CCC Proposes Regulatory Amendments to Clarify New Host Community Agreement Requirements and Limitations on Community Impact Fees

Key Takeaways:

  • The proposed amendments would, among other things:
    • Require all license applicants and existing licensees to include copies of their HCAs as part of any initial and annual renewal applications to the CCC filed on or after May 1, 2024.
    • Require the CCC to review all HCAs for compliance with the new HCA law (which took effect in November of 2022) and CCC regulations within 90 days of receipt.
    • Authorize the CCC to reject HCAs that are non-compliant with the new HCA law and CCC regulations.
    • Require any host community seeking to collect community impact fees from a licensee to first submit the invoice to the CCC for review and certification for compliance with the new HCA law and CCC regulations, which require that all community impact fees be “reasonably related” to the operation of the establishment.
    • Authorize the CCC to impose fines and financial penalties on host communities that fail to comply with G.L. chapter 94G and/or CCC regulations.
    • Authorize a municipality to refuse to amend its HCA, and for the company seeking renewal to apply to the CCC for “equitable relief” from the requirement that it have a valid HCA at all times.

The Cannabis Control Commission (“CCC”) has proposed multiple amendments to its existing regulations, including a proposed amendment adding a new section to its regulations entitled “Requirements for License Applicants, Marijuana Establishments, and Host Communities,” which would be codified at 935 CMR 500.180.

As required by the amendments to G.L. c. 94G, § 3(d) (the “New HCA Law”), which became effective on November 9, 2022, the CCC has published proposed regulations to review Host Community Agreements for compliance with the New HCA Law. If promulgated as proposed, the review of your HCA would occur with:

1.  Your License Renewal Application;
2.  Your Provisional License Application, if applying for any new licenses.

You are required to submit a copy of a compliant HCA with your license renewal application or new license application.

The CCC will begin its review of HCAs for renewal and provisional license applications submitted on or after May 1, 2024.

The new regulations require compliance with these provisions of the New HCA Law, and many other new requirements, both substantive and ministerial. Given the breadth of these regulations, it is unlikely that most (if not all) HCAs comply with all of the new requirements. While these are just in draft form, the upshot is that – if these regulations are promulgated as proposed – your HCA is likely currently non-compliant. Prior to May of 2024, you will need to work with the municipality to:

  • Amend the HCA to comply with the regulations set out below;
  • If the municipality refuses to amend your HCA, you will have to consider a legal action against them in court, or create a compelling paper trail with documentation for a petition for “equitable relief” from the HCA requirement. This petition will be required to extend your renewal deadlines in the absence of an ability to submit a compliant HCA.

Moreover, these regulations – when by law must be effective on November 9, 2023 – will require CCC approval of any invoiced community impact fee (“CIF”). At that time, no CIF may be paid unless first reviewed and certified by CCC that it is “reasonably related” to the actual impact of your operation in the municipality. There are numerous requirements for the contents of these invoices, including the timing in which they must be sent to you, how they must be itemized, and a further specific accounting of how all funds were spent. Given that these regulations will be effective in a matter of months, municipalities still attempting to assess percentage based fees or impose community impact fees in a non-compliant may need to be educated now about the probable direction of the CCC’s new requirements.

The CCC made clear at its meeting today that this is a first draft, and did not vote on these regulations. The CCC will almost certainly vote on publishing these proposed regulations in the Massachusetts Register at a meeting on July 27, 2023, which would trigger a formal notice and comment period where the stakeholders can submit comments formally to the CCC. The CCC must adopt final HCA regulations – incorporating comments, if any – on or before November 9, 2023.

Proposed CCC Regulations

1.    Requirements of a Compliant HCA Under the Proposed Regulations

Under the CCC’s proposed regulations, the CCC will review your HCA (during your license renewal application or new application) to ensure the following:

  • As spelled out in the New Law, the HCA may not include any (i) upfront payments; (ii) fixed fee payments; (iii) percentage based CIFs, or percentage based fees of any kind, or mandatory promise to make a future monetary payment, in-kind contribution, or charitable contribution (voluntary charitable contributions are allowed, but may not be mandated or stipulated in an HCA).
  • The only fees that may be referenced in an HCA are:
    • Recitation of legal requirements to pay taxes;
    • References to “generally occurring fees,” such as water, sewer, property taxes, trash, etc. (see below);
    • The process for invoicing of CIFs (see below).
  • “Clear specific terms regarding assessment of any CIF,” including:
    • The CIF is only lawful if it is “certified by the Commission, or ruled upon by a court of competent jurisdiction, as being Reasonably Related to the actual costs imposed on a Host Community by a Marijuana Establishment or MTC’s operations.” “Reasonably Related” is defined to mean a fee with a “demonstrable nexus between the actual operations of a Marijuana Establishment or MTC and an enhanced need for a Host Community’s goods or services in order to offset the impact of operations.”
    • The HCA must include a stipulation that the Host Community will annually transmit an invoice for its alleged CIF within one month of the anniversary of the date you received your final CCC License.
    • The HCA should acknowledge that the CCC will review and certify any assessed CIF before it must be paid (see Part 4 below).
  • The HCA must include a list of any “generally occurring fee,” (such as routine water, property tax, sewer, trash, etc.) and may not include a “generally occurring fee” that is not “customarily imposed on other non-cannabis businesses.” These fees are separately assessed from the CIF, if any.
  • The municipality may not impose any “unreasonable condition” on you. A condition is presumed “reasonable” only if:
    • It is generally required under local rules, regulations, ordinances, or bylaws;
    • The condition has been deemed necessary for public safety by the chief law enforcement authority;
    • The condition has been deemed necessary for public health by the chief public heath authority;
    • The condition is a local requirement also customarily applied to non-cannabis businesses;
    • The condition is otherwise deemed reasonable by the CCC based on particular circumstances.
  • The HCA may not include a provision that allows the municipality to spend CIFs in its discretion.
  • The HCA may not include any provision that waives, prohibits or discourages any party from bringing a civil action challenging the HCA or a CIF assessment.
  • The HCA may not include any provisions pre-determining or stipulating that a CIF is “Reasonably Related” to actual operations as required by the New Law.
  • The HCA may not impose any legal, administrative or overtime costs, other than through the invoicing process required for CIFs.
  • The HCA may not require any set aside or escrow of your funds.
  • The HCA may not assess CIFs beyond the ninth (9th) anniversary after you have held a Final License.
  • Other ministerial items that must be included are:
    • The HCA must refer to you only using the business entity name certified by the Secretary of the Commonwealth, which must match the business entity name on file with the CCC;
    • The HCA must refer to the specific license type(s) being authorized;
    • The name, signature and title of the authorized signatory for you and the municipality;
    • The date of execution and effective date of the HCA;
    • The duration of the HCA.
  • The HCA may include a provision that the parties both agree to resolve HCA disputes before a private mediator.

