On July 28, 2023, the Massachusetts Cannabis Control Commission (“CCC”) unanimously approved what is being characterized as “historic changes” to its cannabis regulations. These changes stem from the 2022 law promulgated by the Massachusetts legislature, “An Act Relative to Equity in the Cannabis Industry,” and are designed to increase fairness and equity for applicants seeking to enter the legal cannabis market in Massachusetts and to restructure the format of Host Community Agreements (“HCA”), among other things. The ideal, commonly referred to as “Social Equity,” is aimed at removing the economic obstacles to entering the legal cannabis market for populations of entrepreneurs disproportionately affected by the War on Drugs and promoting diversity among cannabis business ownership and employment. While the ideal of Social Equity is almost universally viewed as a good thing by legislators, regulators, business owners, and consumers alike, the implementation of this ideal by state regulators often falls short of expectations.
Below is a non-exhaustive summary of the changes to the regulations. I am eager to witness these changes’ effect on our cherished cannabis market, most notably the clarity provided around HCAs and the community impact fees mandated thereunder. As many of you know, community impact fees have made it difficult for many small cannabis businesses to thrive economically, sometimes resulting in outright financial distress for some operators.
And, I mean, the impending reality of social consumption lounges sounds pretty cool too.
Host Community Agreements
- Provides the CCC authority to review and approve HCAs and to develop a model contract to promote uniformity and equal treatment among licensees. The CCC must complete this review within 90 days of its submission.
- Provides the CCC authority to deem certain provisions invalid or unenforceable and impose sanctions for noncompliance with HCA regulatory requirements.
- Requires all provisions in an HCA to be “reasonable”. The CCC provides a list of presumed reasonable provisions but leaves wide discretion for it to deem provisions not listed as unreasonable and, therefore, unenforceable.
- Requires each host community to provide a line-item invoice and a breakdown of the use of the community impact fee it is collecting and sets a timeline to complete. This is a great improvement from the flat fee of 3% of gross sales, which has disadvantaged operators since the recreational market’s inception.
- Dispense with the concept that the community impact fee is a percentage of gross sales and requires the community impact fee to be tied to expenses of actual impacts on the host community.
- Introduces a dispute resolution process for disputes arising under an HCA.
- Prohibits mandated charitable contributions that host communities have historically relied on to maximize their benefit to the operator’s detriment.
- Creates the ability of operators to seek equitable relief if the host community decides to terminate or not renew the HCA and permits parties to the HCA to bring private breach of contract actions in court to enforce the rights and obligations thereunder.
- Provides an avenue for contribution to the Social Equity Fund, including donations from licensees and requiring host communities to donate 3% of their community impact fee to the fund. The Social Equity Fund is used to assist qualifying applicants in obtaining their cannabis license and to help offset start-up costs.
- Eliminates certain administrative burdens for Social Equity applicants and introduces a shortened timeline for the license approval process.
- Sets a framework for HCAs between Social Equity applicants and the host community, including waiver of certain fees, requiring interpreters at certain meetings, and instituting parameters around the negotiation process to prohibit strong-arm tactics by the host community.
- Eliminates certain disqualifiers concerning criminal backgrounds that have prevented individuals from gaining employment in the cannabis industry. However, these same disqualifiers still apply to licensed owners and employees of independent testing laboratories.
- It is worth noting that the changes to the HCA regulations should also help to promote diversity and equity in the industry, as it removes a substantial portion of the economic barriers to entry through reasonable limits on fees mandated under the HCAs.
Social Consumption Establishments
- Replaces the existing social consumption lounge program that limited the program to 12 municipalities and now permits any municipality to opt-in to hosting social consumption lounges when the licenses become available.
- This license type continues to be worked on by the CCC, and we should expect an update on the timing of these licenses by November 9, 2023.
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