Social equity is concerned with fairness of social policy and justice. In the third part of Tony Frischknecht’s interview with Flavia Hungaro, the owner of the new company called Locomotion Cannabis, Flavia talks about the massive social equity opportunities she has found in Massachusetts, focusing on lease options and the importance of leases for your business. She goes through the social equity programs being implemented in the areas where she has leases, and outlines the multiple roadblocks she encountered in setting up her business in those places. Don’t miss this part of the interview for some lessons you need to learn along the way to building up your cannabis business.
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Massive Social Equity Opportunities In Massachusetts Part 3 of 8 With Flavia Hungaro
How Important Are Leases For Your Business?
We’re going to be continuing our conversation with Flavia Hungaro in episode 3 of this 8-part series. I know it’s a long one, but we had a lot of stuff to cover. We’re going to be talking about the importance of your business lease or your building lease. Here is that episode.
I am putting everything on the same level. I started negotiations with the town of Maynard. It might be too much but I’m trying to work with everything at the same time. I also have been working on all the locations as well for Boston and Cambridge. The partnerships that I have in Fall River, I had a game. Taunton has been taking a little while to finalize the licensing. Boston and Cambridge have all the restrictions besides the other locations that I’ve been working with so far. Those are also a bigger market if you think about it. Whoever doesn’t know Massachusetts and wants to stay in Boston or Cambridge, but most likely nobody will know about Fall River or Taunton.
You’ve got Taunton and Fall River.
I have Taunton and Berkley. I don’t have anything in Fall River. That’s a place where it’s nearby where I’m opening those stores. It’s a correlation so we can compare things.
You’ve got Taunton and Berkley. Maynard you’ve been working in, Cambridge and Boston.
I already put the application in for Boston and I have a lease already in Cambridge. With all these prospects that I have, and then some of them are more ahead of the game than the others. It has been very challenging to find those locations. Not all those opportunities come to you. In Maynard, I did a lot of talking to business owners around to introduce myself and show my ideas.
It’s extremely important. I want to reiterate that for the audience out there because that gives you an idea of how friendly these people are towards cannabis. If they’re going to help lift you up in the community or they’re going to become a problem.
That could be a deal-breaker because if they’re not happy with what you’re proposing and they’ve been in that community for a while, of course they’re going to have a bigger and louder voice than you.
You’re this outsider coming in with this quasi-legal business. Opening yourself up to them so they know that you’re a real person and you’re not a criminal is a big deal.
Even though I’m not from that specific city or town, I’m still a local owner if you think that way because I’m coming from another state or I don’t have any funding coming from another state. As soon as we start making money, then we might get out of Massachusetts and then go back to Colorado or California. That’s the idea that we have as a startup company and we are going to have different goals than other companies that are coming from out-of-state because we’re from here. We want to make sure that we put our efforts in improving our community not just by following the regulations, but because we are raised from here and we want to see the community doing better.
You’ll find these smaller communities too. Even if you’re part of the state, sometimes you’re like, “You’re not in our town. We don’t know you.” That can become a little bit contingent at times if you come into their community. For one, you’ve spent a lot of money signing a lease in that area then all of a sudden, you’re not wanted. I’ve seen it happen. It’s happened to me on certain occasions. Where do you have leases that negotiated now that you have agreements?
I have Berkley, Taunton, some of those places that I have a lease with an option to purchase.
Can you explain for some of those people who not understand what a lease option is?
If you don’t have the funding to purchase a building right then, some owners would be willing to make an agreement with you where you stop paying for a certain amount of money per month as any rental property. However, you do have an option to purchase that property after. They can either give you a certain amount of time that you have to purchase it or they might leave it as open as well. In most of the cases, if you go look for funding and you talk to somebody, they would rather lend you money if you’re purchasing the building because that might make more sense than putting money into a rental property that you never see that money coming back.
I’ve talked to a few people now that they say, “If you’re looking for the funding, I’ll be able to give you more money because you have the option to purchase,” for example in Berkley where I have a lease agreement. Especially if you’re investing so much money in a certain project, for example at the Taunton location, I have had an agreement with the owner where he built up the building like a shell and then I have to do the inside build-out, and then I can either pay him per month forever for the building. The plan is to purchase it once I started making some money once the store is open. I have the retail location and I also have a cultivation space that I’ve been leasing and that space, I also have an option to purchase in Taunton.
