Massachusetts Legislature Passes Host Community Agreement (HCA) Reform Legislation –
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Key points to remember:
- The Massachusetts legislature has proposed new limits on community impact fees, which could change the dynamics of the relationship between licensees and their host communities.
- Once in effect, the Cannabis Control Commission would be responsible for reviewing the community impact fee provisions of new and existing HCAs to ensure they are compliant.
- Specific limitations on the Community Impact Fee include a ban on fees tied to a percentage of gross sales.
- Cannabis businesses should carefully consider the specific language of their HCAs and consider next steps to reduce or eliminate their fees.
The Massachusetts Legislature passed a bill, S. 3096, on August 1, 2022 that, among other things, clarifies and limits the power of municipalities to charge annual percentage-based community impact fees and other donations or fees in Host Community Agreements (“HCAs”). . This bill – which we expect Governor Baker to sign – has the potential to generate substantial savings for Massachusetts cannabis businesses – many of which currently pay 3% of their gross revenue or more per license to their community of users. welcome.
Recommended next steps for licensees
We outline the key provisions related to the HCA in the bill below. If signed by the Governor, we recommend that licensees take the following steps to respond to this significant change in law:
- Take a close look at your HCAs. HCAs may have severance clauses that waive percentage-based flat fees. However, the HCAs may also contain clauses allowing a municipality to automatically terminate the agreement. The specific language in each HCA will help inform next steps.
- Consider the timing. As noted below, the Cannabis Control Board (the “Board”) must now review all HCAs as part of the license application or renewal process. Consider where your licenses are in this process and how soon a submission may be required from the Commission. As noted below, we also expect the Commission to adopt regulations and/or guidance regarding its review of HCAs, which may delay the Commission’s review of HCAs.
- Consider other necessary approvals from the municipality. Some municipalities require an HCA – and amendments – submitted to the vote of the municipal council or the select committee. Other municipalities require cannabis businesses to hold licenses from a municipal licensing authority separate from an HCA, and often these require annual renewal or can be revoked. Consider these factors before determining the right approach for your host community.
- Strategize on an effective municipal approach to reforming your HCA and next steps if you encounter resistance.
Summary of the main provisions of the new law
Although the concept of community impact fees was originally well-intentioned and intended to compensate municipalities for the anticipated additional costs of hosting cannabis businesses, some municipalities quickly took advantage of the lack of regulatory oversight. requiring annual payments of 3% of gross sales – the legal maximum amount – regardless of the actual expenses incurred by the municipality. Existing rules on community impact fees, which have garnered considerable industry scorn due to widespread abuse, are set to change dramatically if the governor signs the bill, which would alter the existing HCA paradigm, would invalidate many existing community impact fee agreements and install the Commission. as a watchdog for inappropriate municipal abuses.
The main provisions of S. 3096 are summarized below. In short, it would have a huge impact on the industry and the relationship between the licensee and the host community. All licensees should take this opportunity to review the terms of their existing HCAs and seriously consider engaging with their host communities to renegotiate illegal community impact fees.
- Invalidation of all fees based on percentage of sales. Clause 10 of the bill states that community impact fees “may not tax a certain percentage of total or gross sales” and further that such fees: 1) must be reasonably related to the costs imposed on the municipality due to the operation of the cannabis establishment; 2) cannot exceed more than three percent of gross sales; 3) cannot be effective after 8e year of operation; 4) must begin on the date on which the establishment obtains final accreditation from the Commission, but the first payment of the fee must not take place before the first annual renewal of final accreditation; and 5) must be due annually to the host community. Licensees should review the community impact fee requirements in their HCAs to determine if they comply with the new limitations.
- Additional payments are not binding. Section 10 of the bill invalidates and renders unenforceable “any additional payment or obligation, including but not limited to monetary payments, in-kind contributions and charitable contributions” of the establishment. It also confirms that, with the exception of legitimate community impact fees, any other financial obligations in an HCA are not enforceable. Note, however, that many licensees have committed to certain payments and charitable contributions in the positive impact and diversity plans filed with their initial license applications. This provision of the bill would not invalidate these existing commitments.
- Licensees can sue host communities for breach of contract. Section 10 of the bill obliges a municipality to provide a permit holder with documentation of the costs imposed on the municipality no later than one month after the annual renewal of the final license of the establishment. The bill also includes a mechanism for a licensee to sue their host community for breach of contract if they believe the municipality’s supporting documentation is not reasonably related to the actual costs imposed on the community. . In such lawsuits, licensees could recover damages, attorneys’ fees and other costs that are not reasonably related to the actual costs imposed on the community.
- Existing licensees must submit compliant HCAs with annual renewal applications. Section 10 of the bill requires existing licensees to submit compliant HCAs with their annual license renewal applications. Effectively, this forces licensees with non-compliant HCAs to renegotiate compliant HCAs before the next license renewal submission deadline. We will have to see if the Commission grants a grace period while it considers guidance and/or regulations to respond to this provision. The bill provides that the Commission must promulgate regulations no later than one year after the law comes into force. This should inform the timing of outreach to host communities.
- The Commission oversees compliance with the new HCA rules. Clause 10 of the bill installs the Commission as the arbiter of HCA disputes and requires the Commission to review all HCAs when initially granting licenses and during annual license renewals. The Commission must review an HCA within 90 days of receiving it and, if the Commission determines that an HCA does not comply, it must provide written notice of the deficiencies and may request additional information from the municipality and licensee. permit. The Commission is also expressly prohibited from approving a final license application unless Commission staff certify that the HCA is compliant. However, the bill does not give the Commission the power to compel municipalities to carry out compliant HCAs. Therefore, without new regulations and/or directives from the Commission, it is conceivable that recalcitrant municipalities could upset the annual license renewal process for current licensees.
- The Commission will promulgate new regulations on HCAs. Section 15 of the bill requires the Commission to adopt regulations dealing with “criteria for the review, certification and approval of host community agreements and community impact fees”, including, but without limitation, the criteria for calculating the community impact fee in accordance with the rules described above. However, clause 28 of the bill gives the Commission one year to promulgate new regulations or amend existing regulations to conform to the new rules. Therefore, there is some uncertainty as to how and when the Commission might begin to strictly enforce these new HCA rules.
We welcome any questions you may have regarding the potential impact of these impending statutory changes on your business and are ready to analyze your current HCA requirements and provide strategic advice for engaging with your respective host communities.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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