Last August, former Massachusetts Governor Charlie Baker signed S. 3096, An Act Relative to Equity in the Cannabis Industry (the “Reform Act”). The Reform Act provides new rules governing Host Community Agreements and community impact fees. The Reform Act requires host communities to establish initial procedures and policies regarding their HCAs to comply with the Reform Act no later than July, 1, 2023 and directs the Cannabis Control Commission to promulgate or amend regulations to be consistent with the Reform Act, which we expect to occur on or before November, 9, 2023. Below we have provided a list of questions you might use to review your HCA, and considerations for best practices moving forward with working with host communities.
The first two questions, which impact everyone, are:
If I signed my HCA before the Reform Act was passed, does it impact me? Yes (but maybe not yet)! The Reform Act requires the Commission to review and approve each HCA as part of a completed marijuana establishment license application, and during each license renewal. Existing HCAs will be reviewed each year under this provision, but only AFTER the date that the Commission sets out in its new regulations. Therefore, once the Commission has promulgated its regulations on August 11, an HCA that does not comply with the Section 10 of the Reform Act may be met with disapproval by the Commission during its review of a cannabis establishment’s initial license or annual renewal application.
What happens if the Commission does not approve my HCA? You cannot obtain a final license approval. Once the new regulations are promulgated, the Commission will not approve a final license application unless it approves and certifies that the HCA complies with the requirements set forth in the Reform Act. Therefore, the expectation is that the City or Town will be compelled (or at least feel compelled) to make changes required by the Commission. This will become clearer once the regulations are adopted. We are awaiting the proposed regulations and preparing comments to assure the Commission has the power to enforce the law as written.
Here are some questions (and answers) that you should consider when evaluating your HCA:
Does your HCA recite that the impact fee is a flat percentage of sales? The Reform Act explicitly states that HCAs may not mandate a certain percentage of sales as the community impact fee. Therefore, if your HCA specifically references the impact fee as being a percentage of sales or is otherwise based on sales, then your HCA does not comply with the Reform Act.
Is there a cap on my community impact fee? Yes. Under the Reform Act, the community impact fee must be reasonably related to the costs imposed upon the municipality by the operation of the cannabis establishment. The impact fee cannot exceed 3% of the cannabis establishment’s gross sales. Therefore, a cannabis establishment’s gross sales are only associated with the impact fee as it relates to the impact fee’s cap.
Is there a term limit on my community impact fees? Yes. The Reform Act amends Chapter 94G of the General Laws so that an HCA may not include a community impact fee after a cannabis establishment’s 8th year of operation. If your HCA references an impact fee that extends past 8 years, then your HCA does not comply with the Reform Act.
When does your impact fee commence and when is the first payment due? Under the Reform Act, the impact fee should only commence on the date the cannabis establishment is granted a final license by the Commission, and the first annual fee payment is not due until after the first annual license renewal by the Commission. Note that if you are past this stage, there may be no remedy available to you.
Does your HCA include additional in-kind/charitable contributions as part of the terms? If so, then your HCA does not comply with the Reform Act. The new law requires that the limits on community impact fee encompass all payment obligations between the host community and the cannabis establishment, and shall not include any additional payments or obligations, including monetary payments, in-kind, and charitable contributions by the cannabis establishment to the host community or any other organization. Any other contractual financial obligation that is explicitly or implicitly a factor considered in, or is a condition of, an HCA shall not be enforceable. However, a cannabis establishment may voluntarily provide organizations with monetary payments, in-kind contributions, and charitable contributions after the execution of the HCA; and of course, must make the payments required by the Commission provided, however, that the HCA shall not include a promise to make a future payment.
Does your HCA provide you with the right to obtain copies of host community documentation pertaining to the costs imposed upon the municipality by the operation of the cannabis establishment? If not, it should. Under the Reform Act, a host municipality must document and transmit to the cannabis operator any costs imposed by the operation of the cannabis establishment within one month after the date of the licensee’s annual renewal.
When can I change my HCA? There are various opportunities to seek change in your HCA, depending upon what terms you have, how long you have been operating and what the municipality has been doing recently. Some towns have started to comply voluntarily and may amend your HCA upon request. Others that are now issuing compliant HCAs to new applicants may be persuaded that an existing HCA should have the same terms. We expect that many cities and towns will not voluntarily propose any changes – in that case, there’s nothing wrong with starting the conversations now, and following the conversation with a proposed re-draft preparing of your HCA that conforms to the new rules.
If you need assistance with reviewing your HCA, revising it to comply with the Reform Act, and/or working with your host community to amend your HCA, please contact Adam Braillard, the author of this Alert, at email@example.com, Dan Glissman at DGlissman@PrinceLobel.com or John Bradley, at JBradley@PrinceLobel.com .