Cape Ann pot shop sues city of Gloucester over fees charged in host community agreement

A Cape Ann marijuana business is suing the city of Gloucester over fees contained in its host community agreements.

In a court filing provided to WBUR by the business's counsel, HVV Massachusetts Inc. claims it was charged nearly $500,000 in what they call "illegal fees" in three separate host community agreements.

Both HVV and the city of Gloucester declined interviews. In a statement, HVV called the fees a "money grab" and hoped the lawsuit would "remedy the situation." Also in a statement, the city of Gloucester says "the city has complied and always will comply with the law."

This 3% tax is called a community impact fee, and it was designed to offset costs incurred by a host community because of a marijuana business, like increased traffic mitigation, security or police details. State law mandates that a host community must document these impacts and show how it's spending the money from the fees.

According to Shaleen Title, former commissioner for the state's Cannabis Control Commission and a drug policy lawyer at Drug Enforcement and Policy Center at Ohio State, there's been no evidence of these assumed negative impacts.

"It started with a few cities engaging in this practice and it started with some uncertainty, where they said — sincerely or not — 'we don't know what the costs are going to be, so therefore you have to charge us the entire maximum limit of 3% of your revenue,' " said Title. "And then they were never able to justify those fees by showing any actual costs."

This is not the first time a marijuana business has sued its host community over fees charged in its shared host community agreement. Earlier this year, Stem in Haverhill filed suit for similar reasons. That case is ongoing.

Stem founder and owner Caroline Pineau says this is an equity issue, and these fees are preventing some smaller businesses from breaking into the industry.

"The barrier of entry, the capital required to open an operation, a retail establishment, a grow facility, a manufacturing license, is so exorbitant, that it's a huge barrier of entry for social equity applicants, people of color, people from disproportionately harmed communities by the war on drugs," said Pineau. "These fees are created a pay to play market unfortunately and sadly."

At the same time, there are some cities and towns are re-evaluating the community impact fee. In Northampton and Lee, these fees have been waived for cannabis businesses. Chairwoman of the Lee Board of Selectman Patricia Carlino said it stopped charging the fee to dispensary Canna Provisions after the town incurred no extra costs associated with the business.

"After two years, we had pretty much come to the conclusion that we didn't have any impacts," said Carlino. "You know, when they first passed the law, and everything sounded wonderful, and nobody knew what the impacts would be. But there really haven't been any. It's kind of hard to identify any impacts from this business that work negatively to the town."

Carlino says the hope is to do the same evaluation the other marijuana agreements in town.

"Hopefully with the other licenses that are in the works right now, all of whom have also signed the 3% community impact fee, we can get them on board to split the cost so it's not costing those businesses an enormous amount of money," said Carlino.

Shaleen Title says what's happening in Lee should be replicated.

"I would go even further and I think the legislature should consider removing this requirement altogether because not only is it not justified, it's really harming small businesses and the economic empowerment businesses that our state was supposed to encourage, and it unfairly benefits the businesses that can afford to pay any fee," said Title.

Full statement from the mayor of Gloucester: "The city has complied and always will comply with the law. As a result, we believe that we will ultimately be successful in our defense in this case. Having said that, we will not comment any further on pending litigation."

Full statement on behalf of HVV: "This is an important lawsuit which simply seeks to force the City to comply with the law. The Legislature set clear limits on permissible host community impact fees and required that they be tied to real impacts. Unfortunately, some municipalities saw this as an opportunity for a money grab instead. We hope this lawsuit will remedy this situation."

Full statement from the city of Haverhill on its suit with Stem: “To aid the City in its analysis of the community impacts and reasonably related costs, Haverhill conducted a Community Impact Fee Cost Analysis, completed by an independent consulting firm after several months of careful review and research, which demonstrated what we expected; namely, that the city’s present and future costs to address community impacts of Licensed Marijuana Establishments are substantial. In fact, they are significantly more than what we have received in impact fees from the marijuana shops operating in our city.

We are hopeful that all marijuana establishments in our community support the City's proactive approach in addressing community impacts of the legalization, availability and use of marijuana.

With that support, we can: increase health and human service programming focusing on marijuana use; ensure that we are measuring and adequately responding to trends in youth use of marijuana; and expand our police training on drug recognition to account for increased marijuana use, among other important activities.

While we recognize that a few communities have forgone impact fees, it is unreasonable and superficial to compare such communities to Haverhill. For instance, North Hampton had already accepted millions of dollars in community impact fees before it decided to no longer collect these fees – it is certainly foreseeable that Northampton made the determination that the monies already collected addressed the impacts in their community. Lee, a small western town with 6,000 residents, has vastly different needs from a large urban community like Haverhill. In contrast, Brookline has publicly reiterated the position that there are impacts in that community that justify the impact fees. Ultimately, what we see from the actions taken in other communities is precisely what we think the law intends; namely, an assessment of the individual impacts and costs to each community, which is what Haverhill has done. No two communities are alike in this regard.

Several months ago we offered all marijuana shops the opportunity to meet and review the Impact Fee Cost Analysis. STEM accepted our offer to meet and review the Analysis. They requested additional information which we are gathering and will be providing to them shortly.

As recreational marijuana sales in Massachusetts have exceeded $2 billion dollars in just a few years, it is reasonable for the City to expect its marijuana businesses to honor the commitments made in their Host Community Agreements with the City. All marijuana shops except one have done so, and we would call on STEM to also honor their commitment to the citizens of Haverhill.”

Correction: A previous version of this story misspelled Patricia Carlino's name. We regret the error.