Local fees imposed on marijuana firms are too high. Now what?
State law in Massachusetts limits how much money municipalities can demand from marijuana businesses seeking permission to operate. But for years many cities and towns have ignored those limits, and, due to a loophole, no one had authority to intervene. Now that’s changed. Under new laws, the Cannabis Control Commission has power to review the host community agreements that marijuana businesses are required to negotiate with municipalities, and it plans to do so.
That’s a welcome step. Massachusetts voters legalized recreational marijuana in part to right the perceived wrongs of the war on drugs, but onerous community fees are just one more barrier to entry for small and minority-owned businesses.
Still, questions remain about how the new regulatory scheme will work. Municipalities should act now to renegotiate agreements with marijuana businesses in a way that complies with state law, even if that means collecting less revenue, and state regulators should supply any additional guidance needed to make that as easy as possible. To smooth the path to these agreements, businesses should avoid relitigating the past by demanding refunds for fees already paid that may not meet the newly clarified requirements.
The state’s marijuana law has always capped the community impact fees that municipalities can charge licensed marijuana businesses at 3 percent of sales and required community impact fees be “reasonably related” to impacts caused by the business. But during negotiations with potential businesses — in what was often a competitive licensing situation — many communities negotiated “voluntary” donations to town organizations or charities or, in rare cases, simply required fees above 3 percent. A 2021 analysis of host community agreements done for an industry trade group by Northeastern University professor Jeffrey Moyer found 167 agreements that required donations in addition to community impact fees. Whether these fees were legal was disputed. The Supreme Judicial Court ruled that the law was silent on this point and urged the Legislature to clarify it.
Municipal uses of the community impact fee revenue were often not directly tied to dispensary impacts. A 2022 update of Moyer’s study found that in 42 communities that responded to public records requests, half simply put the fee revenue in their general fund.
The Legislature in 2022 clarified the law and gave the Cannabis Control Commission authority to oversee host community agreements. In February, the commission approved guidance outlawing mandatory charitable donations or other contributions above the 3 percent community impact fee and requiring that fees collected have “a demonstrable nexus” between a business’s operations and an enhanced need for municipal services. Regulators released a model host community agreement that will automatically be deemed compliant and allowed communities to waive having a host community agreement altogether, an option newly allowed under the 2022 law.
Some communities, including Boston and Northampton, have already said they will not collect impact fees. Since the guidance was released, more may follow suit.
In Newton, for example, the city had been charging marijuana businesses community impact fees to pay for a Newton public schools psychologist and social worker, a police dog, and a community health program coordinator, among other expenses. Chief Operating Officer Jonathan Yeo said the ability to obtain that funding was one reason voters, after contentious debate, allowed marijuana stores. But under the new guidance, the city will no longer collect the fees and will seek to cover the costs out of other parts of the city budget, unless officials identify specific impacts from store operations. “Now the
The best outcome would be for both cannabis businesses and municipal governments to recognize that the law and culture surrounding impact fees has shifted.
game’s changed,” Yeo said. “At least in Newton, there’s a feeling at this point that it doesn’t make sense to continue the [host community agreement] payments.”
There are two major lingering questions: What happens if a municipality and a marijuana business cannot negotiate a compliant host community agreement by the time a license is up for its annual renewal? And what happens to fees that were already paid?
Some of these questions could be answered by a judge in Essex Superior Court, where marijuana company Stem sued the City of Haverhill on the grounds that the community impact fees charged were not reasonably related to actual impacts. At question, legally, is whether the 2022 guidance applies retroactively to existing host community agreements and whether existing agreements must be renegotiated to conform with the new law.
Stem is not the only company to file suit. In January, the Town of Uxbridge paid $1.2 million to settle a lawsuit filed by Caroline’s Cannabis over impact fees the company alleged were not properly documented.
These issues could be resolved by the courts or, more efficiently, state regulators could publish guidelines answering these questions. But in the meantime, business owners tell the editorial board they worry they will not be able to renew their license because of prolonged negotiations.
The best outcome would be for both cannabis businesses and municipal governments to recognize that the law and culture surrounding impact fees has shifted. Businesses should not demand municipalities refund money, which they have presumably already spent or budgeted, based on agreements reached in a different legal climate. But communities should tear up any old host community agreements that don’t comply with the new rules and quickly ink new agreements that charge no more than 3 percent in impact fees while ensuring impacts are properly calculated and documented.
Communities do not have to allow any marijuana businesses within their borders. And businesses should pay for any unique expenses caused by their operations, like crowds that require additional police presence or drug education programs directly tied to the increased availability of legal cannabis. But if a cannabis business is operating within the bounds of law, it should be treated the same as any other legitimate business, not milked as a cash cow based on unspecified “community impacts.”