Cannabis Control Commission makes changes to community host agreements, impact fees

BOSTON — Changes within the Cannabis Control Commission since its creation in 2016 with the legalization of pot for adult recreational use have been both beneficial and detrimental to the $5 billion Massachusetts marijuana industry. These changes cover legislative action along with personnel issues including accusations of bias and racism.

First. the good news for pot businesses. The Legislature acted in 2022 to clarify regulations pertaining to Host Community Agreements and Community Impact Fees . These rules define the relationship between operators of cannabis businesses, from testing laboratories to delivery services. The municipalities where they operate were clarified and posted on the CCC website. The information includes a model template for host community agreements, with the final versions published last month.

“The commission’s model HCA is a critical resource that stakeholders can use to follow state law and regulations relative to these fundamental agreements that permit operators to set up shop in a community,” said Acting Chair Ava Callender Concepcion in a statement. “After offering constituents the chance to review and comment on the initial draft, we hope the final document will truly level the playing field for all industry participants and municipalities seeking to engage in Massachusetts’ regulated cannabis industry going forward.”

Municipalities now must substantiate the need for community impact fees and show they are “reasonably related” to any additional costs incurred by the community caused by the operation of the marijuana businesses. Spending has to be invoiced and shared on a yearly basis. A failure to substantiate and document the expenses will cause the community to forfeit the fees, even those it is legally entitled to collect.

What are changes to host community agreements?

In the past, municipal officials tended to demand 3% of the yearly gross sale as community impact fees. An analysis of the more than $50 million in fees collected by Massachusetts municipalities commissioned by the Cannabis Business Association and released in 2022 found that “fees are plagued by a lack of transparent accounting and little oversight.”

The report, compiled by Dr. Jeffrey Moyer of the School of Public Policy and Urban Affairs at Northeastern University in May 2022, found the money was often just added to general revenue and if spent was used for expenses unrelated to the cannabis business.

New rules also have the commission reviewing and approving the host community agreements. The CCC has not indicated whether the review of host community agreements will be retroactive and whether municipalities will be required to return the unsubstantiated fees.

In a 2018 vote, the commission opted out of that responsibility. Guidance offered to the commission by KP Law in a memo dated Aug. 2018 suggested that the marijuana industry is not “in need of protection from municipal overreach” and that there was no cause for concern, as municipalities “are owed a legal presumption that they act honestly and in good faith.”

A lawsuit filed by an Uxbridge marijuana retailer, Caroline’s Cannabis in 2022, that was settled through negotiations late last year, saw the mandated return of more than $1.1 million — 80% of the impact fees paid by the retailer to the municipality as part of its host community agreement. The ruling determined the fees were not substantiated and no invoices were presented to the business owner. Other lawsuits have also been filed; Haverhill Stem v. Haverhill is expected to be heard this year.

“When it comes to HCAs, the days of the Wild West within Massachusetts’ regulated industry are over. With passage of the state’s cannabis equity reform law and publication of new commission regulations, guidance and the model HCA, municipalities and licensed entities now have a clear understanding of what is expected of all parties involved,” said Commissioner Kimberly Roy in a prepared statement.

“These changes were mandated,” said Sen. Michael O. Moore, D-Millbury. “Other than what was mandated by the Legislature, we haven’t seen an aggressive timeline of change.”

Moore was one of the signers of a letter requesting legislative oversight of the commission that also suggested it be placed under the auspices of an inspector general. There has been no movement on the requests, Moore said.

Changes also empowered the social equity program that helps people disproportionately impacted by the war on drugs and specifically to marijuana laws — including arrests for possession, prosecutions, convictions and incarcerations — enter the lucrative pot market.

Markets opened for social equity entrepreneurs

The program sets aside delivery services and social consumption sites specifically for social equity entrepreneurs, establishing a precertification process that will be extended to all marijuana business launches. Under the new laws, social equity businesses can benefit from fee reductions including community impact fees, zoning and occupancy fees.

Under the new regulations, municipalities must set aside licenses for social equity businesses. Fines imposed on communities out of compliance with social equity regulations are to be deposited in the Cannabis Social Equity Trust.

The commission is also offering training, technical assistance and mentorships.

However, critics suggest that the social equity effort comes at a time when the lion’s share of the market has already been cornered by mostly white, mostly male owners. According to the National Library of Medicine , as of April 2020 the racial, ethnic and gender diversity in the Massachusetts adult-use cannabis market was 75% white, 7% Latino, 6% Black/African American and 65% male.

Diversity was more limited in senior positions. Agents in senior positions were 84% white, 2% Latino, 5% Black/African American and 82% male. Senior-level participation was markedly low for women of color.

Early licenses went to “those with people with deep pockets, with a ton of money,” said Alexia Fallon, a tax attorney in Marlborough and a former applicant for a retail adult-use license in Medford. “They had a competitive advantage.”

Early applicants have had time, Fallon said, to turn a profit and recoup their initial investments in the business.

