WITH SOME MARIJUANA retailers worried that newly licensed delivery companies will undermine their sales, Cannabis Control Commission Chair Steven Hoffman’s response is: That’s capitalism.
“This is the way every market works,” Hoffman said. “There’s competition, there’s new forms of businesses that compete with existing forms of business, and successful companies adapt to that.”
The Cannabis Control Commission had initially planned to approve an updated set of state marijuana regulations on Thursday. But commissioners decided to delay their vote by a month to iron out the final changes to rules governing the newest segment of the market, marijuana delivery licenses. Commissioners instead used Thursday’s meeting to adopt a new draft of delivery regulations, with plans to accept public comment, revise the regulations accordingly, and adopt the final rules October 29.
Commissioner Britte McBride, who led the drafting of the delivery regulations, said she expects the commission will get a lot of public comment. “This is a first-in-the-nation endeavor, I think, in terms of setting it up this way. I’m sure there will be a lot of ideas shared with us over next few weeks,” McBride said.
The commission had always planned to license delivery companies, but decided in 2017 to defer allowing delivery until retail shops started operating.
A first draft of the regulations, released earlier this summer, would have required delivery companies to act as couriers, like Uber Eats or GrubHub for restaurants. The delivery companies would contract with retailers to buy marijuana from the retailers and deliver it to consumers. But that plan drew criticism from delivery entrepreneurs who said there was no way to make enough money either from commissions charged to retailers or delivery fees charged to consumers to make the business financially sustainable.
Commissioners then agreed to authorize two types of delivery company licenses. One would be the courier model. The other would let a delivery company buy marijuana at wholesale prices from a grower or product manufacturer, then warehouse the marijuana and sell it to consumers, potentially with the delivery company’s own label and branding.
However, in an interview with CommonWealth last month, David Torrisi, president of the Commonwealth Dispensary Association, which represents retailers, said he worried that the new delivery models could undercut brick and mortar retailers, since the delivery companies would essentially be acting as retailers without the expense of a storefront. “In today’s environment, people are less and less likely to go to a retail brick and mortar when they can get something delivered to their house,” Torrisi said.
On Thursday, Torrisi said he is still reading the new rules, but he worries that there are no guardrails in place to prevent one or two companies from building a big warehouse and taking over the entire cannabis delivery marketplace – and potentially driving many smaller retailers out of business. “It’s important that whatever they do end up adopting doesn’t lead to the Amazon-ification of the industry, having one or two major players dominate an online delivery marketplace,” Torrisi said.
Commissioners did not mention retailers’ concerns in their public meeting on Thursday, which was mainly focused on ironing out specific details of the two new delivery license types. But it is likely these issues will come up in the public comment period.
Asked about the effect on retailers in an interview after the meeting, Hoffman said while he understands their concerns about the new competitive challenge, believes the decision to allow the two delivery models is the right one. “It’s very responsive to a desire on the part of consumers of Massachusetts to have access to marijuana in a way of their choosing as well as our commitment to find and create lower capital cost ways of entering the industry,” Hoffman said.
Hoffman reiterated a sentiment he has said in the past that the commission gives licenses “not to guarantee someone they’ll make money but to give them an opportunity to do so.” He added: “I have high confidence the current marijuana retail industry will adapt to the competitive challenge.”
One of the state’s largest retailers, NETA, has come out in support of allowing delivery companies to buy wholesale. Retailers like NETA, which also grow their own marijuana, can sell wholesale to delivery companies if that is allowed. But Torrisi worried that smaller retailers, who do not grow their own marijuana, will lose out.
Commissioner Shaleen Title, who has been outspoken in ensuring that smaller players and particularly minority business-owners can enter the industry, told reporters that she shares the concern about independent retailers and will listen to their voices in the public comment period. “At the same time,” Title said, “we are seeking to repair a serious imbalance here and serious drug war harm that affected real people and their families.”
The delivery license will be reserved for the first three and potentially four years, under the proposed new regulations, for social equity applicants – people from communities or groups disproportionately affected by prior enforcement of drug laws.
“If we want to address those harms, we’re going to have to be bold,” Title said. “I think that’s a good thing.”