As discussed in our September 2022 alert, former Governor Baker signed into law all but one section of Senate Bill S3096, "An Act Relative to Equity in the Cannabis Industry" (the Act). The Cannabis Control Commission (Commission or CCC) has now completed its Act-mandated rulemaking process by issuing revised adult-use regulations effective as of October 27, 2023 (Revised Rules). Key highlights of the Revised Rules include very detailed new regulations addressing relative municipality and licensee obligations in Host Community Agreements (HCAs), plus significant new municipal requirements to foster participation by social equity program participants, among other provisions.

HOST COMMUNITY AGREEMENTS

The Revised Rules make clear that the Commission is expressly authorized to review, regulate, enforce and approve HCAs and develop a model HCA. All applications for initial licensure and renewal submitted on or after May 1, 2024, must include an executed HCA (or an HCA waiver). Filing a certificate stating the execution of an HCA, as has been the practice since 2018, will no longer suffice. Renewal applications must now be submitted to the Commission 90 calendar days (instead of 60) prior to the expiration date of the marijuana establishment's license.

Minimum Requirements

The Revised Rules provide the minimum requirements every HCA must satisfy. The HCA must set forth all conditions to operate and cannot impose unreasonable conditions or a term that is "unreasonably impracticable." A condition is presumed to be reasonable if it is:

  • required under the host community's local rules, regulations, ordinances or bylaws;
  • deemed necessary to promote public safety or public health by the chief law enforcement or public health authority in the host community;
  • a local requirement customarily imposed on other non-cannabis businesses operating in the community;
  • required by law and does not conflict with other laws; or
  • otherwise deemed reasonable by the Commission based on the particular circumstances presented to it.

The HCA must now include a statement stipulating all responsibilities, including the requirement that the host community annually transmit its invoice of alleged community impact fees (CIF) within one month of the anniversary date on which a marijuana establishment received final CCC licensure, and identify any generally occurring fees to be charged, such as routine water, sewer, property tax, trash pickup, etc. The HCA also has new specific requirements as to form, including enumerating the specific marijuana establishment license operations permitted.

If applicable, the HCA must provide clear and specific terms regarding the host community's assessment of a CIF. HCA approval may be conditioned on a host community being in good compliance standing with the Commission.

Other than a CIF, sales tax, excise tax, optional local tax or municipal fees, the HCA cannot include any other contractual financial obligations (such as in-kind or charitable contributions). Also, the CIF cannot be based on a percentage of a marijuana establishment's sales, and a host community shall not demand a CIF exceeding 3% of the gross sales of the marijuana establishment.

Additionally, many other provisions were implemented to make the HCA process a more even playing field and protect all parties involved.

Review and Certification

The Commission has the authority to review HCAs during both initial and renewal licensing and determine whether the HCA satisfies the Revised Rules. The Commission must complete its review within 90 days of receiving an HCA, but it can request additional time.

The Commission may decline an HCA or deem a provision of it invalid and unenforceable. If the Commission determines the HCA does not comply with the regulations the parties will be notified of their options to correct the noncompliance and amend the HCA, submit an HCA waiver or discontinue a host community's option of maintaining relations with the marijuana establishment.

If a host community discontinues relations with a marijuana establishment, then the marijuana establishment may submit a request for equitable relief to the Commission. After reviewing the submission, the Commission may exercise its discretion and grant one or more equitable remedies: (i) extending a license expiration date without incurring additional fees; (ii) waiving a change of location fee; or (iii) other equitable relief.

Failure to submit a compliant HCA or HCA Waiver may constitute grounds for denying a renewal application. If a renewal application is rejected on this basis, the marijuana establishment has a right to a hearing, and a host community can seek to intervene as a party to the hearing.

The Commission may also investigate any complaint alleging noncompliance and take enforcement action. Any interested person can file a complaint with the Commission alleging noncompliance with an HCA requirement. If the Commission substantiates an allegation of noncompliance, it may take action against the licensee or host community. If a host community fails to correct the noncompliant conduct, the Commission can impose sanctions, revoke a host community's good compliance standing, publicize a host community's lack of good compliance standing, or abstain from considering any new license applications affiliated with a host community until its good compliance standing is restored.

COMMUNITY IMPACT FEES

The Revised Rules empower the Commission to be responsible for reviewing, certifying and approving all CIFs, which must be "reasonably related" to a marijuana establishment's operations. Each host community can decide whether or not to assess a CIF as a condition of allowing a marijuana establishment to operate. A CIF is a one-year period of claimed impact fees that starts from the date the marijuana establishment obtained a final license from the Commission. Each subsequent CIF must consist of a one-year period consistent with the anniversary of the marijuana establishment's final license date.

CIFs cannot be collected prior to a marijuana establishment obtaining a final license, and no impact fees can be assessed to a marijuana establishment that has held a license for more than nine years. In addition, only one CIF can be assessed per licensed premises, regardless of whether multiple final licenses are operated from the licensed premises. The host community is prohibited from modifying the effective date of a preexisting CIF for any license that is subject to change of ownership or control.

If a host community assesses a CIF, it must provide the marijuana establishment with an itemized invoice properly documenting the claimed fees. An itemized invoice includes specific descriptions of how the claimed impact fees were spent, consisting of a line item for each good or service charged, including its cost, purpose, and relation to the marijuana establishment's operations. As previously noted, this invoice must be provided to the marijuana establishment within one month after the one-year final license anniversary date. Failure to provide the invoice within this period results in the host community forfeiting the CIF.

Within 30 calendar days from the date the CIF invoice is received from a host community, the marijuana establishment is responsible for submitting to the Commission, for certification and approval, the invoice and required supporting documentation.