Applicants for licenses in many communities, like Medford, were required to submit a business plan, secure a physical location, hold public hearings, interview with selection committees and wait for a decision on which applicant was granted a host community agreement and the possibility of a state license.

The process, from the submission of a business plan to the issuance of the first host community agreement in Medford, lasted more than a year. Nine applicants were vying for three licenses. The costs were prohibitive, estimated between $300,000 and $1 million. Failed applicants had paid large sums to create a business plan, secure funding and carry the cost of secure and holding facilities throughout the process.

“I’m glad to see the social equity program being implemented, but it should have been done long ago,” Moore said.

Low prices, high availability boon to consumers

Also affecting the Massachusetts marijuana market are product glut, dispensary saturation and price drops in products, along with legalization of marijuana in neighboring states that could cut into the marijuana tourism trade. Only one of Massachusetts’ neighbors, New Hampshire, has failed to decriminalize marijuana use and industry analysts predict it could be fully legalized for adult recreational use this year.

With some 400 dispensaries in the state and 21 delivery services, Moore wonders if enough market share is left to support social equity entrepreneurs.

“We’re looking at market saturation, diluted prices. These could affect the revenue and viability of the social equity retailers,” Moore said, speculating that new licensees could struggle to be successful in Massachusetts’ current market.

While the fledgling industry was wildly successful at the start, Moore questions whether Massachusetts has laid the correct foundation for the long-term success of the industry. He believes a lack of proper oversight and controls have had a negative impact.

“It was easy to say, 'It’s a new industry. Look at all the money,' but Massachusetts needs to plan for the long-term stability and growth,” Moore said, asking, “Do we have that?”

According to Cannabis Business Times; the price of marijuana flower in Massachusetts has dipped since legalization. Massachusetts’ average adult-use flower price fell 56%, from $394 to $173 per ounce.

It’s good news for consumers. Prices dropped from $24.22 an ounce to $20.53 an ounce over the past year, according to Headset , a cannabis market and data analysis firm. It appears the drop in price has prompted more sales. The firm reports an almost 5% growth in sales between March 2023 and last month.

The CCC cited the 2022 Leafy Cannabis Harvest Report that pegged cannabis as the most successful cash crop in the state, surpassing cranberries by almost $300 million. Adult-use cannabis products in Massachusetts had a dollar value of $361 million; cranberries came in at $66 million.

Personnel issues plague commission

Currently, the commission lacks both an executive director to oversee the day-to-day running of the agency and a chairperson.

The former executive director, Shawn Collins, at the agency’s helm since its inception, took parental leave in September and resigned from the job once his leave expired in December. Published reports indicate the body is seeking to fill the vacancy by the summer.

Shannon O’Brien, the deposed chairperson of the governmental body, was suspended with pay in September, just a year after accepting the post appointed by Treasurer Deborah Goldberg. O’Brien, a former state treasurer and Democratic gubernatorial candidate, quickly filed suit against the treasurer , claiming the constitutional official lacked the authority to remove her from the post and demanded immediate reinstatement.

In a written statement released at the time, Goldberg said she refrained from commenting on the suspension. However, “given reasonable and increasing demands for information and transparency, it is clear to me that it is necessary to share more information publicly. Several serious allegations were made by a commissioner and CCC staff about the chair’s behavior and the CCC initiated an investigation, hiring an outside law firm,” Goldberg said. “The law firm undertook an investigation and has returned with a report. According to the CCC’s employee handbook, suspension with pay is the only allowable remedy at this point, as the findings are being reviewed and action is considered."

The back-and-forth between the treasurer and O’Brien has played out in the media. A meeting between the two was rescheduled repeatedly, most recently at O’Brien’s request. Scheduled to meet in an arbitrated encounter earlier in April, that meeting was postponed and has since been rescheduled to May 2 and 3.

Andrew Napolitano, a spokesman for the treasurer, said, “Chair O’Brien’s attorneys informed us that due to unforeseen circumstances, they were unable to attend the meetings scheduled for April 10 and 11. They again requested a postponement and we agreed. We have been attempting to meet with the chair since September and we hope to avoid further delays.”

In discussing the letter and public comments made by commissioners and staff leadership of the CCC, Moore pointed out that there are deficiencies in the leadership and staffing of the CCC. Job postings for the government body Sunday include the position of executive director, press secretary and positions for licensing specialist, investigator and enforcement officer.

“When we sent the letter, the agency was fully staffed, had a permanent chair, operating with five commissioners and had an executive director,” Moore said, pointing out that many leadership positions are vacant and have yet to be filled. “This is not ‘normal operating procedures,’ as claimed by a former press secretary. If marijuana is the highest value cash crop in Massachusetts, and it’s a $5 billion industry, shouldn’t it receive more attention and its management more scrutiny?”

This article originally appeared on Telegram & Gazette: Cannabis Control Commission makes changes to community host agreements, impact fees