Regulatory Changes for Craft Marijuana Cooperative Licenses in Massachusetts
The Cannabis Control Commission recently approved numerous changes to the regulations. Much of the discussion involved the creation of a new license type for wholesale delivery. That issue will be addressed separately. In this writing, we will look at changes that may affect the Craft Co-op license and review the overall characteristics of the license type.
What is a Craft Marijuana Cooperative?
The basic definition remains the same. The Co-op is a cultivator formed as either an LLC, a LLP, or a cooperative corporation. The members must be Massachusetts residents. A Co-op may cultivate and manufacture products. There is no limit on the number of separate cultivation sites, but the total canopy cannot exceed 100,000 square feet. Manufacturing is limited to three locations.
Proper sizing
A Co-op, like other cultivators, is subject to the Expansion and Relegation regulations. The regulators, in an effort to ensure that supply and demand maintain some degree of balance (and hopefully avoid the kinds of catastrophic overproduction that other markets (like Oregon) have experienced) require that expansion of canopy to a larger Tier requires demonstrating that the Co-op has sold 85% of its product over the last six months. Similarly, when seeking renewal, a Co-op may be subject to relegation to a lower Tier if the data shows that less than 70% of product is being sold. The Commission can take a wide range of factors into account when determining whether relegation is appropriate, but the idea is not to flood the market with too much flower.
Expedited Review and Other Bonuses
Coops, along with Microbusinesses, Testing Labs, Outdoor cultivators, Social Equity participants, and minority/woman/veteran owned businesses qualify for expedited review of the license application. Meaning that they should be reviewed before the General Applicants. Considering that the current queue is quite lengthy and the potential pre-licensure carrying costs of maintaining site control quite large, combined with the possibility of commencing operations sooner than the competition, the expedited review status could be worth a lot of money to a Co-op applicant.
Co-ops get their monthly seed-to-sale software fees waived and Co-ops are given more options regarding the types of professionals who may sign off on the energy compliance letter. The application fees are significantly less than the standard cultivator fees, but the annual license fees are not discounted and that can be at least 10x the application fee.
Local Farmers?
The Co-op license requires that the “members or shareholders” be residents of Massachusetts for 12 consecutive months prior to the date of application. We presume this to mean that the Co-op could have various associates and employees who don’t meet the residency requirement, but don’t have the same rights and responsibilities as members or shareholders. One question this requirement raises is whether a residency requirement applies to a member who joins the Co-op post-licensure. Additionally, if an applicant is constructing a complex multi-stakeholder cooperative, how much leeway will be given to the cooperative to determine who counts as a “member”? Interestingly, the residency requirement for Microbusinesses appears to also be begging for interpretation: “A majority of the Microbusiness’ Executives or Members shall have been residents of Massachusetts for no less than 12 months prior to application.” Given the similarity in the language, applicants and practitioners would be well served to watch for Commission interpretations regarding either license as implicating both license types.
The Schedule F requirement has been given a meaningful revision in this latest round of rule-making. The individual who has filed a Schedule F in the past 5 years (i.e., the farmer) is no longer required to be a member; the farmer can be a landlord who leases land to the Co-op applicant. Take note that if the leasing agreement renders the farmer a person having direct or indirect control, then the farmer must still be reported as such on the application and the lease must be submitted as part of the application.
This change permits farmers to derive economic benefits from growing plants and support cooperative businesses without being required to be directly involved in the weed business. We hope this will be a win-win provision and will open up additional real estate options for aspiring Co-ops.
No Delivery (sort of)
The statute (MA GL chapter 94G) specifies that a craft marijuana cultivator cooperative shall be licensed to “cultivate, obtain, manufacture, process, package and brand marijuana products to deliver marijuana to marijuana establishments but not to consumers.” (emphasis added). This is the source of the CCC’s exclusion of Co-ops from the list of who can receive a Delivery license. However, even though this is statutory language, it is as yet untested and there are reasons to believe work-arounds will arise. First, a licensed Co-op entity may apply for a retail and a social consumption license. This would permit the necessary vertical integration to directly serve retail consumers, instead of only selling wholesale to a third-party retailer. What is the real difference between a Co-op also holding a retail license and a Co-op also holding a delivery license? Second, the CCC provided that if delivery demand appears to exceed the supply provided by businesses during the initial exclusivity period, the Commission may allow additional businesses to own Delivery licenses including “worker-owned cooperatives organized to operate consistently with the Seven Cooperative Principles”. Even if Craft cultivator Co-ops don’t receive access to Delivery licenses, this is a sign that the CCC is open to making the regulations more friendly towards cooperatives.
What Does It All Mean?
While it’s encouraging to see that the Commission was giving some thought to cooperatives in this round of rule-making, there are still a number of blind spots and ambiguous regulations left unaddressed. But as there are still not any final Co-op licenses issued, we believe that it will get (mostly) sorted out when an issue actually arises.