Boston to refund millions in marijuana ‘impact’ fees

City becomes the first in the state to relinquish controversial funds

An employee completed a sale at the March 2020 grand opening of the Pure Oasis marijuana store in Boston's Grove Hall neighborhood.Jessica Rinaldi/Globe Staff

Boston will refund millions of dollars in “impact” fees it collected from marijuana companies, the first Massachusetts municipality to do so after state lawmakers enacted a measure cracking down on the controversial payments.

Officials in Mayor Michelle Wu’s administration notified local cannabis operators of the decision in a letter sent on Nov. 3, saying they would stop collecting the fees — worth 3 percent of each firm’s annual revenue and ostensibly meant to offset their negative effect on the surrounding community — and return all the money collected since recreational sales began in the city more than two years ago.

In a short statement, a city spokesperson said nine Boston marijuana companies would receive checks totaling $2.86 million, with some of the money coming from unexpended fees and the remainder from a “legal reserve fund.”

“The city determined this was the appropriate course of action after reviewing the recent changes to state law,” the spokesperson said.

Since 2017, Massachusetts law has allowed cities and towns to charge local marijuana operators impact fees of up to 3 percent of their revenue, as long as the payments were “reasonably related” to the facility’s negative impacts.

But in the absence of enforcement, most cities and towns charged the maximum rate, or even more, without enumerating any issues. They also spent the funds on a variety of projects, many with little apparent connection to the presence of pot shops and growing facilities.

Industry leaders have long criticized the fees as unjustified “shakedowns” that especially hurt smaller cannabis startups, even as municipalities insisted the agreements were negotiated in good faith.

The debate culminated earlier this year when the state Legislature passed a law requiring cities and towns to document the costs supposedly covered by the fees and giving the Cannabis Control Commission oversight of the deals.

The law’s silence on the validity of existing fee agreements has led to widespread confusion, however. Some communities are continuing to charge operators until the commission finalizes regulations for enforcing the new limits. Others, such as Boston, are backing away from the practice, fearful of being sued by local marijuana companies that are entitled under the new law to recover any unjustified fees and legal expenses in court.

Kobie Evans, co-owner of the Pure Oasis marijuana store in Boston’s Grove Hall neighborhood, said his company has paid about $350,000 in impact fees since its debut as the city’s first recreational retailer in March 2020.

“It was honestly shocking,” he said, describing the moment he opened the letter announcing the city’s refunds. “Being in cannabis, you come to expect municipalities will be bureaucratic, not proactive. No one expected to get their money back. It’s a huge weight off our shoulders.”

Evans added that the city did not consistently collect the funds amid the two mayoral transitions that followed the resignation of former mayor Martin J. Walsh in March 2021. Still, he said, the seemingly small-percentage fee actually had a significant impact on his company’s finances, in part because it is calculated against gross revenues instead of net profits.

“It ends up being more like 10 percent of your net, which is big hit to the bottom line,” he explained. “That’s money we could be using to create jobs and grow as a business, but instead we’re writing this check for services not even rendered — because we have zero impact. It’s one of the hardest checks we have to write.”

Meanwhile, the state cannabis commission voted unanimously at its monthly meeting Thursday to clarify that it will not enforce the new limits on impact fees until it can come up with a process for evaluating whether each company’s payments are fair and writing a model fee agreement that municipal officials can copy.

Developing those regulations could take up to a year. Regulators at the commission pledged they would prioritize the work, but did not give a firm timeline for finishing it. In the interim, they urged local leaders to work with city and town lawyers to revise their marijuana agreements in accordance with the new law.

“My commitment is that we’ll be back in relatively short order with recommendations for regulations,” Shawn Collins, the agency’s executive director, told commissioners at the meeting.

Some marijuana companies aren’t waiting on the state to come up with new rules, however.

Stem, a marijuana shop in Haverhill, sued its host city in 2021 under the previous law, seeking to recover fee payments it said were not “reasonably related” to its impact.

A hearing on a motion for the case to be decided in Stem’s favor is scheduled for Tuesday in Essex Superior Court.