Robinson, the executive director of the California Cannabis Industry Association. “The bigger cities have had some density issues, but our biggest problem is that so many municipalities have opted out of having any retailers. In a state as big as California, you could be driving two hours to find legal cannabis, and no one’s going to do that.”

Taken together, the experiences of other states underline a fundamental problem for municipal regulators: The local marijuana industries they oversee are inexorably tied to statewide market dynamics and federal law, both of which they have little ability to influence.

The only thing left for local officials to do, Bradley said, is adapt to changing conditions as nimbly as possible.

“Unfortunately, if you don’t get [licensing] right, you can’t put the toothpaste back in the tube and take somebody’s business away,” he said. “In cannabis, as in life, balance is the key.”


Dan Adams can be reached at [email protected] Follow him on Twitter @Dan_Adams86.