State cannabis regulators warn municipalities over demands for extra payments
State officials on Thursday signaled that municipalities seeking excessive payments from marijuana companies are probably breaking the law — even if local officials call the money a donation — but left unclear how that determination would be enforced.
At its meeting, the Cannabis Control Commission proposed policies encouraging cities and towns to implement smoother and cheaper local approval processes for marijuana retailers, cultivators, and other licensed firms. It will vote on whether to adopt the measures in two weeks, after a public comment period.
One of the proposed policies, a “guidance” document spelling out the agency’s interpretation of state law and regulations, would instruct municipalities not to demand payments from marijuana companies besides those explicitly spelled out in state law: a 3 percent tax on retail pot sales, plus a fee of up to 3 percent of annual revenue to offset any tangible costs the facility imposes, such as those related to increased traffic.
Numerous cities and towns are asking marijuana companies for more money than that — tens of thousands of dollars in some cases — to fund transit studies, support charities handpicked by local officials, or simply to fill municipal coffers.
Such payments are typically spelled out in the same agreements that grant marijuana companies local approval, and operators have complained they feel obligated to pay up, even when officials call the extra payments voluntary donations. Some municipalities have established higher rates, including Fall River, where the fee is 4 percent of annual revenue.
“It seems that some municipalities looked at the law and the 3 percent limit and decided that wasn’t enough — that the law didn’t apply to them,” Commissioner Shaleen Title said in an interview. “They started inventing these plainly absurd schemes to extract as much money as possible.”
Title added that contracts calling for excessive payments could slow the rollout of recreational pot sales and undermine state-level efforts to include in the cannabis industry minorities and other groups frequently marginalized in the business world.
The draft guidance published Thursday says any fees above the 3 percent cap that are not voluntary and don’t directly compensate the city or town for its expenses or a benefit it provides the marijuana business “risk being regarded as a tax, which, unless explicitly allowed under [state law], are prohibited.” The limit, the document says, applies whether the payments are “characterized as fee, a donation, or other exaction.”
“Municipalities are cautioned against relying on fees that are simply revenue generators . . . as these fees may not withstand judicial scrutiny,” the commission wrote.
The document essentially rejects arguments by attorneys for municipalities who have said that nothing in the law prohibits voluntary “side deals” with pot companies.
Commissioner Britte McBride, who drafted the guidance, said the proposal would set “strict bumpers” on municipal rent-seeking, while providing a guide for cities and towns that are confused about how to negotiate host-community agreements.
“I’m hopeful this will get that dialogue going in a productive way,” McBride said.
While long in the works, the proposed guidance comes shortly after two key state lawmakers urged the commission to review the so-called host-community agreements that marijuana operators must negotiate with municipalities to win a state license — and to reject those calling for fees beyond the 3 percent cap.
Senator Patricia Jehlen and Representative Mark Cusack, cochairs of the Legislature’s marijuana policy committee, wrote to the commission this month that the local demands are unlawful and threaten to sustain the illicit market, while freezing out smaller businesses with less money.
The commission had previously voted 3 to 2 not to review the agreements when processing license applications, with several commissioners arguing the agency lacked the authority to compel local officials to sign contracts with certain terms.
Title is now pushing for that decision to be revisited, saying that rejecting even one license application that included a host-community agreement with excessive payments would establish a precedent against extravagant demands by cities and towns.
McBride said that would hurt businesses more than municipalities.
“I really don’t think that denying people’s licenses is the solution,” McBride said. “That is penalizing absolutely the wrong party.”
The commission on Thursday also released a draft of another guidance document encouraging municipalities to adopt rules that encourage racial equity and the inclusion of small marijuana businesses. It suggests setting smaller buffer zones between marijuana facilities and giving priority to businesses that are owned by locals or participants in the commission’s equity and economic empowerment programs.