WORCESTER, Mass. 鈥� In the industrial kitchen at Major Bloom, staff are assembling joints using a gadget that turns out nearly 200 so-called 鈥減re-rolls鈥� in one go. A large bag of multi-colored fruit cereal sits ready to be baked into marijuana-infused treats. And owner Ulysses Youngblood is explaining the business philosophy he subscribes to, a 鈥渂lue ocean鈥� strategy.
鈥淏lue ocean is basically like saying that there鈥檚 enough space for everybody to have their own lane, essentially,鈥� he says. 鈥淭here鈥檚 enough water in the sea for us to kind of sail and do our own thing.鈥�
The concept comes from Chan Kim and Ren茅e Mauborgne, best-selling authors of several books on 鈥渞ed ocean鈥� and 鈥渂lue ocean鈥� theory. Red oceans are existing markets, where competition is cutthroat, or bloody; Blue oceans are niches in the market, where innovative businesses can carve out new demand.
In the fledgling cannabis industry, large companies have quickly risen to dominate the market in states where pot is now legal. But Youngblood says he believes there鈥檚 room for everyone, if they think about cannabis as a blue ocean, like he does. 鈥淭hat鈥檚 what鈥檚 important, you know. You don鈥檛 look at anyone as direct competition.鈥�
Retail sales of recreational weed got going in Massachusetts in 2018. Here in 海角换妻, they鈥檙e slated to begin .
But as state regulators begin awarding licenses to select adult-use operators and businesses scramble to build out capacity, cannabis entrepreneurs, customers and communities around the state are increasingly concerned about equity 鈥� whether there really is room for everyone.
Some are already raising questions about the licensing process in 海角换妻. The application to enter a lottery for the limited number of available licenses was cumbersome and the paperwork requirements extensive. Fees to enter the lottery varied by business type, but some applicants argued the process favored those who could afford to apply more than once. Already to some, the odds seem stacked against those without significant financial resources.
And that鈥檚 only the first step. Those lucky enough to win the lottery have to formally apply for a license. Then the real work begins: raising capital to start a business and trying to turn a profit in a highly regulated and complex industry.
Massachusetts adult-use operators like Youngblood offer a case study for upstarts here in 海角换妻, and a theme emerges when they talk about the experience thus far:
It鈥檚 wicked expensive.
Setting sail
In 海角换妻, as in Massachusetts and several other states that have legalized recreational pot, lawmakers designed 鈥渟ocial equity鈥� programs to create opportunities in cannabis for those who鈥檇 experienced the negative effects of its prohibition.
海角换妻 intends to award half of the few dozen newly available licenses to entrepreneurs with lower incomes, who have with high unemployment or a high historical conviction rate for drug-related offenses. The state has also been offering workshops for applicants, and it plans to provide technical assistance for recipients of social equity licenses.
Massachusetts also has , providing technical assistance and waiving some fees for applicants that meet similar criteria. So far, only a few of the program鈥檚 participants have gotten cannabis businesses off the ground.
鈥淎 lot of the people who qualify for social equity and who are from these communities do not have the background and the resources that it takes to get into this industry,鈥� said Julia Agron, project coordinator for the Cannabis Education Center at Holyoke Community College in Massachusetts. 鈥淪o when they, in good faith, come to these classes or participate, the gap between what they think is being offered them and what it really means to enter this industry can be huge.鈥�
As of June, the Massachusetts Cannabis Control Commission had approved 1,399 applications for licenses. Of those, 235 were social equity program participants and 94 qualified for 鈥渆conomic empowerment鈥� priority status; fewer than three dozen of those have commenced operations.
All licensees in Massachusetts have to include plans for how their businesses will have a on the community and in the industry. Aside from the social equity program, the state cannabis commission also gives priority status to businesses owned by women, minorities and veterans.
But equitable licensing programs alone likely won鈥檛 fix decades of social disparities and injustice. Agron said she鈥檚 seen many people looking to start up a cannabis business get discouraged 鈥� or, worse, lose everything. Since few traditional banks will lend to marijuana entrepreneurs at the federal level, business startups have to find financing elsewhere. That makes them vulnerable to predatory lenders.
鈥淧art of the problem is that people don鈥檛 see what their other options are,鈥� Agron said. 鈥淭hey see that something may not be the best deal, but they鈥檙e not sure what else to do.鈥�
Frank Dailey, co-owner of Boston Bud Factory in Holyoke, recalls being turned away by at least eight different financial institutions when the business was starting out. A handful of locally based banks in Massachusetts do provide depository services to cannabis businesses, Dailey said, but the fees are high, and it鈥檚 difficult to get loans or lines of credit at affordable rates.
