Cannabis companies are increasingly demanding 'impact fees' to be returned
Cannabis Businesses Sue Cities Over Impact Fees.
Three years ago, Caroline Pineau, CEO and owner of cannabis store Stem Haverhill, decided to sue her city. She had been charged nearly $900,000 in community impact fees — unfairly, she claims.
The fees represent an additional 3% tax levied against cannabis businesses by municipalities that have long been contested for being exploitive and inequitable. Pineau, for example, says she’s the only cannabis business that has been required by Haverhill to pay the entire time she’s been in business.
“It’s been devastating for our business, particularly when the payment of others in Haverhill is not being enforced,” Pineau said. “One operator has paid zero fees. As Haverhill’s only economic-empowerment offer operator, I find it astonishing that I’m the only operator that’s paid 100% of these fees.”
Pineau is not alone. A number of cannabis businesses across Massachusetts are suing the cities and towns in which they are located in order to recoup the fees they’ve paid, which were created so those host communities can pay for the economic and social impact of having legalized cannabis businesses within their borders. But in the years since the impact fees began, many cities have since removed the fees, claiming little to no impact has taken place.
What is a community impact fee?
Before opening, a cannabis business is required to sign a Host Community Agreement, a contract with the municipality where it hopes to do business. One part of that agreement is the community impact fee, a 3% surtax originally intended to offset possible negative effects or additional costs from cannabis businesses, such as a town needing to provide more law enforcement or adding a traffic light. Over time, dispensaries began complaining about the fees, claiming that cities and towns were collecting them without showing how the funds were being used to offset alleged impacts.
David O’Brien, Massachusetts Cannabis Business Association president, said he only found out some money was going toward general needs by filing formal public-records requests. The Business Journal filed public-records requests in 2021. Such requests uncovered that towns were funding parks personnel for litter and cleanup or using the funds to purchase everything from BigBelly solar trash receptacles to emergency vehicles.
“What does that have to do with any one or all of the cannabis businesses in town? Don’t liquor stores use ambulances? Doesn’t the school use ambulances? Doesn’t every person in town use ambulances? Why is the municipality throwing that on cannabis companies?” O’Brien said.
Cannabis is already heavily taxed at 20%. That includes a 3% local tax that goes to municipalities in Massachusetts separate from the 3% impact fee. O’Brien pointed to how municipalities have already collected about $165 million in local taxes, from more than $5 billion in cannabis sales since November 2018.
As businesses struggle to stay afloat, that 3% off the top for the impact fee is only making it more difficult, business owners said. So cannabis companies began requesting refunds and then suing their municipalities. Pineau’s lawsuit against Haverhill, for example, remains active.
“You’re sort of stuck. You don’t want to sue your host community, but in some of these cases, it’s hundreds of thousands of dollars a year that you’re writing a check for,” O’Brien said.
Change on the horizon?
There is hope for businesses seeking their money back. In January, Caroline Frankel, owner of Caroline’s Cannabis, won a $1.2 million in a settlement from the town of Uxbridge, after the town couldn’t prove how it had spent its impact fees.
In 2022, a sweeping cannabis bill put the Cannabis Control Commission in charge of reviewing host community agreements, or HCAs, and the commission created new regulations this past March that include changes to community impact fees.
The changes require invoices of claimed impact and prevent cities and towns from collecting fees after nine years. But the new guidelines also waive the licensees’ ability to dispute whether the impact fees are used by the municipality reasonably related to the costs imposed on their operations.
Kyle Popvin, director of licensing at the commission, said at a meeting earlier this month that most of the issues and complaints about HCAs have been with community-impact fees.
Even as businesses fight municipalities, many cities and towns have stopped collecting the fees. Examples include Amherst, Northampton and Amesbury. Boston has gone a step farther, returning $2.86 million to nine cannabis businesses already.
“The city of Boston is committed to fostering an equitable and inclusive cannabis industry through removing systemic barriers to entry. The city’s decision to cease host community impact fee collections and return all past collected fees was a critical action to ensure that small businesses were supported equitably by the city,” a spokesperson said in a statement.
Pineau, who filed her lawsuit under a different mayor, said she isn’t sure why Haverhill’s new mayor, Melinda Barrett “isn’t following the leadership of other mayors across the commonwealth, who have said that there have been no demonstrable impact from legal cannabis that would warrant the collection of impact fees in the first place.”
“The collection of impact fees with no evidence of actual impact is why I pursued the lawsuit,” she said.
Pineau added she is confident that she will win her case, because she said the city hasn’t provided a “shred of evidence” of how Stem’s business affected Haverhill negatively.
O’Brien agreed that he wants to see more municipalities follow the lead of Boston and other municipalities who have stopped collecting or returned frees.
“The city of Boston couldn’t come up with reasons [why] all these stores were costing them. Don’t they have the biggest costs in the state as the capital city?” he said. “In fact, they were filling an empty storefront. They were hiring 14 new people. They were beautifying a section of town that was previously empty.”
