Report: Marijuana host communities received $2.5M in unlawful fees
PHOTO/BRAD KANE
The cannabis dispensary Good Chemistry on Harrison Street in Worcester
Advocates, lawmakers and former regulators urged a legislative committee on Tuesday to provide more oversight of required contracts between municipalities and marijuana businesses, arguing that the system continues to be exploited by some cities and towns, which creates a barrier for small and minority owned businesses to get started in the industry.
The issue of host community agreements has been one fraught with tension as people in the industry have argued for years that negotiations are often "one-sided," with the municipalities controlling all the leverage.
The result, according to testimony given to the Joint Committee on Cannabis Policy, are agreements that often violate the limits put on how much cities and towns can charge marijuana businesses for traffic, public safety and other impacts they have on a community.
The committee held a hearing Tuesday on nine bills focused on host community agreements, returning to an issue the House tried to address with legislation it passed last February, before the COVID-19 pandemic put most other issues on the back burner.
Many of the bills, like the one that passed the House, would make it clear that payments are not to exceed 3 percent of gross sales and give the Cannabis Control Commission explicit authority to review and enforce the terms of host community agreements.
Some who testified also asked for the CCC to provide clarity on how community impact fees can be spent. State law requires the fees must be "reasonably related to the costs imposed upon the municipality by the operation of the marijuana establishment," but a study released Tuesday found that cannabis companies have paid at least $2.46 million more than required under law, and that communities often have no plan for how to spend the money they collect.
That report, which was paid for by the Cannabis Business Association and conducted by Jeffrey Moyer of the McCormack Graduate School of Policy and Global Studies at the University of Massachusetts Boston, reviewed 460 host community agreements.
"A significant proportion of the agreements we analyzed required additional payments from business beyond the legal limit, amounting to an excess of at least $2.46 million whether through reimbursements, local charity donations, so-called 'community benefit payments,' or donations of employee time to education efforts," Moyer said.
The UMass Boston study recommended, among other things, that the Legislature authorize the Cannabis Control Control to review host community agreements and establish rules and standards for how funds collected under these contracts can be used.
Rep. David Rogers, the former chair of the committee, said he believed the Cannabis Control Commission already had the authority to enforce the laws governing host community agreements, but he agreed no city or town should be charging more than 3 percent.
"The commission arguably has the authority, but there are those scholars and lawyers and members of the commission who think it's a little murky," Rogers said.
"They Will Not Do It"
Shaleen Title, a former member of the Cannabis Commission, said the current structure allows host communities to "hold hostage" applicants and demand payments in excess of the 3 percent impact fee allowed under the law.
"This system unfairly benefits those companies that can afford it," Title said.
The former commissioner said she favors the comprehensive bill filed by Sen. Patricia Jehlen that would also require host communities to establish policies and procedures to promote participation in the industry by people from communities hurt by years of marijuana drug law enforcement.
Chauncy Spencer, a Black Boston resident who was among the first equity applicants in the city trying to open a dispensary in Roxbury, said the system and the industry are bogged down by structural racism. He asked the committee to be explicit about its desire to see racial diversity of ownership in the industry.
"Do not allow municipalities to have any say in how this will go. They will not do it," Spencer said.
Rep. Michael Soter, a Republican who represents several small communities in the Blackstone Valley, said he worried about how a change in the law would impact communities that have already negotiated host community agreements and budgeted for the money they expect to collect.
"They sold the residents on the part of the law that we now want to change or tweak," Soter said.
Rep. Colleen Garry, a Dracut Democrat, also said she worried that forcing communities to prove costs associated from increased traffic, parking or policing generated by marijuana businesses would put another burden on cities and towns.
"I don't want it to cost them money to prove it's costing them money," Garry said.
Athol Town Manager Shaun Suhoski said he felt "battered and bruised" after listening to a lot of the testimony.
"Nobody's shaking anybody down. These horror stories that we've heard. Let the courts handle it," he said.
Suhoski said in Athol he has seven host community agreements and he's worried what will happen to them if the CCC issues new regulations "ex post facto" after they were negotiated "in good faith." He said some of the companies he negotiates with have larger legal budgets than his entire town.
"I don't feel the municipalities always hold the upper hand," he said.
David Torrisi, a former state lawmaker and president of the Commonwealth Dispensary Association, said host community agreement negotiations are "inherently one-sided."
Torrisi said if he had more time to testify he could make a case that Dunkin' donuts shops cause more traffic, trash and other problems for communities that marijuana dispensaries.
"They should stop being penalized for running good clean businesses because of some outdated perceptions about cannabis use," Torrisi said.
"They Are Guessing"
Caroline Pineau, the owner of Stem in Haverhill, has gone so far as to sue the city to show her how the $400,000 in impact fees she owes under her host community agreement will be spent. Pineau's state senator, Sen. Diana DiZoglio, has filed a bill (S 68) that would require cities and towns to show how the impact fees are being used to mitigate the impact in the community of cannabis shops.
"After 12 months in operation, I have yet to see any evidence of negative impacts on Haverhill," Pineau said.
Aaron Vega, another former state lawmaker who now directs economic development programming in Holyoke, said he agreed with Torrisi about the double standard.
"I'd love to have a host community agreement in my city with McDonalds," Vega said.
Vega said the host community agreements used by Holyoke is "boilerplate," and would like to see more funds used to help the industry grow. He said he supports making sure the Cannabis Control Commission has the authority to regulate and standardize the process.
Britte McBride, who like Title served on the CCC who helped draft the 2018 host community agreement guidance, said she supports the concepts of reform put forward in many of the bills, but she recommended splitting the host community agreement from the process of negotiating a community impact fee.
McBride said HCAs could remain a requirement for licensing, but that an impact fee could be negotiated after one year of operation when both the community and the applicant have a better understanding of the business's impact on the city or town.
"At the time these are being negotiated, they are guessing," McBride said.
Boyer said three-quarters of the host community agreements he reviewed specified a percentage for an impact fee, and of those 90 percent were set at 3 percent. "Municipalities are asking for this 3 percent as a reflex," Moyers said.
The report highlights many examples of agreements that appear to violate the law. For instance, Marshfield's agreement with Frozen 4 Companies stipulates that the payment for the first year of operation should be $250,000 or 3 percent of gross sales, "whichever is greater."
Or in Winchendon, the agreement called for a 3 percent impact fee plus $5,000 annually to a local American Legion Post.
In total, Boyer's report said 61 towns had at least some agreements that called for additional donations on top of the 3 percent impact fee totaling $998,000.
Some who testified pointed to Northampton Mayor David Narkewicz's recent decision to waive the 3 percent fee for marijuana businesses in his town, citing the lack of evidence that it was warranted. The city will continue to collect the 3 percent tax on sales that cities and towns are also entitled to, under the law.
Others pointed to the recent trial of former Fall River Mayor Jasiel Correia as evidence of what can go wrong without oversight. Correia faces a battery of charges that include allegations that he extorted money from marijuana business applicants in the city.
"Municipalities can't just ask for a blank check," said David O'Brien, president of the Massachusetts Cannabis Business Association.
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