Massachusetts Legislature Plans Big Changes for Cannabis Policy in the Commonwealth

Last week, the Massachusetts Joint Committee on Cannabis Policy (the “Committee”) released a new cannabis bill (H 174/S 72, the “Bill”) through the Committee without any opposition.  The bill proposes major changes to host community agreements (“HCA”) and the current approach to social equity in the industry. It also proposes to provide a legislative fix allowing for on-site consumption establishments. This bill will require the Cannabis Control Commission (“CCC”) to make some substantial changes to the existing regulations, and will require careful attention from operators and municipalities who will need to appropriately update their existing HCAs to comply with the new rules, and to understand new rules related to consumption establishments and social equity.

Particularly, if the Bill becomes law, it would require the renegotiation of the majority of HCAs in the Commonwealth. Most HCAs currently contain mandatory charitable contributions and community impact fees of 3% of gross sales. The Bill would invalidate those payments and force municipalities and marijuana establishments to renegotiate their existing HCAs.

More broadly, in the five years since the cannabis legalization bill was passed, the legislature has primarily left policymaking decisions to the Cannabis Control Commission (“CCC”), but this indicates that the legislature may take a more substantial role in setting policy moving forward.

Here, we break down what’s included in the Bill.

Host Community Agreements

  • Adult-use and medical establishments located in municipalities that choose to permit consumption establishments will be required to re-negotiate their existing HCAs in light of the new consumption establishment rules.
  • The CCC has the authority to regulate and enforce HCAs.
  • Community impact fees: The Bill still authorizes HCAs to include community impact fees for the host community for up to five years—after an establishment has operated for five years, the establishment cannot be required to pay a community impact fee. However:
    • A community impact fee may not be a set percentage of gross revenue, as is common today.
    • Rather, community impact fees must be related to the costs imposed on the municipality in the preceding year by the operation of the establishment. Municipalities must share documentation with the establishment as proof of the cost.
      • Establishments may now bring breach of contract actions against municipalities if the costs are not reasonably related to actual costs imposed on the city as a result of the operation of the establishment.
    • HCAs cannot include any additional payments or obligations to the municipality or any other organization. This last provision will have major impacts because many HCAs include required payments to specifically named charities or to funds to be distributed to local charities.
    • The CCC is authorized to review the HCA prior to final licensure and may strike any terms or conditions related to the community impact fee, while the remaining provisions of the HCA will remain in full force.
  • Safe harbor HCA period: The CCC will establish a safe harbor period in which municipalities and establishments will renegotiate HCAs to bring the terms into compliance with the new provisions of chapter 94G in this bill. These HCAs will be reviewed by the CCC, which may strike out provisions that are not in compliance with the chapter.
    • Once the safe harbor period ends, if a municipality and an operational establishment fail to renegotiate the HCA,
      • Establishments may (i) bring suit against the municipality for breach of contract, and/or (ii) relocate and receive expedited review by the CCC, provided the establishment enters, and the CCC certifies, a HCA with the municipality it relocates to.
      • Municipalities may: (i) bring suit against the establishment for breach of contract, or (ii) negotiate a new HCA with another establishment and receive expedited review, provided the municipality enters, and the CCC certifies, a HCA with the municipality it relocates to.
    • If a municipality and an establishment had entered into a HCA but the establishment was not yet operation, either party may petition the CCC to review the HCA during the safe harbor period for compliance with the new HCA rules.

Cannabis Consumption Establishments

  • Cannabis consumption establishments: The bill permits the sale of marijuana for consumption on the premises.
  • Municipal discretion: The bill grants municipalities some discretion in whether the city or town will authorize consumption establishments. Municipalities may hold a referendum to opt out of permitting consumption establishments—if over 50% of voters are not in favor of permitting consumption lounges, the municipality must not authorize such establishments. Cities and towns may also allow consumption establishments through an ordinance or by-law without holding a referendum. However, municipalities would not be permitted to prohibit such establishments without holding a referendum.

Social Equity

  • Municipal engagement procedures: Host communities will be required to establish procedures to promote and encourage participation in the industry by disproportionately harmed communities by July 1, 2023. If the municipality fails to establish such procedures, the municipality must deposit community impact fees received into the Cannabis Social Equity Trust Fund.
    • The CCC has the authority to approve host communities’ procedures regarding disproportionately impacted communities’ participation in the cannabis industry.
    • Social equity program participants and economic empowerment applicants may submit a petition to the CCC demonstrating that a host community has not implemented procedures as required above, and request the CCC consider and make a determination on their application without verifying compliance with such procedures.
  • Social Equity Trust Fund: The bill establishes a Cannabis Social Equity Trust Fund to make grants and loans to social equity program participants and economic empowerment applicants to encourage participation in the industry. The fund will be administered by the Executive Office of Housing and Development through the Social Equity Trust Fund board established by this bill (the “Board”).
    • The Board will be comprised entirely of individuals from disproportionately harmed communities, and shall include 5 members serving two-year terms, with a two-term limit.
    • Twenty percent of the Marijuana Regulation Fund must be transferred to the Social Equity Trust Fund.
    • $10 million dollars from the General Fund will be transferred to the Social Equity Trust Fund within 60 days of the passage of this bill.
    • The CCC will be tasked with creating criteria to permit applicants to satisfy the positive impact plan in part by donating a percentage of revenue to the Cannabis Social Equity Trust Fund.
  • Social equity program: The CCC will administer a social equity program that provides technical assistance and training to economic empowerment priority applicants.

We will be keeping a close eye on the trajectory of the Bill as it moves forward, and are eager to see what these changes may mean for the cannabis industry in Massachusetts.