Marijuana store sues Haverhill, saying steep ‘impact’ fees are not justified

The long-awaited legal challenge could upend the controversial local approval process.

Stem founder Caroline Pineau stands inside her unfinished Haverhill marijuana store in 2019.Jessica Rinaldi/Globe Staff

Haverhill marijuana store Stem has sued its host city over “community impact” fees imposed on local cannabis companies, arguing officials have failed to explain how the steep payments are related to any negative effects caused by the presence of pot shops.

If Stem is successful, the case would upend the controversial local approval process for marijuana companies in Massachusetts. That process, which involves the businesses making payments to cities and towns, is the subject of an ongoing federal investigation, and has long been derided by the industry as little more than a legal shakedown.

“I don’t want a brawl with my host community, but it was time for someone to challenge this,” Stem founder Caroline Pineau said in an interview. “We already pay a huge sales tax to the city, and if they want even more, I don’t think it’s unreasonable to ask that they obey the law and authenticate their claims.”

A spokesman for Haverhill Mayor James Fiorentini said in a statement that the city would “vigorously defend” itself and was “deeply disappointed that this one company, after gaining their permits and getting access to a prime location downtown, now seeks to avoid paying what they agreed to pay.”

Under Massachusetts statute, municipalities charge a 3 percent local tax on recreational marijuana sales, plus a community impact fee on each licensed operator worth up to 3 percent of the company’s gross revenue. But the law specifies that such fees must be “reasonably related” to mitigating the detrimental impacts of the business. The state Cannabis Control Commission also requires cannabis firms seeking license renewals to ask their host communities for documentation of how the money was spent.

Despite those guidelines, the vast majority of cities and towns that permit marijuana facilities simply charge the maximum 3 percent fee without enumerating the impacts supposedly covered by the payments, and few, if any, have provided the information sought by the commission.

Stem accuses Haverhill officials of ignoring an initial request for such documentation last July, then detailing only vague “impacts” caused by company’s presence when it again pressed the city to justify the fees.

In a February letter to the company, Haverhill city solicitor William Cox, Jr. said “retail marijuana stores have caused us to have a substantial increase in our costs across a spectrum of municipal departments... [including] an increase in need for drug abuse and mental health services, in both our community and, more specifically, in our schools, as well as an increase in domestic issues.”

Stem says Haverhill cannot substantiate those assertions, much less attribute them to the marijuana store’s operation, putting the city in violation of the “reasonably related” standard (which is also incorporated in the company’s “host community agreement” contract with Haverhill).

“I’d really love to see them authenticate those claims,” Pineau said, noting that state data show teen pot use trending down.

Stem is asking the court to find that Haverhill has not justified its fee, and is not entitled to any payments from the company. Nonetheless, Pineau said, it has set aside about $400,000 to pay its first annual impact fee, which is due May 30, and is willing to let the court hold those funds and disperse them to Haverhill if a judge determines any or all of the payment is justified.

The Massachusetts marijuana industry has long hoped an operator would bring such a legal challenge, but until now none were willing to take on their host municipality, fearing retaliation. As a result, Stem’s case will be closely watched — and cheered on by some.

“Cannabis operators should not have to sue their host communities to make them obey the law,” said David O’Brien, president of the Massachusetts Cannabis Business Association.

Several proposed reforms intended to bring greater oversight and transparency to the process of negotiating host community agreements and the fees they contain are pending on Beacon Hill. One filed by Haverhill representative Andy Vargas would require cities and towns to audit the fees they charge marijuana companies and refund any money above the actual cost to the community.

The House voted in 2020 to give the cannabis commission authority to more closely scrutinize the pacts, but the Senate did not take up the measure.

While some progressive communities such as Northampton are moving to drop the fees, municipalities generally maintain that the law doesn’t prevent them from negotiating voluntary payments with cannabis firms, even beyond the 3 percent limit.

“While the cannabis industry is working hard to undermine municipal authority, we hope the courts and the [state] will continue to allow communities to act on behalf of their residents and the public interest,” said Geoff Beckwith, executive director of the Massachusetts Municipal Association. “It’s a shame that a company would sign an agreement with a city, use that agreement to establish a profitable enterprise, and then attempt to renege in order to further increase their bottom line.”

Pineau, for her part, insists the lawsuit is motivated by principle, not money, noting that the case could hinder her effort to open Stem locations in other communities.

“I absolutely worry about retaliation, but if what happens here helps shed a light on the poor compliance by municipalities and makes things easier for other independent operators, I’m happy to move forward,” she said. “This is much bigger than Haverhill — this is a statewide issue about accountability at the municipal level.”