By Chris Villani

Law360 (April 2, 2020, 5:17 PM EDT) -- Massachusetts Gov. Charlie Baker's decision to shutter adult-use cannabis stores in the state during the COVID-19 pandemic has left many dispensaries fearing financial ruin while frustrating attorneys and experts who say the move could reverse the industry's early gains.

While medicinal cannabis dispensaries are still operating in Massachusetts, Baker has called the opening of adult-use shops a "non-starter," fearing it would lead to an influx of people crossing state lines into Massachusetts, the only state in the region where recreational sales are legal.

That stance could spell trouble for the adult-use industry in Massachusetts, where many businesses — especially smaller ones — had either recently launched or were on the verge of opening this spring before the pandemic hit.

"On the provider side, it's a disaster," said Robert Munnelly, a shareholder at Davis Malm & D'Agostine PC. "The ones that aren't medical providers are pretty much startup businesses who had just gotten into it and have business loans to repay. They were really counting on revenues to be able to get themselves in a position to be successful going forward."

The state's Cannabis Control Commission is slated to meet Friday to discuss the ramifications of Baker's decision and likely next steps. Short of getting the governor to change his mind, experts say industry advocates have few options other than to hope the crisis passes as quickly as possible.

While numerous industries are suffering under the weight of the novel coronavirus, which has caused an unprecedented spike in jobless claims and crashed markets, experts note that cannabis has some unique challenges.

The drug is illegal on the federal level, so the shops will not benefit from federal aid. The industry is also relatively new, and most Massachusetts shops are highly leveraged, a product of the high costs associated with getting their businesses started.

"When you finally do get in, you're well behind in debt and it's typically high interest debt," said Jim Smith of Smith Costello & Crawford. If the crisis lasts more than a few more weeks, "I don't know how you come back, frankly," Smith said of adult-use stores.

Smith said efforts to lobby the governor are ongoing. Some relief from the state would also be possible and appropriate, he said, given that the industry was on track to generate close to $1 billion in sales and nearly $200 million in taxes to cities and towns in Massachusetts this year and employ around 8,000 people.

But the crisis has forced attorneys and industry advocates to walk a fine line, given the dire challenges and grim fatality numbers confronting the state and the world at the moment.

"Nobody wants to push hard in circumstances where daily body counts are the lead story," Smith said. "This is not an easy time to advocate for anything that is not hospitals or COVID related. We are not trying to be overly aggressive and on the offensive."

As a result, experts say a court challenge is unlikely to be attempted and even more unlikely to succeed, given the vast power afforded to the governor during an emergency. When asked about the adult-use industry, a Baker representative referred Law360 to the governor's public comments.

The recreational cannabis industry has said it is willing to take steps to sell safely during the pandemic, including curbside pickup, delivery, appointment-only sales to limit the number of people in stores and adhering to strict social distancing.

To assuage concerns about a rush of out-of-state consumers, stores say they would sell only to Massachusetts residents with state IDs. Baker has said that may not be legal, but Kevin Conroy of Foley Hoag LLP argues the governor is wrong on that point. There are no Commerce Clause issues, he said, because cannabis is illegal on the federal level anyway.

"We are going to lose a class of small businesses we desperately needed in this industry," said Conroy, whose clients include local dispensaries.

Jon Barooshian of Bowditch & Dewey LLP agreed that selling only to Massachusetts residents wouldn't present any legal issues.

"As a practical matter, these facilities should not be delivering product to people they know are going to take it across the state line anyway," he said.

Shaleen Title, a commissioner at the CCC, argued that the same measures used for medicinal cannabis — curbside pickup, enhanced sanitation practices and limits on the number of people in a store — could be put in place along with the residents-only restriction.

"Reopening these businesses would provide access to the many adult-use consumers who rely on cannabis for medical purposes, support the employment of thousands of workers currently facing layoffs and furloughs, and generate needed tax revenue for the Commonwealth," Title said in a statement.

That argument could be undercut by reports this week that two workers at New England Treatment Access, one of the state's largest cannabis companies, had tested positive for COVID-19 at separate store locations. State marijuana regulators are now looking into allegations that NETA did not put proper safety protocols in place for its facilities.

Even as medical marijuana dispensaries stay open in Massachusetts, the recreational industry — which came online after medical cannabis and faced some early regulatory hurdles — is likely serving many former medicinal marijuana patients, said Benton Bodamer, a member at Dickinson Wright PLLC. He said one cannot simply "draw a line" between the two industry segments, as Baker has done.

"It's a false dichotomy that there is a medical marketplace and an adult-use marketplace," Bodamer said. "They are inextricably commingled at this point."

While the state has made an effort to streamline the process for getting a medicinal marijuana card, Bodamer said the closure of adult-use stores will still turn consumers toward the illicit marketplace, where social distancing guidelines may not be followed. Such sales are of no help to local businesses, he said.

"This could be a disaster," Bodamer said.

--Editing by Alyssa Miller.

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