BREAKING; Massachusetts Senate Passes Landmark Social Equity, Host Community Agreement and Social Consumption Legislation in Decisive 39-0 Vote

The scene as bill S.2801 passed the Massachusetts Senate on Thursday afternoon

BREAKING; The Massachusetts State Senate voted by a margin of 39-0 on Thursday afternoon to pass historic omnibus reform legislation (S.2801) that will create a social equity loan/grant fund to assist those most harmed by the drug war as they seek to enter the legal cannabis marketplace, repair a Host Community Agreement (HCA) process long-subject to abuse by local cities and towns and open a pathway for municipalities to opt-in to an existing social consumption pilot program.

The bill now heads to the House of Representatives on Beacon Hill, where developments are expected within just a few weeks.

Addressing two areas of concern which have long plagued the nascent industry, lawmakers sought to provide no-strings-attached access to capital for equity applicants while, at the same time, lifting a series of complex municipal barriers that have long held back smaller operators from thriving in the emerging market sector.

The social equity loan/grant fund (including loan forgiveness) will be funded using 10% of the existing yearly adult-use tax revenue along with donations from private sources. Importantly, according to advocates, that yearly 10% of the adult use tax sales tax revenue will go into the fund automatically, without a requirement that a private donation be made first (something that had been proposed in a draft of the bill earlier this year).

With the loan fund expected to pass this year, and with adult use sales tax revenues expected to hit $200-$300 million over the next 12 months, that would mean $20-30 million put into the social equity loan fund during the next funding cycle alone.

As that adult use sales tax figure is projected to climb as high as $1 billion annually by 2030 according to analytics firm New Frontier Data, 10% put towards the loan fund means hundreds of millions of dollars will be made available to Economic Empowerment (EE) and Social Equity (SE) applicants in the state over the coming decade.

Such a momentous change as to how equity companies obtain funding has the potential to fundamentally shock the existing financial landscape in the Commonwealth's adult use sector (which is no doubt to leave predatory investors, long a target for state regulators, fuming).

Because federal law prohibits financial institutions from lending to cannabis companies, applicants have long been forced to turn to predatory finance capital in the hope of obtaining a license. In turn, say proponents of the loan fund, creating a publicly funded pathway to licensure for equity applicants will take away any remaining leverage for predatory lenders targeting those companies.

A Social Equity Trust Fund Board would also be setup to oversee the program, with two year terms for each appointed seat.

Damaris Aponte, a social equity applicant from Holyoke and owner of Blossom Flower, said the loan fund could be the foot in the door she needs to thrive; "I would love the loan fund to pass so I can have access to finances to help open my delivery business this year." Aponte also noted her excitement for the potential of social consumption lounges opening sometime in the near future. "Social consumption lounges will be a nice safe place to be comfortable to consume all cannabis products", she said.

The bill also creates the ability for cities and towns to put social consumption lounges on the ballot (a step required before those establishments may operate).

In addition, the legislation passed by the Senate on Thursday reforms the way in which local cities and towns may go about singing so-called Community Host Agreements (HCA's) with prospective applicants (including a clause that requires local cities and towns to take steps to include those most harmed by the drug war in the emerging market along with a reward if they chose to do so, in the form of an extra 1% in tax revenue per year from state adult use taxes per equity establishment opened in a given locality).

For many years, license applicants have complained that some cities and towns have abused a loophole in existing regulations (wherein HCA's were not being reviewed to confirm adherence to state law) to extract illegal fees and payments from adult use operators (a situation that became all too apparent during the trial of former Fall River Mayor Jasiel Correia). Bill S.2801 would explicitly extend the CCC the authority to review the content of those Host Community Agreements in order to put a stop to that behavior, and many have suggested lawmakers were enticed to act on the HCA portion of the legislation because of the immense attention paid to the federal case against Mr. Correia (the former mayor was sentenced to six years in jail at the conclusion of the case in September of last year, however a custodial sentence has been delayed on seven different occasions and he remains free for the time being).

State Cannabis Commissioners, who had voted as an agency to formally support the three main legislative policy proposals reflected in the legislation passed by the Senate (a publicly funded equity loan program, HCA reform and a pathway to social consumption), expressed optimism throughout their regularly scheduled monthly public meeting -- also held on Thursday -- as to the next steps in the legislative process.

