Massachusetts High Courts Weigh In On the Limits of Local Control Over Cannabis Businesses
by Stephen Bartlett
Legal Analysis
I. Introduction
Within the past year, the Supreme Judicial Court (“SJC”) and Appeals Court provided some clarity on the role of municipalities in the Commonwealth’s adult-use cannabis market. Through three cases – West Street Associates LLC v. Planning Bd. of Mansfield, 488 Mass. 319 (2021), Mederi, Inc. v. City of Salem, 488 Mass. 60 (2021), and Valley Green Grow, Inc. v. Town of Charlton, 99 Mass. App. Ct. 670 (2021) – the courts addressed the limits of municipal authority within the cannabis licensing regime established by the Cannabis Control Commission (“Commission”). In different ways, these cases clarified some of the uncertainty left by “An Act to Ensure Safe Access to Marijuana (the “Act”, now codified at General Laws c. 94G), providing important guidance to those seeking to resolve how much control municipalities may exert over prospective cannabis licensees. In turn, the decisions highlight important ambiguities that remain unaddressed.
II. Statutory Background – Chapter 94G
In 2017 the Massachusetts Legislature passed the Act, which established the parameters for the state licensing regime that the newly established Commission was to oversee and manage. The Act envisioned specific roles for municipalities within the Commission’s licensing framework – most notably: 1) requiring prospective marijuana establishment licensees to first obtain a Host Community Agreement (“HCA”) before submitting a license application to the Commission; and 2) permitting cities and towns to adopt ordinances and by-laws that impose reasonable safeguards on the operation of marijuana establishments.[1] However, the Act provided scant detail on the process through which prospective licensees and municipalities should negotiate HCAs and failed to clearly delineate the limits of municipal control over the location and operation of marijuana establishments. Perhaps unsurprisingly, these noticeable gaps in the Act spurred litigation as the nascent adult-use cannabis industry jostled with local authorities over the standards for issuing HCAs and legality of local bylaws purporting to restrict cannabis facilities and their accessory uses.
III. West Street Associates LLC v. Planning Bd. of Mansfield, 488 Mass. 319 (2021) –
Home Rule and Preemption of Existing Town Bylaws
In West Street Associates LLC v. Planning Board of Mansfield (“West Street”), the SJC addressed the limits of local regulation of adult-use marijuana facilities, finding that a local bylaw established in conflict with a provision of the Act was preempted and, therefore, invalid.
Before the Act took effect, many municipalities in the Commonwealth, including the Town of Mansfield, adopted bylaws requiring any entity seeking to obtain a license to operate a medical marijuana establishment to be a non-profit entity.[2] Such bylaws mirrored a then-existing requirement under state law. However, the Act represented a sea change by declaring, in salient part, that “[n]otwithstanding any general or special law to the contrary, any person with a provisional or final certification of registration as of July 1, 2017[,] to dispense medical use marijuana … shall be entitled to convert from a non-profit corporation … into a domestic business corporation….”[3]
In West Street, a for-profit entity (CommCann, Inc.) that had converted from a non-profit entity in accordance with the Act, applied for and received a special permit from the Mansfield Planning Board to construct a medical dispensary on West Street. An abutting landowner, West Street Associates LLC, challenged the issuance of the special permit pursuant to G.L. c. 40A, § 17, arguing that the Planning Board erred in issuing the special permit to a for-profit entity in violation of the then-existing town bylaw. The trial court upheld the Planning Board’s issuance of the special permit to CommCann, Inc. and West Street Associates LLC appealed.
