Massachusetts city drops onerous ‘impact fee’ on cannabis businesses

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A Massachusetts municipality became the first in the state to stop assessing a controversial 3% “community impact fee” on licensed cannabis businesses.

The move, if adopted by other Massachusetts communities, could ease some of the financial burden marijuana businesses face in the state and, in particular, could benefit capital-constrained small businesses and social equity applicants.

Northampton, which is about two hours west of Boston, said it is dropping the fee after experiencing few negative effects from the industry, according to The Boston Globe. City officials said they had collected more than $2.6 million from the fee.

The marijuana industry in Massachusetts has been complaining for years that municipalities were abusing the situation by charging the maximum 3% of gross sales fee without evidence of negative impacts.

Federal prosecutors started examining host community agreements (HCAs) in Massachusetts in 2019 as part of a broader investigation into potential public corruption regarding the industry.

Communities typically were assessing the full 3% impact fee or a flat payment regardless of sales, plus often requesting donations from marijuana companies, according to dozens of HCAs reviewed by the state, the Globe, Marijuana Business Daily and others.

“I don’t know of any other industry except for gaming that has to pay a legalized extortion fee to open in the community,” David O’Brien, president and CEO of the Massachusetts Cannabis Business Association, told MJBizDaily in late 2019.

Northampton officials say they now will charge local marijuana businesses a fee only if their operations create a specific cost to the city.

“When the regulations were first put in place and we were negotiating host community agreements, I don’t think anyone knew what the potential impacts would be,” Northampton Mayor David Narkewicz told the Globe. “But now, given more experience, we understand that in most respects these businesses operate like any other business . . .”

Narkewicz said local officials also recognize the impact fees are an “impediment to smaller marijuana entrepreneurs, in particular equity applicants.”

For its part, Northampton reportedly used the impact fees for improving roads and sidewalks near a New England Treatment Access dispensary. Many other municipalities have put the money into their general funds.