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Our proprietary SP+GTM algorithm suggests that in three years a mature, healthy and diverse industry in the commonwealth will be a $15 billion "cash cow," generating $1.7 billion in recreational cannabis sales and $400 million in revenue to the state. Now for the evolving tide in Massachusetts:

The Marijuana Business Factbook 2018 estimates that Massachusetts has 900,000 to 1.1 million in-state customers. As the first Eastern state to begin legal adult-use sales, Massachusetts is benefiting from the region’s population density. The robust demand is sweet validation for Massachusetts’ cannabis advocates, who have endured a protracted rollout since the passage of the statewide referendum to legalize recreational marijuana in November 2016. Delays aren’t the only issue plaguing the industry. Moreover, cannabis companies face an array of obstacles, from financial hurdles to regulatory barriers, that have made life more difficult than the booming business might otherwise suggest. For instance, some retailers have confronted a sort of “pay-to-play” dynamic that some state legislators and marijuana industry players say is against the law. In striking deals known as host community agreements with the municipalities where they’ve looked to set up shop, retailers found themselves strong-armed into providing financial considerations beyond what’s permissible under state guidelines. However, Massachusetts marijuana businesses have been rebuffed by major financial institutions that are wary of falling afoul of federal regulations on what remains a Schedule I substance. With significant banks refusing to provide the most elementary of financial services, retailers are forced to either rely on a limited number of state-chartered institutions or just function as cash businesses. The most contentious of the various obstacles facing marijuana retailers in the state has been the nature of the host community agreements (HCAs) struck between businesses and the municipalities in which they seek to operate. Retailers must have an HCA signed and ready in advance of seeking the CCC’s permission to open their business, putting cities and towns in an advantageous position to dictate the terms. Under state guidelines, municipalities can command from retailers a “community impact fee” of up to 3% of gross sales, which are meant to offset “costs imposed upon the municipality by the operation of the marijuana establishment” on public services and infrastructure. Numerous cities and towns across the state have succeeded in demanding and extracting more than that from cannabis businesses—either in the form of a more substantial cut of sales or via a lump sum payment to the municipality or, in many cases, a local organization and charity that can cost tens of thousands of dollars. “The challenge is that we have a legitimate industry at the state level, but we have this dichotomy between federal and state regulations,” according to Tina Sbrega, the CEO of the Massachusetts-based GFA Federal Credit Union. “That’s why you see a host of financial institutions that are wary of getting into the business because we still have this cloud of federal illegality hanging over our heads.” GFA is one of only two state-chartered financial institutions in Massachusetts that are currently doing business with the recreational cannabis industry. Sbrega describes the credit union as “agnostic” to the passage of the state’s recreational marijuana laws—“We’re not condoning the use of marijuana,” she noted—and said GFA’s venture into serving the industry is motivated by the matter of “public safety” above all. “We took a look at what it was like in Colorado when the cannabis industry did not have banking solutions, and it was the Wild West,” Sbrega says. “Imagine a growing industry that deals primarily in cash, without any banking solutions. Instead, they were taking their cash and were having to bring it home, bury it, put it in vaults. People in Colorado were walking around with backpacks full of cash, trying to turn that cash into money orders.” With the goal of preventing “safety risk” inherent to having quantities of cash moving around Massachusetts’ communities, GFA announced in September that it would work with the recreational marijuana industry in the state. The credit union already has client relationships with five different cannabis businesses in the state and has more applications in the queue. While Sbrega is noncommittal on the possibility of GFA lending to the marijuana industry—“You’re always concerned if your collateral is going to be seized,” she says—the credit union plans to look into the matter this year. The entry of financial institutions like GFA into the recreational marijuana business may seem like a matter of course, but it’s far from a formality given the stigma that still exists around the industry. Major national financial institutions have been known to take a hard stance toward individuals with even the loosest of associations to cannabis, going as far as to close the personal bank accounts of the spouses and family members of those who work in the industry. (On the topic of financial hardships endured by the marijuana businesses, Keogh, like others interviewed for this story, also cited Section 280E of the IRS tax code, which prohibits business dealing in Schedule I controlled substances from being able to receive tax deductions or credits on their business expenses. Keogh described it as the “single greatest limitation” on the cannabis industry from a financial perspective, citing an “effective tax rate of 72% on all revenues” as a result of the code.) But as the state’s fledgling recreational cannabis market matures, Sbrega says she expects to see more banks and credit unions enter the fray as they have in other states across the country. “In Colorado, there’s a handful of financial institutions serving the industry, but it took five years to get to that point,” she says. “In the first year, they had virtually no financial institutions. Now, it’s safe to say that any [cannabis] operator in Colorado can easily find a banking institution.” That optimism is shared by the likes of Norton Arbelaez, a Colorado-based cannabis entrepreneur who now serves as director of government affairs for NETA, the retailer that opened one of Massachusetts’ first recreational stores in Northampton. Despite its obstacles, Arbelaez believes marijuana business has too much potential not to overcome them.

From the FJC prospective - For instance, Colorado, a state with roughly 1 million fewer inhabitants than Massachusetts topped $6 billion since legal recreational marijuana sales began and taxes generated $927 million in tax revenue —which means the cannabis industry could be sitting on “very conservatively, $2.5 billion (yearly sales market) in Massachusetts.

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