Dailey sought out a lender when Boston Bud Factory wanted to purchase an extractor to make cannabis concentrates (used in vapes and a range of other products), but the only rates available were over 50%, he said. Another financial institution offered Dailey similar terms on a $30,000 line of credit, which the businesses had planned to put toward purchasing inventory and materials. Dailey decided against it.
鈥淭he rates are just ridiculous,鈥� Dailey said. 鈥淲e鈥檙e just two small guys trying to survive.鈥� Ultimately, Dailey and his partner Carlo Sarno resigned themselves to self-funding most of the business. But he knows that鈥檚 not an option for many budding entrepreneurs.
Youngblood said he met with angel investors, venture capital and private equity firms and banks, 鈥測ou name it, most of those fell through.鈥� Major Bloom is a certified 鈥渆conomic empowerment鈥� business within the state鈥檚 social equity program, but Youngblood and his business partner Valentin Faybushevich ended up raising the capital they needed primarily through friends and family. That included $50,000 of Youngblood鈥檚 own money.
Bruce Stebbins, a commissioner with the Massachusetts Cannabis Control Commission, said in light of the financial issues social equity applicants have faced, state lawmakers are considering to provide funding support for those entrepreneurs.
鈥淲e鈥檙e hoping that if that gets signed into law, and the fund is created, that we鈥檒l be able to see more social equity applicants get to the finish line,鈥� Stebbins said. The deadline for the legislature is July 31.
The red ocean
As small businesses struggle to find a toehold, cannabis conglomerates known as multi-state operators appear to be clearing many of the same obstacles with ease.
There are now several large publicly traded cannabis companies that, relative to small startups, have access to far more capital they can use to grow. Multi-state operators, or MSOs as they鈥檙e known, also have lawyers and accountants to gather and file the intricate paperwork many states require. Deeper pockets means it鈥檚 less burdensome to endure the inevitable delays in license processing and zoning 鈥� common issues in this new industry.
Once they鈥檙e up and running, MSOs鈥� scale can allow them to purchase larger quantities of raw product, often at discounted prices, and to occupy more expensive retail locations in upscale areas. Their brands are recognizable to many cannabis users, another advantage in new markets.
With each new state that legalizes recreational marijuana, those advantages could multiply, exacerbating inequality rather than alleviating it 鈥� as many legalization policies have attempted to do.
In the coming year, retail sales of adult-use cannabis are slated to begin in Vermont, Rhode Island, New York, New Jersey and 海角换妻, expanding the region鈥檚 market beyond Massachusetts and Maine and raising the prospect of fierce competition.
Still, the CCC鈥檚 Stebbins says he gets the sense Massachusetts鈥� 鈥渕icrobusiness鈥� operators are confident they can take on the industry鈥檚 heavyweights.
鈥淭hey don鈥檛 seem to shy away from the competition,鈥� Stebbins said. 鈥淚 think they really are focused on, 鈥業 want to establish my brand, I want to build my customer base.'鈥�
Dave Cichocki, co-founder of Pioneer Valley Extracts in Northampton, believes in carving out a niche. By establishing a name, building trust and making good products, he says it鈥檚 possible for plenty of smaller operators to turn a profit.
鈥淚t鈥檚 like every other business, and it takes a while,鈥� he said. 鈥淛ust don鈥檛 think you鈥檙e going to make a million dollars tomorrow.鈥�
Pioneer Valley Extracts manufactures vapes and pre-rolled joints, and it holds a local license to produce California-based Kanha brand鈥檚 edible gummies. Cichocki and his sister self-funded the business 鈥� they were not participants in the state鈥檚 social equity programs 鈥� and today they distribute their products to about 60 dispensaries around Massachusetts. Cichocki expects the company will do about $7 million in sales this year 鈥� nowhere close to a multi-state operation, but a steady and successful endeavor.
Both Dailey and Youngblood are borrowing a page from the conglomerates: vertical integration. Major Bloom鈥檚 operations include manufacturing, retail, wholesale and home delivery. Youngblood and his team also record and produce a radio show and a podcast at Major Bloom鈥檚 Worcester shop.
The state has established limits on the number of licenses that each business can own and made some license types 鈥� for delivery and social consumption 鈥� available only to Massachusetts residents. The goal of those policies is to even the playing field, Stebbins said, by not allowing the larger operators to fully vertically integrate.
Boston Bud Factory is licensed as both a product manufacturer and a retailer. Dailey said profit margins on the manufacturing side are higher than they are for retail, which helps the overall business stay afloat.
