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Municipalities Maintain Substantial Degree of Control over Cannabis Establishment Licensing

Updated: Jul 1, 2021

Municipalities Maintain a Substantial Degree of Control over Adult Use Cannabis Establishment Licensing Through the Host Community Agreement Process

A Superior Court Judge recently confirmed that municipalities are not required to enter into Host Community Agreements with adult use (recreational) marijuana establishments, a prerequisite for obtaining a license to operate from the state’s Cannabis Control Commission. In reaching this decision, the Judge affirmed the ability of municipalities to direct the siting of adult use marijuana establishments within their borders.

In Mederi, Inc. v. City of Salem, a prospective marijuana establishment licensee sued the City after it refused to enter into an HCA with the prospective licensee. The City’s zoning ordinance limited the number of adult use retail establishments to five. It also developed a process for reviewing applications for certain factors, such as location, traffic and parking, security, and industrial experience and financing. The City received numerous applications and eventually selected five operators with which to enter into HCAs. Mederi was not one of the five. Because Mederi did not have an HCA with the City, it could not apply for a license from the Cannabis Control Commission. Mederi claimed that the City acted arbitrarily and capriciously, its decision was based on impermissible grounds and not supported by substantial evidence, and that it exceeded its authority in refusing to execute an HCA with Mederi.

In entering judgment for Salem and dismissing the complaint, the Judge made two essential findings: First, the Judge found that Salem acted within its authority under the law to enter into HCAs with only a limited number of applicants. The Judge held that, although the state grants the ultimate license to operate, the statute governing adult use establishments affords municipalities discretionary authority over “substantive issues related to the time, place, and manner” of the proposed establishments through the HCA process. Furthermore, local factors, such as traffic, geographic diversity, and disproportionate impacts on certain neighborhoods, are not considered by the state. The adopted legislation empowered communities to consider these factors during the HCA negotiations.

Second, the Judge reviewed Salem’s decision regarding whether to enter into an HCA under a deferential, arbitrary and capricious standard of review. This means that, so long as a community’s decision to enter into an HCA (or to refrain from executing an HCA) is not unreasonable or made willfully “without consideration and in disregard of facts and circumstances,” the Court will not substitute its judgment for that of the municipalities. In Salem’s case, the Judge held that there was a rational basis for the City’s decision to deny Mederi an HCA based on the number of proposed establishments in the vicinity, and therefore upheld the City’s actions.

This case represents the first time that a court has explored a municipality’s ability to deny a prospective operator an HCA and provides clear guidance not only on a municipality’s authority to direct the HCA process, but also the standard of review courts will employ when the decision is challenged. That said, to avoid a challenge, municipalities are encouraged to develop clear guidelines for implementation of its discretionary HCA review process.


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