The Commission is responsible for certifying each CIF, in whole or in part, and will make a final determination of the gross annual sales based on factors such as consumer sales, fair market value of marijuana and marijuana products, and value of services rendered. The Commission will provide notice of its determination of CIF to the marijuana establishment and the host community. If the marijuana establishment agrees to pay the certified CIF, payment must be issued by the end of the fiscal year or within 90 days from the CIF certification date, whichever is later.

If the marijuana establishment intends to appeal the CIF, it can do so by:

  1. requesting an administrative hearing before an independent hearing officer of the Commission; or
  2. bringing a breach of contract action against a host community.

The marijuana establishment and host community may also agree to bring the dispute to a private mediator. Once a dispute is resolved, proof of payment (or proof that payment is no longer required) must be provided to the Commission with its next renewal application. Also noted under the Act, a marijuana establishment that successfully challenges a CIF in Superior Court may recover its attorneys' fees from the host community.

HCA WAIVER

The host community has the right to waive the requirement for a compliant HCA. The decision to waive that requirement is a total relinquishment of the requirement. Individual provisions cannot be waived. An HCA waiver must meet minimum information requirements specified in the Revised Rules.

Acceptance of the waiver is limited to the specific application or license number referenced in the waiver. The Commission has final authority to determine whether an HCA waiver complies with the requirements and will deem any waiver noncompliant if it sets an expiration date or any conditions or if it is the result of inducement. An executed waiver approved by the Commission stays in effect until it is rescinded. A waiver can only be rescinded by Commission approval of an HCA that is subsequently executed and submitted by the parties.

MUNICIPAL EQUITY

The Revised Rules include new social equity standards, designed to promote and encourage participation in the cannabis industry by members of communities that were disproportionately harmed by cannabis prohibition and enforcement.

Municipalities are presumed to have met these standards by either:

  1. adopting an ordinance or bylaw to exclusively permit social equity businesses for three years or until the goals of the exclusivity period have been met;
  2. adopting the model ordinance or bylaw created by the Commission to permit social equity businesses; or
  3. creating a process for equity applicants that is administered on a 1:1 basis, where a general applicant may be approved only after a social equity business has commenced operations.

These standards also require Host Communities to adopt transparent practices, including by:

  • conspicuously publicizing information about the local HCA approval process;
  • developing and conspicuously publicizing an equity plan designed to promote and encourage members of communities disproportionately harmed by cannabis prohibition and enforcement; and
  • publishing applicant pool data that identifies social equity applicants in a conspicuous place and online.

Municipalities or host communities must also develop a standard applicant evaluation form that includes consideration of equity as not less than 25% of the total evaluation score. The equity component must take into account several factors, including the applicant's status as a social equity program participant or economic empowerment priority applicant; whether the applicant has a prior marijuana-related criminal conviction; whether the applicant is from an area of disproportionate impact; and whether the majority of the applicant entity is comprised of individuals from Black, African American, Hispanic, Latino, or Native American or indigenous descent.

Additionally, for those host communities that impose a cap on the number of approved marijuana establishments, if the host community later decides to allow additional licenses, at least 50% of those licenses must be reserved for social equity participants or economic empowerment priority applicants.

The new standards also include strict requirements as to how host communities must conduct negotiations with equity parties. They also authorize the Commission, starting March 1, 2025, to fine cities and towns that are found to be out of compliance with the Commission's municipal equity regulations, and deposit those fines into the Cannabis Social Equity Trust Fund.

Host communities must donate at least 3% of the CIF received from each licensee to the Cannabis Social Equity Trust Fund.

Finally, host communities must develop and publicize a plan to positively impact one or more of the following groups:

  1. past or present residents of geographic "areas of disproportionate impact;"
  2. state-designated economic empowerment priority applicants;
  3. state-designated social equity program participants;
  4. Massachusetts residents who have past drug convictions; or
  5. Massachusetts residents with parents or spouses who have drug convictions.

EXPANSION OF CCC PRE-CERTIFICATION PROCESS

Prior to the Revised Rules taking effect, the pre-certification process was limited to licenses that require establishments to be owned or controlled by certified economic empowerment priority applicants and social equity program participants. The Revised Rules expand this process to include all license types, which allows applicants to demonstrate to a prospective host community their status as part of an effort to open any licensed marijuana establishment, thereby enabling such status to be considered part of host communities' equity efforts at the local licensing level.

SOCIAL CONSUMPTION LICESNE IMPLEMENTATION

Separate and apart from the Act, in May 2023, the CCC voted to eliminate the social consumption pilot program put in place in 2021. This required several changes to the Revised Rules in order to revise the process for implementing the new social consumption license category.

In line with the elimination of the pilot, the Revised Rules are amended to no longer mandate a specific application process for social consumption marijuana establishments. They are now treated the same as any other type of licensee.

In addition, much like other license categories, including delivery licenses, licenses for social consumption marijuana establishments will be exclusive for several years to those entities controlled by or with majority ownership comprised of economic empowerment priority applicants and social equity program participants, microbusinesses and craft marijuana cooperatives.

SUITABILITY

The Revised Rules also eliminate several previously existing disqualifiers that prevented individuals with certain criminal backgrounds from being employed in the legal industry as registered agents for marijuana establishments.

As part of the Revised Rules, the CCC also extended the timeframe for reviewing past actions of certain agents that could lead to a negative suitability determination. This review or lookback period has been extended from five years to an indefinite duration for issues where an agent's prior actions posed or would likely pose a risk to the public health, safety or welfare, and those actions relate or would likely relate to the operation of a marijuana establishment.

The Revised Rules can be located here. The CCC also promulgated revised medical use regulations at 935 CMR 501, effective on the same date. The revised medical use regulations are not addressed in this alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.