Commissioner Nurys Camargo, speaking to reporters after Thursday's hearing, said that the implications of not moving forward with the legislation were dire; "If this bill doesn't pass during this legislative session, it will be too late...we would be leaving [social equity and economic empowerment applicants] behind at this point."

Fellow Commissioner Ava Conception echoed those sentiments, noting that a new process developed by the Commission to facilitate legislative outreach was beginning to yield results; "When the piece of legislation that is moving forward today initially came out of committee, both of the chairs of the cannabis committee referenced the Commission's positions, [in particular] the way in which we were able to come together and say 'these are our priorities and this is what we believe should happen as experts in the field.'"

Conception led an agency-wide effort that culminated in the roll out of that new legislative outreach process in the fall of 2021 to rave reviews. That effectiveness is something the Commissioner attributes to the time she spent working on Beacon Hill (in the office of Senator Will Brownsberger) and for then Suffolk Country District Attorney Rachel Rollins.

State Senator Sonia Chang-Diaz speaks during Thursday's debate on bill S.2801; Chang-Diaz, as Co-Chair of the Joint Cannabis Policy Committee, helped to steer passage of S.2180 through the complex legislative process on Beacon Hill. She is currently running for Governor in the Democratic Primary.

A number of amendments were added to the legislation over the course of a sprawling multi-hour debate in the Senate Chamber, including language expanding employment eligibility for those with prior felonies that Conception highlighted during the CCC's public meeting on Thursday;

An amendment (#1) from Senator Adam Gomez expanding expungement for prior offenses in the Commonwealth passed (while the amendment does not provide for automatic expungement, it does allow for a more streamlined process for those expungements to take place).

A further amendment (#2) from Senator Gomez passed, adding language that will require a yearly public report related to the social equity loan fund (ensuring that the funds being lent/granted are actually going to individuals or communities harmed by drug war enforcement).

An amendment from Senator Will Brownsberger (#4) that does two important things also passed; firstly, the bill removes a prior prohibition on individuals with a felony conviction from applying for a license before the CCC. Further, the amendment removes prior language preventing someone from convicted of certain felonies from working for such an establishment.

Amendment #6, from Senator Jehlen, also passed; this amendment clarifies that any license type (so long as the majority of ownership and control reside with an SE or EE applicant) is eligible to apply to receive funds from the social equity loan/grant fund.

Amendments #7 and #8, from Senator Michael Moore, were adopted; these amendments put a firm time limit on the length of HCA negotiations while also allowing communities to waive HCA's entirely if they so wish to do so.

Amendment #15, from Senator John Velis, was adopted; this amendment requires the CCC to draft and promulgate a model HCA that cities and towns may use when negotiating such agreements with prospective applicants.

A number of amendments were also withdrawn before being considered (including attempts to revive a long-since rejected potency cap on products in the state and an attempt to delay social consumption until such time as more accurate blood tests are created).

The legislation, now that it has passed the Upper Chamber, will move over to the House of Representatives (wherein a similar vote and amendment process will take place).

If the amendments in the House are exactly the same as those passed in the Senate, the bill will go directly to Governor Charlie Baker for his signature (that situation, however, is highly unlikely).

More realistically, The House and Senate will end up passing different versions of the legislation. That would, in turn, trigger a process referred to as a compromise committee wherein lawmakers from each body would meet to work out a version of the bill acceptable to both chambers.

Only at that point would the bill be sent back to the Senate and House again, for yet another vote, before being forwarded to the Governor. If the legislation passes both chambers by a margin greater than 2/3's (a "veto-proof majority") as expected, a signature from the corner office is almost guaranteed.

Because the current legislative session is scheduled to end in July of this year, and because this bill has the support of both House and Senate leadership, I expect the next steps in this process to occur quite quickly over the coming weeks (with a final vote taking place sometime in late May or early June).

Kizzy Key, an equity applicant from Boston interested in entering the industry, said the bill inspires hope that her dream of owning a company could one day become a reality; "As a social equity participant here in Massachusetts I would like to see this bill pass. That will give me hope of opening my very own cannabis business without worries of predatory lenders, long awaited build out or missed opportunities."

"Funding has been the number one issue holding a lot of us back," said Key. "This bill will help us get to the front line."

View the full text of all amendments, and see the full text of the bill itself, at the following link: https://malegislature.gov/Bills/192/S2801/Amendments/Senate

The actions taken on all amendments are also listed in the screenshots below;