Pubdate: Mon, 25 Jul 2016
Source: Boston Globe (MA)
Copyright: 2016 Globe Newspaper Company
Author: Kay Lazar


Massachusetts cities and towns are exacting increasingly hefty 
payments from medical marijuana dispensaries in exchange for letters 
the companies need to win state licenses, a Globe review of recent 
compacts shows.

In Worcester, a dispensary promised to pay the city $450,000 over 
three years - and $200,000 a year after that - if officials gave 
their blessing to the business.

In Springfield, the city is negotiating a deal that would ultimately 
take 7 percent of a dispensary's revenue, plus a $50,000 annual 
donation to the Police Department - a pact that could amount to 
hundreds of thousands of dollars.

And in Salem, where the first dispensary opened a year ago, the 
medical marijuana shop contributed $82,856, a paltry amount compared 
with more recent deals.

"It's quite clear if you don't negotiate an agreement, you don't get 
a letter," said James E. Smith, a Boston attorney who represents a 
marijuana company that signed one of the larger agreements in March, 
with the City of Worcester.

This phenomenon, which some called pay-to-play, is not typically seen 
with marijuana licensing in other states, and will drive up the costs 
of doing business while siphoning money from the dispensaries that 
could be used to lower prices for needy patients, advocates said.

But local leaders contend the negotiations and lucrative contracts 
are needed to ensure their municipalities have the money to deal with 
unforeseen problems from dispensaries. They say the true costs for 
allowing these businesses, such as extra traffic and the need for 
additional police services, are still unknown.

Four years after voters approved marijuana for medical use, just six 
dispensaries have opened, while 174 other applications inch through 
the process. Advocates for medical marijuana say protracted 
negotiations over escalating contract costs are a prime culprit for the delays.

The licensing process in Massachusetts requires a marijuana company 
to submit a letter from a municipality stating that residents do not 
oppose a dispensary in their midst.

The requirement was intended to give cities and towns a say in the process.

"I am not aware of another state that has such a hard line as 
Massachusetts" in requiring the community letter in the licensing 
process, said Adam Fine, a Boston attorney whose law firm, Vicente 
Sederberg, has helped marijuana companies across the country with 
licensing issues.

In other states, Fine said, state regulators grant a license, and 
then municipal officials are able to address concerns about traffic 
and security through local zoning and permitting.

Michael Cutler, a Northampton lawyer who has represented patients and 
companies in marijuana-related cases, said payments to municipalities 
drive up the cost of treatment.

"Whose hide does this money come out of? The costs are passed on to 
the patients," he said.

Aside from marijuana dispensaries, casinos, and waste landfill 
businesses, host agreements are not typically used in Massachusetts, 
according to Geoffrey Beckwith, executive director of the 
Massachusetts Municipal Association.

"They are generally put in place for uncommon, regulated industries, 
not something like a pharmacy, but something that is more unusual 
than that, like medical marijuana, where it is a restricted 
substance," Beckwith said.

Several municipal leaders said the prices they set in their 
agreements were intended to cover extra police or other services 
needed at the dispensaries. But Fine and other attorneys said the 
ante has surpassed that benchmark.

"There has never been a police incident at one of these [six open 
dispensaries], and they carry less drugs than a CVS, but cities and 
towns say it will take extra police," Smith said.

The deal that Smith's client, Good Chemistry of Massachusetts, signed 
with Worcester calls for the company to pay the city an escalating 
percentage of revenue over three years, in addition to a $450,000 
payment. Good Chemistry will also contribute $10,000 annually to 
public charities.

After the third year, and for every year its dispensary stays open, 
the company agreed to pay Worcester $200,000 annually, plus 2.5 
percent of its total sales revenue. Good Chemistry also agreed to pay 
property taxes and promised never to apply for a reduction or 
elimination of taxes because of its not-for-profit status, which 
would otherwise have allowed it to claim an exemption.

Worcester's city manager, Edward M. Augustus Jr., said that he does 
not believe the city will need extra police or other services when 
the dispensary opens, and that he intends to use the money from Good 
Chemistry to sustain a financially struggling after-school and summer 
youth program.

He said Worcester settled on the amount it required from Good 
Chemistry after studying contracts other cities and towns signed with 
marijuana companies, and factoring in the intense competition for a 
coveted letter from Worcester. Nine companies vied for letters, and 
Augustus said the city will grant four, issuing similar financial 
conditions for each.

"The market will dictate at what point it is not financially viable 
for them to sign host agreements that are above a certain number," 
Augustus said. "It's up to the companies to say that's not sustainable."

Salem was the first city to sign an agreement, in April 2014, with 
Alternative Therapies Group. That company opened the state's first 
dispensary in June 2015. That agreement is modest by today's 
standard. It includes no six-figure payouts and simply calls for the 
city to receive 1.25 percent of the company's annual sales for the 
first two years, and 2 percent in subsequent years.

The city recently received its first payment, $82,856, which means 
Alternative Therapies had roughly $6.6 million in sales its first 
year, despite some supply problems.

Dominick Pangallo, chief of staff for Mayor Kimberley Driscoll, said 
Salem has experienced no increase in crime or traffic since 
Alternative Therapies opened.

But given the lucrative contracts other communities have brokered, 
Salem leaders are considering going back to the bargaining table with 
Alternative Therapies to get a better deal, Pangallo said.

"We do have a reopener in our agreement and are in the process of 
reviewing other agreements to see whether or not it would be 
something we'd want to exercise this coming year," he said.

Since Worcester signed its contract in March, the Town of 
Southborough has signed a sweeter deal that promises the town 3 
percent of the dispensary's annual sales, capped at $500,000 a year, 
plus $50,000 in annual payments to the town for school substance 
abuse and mental health programs.

The City of Springfield may soon top that. Springfield leaders are 
considering a 10-year deal with a dispensary that starts at 3 percent 
of annual sales and steadily climbs to 7 percent by the ninth year, 
in addition to an annual $50,000 donation to the Police Department.
- ---
MAP posted-by: Jay Bergstrom