An Arizona-based cannabis multistate operator is suing an Ohio town where the company wanted to open a cannabis store, claiming in a lawsuit that millions in local fees amounted to “extortion.”
Phoenix-based Vext Science, which is expanding rapidly in Ohio after entering the market via acquisition, is seeking $2.5 million in damages in legal proceedings against Pierce Township, in southwestern Ohio.
The court action also seeks to shed light on similar practices seen in other localities in Ohio and beyond, Cincinnati-based ABC affiliate WCPO-9 reported.
According to Scott Everett, Vext’s general counsel, town officials demanded 4.5% of a potential Pierce Township store’s gross annual revenue on top of $60,000 in fees.
Such arrangements are likely illegal, said Everett, who pointed out that local governments are already guaranteed a significant cut of the state’s 10% excise taxes.
Another cannabis company, Shangri-La Monore West, agreed to those terms and opened for business last summer, Allen Freeman, chair of the Pierce Township Board of Trustees, said in an interview with WCPO.
However, those fees have yet to be collected while Vext’s lawsuit challenging the arrangement’s legality under state law, WCPO reported.
Are local governments committing ‘extortion’ against cannabis operators?
Individual cities and counties wield significant power over the cannabis industry thanks to “local control” clauses in state law that delegate zoning choices to local governments, which are often free to ban or strictly regulate legal cannabis businesses.
This artificial “scarcity,” as Everett described it, can trigger bidding wars for one of a few available permits in jurisdictions that cap the number of permits allowed.
Vext was initially denied a permit to operate in Piere Township, but was eventually awarded a permit after a local court and an appellate court both found that town officials had wrongly denied the company, WCPO reported.
Can cities and counties charge cannabis operators millions in fees?
Other localities in other states are also reassessing their financial arrangements with cannabis companies.
In Massachusetts, cannabis operators have paid tens of millions to local governments under so called “host community agreements,” in which cannabis retailers fork over a percentage of their gross to cover government costs associated with having a cannabis retailer in their community.
But the spending has to “mitigate” the effects of cannabis legalization, and some towns have paid the money back after failing to prove in court that the money was properly spent.
According to Vext’s Everett, town officials view cannabis as a “vulnerable” business sector that “we can potentially make money off of,” he told WCPO.
It’s not the first instance of Vext running into conflict with local officials.
Last month, the company agreed to temporarily close one of its six Ohio stores after law enforcement received reports that purchasers of vape products had fallen ill.
The store reopened and the vapes, temporarily quarantined, were returned to store shelves after they were found to be free of suspected contaminants, the company reported earlier this month.
