Cannabis Companies Sue Towns Over Past HCA Fees

The Massachusetts cannabis industry has been grappling with considerable uncertainty regarding the legal and enforceable nature of the “Community Impact Fees” in the wake of the enactment of “An Act Relative to Equity in the Cannabis Industry” in November 2022. This uncertainty has raised significant concerns within the industry and has even prompted multiple legal disputes between operators and their host communities.

One of the most recent lawsuits in this regard has been initiated by Berkshire Roots, a Pittsfield-based cannabis company. On August 18, 2023, Berkshire Roots filed a lawsuit in Berkshire Superior Court seeking to recover $440,000 in Community Impact Fees that it had paid to Pittsfield over several years as part of its host community agreement (HCA).

According to JD Supra reports, the lawsuit alleges that Pittsfield officials have failed to identify any genuine “impacts” the company has had on the local community. This legal action underscores a significant issue within the state’s cannabis legislation.

Here, the imposition of Community Impact Fees on cannabis businesses must be “reasonably related” to the actual costs incurred by municipalities due to cannabis business operations. Furthermore, municipalities must provide annual documentary evidence of these costs to the operators.

Berkshire Roots is striving to recover $440,000 in Community Impact Fees that it has paid to Pittsfield since 2018. Nevertheless, no explicit provision in the state’s legalization law addresses the possibility of cannabis businesses reclaiming past Community Impact Fee payments that did not comply with legal requirements.

According to the filed complaint, Berkshire Roots holds two Host Community Agreements with the city, one about its medical cannabis operations and another related to its adult-use operations.

Modifications to the state’s legalization law explicitly grant licensees the authority to take legal action against host communities for breaching contractual agreements if a licensee believes that the municipal cost documentation for the previous year, now mandatory during the license renewal process, is not “reasonably related” to the actual costs incurred by the municipality.

Under these provisions, licensees can sue to “recover damages, attorneys’ fees, and other costs included in the community impact fee that are not reasonably related to the actual costs borne by the city or town,” as stated in the JD Supra review.

The legal foundation for Berkshire Roots’ lawsuit is rooted in something other than the new law. Instead, it refers to the previous statutory framework and a 2020 Guidance Document issued by the Cannabis Control Commission concerning Host Community Agreements.

Similarly, Pittsfield-based Bloom Brothers initiated its lawsuit against Pittsfield the previous year. They seek to recover $110,000 in Host Community Agreement fees, contending that the city has failed to furnish documentation that illustrates the company’s impact on the city.

Community Impact Fees

A Host Community Agreement (HCA) can incorporate the provisions of an optional Community Impact Fee. However, this fee is subject to certain restrictions. It must be at most 3% of the gross annual sales and adhere to all relevant legal prerequisites.

These Community Impact Fees are constrained to a maximum duration of five years, although there is room for negotiation between the involved parties to establish a shorter period. When the initial term concludes, the parties can engage in discussions to set the terms for a new Community Impact Fee, which is also restricted to up to five years.

Crucially, the Community Impact Fee must be reasonably linked to the expenses incurred by the municipality due to the operations of a Marijuana Establishment (ME) or a Marijuana Testing Center (MTC). Municipalities must provide evidence demonstrating how the proposed fee will address expected costs and should not view the Community Impact Fee as a means of generating revenue.

Community Impact Fees may encompass various expenses, which can include, but are not restricted to:

1. Municipal inspection costs.

2. Overtime costs for public safety personnel.

3. Environmental impact studies.

4. Traffic intersection design studies.

5. Substance abuse prevention programs.

Should a municipality intend to levy a fee that could be categorized as a fee, donation, or gift, even if it surpasses the 3% threshold for the community impact fee, it must ensure compliance with the legal prerequisites for a regulatory fee.

Basic Terms and Conditions

The Host Community Agreement (HCA) delineates the terms and responsibilities of the municipality and the applicant or licensee.

The Commission strongly encourages municipalities to thoughtfully assess the potential impact of the specific Marijuana Establishment being proposed for their community. They should also consider the potential benefits of local revenue and employment when negotiating a Host Community Agreement.

While the two parties have the flexibility to agree on a wide array of terms and conditions, the agreement may encompass the following provisions:

1. The HCA may specify the ME or MTC terms to provide paid police details to manage traffic and crowds during peak operational hours.

2. The HCA might include a provision stipulating that the Marijuana Establishment (ME) or Marijuana Testing Center (MTC) must offer job opportunities to municipality residents. While residency can be a positive factor in recruitment, it should not hinder the ME or MTC from hiring the most qualified candidates or lead to non-compliance with Massachusetts Anti-Discrimination and Employment Laws.

3. The HCA can identify the security system required to control access to areas where Marijuana or Marijuana Products are stored. Possible methods include a keypad or electronic access card system.

4. The HCA might include provisions if the ME or MTC wishes to terminate the agreement with the municipality.

5. The HCA may outline the steps the ME or MTC must follow to relocate within the municipality.

6. The HCA can establish how the ME or MTC will collaborate with the municipality to provide educational programs sponsored by the local government.

7. The HCA may detail how the ME or MTC will contribute to community support, public outreach, and employee outreach programs.

Conclusion

Massachusetts’ cannabis industry is navigating a complex landscape defined by host community agreements, community impact fees, and recent legal disputes. These agreements serve as the foundation for cooperation between municipalities and cannabis businesses, striving to balance economic growth with community interests.

The ongoing lawsuits, exemplified by Berkshire Roots and Bloom Brothers, underscore the need for legal clarity and adherence to ensure a fair and transparent cannabis industry. Massachusetts must continue refining its regulations and fostering open communication between all stakeholders to ensure a sustainable and equitable future for the state’s cannabis market.

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