On direct appeal to the SJC,[4] the Court affirmed the trial court ruling under the Home Rule Amendment to the Massachusetts Constitution. The Home Rule Amendment expanded local power by granting municipalities the authority to undertake any action “not inconsistent” with the Constitution or laws of the Commonwealth.[5] While acknowledging the purpose of the Home Rule Amendment was to preserve municipal rights of self-governance, the Court highlighted the inherent limit of local authority, ruling that municipalities may not intrude into the realm of “inconsistency with the constitution or laws enacted by the general court.” Relying on familiar principles of implied preemption,[6] the Court concluded that the Mansfield bylaw could not require all medical marijuana dispensaries to organize as nonprofit organizations. The Court explained that “legislative intent to preclude local action… may be inferred where the local regulation would somehow frustrate the purpose of the statute so as to warrant an inference that the Legislature intended to preempt the subject.”[7] Here, the Mansfield bylaw frustrated the purpose of the Act because the Legislature “evinced its clear intent to allow for-profit entities to distribute medical marijuana.” Therefore, the bylaw was unlawful.
IV. Mederi, Inc. v. City of Salem, 488 Mass. 60 (2021) – Host Community Agreements
In Mederi, Inc. v. City of Salem, the SJC affirmed the inherent discretion of cities and towns to decline to execute an HCA with a particular entity, confirming that section three of the Act[8] does not create an entitlement to an HCA for prospective marijuana establishment licensees.
The City of Salem established a competitive HCA application process overseen by an “HCA Committee” and capped the number of adult-use retail facilities that could be operated within the City limits at five. Salem’s process emulated the competitive processes for state cannabis licenses used in a number of other jurisdictions across the country, including Georgia, New Jersey, Ohio and Virginia. Mederi, Inc. (“Mederi”) applied for an HCA, but the City denied its request to negotiate, after determining that four other applicants were more qualified. Mederi then brought both a mandamus claim and a certiorari action pursuant to G.L. c. 249, § 4 to challenge the City’s issuance of HCAs to other entities but not its own. After failing in the trial court, Mederi appealed, arguing to the SJC[9] that: 1) the City was required execute an HCA with Mederi upon its submission of the required application materials; 2) the City’s evaluation of the applications was arbitrary and capricious; and 3) the application process itself was an unlawful “pay-to-play” scheme. Mederi’s first argument – the crux of the mandamus claim – was that, because an HCA is a prerequisite to applying to the Commission for a license, a municipality’s role in the licensing structure must be purely ministerial. Otherwise, cities and towns and not the Commission would impermissibly control which entities won licenses and which ones did not.[10]
The SJC was unpersuaded. As to the first argument, the SJC concluded that nothing in the Act requires cities or towns to enter into an HCA with a prospective licensee and that cities and towns have broad discretion to enter into HCAs with those applicants they determine to be most suitable, provided that their decisions are neither arbitrary nor capricious. As to the second argument, the SJC concluded that the City’s exercise of its discretion in selecting other applicants was above board. Indeed, the City’s HCA Committee expressly and specifically concluded that the applications of Mederi and two other entities were “not as strong as the others.” For instance, Mederi’s application lacked demonstrations of “sufficient capitalization” and “direct experience in the industry.”
The SJC also rejected Mederi’s final argument that Salem’s HCA process was a “pay-to-play” scheme unduly benefitting deep-pocketed entities willing contribute funds and make donations in excess of the City’s statutorily mandated 3% community impact fee.[11] Although receptive to the arguments, the SJC ruled that Mederi lacked standing to challenge the legality of excess community impact fees because he neither executed an HCA with Salem nor paid any community impact fees. The Court also rejected Mederi’s other “pay-to-play” arguments, which decried the additional financial benefits pledged by other applicants, because Mederi presented no credible evidence that the City actually based its decisions on the promise of such additional benefits.
However, in dicta the Court raised valuable questions about the purpose of HCAs and underscored the ambiguity in the Act that could thwart (and, in fact, some believe has thwarted)[12] the Commission’s effort to promote diversity, equity and inclusion in the fledgling adult-use industry. The SJC acknowledged that the Commission’s regulations[13] call for economic empowerment priority applicants to receive “priority application review” by the Commission. However, because municipalities function as de facto gatekeepers and are not required by law to consider whether any entity seeking to enter into an HCA is an economic empowerment priority applicant, such applicants may never receive Commission review. In turn, the SJC maligned the growing practice among municipalities of requiring prospective licensees to make payments in addition to the 3% community impact fee described in the Act. According to the SJC, this too had the potential to create an unfair advantage for better-capitalized applicants.