How much is that lease on the grow?
It’s about $5,000 a month. It’s 32,000 square feet building and I rent half of it. The other half is being rented to another company. On my side, I have some people that sublease some parts of it, so they are using the space while I’m not operational yet.
They’re subleasing it from you?
That’s how you’re covering your costs on the overhead. Are you breaking even on your sublease?
Not really. I still have to put some money. It’s a way to go but I hope to be able to get that project going.
Are they growing in now?
No, they are doing construction and I’m growing yet.
You’re subleasing it as a grow and they’re building it out.Not all opportunities come to you. You have to introduce yourself to business owners and show your ideas. Click To Tweet
The tenants that are renting from me is nothing related to cannabis. The other half is being rented to another cannabis company and they have a different state license. It’s nothing to do with me. We’re just on the same premises.
Let’s go to Berkley. You’ve got a retail lease. There’s no grow lease there in Berkley. You’ve got Maynard you are working. Do you have an agreement on a retail lease there?
Yes, I partner up with a local business owner there. He has a specialty shop in Maynard and also in Belmont where I live. That’s how I met him. Even though I was looking for places in Maynard, I couldn’t find any properties. I was walking around town and I stopped at his shop. I was talking to him that I was looking for something. He’s like, “I have a property there that I purchased.” I was like, “Let’s see if we can make an agreement here. Let’s see if we can pursue a license there.” That’s how we started. We started asking to send negotiations with the town. It took a little while to get to the meeting. We were able to get a positive vote and we started negotiations with HCA.
Do you have a provisional license there yet in Maynard?
No. Before you even submit an application for the state, you have to have a community outreach meeting. First, you have to have the Home Committee Agreement, which means that you have 9% of the chances of getting the license. Besides that, you have to do a community outreach, which you have to invite all the neighbors that are within 300 feet to join and learn about your company, see where your plans are, and see if you have positive feedback or not from them.
Let’s go to Boston because arguably, it’s the largest city. Do you have any leases there or you want to be in Boston?
I do have a lease and the application has been submitted. Even though I am part of the Social Equity Program with the state, Boston has established different requirements where you have to be a Boston resident in order for you to qualify for your own Boston Social Equity Program. That’s where business partnerships happen and that’s what I’m doing. I have a person who has been a Boston resident and also, I have another partner there where he’s been living in the area that the state has designated certain areas as a disproportionate impact area, meaning a part of the population has been arrested because they are black. They’re trying to do things to help certain communities that they have had a higher number of case arrests so they can help those communities who have suffered from the war on drugs.
You’ve got a potential partnership that you’re working on with a local Boston person there. What about Cambridge? Do you have a lease in Cambridge?
Cambridge is different. Before they created the Social Equity Program, they have something called Economic Empowerment, which made eligible people of color to apply and get that status allowing you to have expedited and review as well with the state. If you put it in order, it will be Economic Empowerment and the medical dispensaries about the same level, and then there’s Social Equity, which you do have benefits from the state but it’s still different, and then the general applicants. For Cambridge, they’re going to be mindful and help Economic Empowerments. However, they left Social Equity out of the legislation.
When I first started my business venture, I saw that there was this application open for Economic Empowerment and I would qualify for it. That application required for you to have a property that was zoned and you have to have the lease or option to purchase it, anything like that, make sure that you have a property. I looked for a place and we thought two weeks that the program was open. I was able to find a property within the two-week period which was incredible. By the time I realized that I went to do the sign-up, the program was closed. I lost my chance of having that expedited review process as part of my application. I didn’t understand why they closed that so soon. I didn’t give up. I kept looking for properties and I was able to find it. Even though I do have the Social Equity status, it took a while for them to create this new program, and I wasn’t able to take advantage of the original program which is the Economic Empowerment.
The original program you started out with was the Economic Empowerment. You’ve progressed in the Social Equity Program across Massachusetts because they changed the whole system on you and you had to start over, which is common. I see it a lot and it can become extremely frustrating to you because you’re like, “I put in all this work. I put in my blood, sweat and tears, and it took me everything to get this one property. Now you guys took it away.” This is a part of the game. It’s the frustrating part because it seems like there are multiple roadblocks. However, you have to change gears because if you’re not able to adjust and say, “I failed. I’ve got to go to this other route,” you’re not going to make it in cannabis. A lot of people would say, “Social Equity Program, that’s your easy road. You’re in now.” That’s not the case. There are still a lot of hurdles you have to overcome to take advantage of the extras that Social Equity status gives you. However, you’ve got to learn this along the way.