He also saves money by doing a lot of the administrative work himself. Before entering the cannabis field, Dailey worked in chemical engineering and manufacturing operations, and he has tapped that expertise in setting up the manufacturing side of Boston Bud Factory鈥檚 business and in handling all of the company鈥檚 license filings and legal documentation.
鈥淲e haven鈥檛 yet utilized a lawyer or a consultant,鈥� Dailey said. 鈥淚鈥檝e done our special permits, I鈥檝e done our compliance, I鈥檝e done all of that. And that鈥檚 basically just learning the regs inside and out. Anybody can do that.鈥�
Toward equity
Inside Boston Bud Factory鈥檚 three-story brick building on a quiet street in industrial South Holyoke, Dailey has set up an alcove where he offers 鈥渆ducational demonstrations,鈥� teaching anyone who鈥檚 interested how to make rosin 鈥� a cannabis concentrate 鈥� from the plants they grow at home.
Behind the retail counter, and through a set of security doors, a staff member monitors the extractor. A vast factory floor beyond will soon house more processing and packaging operations, but for the moment it鈥檚 the site of a food truck refurbishing project. Dailey plans to periodically park the truck out front, inviting local restaurants to take turns serving up their fare to the shop鈥檚 patrons and the community.
As a social equity program participant, Dailey says it鈥檚 important to him to be a presence in the community and to teach and support cannabis customers and growers. Boston Bud Factory is working to open a second location in Springfield鈥檚 East Forest Park neighborhood, where Dailey lives.
鈥淚t鈥檚 supposed to be community businesses 鈥� isn鈥檛 that what everybody says? But if you look at this, all of the money, everything is being sent out of state,鈥� Dailey said. 鈥淭he profits aren鈥檛 going to equity, the profits aren鈥檛 going to residents 鈥� those corporations are taking their money and sending it back to Chicago or Colorado or wherever they鈥檙e based out of.鈥�
On their websites, top MSOs such as Curaleaf, Trulieve and Green Thumb highlight a range of corporate social responsibility and diversity, equity and inclusion efforts.
Youngblood finds much of it inauthentic.
He stresses how critical it is for Major Bloom to maintain the trust and respect of its customers and the cannabis community, which is why he lends his own voice to the weekly radio show and uses original artwork on the company鈥檚 packaging.
Youngblood鈥檚 focus on 鈥渢he legacy market,鈥� long-time cannabis lovers still adjusting to buying pot from a legal dispensary, means he鈥檚 attuned to their skepticism toward the standardized image marketed by multi-state conglomerates.
This is Youngblood鈥檚 鈥渂lue ocean鈥� niche.
On Major Bloom鈥檚 website, they avoid using stock photos, favoring images of real cannabis users.
鈥淵ou鈥檇 be surprised how much people catch on to that shit,鈥� he said.
Major Bloom鈥檚 stone-and-frosted-glass storefront sits nestled between a spa and a package store, just down the street from a handful of Polish delis and markets. A smiling attendant with a calm demeanor buzzes patrons through a door from the sunny lobby to the main room, where the retail counter sits. Customers, for the most part, pay with debit cards, not cash.
Years ago, before Major Bloom moved in, the property was vacant and often hosted illicit drug pushers and users. The neighborhood still has its challenges, but Youngblood believes the presence of the shop 鈥� the foot traffic it generates, the cameras and security 鈥� has made the block safer.
Stebbins says that鈥檚 happening across the state: 鈥淲e鈥檙e seeing buildings that might have been delinquent or underutilized or even an eyesore in the local community that are now being brought back to life.鈥� Cannabis businesses are now becoming 鈥減art of the economic development of each small community,鈥� he said.
Every licensed business has to track its progress on the community and diversity plans they submitted, providing an annual update when they apply to renew their licenses.
HCC鈥檚 Agron says legalization has had many positive effects in Massachusetts communities. Older customers and many women, who previously weren鈥檛 able to access cannabis legally in a way that felt safe to them, no longer have to worry. And the social equity programs, for all their challenges, have helped create a number of businesses that are fiercely dedicated to helping their neighborhoods recover from the war on drugs.
鈥淚鈥檝e seen people get discouraged. I鈥檝e seen people get angry,鈥� Agron said. 鈥淚鈥檝e also seen people push through and, with more determination and raw willpower than any other resource available to them, pull it together and make it happen.鈥�
鈥淭he mythical 鈥榞reen rush鈥� is over, if there ever was such a thing, and it鈥檚 a real industry now,鈥� she said.