Business is booming at the nine cannabis dispensaries now open in Massachusetts after full adult-use legalization took effect in November 2018. Gross receipts for the first two months of operations hit $23.8 million among the nine functioning dispensaries, and new outlets are opening weekly as the state handed out its 100th license on Jan. 25, 2019.
However, local authorities and prospective cannabis operators are clashing over an aspect of the regulatory framework established in the 2016 legalization statute.
Towns can levy a 3 percent “community impact fee” on revenues, but industry advocates are crying foul, saying that municipalities are extracting much more in additional “pay-to-play” fees as a condition of entry to the lucrative market. The issue is likely to end up in court.
Under Massachusetts law, local authorities get a say in setting the terms of cannabis operations by obliging them to sign a five-year Host Community Agreement (HCA) even before applying to the state’s Cannabis Control Commission (CCC) for a license. A contract between the municipality and the cannabis establishment, an HCA can include the 3 percent tax that must be “reasonably related to the costs imposed upon the municipality” by the cannabis operation.
But some localities have refused to conclude an agreement unless the dispensaries put up extra cash or make commitments for future payments.
“This pushes out the small guy who doesn’t have multi-million-dollar pockets,” Peter Bernard, president of the Massachusetts Growers Advocacy Council (MGAC), told Weedmaps News.
Bernard called the cities’ actions in demanding additional payments “systematic abuses of power.”
But the CCC, which reviews the agreements, refuses to get involved. Commissioner Kay Doyle has argued that without an express ban of additional payments in the law’s language, the Commission cannot intervene without possibly facing lawsuits.
Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, an advocacy group for the state’s local governments, wrote Weedmaps News in an email that cities and towns in the state are empowered to negotiate contracts on behalf of local citizens just as they do when cable providers wish to enter a community. He said the cap on the HCA does not prevent further negotiations on “other aspects in the general public interest.”
Massachusetts’ retailers must also collect the state’s 6.25 percent sales tax and an additional 10.75 percent excise tax on cannabis products, bringing the total tax bill on sales to 20 percent.
Bernard’s group and MassCann/NORML, the state’s National Organization for the Reform of Marijuana Laws affiliate, petitioned the CCC on Jan. 18, 2019, in an attempt to force it to block the additional fees. But, as no one expects the commission to budge, a lawsuit is almost certain to follow.
Meanwhile, companies eager to get into the market have bowed to the pressure and agreed to payments ranging from $10,000 to $75,000 a year, noted the MassCann/NORML petition, as well as “donations” to local charities.
Some mayors have characterized the additional payments as voluntary, though the municipalities can block a license by simply refusing to sign an HCA.
In their petition, MGAC and MassCann/NORML argue that the effect of the commission’s failure to act is that “small-business owners and especially economic empowerment applicants [are] being excluded from this industry.”
The CCC voted 4-1 in early January 2019 to ask the General Court, the state’s legislature, to clarify its powers of oversight of host community agreements through new legislation. MGAC’s Bernard called this approach a “delaying tactic” that will enable the municipalities to wield their lobbying power.
The towns are in a strong position as the per capita dispensary rate in Massachusetts is only 1 per 770,000 inhabitants, leaving large areas of the state to potentially become so-called “pot deserts.”
Many of the dispensaries now in operation are so overwhelmed that they advise customers to park at least a mile from the shops to avoid the large crowds lining up to buy. Some even offer free shuttle services to and from the parking lots.
And, retail operations seem to be enjoying basic banking services; several advertise that they can accept debit cards as long as they have a PIN.
Tina Sbrega, president and CEO of GFA Federal Credit Union, told Weedmaps News she foresees that “a small percentage of financial institutions will enter the cannabis banking space,” although only her institution and the BayCoast Bank are currently involved in the recreational industry.
The CCC reports it has received 273 completed applications, including 119 for retail operations, 74 from cultivators, 40 from product manufacturers, and a smattering of others for delivery services, research institutes, testing labs, and “craft cooperatives.”
