[co-author: Justin Hunt]
For the first time since adult-use legalization in Massachusetts, the Massachusetts Legislature voted to pass marijuana reform legislation that will impact the cannabis industry across the Commonwealth in significant ways, particularly with respect to social equity businesses. Governor Charlie Baker signed S. 3096, An Act Relative to Equity in the Cannabis Industry, into law on August 11, 2022.
This article provides a high-level summary of the new law’s key provisions. However, as part of the implementation of this law, the Massachusetts Cannabis Control Commission (the “CCC”) will be required to develop and issue new or amended regulations within one year of the new law becoming effective.
Host Community Agreements
The new law provides for significant changes to Host Community Agreements (HCAs) entered into between licensed medical and adult-use marijuana businesses and their host municipalities. Unless the host community chooses to waive the HCA requirement altogether, the HCA must comply with the new statutory provisions set forth in M.G.L. Ch. 94G, Sec. 3(d).
Community Impact Fees
As was the case under the prior statute, the HCA may include a community impact fee for the host municipality. However, the new law places additional restrictions on the community impact fee by requiring that the fee:
- Must be reasonably related to the costs imposed on the host municipality by the marijuana business’s operations;
- Must not exceed three percent (3%) of the marijuana business’s gross sales;
- Must not be effective after the marijuana business’s eighth (8th) year of operation;
- Must commence on the date the CCC issues the marijuana business a Final License;
- Must not mandate a certain percentage of total or gross sales;
- Must not include any additional required payments or obligations, including monetary payments and charitable contributions by the marijuana business to the host community or any other organization; and
- Must not have the first annual fee payment due prior to the first annual license renewal by the CCC.
A host municipality is required to document and provide to the licensee any costs imposed by the marijuana business’s operations on the municipality within one month after the date of the licensee’s annual license renewal. If the licensee believes the costs information provided by the host municipality is not reasonably related to the actual costs imposed on the municipality, the licensee may bring a breach of contract civil action against the host municipality to recover damages, attorneys’ fees and other costs.
CCC Review and Approval
After years of uncertainty, the CCC has now been granted clear authority and a statutory mandate to review and approve each HCA as part of a marijuana business license application and at each license renewal. The CCC will provide written notice of any deficiencies identified by the CCC during its review of the HCA for compliance with the new law and may request additional information from the license applicant and the host community. The CCC is required to complete its review of an HCA within 90 days after the HCA is received and will not approve a Final License application unless the CCC certifies that the HCA is in compliance with the new statutory requirements for HCAs.
Host Community Standards and Policies to Promote Social Equity
The CCC is required to issue regulations establishing minimum standards for host communities to “promote and encourage full participation in the regulated marijuana industry by people from communities that have previously been disproportionately harmed by marijuana prohibition and enforcement and to positively impact those communities.”
A municipality must establish initial policies to promote equity in the cannabis industry no later than July 1, 2023, and a city or town that is not a host community must establish these policies before entering into an HCA. If a host community fails to establish the required social equity policies, the host community will be subject to a monetary penalty in an amount equal to the annual total of all HCA community impact fees received from all marijuana businesses operating within that host community.
Additional Tax Revenue for Municipalities That Host Social Equity Retailers
Each city or town that has at least one adult-use Marijuana Retailer that is a “social equity business” will receive quarterly distributions in the amount of one percent (1%) of the total sales of each social equity Marijuana Retailer operating in the municipality.
A “social equity business” is defined as a marijuana establishment with not less than 51% majority ownership of individuals who are eligible for the CCC’s Social Equity Program or whose ownership qualifies it as an Economic Empowerment Priority Applicant.
Cannabis Social Equity Trust Fund
A Cannabis Social Equity Trust Fund (the “CSETF”) will be established to encourage full participation in the regulated marijuana industry by individuals from communities that have been disproportionately harmed by marijuana prohibition and enforcement. Each year, 15% of the money in the state Marijuana Regulation Fund will be transferred to the CSETF, and funds may also be contributed to the CSETF from private sources, including licensed marijuana businesses.
The money in the CSETF must be used to make grants and loans to CCC-certified Social Equity Program Participants and Economic Empowerment Priority Applicants applying for licenses to operate marijuana businesses in the Commonwealth. The CSETF will be regulated and administered by the state Executive Office of Housing and Economic Development, in consultation with a newly established Cannabis Social Equity Advisory Board.
Municipal Authorization of Social Consumption Establishments
The process by which a municipality can authorize on-premises Social Consumption Establishments has now been formally established. A city or town can choose to engage in a local voter initiative petition process or adopt a municipal ordinance or by-law to allow the sale of marijuana for consumption on the premises where sold.
Expungement of Marijuana Criminal Records
A court, within 30 days of a petition being filed, will be required to order the expungement of criminal records for a variety of actions involving marijuana possession, cultivation, or distribution that were previously criminal offenses but have since been decriminalized under state law.
State Income Tax Deductions
For taxable years beginning on or after January 1, 2022, certain business deductions for expenses related to the carrying on of medical and adult-use marijuana businesses will now be allowed under state law for state income tax purposes, despite the fact that such business deductions for marijuana businesses are not currently permitted under Section 280E of the federal IRS Tax Code for federal income tax purposes.
The passage of this new law is a positive step forward in building a strong, equitable marijuana industry in Massachusetts. Clarifying the Host Community Agreement process to align with the intent of the adult-use legalization Ballot Question 4 and creating a Social Equity Trust Fund to assist people in entering the legal cannabis industry are major steps forward to creating additional opportunity for success. As the CCC begins to update its regulations to implement the new law, and as the Social Equity Trust Fund is administered, we look forward to seeing the positive impact these changes will have on the Massachusetts cannabis industry.