By: Irina Dashevsky, Partner and Jordan Wilson *
The Massachusetts cannabis market has not been an ideal place for operators as of late. The once dominant and premier adult-use market of the East Coast has been hit with price compression, and is no longer alone as exciting new adult-use markets are emerging in New York, New Jersey, and Connecticut. One of the biggest criticisms that Massachusetts has faced recently is the difficulty incurred with respect to Host Community Agreements (HCAs), and the time and expense associated with actually becoming operational in the state.
In an attempt to redress the disparate impact that HCAs impose on cannabis businesses, the Massachusetts State legislature passed Senate Bill 3096 earlier this month. The bill, signed into law by Governor Charlie Baker yesterday on August 11, 2022, proposes new limitations on community impact fees and aims to promote greater access to capital for emerging cannabis entrepreneurs.
Under Massachusetts’ Governing Adult Use Marijuana Act, Marijuana Establishments (MEs) and Medical Marijuana Treatment Centers (MTCs) had to execute HCAs with the municipalities in which they planned to operate in. The Act also allowed municipalities to impose an optional local tax, up to 3%, as part of the HCA, in addition to the mandatory 6.25% sales tax and 10.75% excise tax on marijuana and marijuana products. Between the heavy taxation at the state level (and of course 280E at the federal level), the burden and costs associated with compliance in the legal cannabis industry, and price compression, many cannabis companies began reaching a breaking point.
Indeed, in the recent case of Mederi Inc. v. City of Salem , the Massachusetts Supreme Court chastised municipalities that required prospective licensees to make payments beyond the 3% community impact fee described in the Act. The Court also raised questions about the purpose of HCAs and highlighted statutory ambiguities that frustrate efforts to promote diversity, equity, and inclusion in the adult-use industry.
In response to these issues, the state legislature proposed new limitations on community impact fees in S.B. 3096. The bill includes the following:
Requirements for cities and towns to prioritize equity applicants in their local licensing process;
A technical amendment that will allow municipalities to incorporate Social Consumption Marijuana Establishments into their communities for the first time since the Commission incorporated the license type into its regulations in 2019;
A provision that codifies Massachusetts’ first-in-the-nation Social Equity Program programming into law;
A state-administered Social Equity Trust Fund capitalized at 15% of the annual Marijuana Regulation Fund and;
A provision invalidating all fees based on percentage of sales.
This is a significant development that puts the regulatory landscape in Massachusetts’ into somewhat of a state of flux as the Cannabis Control Commission is likely to put out guidance/regulations covering these changes. Licensees will need to take a close look at their HCAs and any new guidance to determine what, if any, options they have, including implications on license renewals.
*Not an attorney.
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