Another thing I forgot to mention in the beginning is that once you find a property owner that’s willing to work with you, most of the time, you have to give up on that space because once they hear cannabis, they want to charge you ten times more. That’s another thing too.
You’ve got to be careful especially in negotiating those lease contracts. You can put yourself in a bad position where now you might be paying $1,000, but over the next five years, you’re going to be paying $5,000. I talked to a lot of people and make sure that they’ve got a good contract attorney, especially when you’re doing all these leases because no matter how well you understand contracts, you want a 2nd and 3rd opinion on these leases so that you don’t sign up for something that you’re not ready for. Many people lose out on properties and lose hundreds of thousands of dollars because they put a down payment on this and all of a sudden, it wasn’t zoned. You’ve already signed a lease. It doesn’t matter. You’re trapped.
I’ve gone through stuff like that too. That’s where sometimes you feel like, “I don’t have the funding on paying many hours of legal advice.” That’s where it gets screwed because you think you understand what you’re reading, but you really don’t.
If you would have spent $500 to $1,000 on an attorney, you would have saved yourself hundreds of thousands on a wasted lease. People have to understand that they’re investing in their company. These are services that any business uses, whether it be cannabis, a grocery store or whatever, they have people that they turn these leases over that their job is to understand what you’re getting into. These leases can be five pages long or they could be 50 pages long. There’s a lot of devil in the details. You want to make sure that all these leases you’re going through because you’ve got a lot of stuff here. It sounds like you’ve got some good people helping you out on this. Let’s go forward into Cambridge and your lease there. Do you have a partnership going there?
I haven’t put the application in yet, but I do have the lease. I’m still finalizing some of the final details. Another thing that I have to bring in is because of the Economic Empowerment that I also explained to you before, they put Economic Empowerment applicants at an advantage, so anybody who has that status can apply now. Even though I do have the Social Equity status, I’m not eligible to apply at this moment. I’ll have to wait until September 2021. I know they are trying to do their best to engage all minorities in this industry, but they missed the point where that’s not the only category that would benefit and qualify for this type of license.
This is one of the things that I’m trying to express to them. They should also change the wording and include Social Equity because that would benefit other people in my position to be able to get into Cambridge, which is a huge market and we don’t have the opportunity now. They’re in a discussion and I’m hoping to get good news soon. Imagine this, having to hold property in Cambridge until September of 2021 so I can apply, they should at least work some way to allow other participants of such programs to be eligible because that’s the whole point. They give an expedited review at the state level so you don’t have to come up with so much money and holding properties for so long. This happens that you have to wait for two years.
What you’re experiencing is that there’s incongruency. Stuff isn’t lining up and it falls into the point that this is the first time anybody is doing this. Unfortunately, what happens is the business owner such as yourself gets caught. It’s like, “You can get expedited. However, you’re going to have to pay a lease for the next year on a property that you can’t use.” How many people can afford that? Very few. I know your frustration and I feel your pain but it’s a part of the game. It’s like, “How do I adjust and how do I redirect myself?” Fortunately enough you’ve got 5 to 6 different places where you have a good foothold in, or at least that’s a good starting point. Out of Taunton, Berkley, Maynard, Boston and Cambridge, where do you think your greatest opportunity is out of all those?
If I think about timing, of course they’re the ones that already have licenses that are approved. Those would be the fastest projects for me because there are only around 70 stores open in Massachusetts. Being able to open, they’ll definitely make a difference in my business plan. However, thinking about the size of the market, either Boston or Cambridge will be the best opportunity.
You don’t have any applications submitted in Boston. That’s a long road to get that done.
It will be a little bit longer but it’s not as long as Cambridge. I don’t have a clear path in Cambridge if I will have to wait or not until September 2021. Boston only has one store open. They have other companies in the process. It will be at least a year.
Sorry, I’ve got to cut us off. It’s time to go for now, but please come join us in the next episode as we find out from Flavia, what her greatest opportunities are in her State of Massachusetts. I look forward to sharing that with you.