Host community agreements make towns gatekeepers of state approval
OFFICIALLY, THE STATE licenses marijuana businesses. Practically, local municipalities are the gatekeepers.
The requirement that cities and towns negotiate host community agreements with marijuana establishments has led to alleged outright corruption in Fall River, and statewide frustration among marijuana entrepreneurs who say local officials are violating the spirit – and potentially letter – of the law by extorting too much money.
The major issue here as we have framed it is who has the ultimate power in deciding to whom retail marijuana licenses will be issued,” said Mederi’s attorney, William Sheehan. Sheehan said state law grants license-granting power to the Cannabis Control Commission, but the way the process is set up gives cities and towns tremendous leverage over the process by “putting a stranglehold” on who gets a host community agreement.
The case could have major implications for the industry if the court decides that communities are restricted to enforcing zoning laws, rather than making more discretionary decisions. Today, municipalities have wide latitude in deciding who gets a host community agreement, and an applicant cannot go to the Cannabis Control Commission without one.
Boston-based attorney Adam Fine, who represents marijuana companies and is not involved in the case, said under the current system, companies face unfair and sometimes arbitrary processes in some municipalities for determining who gets agreements. There can be “bidding wars” and outright corruption, as with former Fall River mayor Jasiel Correia, who was arrested for extorting bribes in exchange for host community agreements.
Fine added that the Cannabis Control Commission is required to consider certain priorities, like social equity, in awarding licenses, while cities and towns have different priorities – addressing traffic, parking, and raising money. “The premise of the lawsuit…which is probably a long time coming, is that it should be really the state that determines who gets a license and who doesn’t,” Fine said.
The case was brought by the marijuana retailer Mederi after Salem mayor Kimberley Driscoll rejected its application for a host community agreement.
In accordance with state law, Salem had imposed a five-business cap on marijuana establishments. Eight businesses applied. The city says officials had broad discretion in choosing who to contract with and was not required to accept any applicant that met its permitting requirements.
Salem says six of eight applicants, including Mederi, were located on one street, and the city wanted geographic diversity. Mederi and its CEO had less experience in the marijuana industry than other applicants.
Victoria Caldwell, an attorney for the city of Salem, said Salem acted early to move the industry forward and approve marijuana establishments with little statewide guidance, and city officials were transparent about their process and requirements. The way the law was written, Caldwell said in an interview, “it was put in the city’s lap to make those decisions.”
“The city, one of the first in the Commonwealth to welcome the retail marijuana industry, was acting on behalf of the public in seeking out retailers which had the capacity in terms of both financial and human capital to navigate the many regulatory complexities and to ensure a smooth launch to these newly legal retail businesses,” Caldwell wrote in Salem’s court brief. “It also sought to spread retail marijuana stores across different areas within the city, minimizing the impacts on any one neighborhood or roadway.”
But Mederi’s attorneys say the law does not give municipalities discretion in deciding which applicants they want to receive licenses, as long as applicants meet objective “time, place, and manner” criteria laid out by the municipality – which Mederi did by getting the proper local permits in an appropriately zoned location.
Sheehan argued in Mederi’s brief that Salem impermissibly used the host community agreement “to usurp the exclusive power of the CCC” to determine who to grant a license to. “A municipality can answer the what, when, where, and how questions of marijuana sales within its borders, but not the question of who, that being reserved to the CCC,” Sheehan wrote.
If too many businesses meet the criteria, Mederi argues, then it is the Cannabis Control Commission’s job to decide who gets the license. “If every municipality conducted itself like the City of Salem, the CCC would have virtually no role in the selection of marijuana establishment licenses,” Sheehan said in a court brief. He wrote that state law sets out objective factors the CCC can use “to avoid the reality or appearance of ‘back room deals’ or ‘HCA’s for sale’ presented in (this) case.”
Christine Baily, an attorney for the Cannabis Control Commission, in a brief filed with the SJC that does not side with either party, notes the inconsistency in the law. Baily writes that by granting municipalities exclusive control over the host community agreement process, municipalities have authority over who can seek state licensure. That then limits the commission’s ability to abide by its own mandate of prioritizing applicants who have disproportionately been affected by drug prohibition, who may be at a disadvantage in negotiating host community agreements with less start-up money and less industry experience.
However, the Cannabis Control Commission does not seem interested in the extra power that Mederi officials seek to give it. Baily’s brief asks the court to affirm that the commission does not have a role in the host community agreement process and can only consider applicants who successfully executed an agreement.
A commission spokesperson declined to comment further.
The court case also raises the long-disputed topic of how much money cities can ask for in host community agreements.
The agreements are meant to let communities recoup any costs imposed by the business. State law caps these “community impact fees” at 3 percent of sales. But it is unclear who has authority to reject an agreement that charges more.
The Cannabis Control Commission has said it does not have authority to police host community agreements. Commissioners asked the Legislature for that power, and the Massachusetts House voted last February to give it, but the Senate never took the bill up.
Practically, many communities have charged more than 3 percent.
In Salem, the city stipulated that to get a host community agreement, an applicant had to pay 4 percent of gross sales – a 3 percent community impact fee plus a 1 percent contribution to a newly created transit enhancement fund – and at least $25,000 per year in donations to city-approved entities.
Mederi says Salem’s requirements are illegal. “The city’s pay to play scheme is contrary to both the letter and the spirit of the law,” Mederi’s attorneys wrote in their brief.
Salem’s brief says the law does not limit what “other benefits” parties may negotiate, beyond the community impact fee.
It is not a given that the SJC will address this issue. Jim Smith, an attorney who represents marijuana companies but is not involved in this case, said it is unclear whether Mederi has standing to pursue a claim about host community agreements because Mederi never got one. “Mederi doesn’t have an abusive HCA, it has no HCA,” Smith said.
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