2.    CCC Approval Process for HCAs

After review by the CCC’s Executive Director or his designees, the CCC may make the following determinations:

  • The CCC deems any provision or provisions of your HCA invalid and “therefore unenforceable,” based on a finding that the offending provision violates the New HCA Law, or the provisions of the regulations.
  • The CCC may also declare an HCA or a provision of an HCA “voidable” upon deeming the HCA as a contract of adhesion.
  • The CCC may decline to approve the entirety of an HCA “on the basis of any other ground that serves the purposes” of the New HCA Law or the CCC’s regulations.
  • The CCC may approve the HCA as submitted.

3.    Timelines for CCC HCA Review Process

The CCC will begin reviewing HCAs for renewal applications and provisional license applications submitted on or before May 1, 2024. The CCC’s initial review of the HCA must occur within 90 days of receiving the HCA (i.e., receiving a complete license renewal or new application). Within this 90-day period, the CCC may request information or identify deficiencies in the HCA.

For renewals, if the CCC determines in whole or in part that the HCA does not comply with the New Law and CCC regulations, the CCC will send a notice to you and the municipality. The notice will:

  • Identify the non-compliant terms;
  • Provide notice of for the parties to Amend an HCA and resubmit;
  • Provide notice of for the parties to submit an HCA waiver (which would constitute a total relinquishment of the CCC requirement that an applicant or licensee have an HCA with its host community);
  • The municipality’s option “to discontinue relations” with you.

If the municipality elects to “discontinue relations” with you, you can petition the CCC for “equitable relief.”  This petition must identify facts, information and documentation showing why you should be entitled to continue operation notwithstanding the lack of a compliant HCA. The CCC, through the Executive Director, will make a recommendation for “equitable relief” for a vote by the CCC. The “equitable relief,” can include but is not limited to:

  • Extension of a License expiration date without incurring additional prorated fees;
  • Waiver of a Change of Location fee;
  • Other equitable relief as determined by the Commission.

It would appear that permanent allowance of operation in the municipality without a Host Community Agreement is not an option for relief expressly contemplated by the proposed regulations. Failure to submit a compliant HCA or a valid waiver from the CCC is grounds for denial of a renewal application. Denials of renewal applications may be appealed to an adjudicatory hearing at the CCC, and then to court. A municipality may intervene as a party to the CCC adjudicatory hearing.

CCC decisions on “equitable relief” are appealable to the court, however, there is not a permanent solution to get relief only from the CCC if a municipality decides to “discontinue relations” with you rather than amend the HCA to comply.

4.    CCC “Certification” of Community Impact Fees Assessed to You

Under the new regulations, no CIF is required to be paid until it is reviewed, certified and approved by the CCC. Within 30 days of receiving the invoice, you must submit the invoice to the CCC and also documentation of gross annual sales in the municipality to the CCC.

The CCC will review a CIF to ensure:

  • The fee invoiced is “Reasonably Related” to the actual impacts of your operation in the municipality (see definitions above).
  • The CIF seeks only reimbursement for impacts in the one-year period from the anniversary of the issuance of your Final License to operate in that municipality.
  • The itemized invoice transmitted to you
    • Is in “a form and manner” approved by the CCC;
    • Is sent within 30 days of the anniversary of the Final License (if not the fees must be forfeited);
    • Includes a “specific description” of how the alleged impact fees were spent “including each line item for each good or service charged stating its cost, purpose, and relation to a Marijuana Establishment’s operations.”

Once a CIF is certified, it is properly due and payable unless you appeal the CCC’s determination consistent with 935 CMR 500.180(4)(c)4.a. If certified and not disputed (at a CCC hearing and/or in court), the invoice must be paid within eight months of receipt. Proof of all “resolved” CIF payments is required to be submitted with your next renewal application.

If you wish to dispute the CCC’s determination on the validity of a CIF, you may request an adjudicatory hearing before the CCC, in which the municipality can intervene as a party. Under the New Law, at any time, you also may bring a breach of contract action against the municipality in Superior Court. The New HCA Law specifically authorizes you 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.”  G.L. c. 94G, § 3(d)(2)(iii). If both parties have agreed in an HCA, you may also bring any dispute to a private mediator.

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