You’ve probably noticed some new activity in the press about cannabis establishments suing cities and towns over “impact fees” associated with Host Community Agreements (HCAs). These impact fees have been around since the first legalized cannabis operations opened in 2018, so what’s changed?
In 2022, then-governor Charlie Baker signed legislation, Chapter 180 of the Acts of 2022, reforming cannabis impact fees. In February 2024, the Cannabis Control Commission (CCC) approved a model HCA based on the legislation. The changes impose new rules for cannabis operators and municipalities, and raise additional questions about municipalities’ earlier practice of collecting impact fees.
As before, an HCA is still required in order to apply for a new license with the CCC. Now, however, there is an opportunity to apply for a waiver in lieu of the HCA from the municipality. Also as before, municipalities are only allowed to charge impact fees up to three percent of gross sales, and, as before the impact fees must be reasonably related to the operation. However, the new laws and regulations have provided much needed clarity as to what is, and what is not, a legitimate impact fee.
The new standards raise questions as to when the new model HCA language should be deemed to have come into effect: 2022? Before? There’s a legitimate question as to whether these community impact fees that some establishments have been paying for years – even when municipalities claim that there is no impact from the establishment – are legal at all.
In light of these questions, some municipalities are doing the right thing. In November 2022, Boston became the first municipality to refund impact fees and cease their collection. Northampton followed. Other communities, like Uxbridge, have reached settlement agreements with their operators. Now, retailers in western Massachusetts are suing Great Barrington for return of the fees. The Boston Globe recently editorialized that “communities should tear up any old host community agreements that don’t comply with the new rules and quickly ink new agreements”. We agree.
This is a fascinating time for the industry, especially here in Massachusetts. While this issue of HCAs unfolds amid a backdrop of tight operating budgets, the industry awaits the outcome of the likely rescheduling of cannabis by the federal government, and what would ultimately bring an end to the largest impediment to a successful income model –IRS Code 280E – which prevents cannabis establishments from writing off basic expenses allowed by all other businesses.
Prince Lobel is currently helping its clients navigate these questions and more. If you find yourself asking any of the questions posed in this alert, please contact Mike Ross or any other member of the Prince Lobel Cannabis Team for a further conversation.