On August 11, 2022, Massachusetts Governor Charlie Baker signed S. 3096, An Act Relative to Equity in the Cannabis Industry (Act), into law. The act provides significant reform to Massachusetts’ cannabis legislation, including the host community agreement (HCA) approval process, a limit on the impact fees that municipalities can charge cannabis businesses, policies aimed at strengthening social equity, and the remedy of a technicality that was preventing on-premises social consumption establishments.
Further, Section 25 requires that host communities establish initial procedures and policies regarding HCAs to comply with the Act no later than July 1, 2023, and Section 28 requires that the Cannabis Control Commission (Commission) promulgate or amend regulations to be consistent with the Act no later than one year from the effective date of the Act.
Below is a list of some Frequently Asked Questions that cannabis clients may have regarding the new legislation and its implementation.
Host Community Agreements
1. Will existing HCAs be grandfathered in?
Likely no. Section 10 requires that the Commission review and approve each HCA as part of a completed marijuana establishment license application and at each license renewal. Thus, any HCA that is not compliant with the rest of Section 10 will likely not be approved by the Commission at the marijuana establishment’s annual renewal once the regulations have been promulgated.
2. Can the community impact fee be pegged to marijuana establishments’ total gross sales
No. The regulations explicitly state that HCAs may not mandate a certain percentage of total gross sales as the community impact fee.
3. Is there a cap on the community impact fee?
Yes. The community impact fee must be reasonably related to the costs imposed upon the municipality by the operation of the marijuana establishment and cannot exceed 3% of the marijuana establishment’s gross sales. Thus, while an impact fee cannot be pegged to gross sales if the fee is more than 3% gross annual sales it is not a valid community impact fee.
4. Is there a term limit on community impact fees?
Yes. An HCA may not include a community impact fee after a marijuana establishment’s 8th year of operation.
5. When does the impact fee commence and when is the first payment due?
The impact fee must commence on the date the marijuana establishment is granted a final license by the Commission and not have the first annual fee payment due prior to the first annual license renewal by the Commission.
6. Can an HCA include additional in-kind/charitable contributions as part of the terms?
No. The community impact fee shall encompass all payments obligations between the host community and the marijuana establishment and shall not include any additional payments or obligations, including, but not limited to, monetary payments, in-kind, and charitable contributions by the marijuana establishment to the host community or any other organization. Any other contractual financial obligation that is explicitly or implicitly a factor considered in, or is a condition of a HCA, shall not be enforceable. However, a marijuana establishment may voluntarily provide organizations with monetary payments, in-kind contributions, and charitable contributions after the execution of the HCA; provided, however, that the HCA shall not include a promise to make a future payment.
7. Do cannabis operators have a right to documentation pertaining to the costs imposed upon the municipality by the operation of the marijuana establishment?
Yes. A host municipality must document and transmitted to the licensee any costs imposed by the operation of the marijuana establishment within one month after the date of the licensee’s annual renewal.
8. Do cannabis operators have any remedies for excessive community impact fees?
Yes. The regulations permit licensees to bring a breach of contract action against a host community and to recover damages, attorneys’ fees, and other costs encompassed in the community impact fee if they believe that the information document and transmitted by the host community is not reasonably related to the actual costs imposed upon the municipality.
State Tax Provisions
9. Can a cannabis business deduct operating expenses on its state taxes?
Yes. For taxable years beginning on or after January 1, 2022, cannabis businesses may deduct certain expenses incurred from its gross income to calculate “net income” for state income tax purposes pursuant to § 30 G.L. c 63, despite the fact that such business deductions for marijuana businesses are not currently permitted under Section 280E of the federal IRS Tax Code for federal income tax purposes.
10. Can municipalities authorize social consumption?
Yes. The process by which municipalities may authorize on-premises social consumption establishments has been formally established. Residents of a city or town may petition to allow for social consumption through a ballot initiative or municipalities may adopt a local ordinance or by-law to allow for social consumption.
If you have questions about the new legislation or any cannabis issue, please contact any member of the Prince Lobel Cannabis team. We are happy to assist.