Recent developments in the Massachusetts cannabis industry, significant legislative changes, and legal actions have spotlighted the contentious issue of so-called community impact fees. These fees, which are intended to offset municipal costs associated with hosting cannabis businesses, have sparked debate regarding their fairness and implementation.
As noted in a May 2022 report on the topic by the Massachusetts Cannabis Business Association (MassCBA), such community impact fees have been a feature of so-called host community agreements in the Bay State since 2017, when the Massachusetts Legislature amended the voter-passed adult-use cannabis legalization act to authorize localities to collect a fee of up to 3% of a licensed recreational cannabis establishment’s gross revenues so long as the charge is “reasonably related” to “costs imposed upon the municipality by the operation of the marijuana establishment.” Such fees are imposed in addition to state and local sales taxes and the Massachusetts state cannabis excise tax, which already equate to a 20% tax rate.
The Massachusetts cannabis industry has long complained that impact fees are exploitative and of dubiousness necessity. The MassCBA report documented $53 million in collections from impact fees between 2018 and 2022 — with 41 of the 88 Massachusetts cities and towns that executed a host community agreement during the period (and which thus could have imposed a fee) declining to report data on funds collected.
Responding to concerns about the impact fees, the Massachusetts Legislature’s August 2022 amendments to the state’s adult-use cannabis laws revised the requirements for host community agreements to, among other things, permit a cannabis licensee to bring a breach of contract action against a host community to “recover damages, attorneys’ fees and other costs encompassed in the community impact fee that are not reasonably related to the actual costs imposed upon the city or town.” The amendments also empowered the Massachusetts Cannabis Control Commission (CCC) to review and approve each host community agreement as part of its licensing processes. In November 2022, shortly before those changes took effect, the city of Boston announced that it would cease collecting impact fees and refund the $2.86 million that it had collected in such fees since recreational sales began in the city in 2020. Other communities reportedly have followed suit, at least in ceasing imposition of such fees.
Cannabis licensees in other Massachusetts communities have begun to take matters into their own hands and to sue host communities to recoup fees paid that they allege were not reasonably related to municipal costs imposed by the operation of their business — notwithstanding the risk to their relationship with their host community.
Challenges and Litigation
Indeed, although the explicit cause of action for recouping improper impact fees did not exist prior to November 2022, the statute in issue has since its inception included requirements for such fees to be “reasonably related” to the actual costs incurred by municipalities and for host communities to document such costs. Several cannabis businesses have relied upon those provisions in filing suit to recoup pre-amendment fees that they claim were wrongly imposed.
A notable case involved Caroline’s Cannabis, LLC, which in April 2022 sued the town of Uxbridge to recoup $1.27 million in fees that the business alleged the town had not documented and could not demonstrate to be reasonably related to the business’ operation.[1] The case concluded in January with a $1.17 million agreed-upon judgment for the business.
The case has inspired several similar lawsuits, including a lawsuit against the town of Great Barrington challenging the imposition of nearly $6 million in impact fees.[2]
These legal actions underscore the industry’s frustration with what many cannabis enterprises perceive as an exploitative practice, where community impact fees are seen as an additional financial strain rather than a fair contribution to municipal costs.
Why It Matters
As Massachusetts navigates these reforms and challenges, the focus remains on balancing the interests of cannabis businesses with those of host communities, with the goal of creating a regulatory environment that supports the growth of the cannabis industry while ensuring that municipalities can adequately manage the impacts of these businesses on local resources and services.
The ongoing developments in Massachusetts regarding community impact fees also reflect a broader effort to ensure fairness, equity, and transparency in the cannabis industry. As legislative reforms take effect and legal battles unfold, the state stands at the forefront of addressing complex issues that will likely influence cannabis regulation nationwide.
[1] Caroline’s Cannabis, LLC v. Sette et. al., No. 2285CV00406 (Mass. Super. Ct.); see also Haverhill Stem, LLC v. Fiorentini et al., No. 2177CV00375 (Mass. Super. Ct.).
[2] Theory Wellness, Inc. et al. v. Town of Great Barrington, No. 2481CV00693 (Mass. Super. Ct.).
