Ahead of schedule, the Cannabis Control Commission (Commission) has filed draft regulations that will be the tentative framework for the regulatory system in Massachusetts. These rules are subject to change based on public comments in the following two months. A final set of regulations will then be filed with the Secretary of State in March.

The current draft regulations are a compilation of recommendations that were submitted and presented to the Commission by the various subcommittees. A range of topics are covered by the draft regulations that follow previous legalizing states, but there are some unique sections that include targeted programs for social equity and mixed-use licenses.

What the Regulations Cover in General

The draft regulations begin by covering the three required parts of an application:

• An application of intent
• Background checks
• Management and operations profile

Among these requirements is also a community host agreement that has been executed between the prospective licensee and the municipality where they will be located. A mandatory part of this agreement is that the potential licensee has given notice to abutting property owners and that a community outreach hearing session was held in the previous six months by the aspiring licensee.

As expected, the regulations also govern how licensees must maintain operations, security, record keeping, transportation, and tracking of product. The main concern is to mitigate any possibility of diversion that will continue to supply the black market or fall into the hands of minors. The cost of compliance with these regulations will be high but are required to operate in this industry in the state.

Another set of rules that require high compliance and may be open to legal challenges are the advertising limitations that have been drafted. As currently drafted, licensees may use a logo but cannot have an image of marijuana or a colloquial reference to cannabis. There are also a number of uniform health warnings that must be included on product labels. Additionally, if a licensee wishes to sponsor an event, it must be reasonably expected that 85% of the audience will be 21 years old or older.

Unique Regulations

Ever since the ballot initiative in Massachusetts was codified by the legislature and enabled the creation of a commission to draft these regulations, there has been a focus to try and remedy past damages to communities that have been “disproportionality impacted” by the criminalization of cannabis. The draft regulations have two sections addressing this intent.

First, there will be a category of application deemed “economic empowerment” applicants. To be considered such an applicant, one must qualify for two of the five criteria listed under 935 CMR 500.101(A)(5)(b). In general, this application group is available to owners who have lived in or owned a business in a disproportionately impacted community or a majority of the employees of the applicant will reside in a disproportionately impacted community. The benefit of applying as an economic empowerment applicant is that the Commission will take the application as a priority review before other applications.

The second program addressing this intent is the creation of a Social Equity Program under 935 CMR 500.105(Q). This program will provide assistance and education in management, tax compliance, legal compliance, and identifying capital, among other things for those who qualify for the program. Qualification criteria for this program are also listed in the same section.

Finally, the regulations also provide for mixed-use licenses under 935 CMR 500.050(E)(4)(c) where an establishment may have onsite cannabis consumption as a secondary business purpose. An example of this may be a yoga studio that also provides cannabis to be consumed on site. One might also imagine this as the classic Paint Night, but instead of using wine to enrich the experience, it would be cannabis.

Analysis of the Draft Regulations

As stated before, it must be remembered that these regulations are only drafts and may be changed in response to public comment in the following few months.

As the regulations are currently drafted, the market will be highly monitored by the Commission and its enforcement branch. This will certainly be a factor in higher costs for both the licensee and the state. For the Commission, the regulations are only as good as the agency’s ability to enforce the rules. Where there are rules that are specialized, it will require more government employees who have domain expertise in that area. This will also include the cost of adjudicating disputes since more rules established mean there are more rules to be violated, whether allegedly or in reality.

The cost for the licensee will be the amount of time and resources spent in order to comply with the regulations. For example, it will not be good enough for an establishment to just have a register, but they will need a point-of-sale program that is approved by the Commission. Hopefully the cost of compliance, which functions as a tax, will not be so high that the black market is able to keep operating.