A market correction could be in the works in Massachusetts, as the state’s Cannabis Control Commission has seen a jump in non-active licenses in recent months, indicating that more operators are unable to survive in the tightening adult-use cannabis market.
Businesses, including Heka Inc., TYCA Green Inc., and even Fine Fettle on Martha’s Vineyard, have reportedly closed facilities or are in the process of doing so.
Licenses become non-active when they are either revoked by the state, voluntarily surrendered or allowed to expire, which typically happens when a licensee goes out of business. Expiration is the most common reason that a license becomes inactive, according to the CCC.
From May to August, the total number of non-active licenses in the state jumped from 87 to 308. Non-active licenses with commence operation orders went from 14 to 38, according to data presented at CCC meetings. This means 24 businesses shut down in that time. In the same period, another 190 provisional licenses became inactive before those businesses had a chance to open their doors.
“Essentially, the bigger population of non-active licenses is expiring and they are voluntarily surrendering their license,” said now-former CCC Licensing Director Kyle Potvin during the May 9 meeting of the CCC, which was the first time the commission publicly discussed the statistics for non-active licenses.
“That doesn’t mean that they cannot now submit a renewal and get back into an active stage,” he added. “That is still a possibility for them.”
Potvin resigned from the CCC in early August amid news reports of missing licensing fees at the commission.
The number of businesses that were already operating before abandoning their license is fairly even between retailers, cultivators and processors, which accounted for 12, 10 and 9, respectively. There was a larger disparity among provisional licenses that are no longer active, with 108 would-be cultivators.
“Marijuana cultivators along with ITLs (Independent Testing Labs) tend to be the most capital-intensive licenses to operate. That might be the number one reason,” said Potvin.
While some operators are choosing to leave the industry, the number of new applicants to the market has also been steadily decreasing, according to the latest CCC data.
The annual number of new license applications hit a high in 2019 with 446 prospective operators, or those looking to expand. That number dropped to 107 in 2023. This year is on track for an even lower total, with just 37 applications as of Aug. 8.
Start-up costs, decreasing cannabis prices hurt businesses
Expensive start-up costs are making it harder for business to open, while decreasing prices are driving operators out of the market, according to David Rabinovitz, a Massachusetts-based cannabis consultant.
“Landlords often view cannabis companies as desperate to find a location in order to proceed toward municipal approval. As a result, landlords act as a toll gate, and the toll they charge is a premium rent rate. Cannabis companies typically pay extraordinarily high rent rates,” he said. “Between paying steep rents and absorbing the impact of inflation, many operators are not flush with cash. This is compounded by declining cannabis prices.”
Throughout 2020, the average price for a gram of flower hovered around $14. That started to decrease in 2021 before plummeting in 2022, when prices dropped from $12.64 per gram in January of that year to $7.11 in January 2023. By June 2024, the average hit an all-time low for the state of $5.06 per gram, according to the latest CCC data.
When reached for comment, a CCC spokesperson declined to speak to whether Massachusetts cannabis could be seeing a market correction, noting that the “commissioners are regulators and not market analysts.”
However, they did provide an overview of sales in the state, which hit a milestone of $6 billion in gross sales since the market opened in 2018. Total monthly sales remain steady, fluctuating between $127 million to $138 million in the first half of 2024. At the same time, new retailers continue to open.
In the first half of 2024, 38 new retailers opened, the CCC said. As of Aug. 20, there are 377 active retail licenses, according to the CRB Monitor licensing database.
“With more stores opening up, sales per store are declining,” said Rabinovitz.
Potvin’s resignation is the latest development in ongoing leadership turmoil at the CCC during the last two years, beginning when the inaugural commission chair, Steve Hoffman, abruptly resigned with only a few months left in his term. His replacement, former state Treasurer Shannon O’Brien, lasted about a year before she was suspended in September 2023. Meanwhile, the state’s Inspector General Jeffrey Shapiro recently called for the CCC to be placed into receivership until the beleaguered agency can iron out a defined leadership structure between the commissioners and the CCC.
