Payments for marijuana licenses appear to skirt state law
Several of the five commissioners of the Massachusetts Cannabis Control Commission seemed unsure about the extent of the issue. Commissioner Britte McBride told the meeting there was only “anecdotal evidence that there may be some concerns about how a select group of certain municipalities are acting.”
But a Globe review found all 19 provisional licenses issued by the commission are tied to host community agreements that appear to violate the agency’s own guidance on how such deals should be structured.
The same was true of several dozen additional host community agreements that have not yet resulted in licenses from the commission. The Globe obtained these agreements from town websites, public record requests, and attorneys representing marijuana operators.
In fact, few — if any — local contracts appear to comply with state law, which caps payments from cannabis firms to municipalities at 3 percent of a company’s annual revenue and says they must be reasonably related to the actual costs they impose. The provision, which also limits the deals to a maximum term of five years, is meant to prevent municipal shakedowns and make it more affordable for smaller pot entrepreneurs to open.
“There’s clear evidence — problematic host community agreements that disregard sections of the law are pervasive,” said cannabis commissioner Shaleen Title, who has been urging the agency to require the submission of local contracts as part of the state’s licensing process and reject applications from companies that agreed to make excessive payments.
Currently, the commission only checks to see that a host community agreement, which is required for state licensure, has been signed, but doesn’t screen the contents.
“If we don’t institute a fair and consistent standard now, before issuing any final licenses, we may as well roll out a red carpet for companies with flashy gifts and big checks to ignore the legal cap on payments,” Title added.
Two key state lawmakers who helped draft the provision limiting local agreements have also urged the commission to review the contracts.
In guidance it issued earlier this month, the commission made clear that with few exceptions, payments are capped at 3 percent of revenue, and that any fees “must be in exchange for a benefit that is sufficiently specific and special to the Marijuana Establishment and assessed in such a way that it justifies assessing the cost to this limited group as opposed to the general public, even if the public sees some benefit.”
But just one of the nine local agreements that cover the commission’s 19 provisional licenses — some have multiple licenses in a single town that are all covered by one agreement — calls for the payments from the operator to the town to be reviewed and adjusted depending on the actual costs imposed by the facility.
The rest of the agreements related to the 19 licenses issued so far make no mention of specific costs — actual or anticipated — and all permit the municipality to use the funds for any purpose.
Even the contract that stipulates a review of costs, the one between the town of Leicester and Cultivate Holdings for a retail shop and cultivation facility, includes other apparent violations: the company must pay at least $75,000 annually (regardless of costs), and after five years, the payments continue indefinitely until the two parties negotiate a new deal.
A contract between Alternative Therapies Group and Amesbury contains a nearly identical clause extending the length of the contract beyond the maximum five years. Similarly, one between Wareham and Pharmacannis Massachusetts says that after five years, the two parties must negotiate a new deal that’s at least as generous.
The commission’s guidance says that after five years, municipalities and marijuana firms can negotiate new fees, but that they must be “optional.”
Other agreements related to the 19 licenses call simply for either the maximum payment (3 percent of annual revenue, regardless of costs) or large, flat sums, such as the $250,000-a-year deal between Sira Naturals and Milford.
Four agreements, accounting for eight licenses, include substantial payments on top of the 3 percent: Alternative Therapies Group in Amesbury will pay an extra $25,000 annually to charity; I.N.S.A. Inc. paid Easthampton an additional $10,000 upon signing; New England Treatment Access will pay Northampton another $10,000 annually for “marijuana education and prevention programs,” and in Brookline, it will give a further $25,000 annually to a drug-related nonprofit chosen by the town.
In Franklin, where it has a large cultivation and manufacturing facility, New England Treatment promised to pay the town at least $300,000 a year, plus 3 percent of all recreational and medical marijuana revenues above $10 million annually.
In a statement, the company said its agreements are legal and help “demonstrate that the regulated cannabis industry can be a net positive to the cities and towns of the Commonwealth.”
Northampton Mayor David J. Narkewicz said his city has welcomed the marijuana industry with open arms, choosing not to impose restrictive zoning or a cap on the number of pot retailers. He said the $10,000 payments are voluntary donations to local addiction and substance abuse prevention groups, which had lobbied the city to direct some of the proceeds from recreational sales to keeping youths off drugs. Smaller operators aren’t being asked to contribute as much, he added.
Many of the deals require the company to pay even larger sums if it negotiates a more generous payment to another municipality. Critics fear that rafting contracts together in this manner will ratchet up the local fees for operators across Massachusetts.
On Thursday, the commission will consider whether to adopt a draft plan for reviewing the contracts, including an estimate of how much time such a review might add to the application process.
Commissioners McBride and Kay Doyle have said they’re worried that reviewing the contracts would take too long, interfere with the negotiations between municipalities and marijuana companies, and hurt operators more than municipalities. They also think it would be hard to draw a clear line, given the many different ways host community agreements are structured.
Municipalities and their attorneys, meanwhile, have argued that the 3 percent cap only applies to “community impact fees,” and that nothing in the law prohibits voluntary payments above the limit.
“The marijuana statute does not prevent or cap other payments, fees, or arrangements that are mutually agreeable,” said Geoff Beckwith, the executive director of the Massachusetts Municipal Association. “It’s good news that many of these include support for education, health, and other initiatives to benefit and advance the public interest.”
Amesbury Mayor Ken Gray said that his city is also embracing pot businesses, and that Alternative Therapy suggested adding the donations to the contract. “It’s not revenue to us,” Gray said. “If the [state] took that away, ATG would still give that money to charity.”
Some operators — mostly larger, well-capitalized companies — said they’re happy to chip in extra cash.
“Our interpretation is that the charitable donations are not going to the municipality, and therefore there’s no compliance issue,” said Chris Edwards, the chief executive of ATG. “And to be honest, we’d be making those donations anyway.”
But Blake Mensing, an attorney who represents marijuana operators, said additional payments — including even donations to third-party nonprofits — shouldn’t be allowed if they’re required in the same contract granting local approval. Otherwise, he said, smaller companies will be frozen out.
“There is some gray area to navigate,” Mensing said, “but I think the commission is making it harder than it needs to be. Up to 3 percent for no longer than five years is, honestly, a model of statutory clarity.”