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The Future of Host Community Agreements and Marijuana

The recreational use of marijuana was legalized by Massachusetts voters in 2016. Pursuant to M.G.L. c.94G, §4, the Cannabis Control Commission (CCC) is tasked with oversight and regulation of the use and distribution of recreational marijuana. The CCC is authorized to issue licenses to those seeking to operate a marijuana establishment. However, a prospective marijuana establishment must first execute a host community agreement (HCA) with the municipality in which it seeks to operate, as proof of an HCA must be submitted with an application to the CCC for a license.

In Mederi, Inc. v. City of Salem, the plaintiff was denied an HCA from the City of Salem which effectively denied its license to sell marijuana from the CCC. Salem by ordinance limited the number of retail marijuana establishments to five. Mederi, Inc. was one of eight applications for four available slots, and didn’t make the cut.

Mederi’s suit included three principal claims: The first was a mandamus claim asking the court to compel the City to take a mandatory action, which was dismissed at the outset. The Supreme Judicial Court upheld that dismissal, agreeing with the trial judge that mandamus is appropriate only when government officials are required to perform a clear-cut duty and only to prevent a failure of justice because there is no other adequate remedy. The SJC rejected the plaintiff’s argument that, because Mederi’s application met all of the City’s HCA requirements, the action required from the City was not a matter of discretion. Instead, the SJC held that the City could choose to deny an HCA with an applicant even if all of its HCA requirements were met. M.G.L. c.94G, §3(d) does not impose a duty on municipalities to enter into HCA agreements.

The second claim was in the nature of certiorari, alleging that the City’s decision was an “arbitrary and capricious” exercise of its administrative discretion. The Court ruled, however, that, so long as the City had a rational basis for choosing others above Mederi, its decision should be upheld. The record established, to the SJC’s satisfaction, that the City had a rational basis for its choice, and that Mederi’s arguments were no more than a disagreement with the City’s conclusion.

Mederi’s final argument was that the City’s process was an unlawful “pay-to-play" scheme. It claimed that, since Mederi did not offer as many financial and charitable contributions to the City as other applicants, it was denied an HCA. But this argument was belied by the record, since two selected applicants offered no excess financial contributions and another that was not selected offered substantial financial benefits. Interestingly, the SJC noted in footnote 16: “the regulations do not prohibit a municipality from choosing HCA partners based on the unsolicited benefits they agree to provide to the community.” Thus, this claim was also dismissed.

The Court could have ended its decision there. It did not. Instead, it expressed "observations” that the statute’s priority to benefit communities traditionally harmed by the former criminal prosecution of marijuana was undermined by the CCC’s regulations. Since municipalities are not required by CCC regulation to consider whether applicants for an HCA are economic empowerment priority applicants, such applicants may be rejected before they can get priority consideration before the CCC. Further, since the statute and regulations are silent as to whether municipalities may require payments in addition to the community impact fee, many municipalities are doing so, potentially weighting the outcome toward better funded applicants and impliedly against economic empowerment priority applicants. While the Court noted that efforts to authorize the CCC to have review and approval authority over HCAs have failed in the Legislature, its observations were a call to the Legislature and the CCC to close the gaps in the regulatory scheme.

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