V. Valley Green Grow, Inc. v. Town of Charlton, 99 Mass. App. Ct. 670 (2021) – Agricultural and Accessory Uses
Finally, in Valley Green Grow, Inc. v. Town of Charlton, the Appeals Court considered what categories of activity could be considered “ancillary” to cannabis cultivation and, therefore, part and parcel of an agricultural use for the purposes of local zoning. In a two-to-one decision, the Appeals Court decided that cannabis manufacturing activities and a co-located energy generation facility were such “ancillary” uses that were permitted as of right within certain zoning districts of the Town of Charlton.
Valley Green Grow, Inc. sought to overturn a decision of the Charlton Planning Board, which concluded that the company’s proposed marijuana establishment constituted “light manufacturing” and was therefore not allowed in agricultural and commercial business districts. Notably, when the company submitted its application for site plan approval to the Planning Board, Charlton’s zoning bylaw stated that “indoor commercial horticultural/floricultural establishments (e.g. greenhouses)” “are allowed by right in every zoning district in the [t]own.”[14] On summary judgment, the Land Court disagreed with the Charlton Planning Board and concluded that the proposed use of the site was properly classified as an indoor commercial horticulture/floriculture establishment and therefore an allowable use as of right. A neighboring property owner and intervener in the Land Court case appealed the decision.
Valley Green Grow, Inc.’s proposed plans for the site consisted of a one million square foot indoor marijuana growing and processing facility, including 860,000 square feet of closed greenhouses, a 130,000 square foot postharvest processing facility, and a 10,000 square foot cogeneration facility. The Planning Board and intervening neighbor argued that the cogeneration facility and processing operation were the principal uses proposed by the site plan and bore no resemblance to agricultural use. A majority of the Appeals Court panel disagreed, concluding that a “reasonable relationship” existed between the cannabis cultivation and manufacturing/cogeneration activities. Analogizing the proposed cannabis operation to the harvesting of fruits and vegetables that require separation from trees or stalks, the Appeals Court concluded that “the proposed cogeneration facility, incidental processing, and incidental manufacturing, when viewed as components of the entire indoor commercial horticultural use, are allowed as of right in the agricultural district.”
In dissent, Justice Peter Rubin voiced concern about the slippery slope on which the majority’s ruling perilously rested, surmising “that, despite the [zoning] bylaw, a project like this, with its eighteen-megawatt electric power plant, must be permitted anywhere in Charlton, in any zoning district, including a residential one.” In contrast to his colleagues, Justice Rubin promoted deference to the Planning Board’s reasonable interpretation of the town’s bylaw that an eighteen-megawatt electric power plant and industrial facility for manufacturing marijuana consumables removed this project from the realm of a traditional agricultural use allowed as of right in the town.
VI. Conclusion
Although these three cases provide some additional clarity to local authorities and the industry, much ambiguity and confusion remain regarding the roles that municipalities can or should play within the Commonwealth’s adult-use cannabis licensing regime. This reality did not go unnoticed by Justice Kimberly Budd, author of the opinion in Mederi, Inc. v. City of Salem, who recounted that the Commission has made several overtures to the Legislature for additional clarity – especially with respect to the provisions in c. 94G governing HCAs – but that each time the Commission has been rebuffed. Perhaps prophetic, Justice Budd’s call for legislative action preceded increased public awareness and scrutiny of the shortcomings of c. 94G and the HCA construct, which seem to invite criminal enterprise and nefarious actors.[15] As the drumbeat for legislative action grows, one would expect the Legislature to review with fresh eyes c. 94G and offer more certainty to an industry that shows no signs of slowing down.
[1] See G.L. c. 94G, § 3; 935 CMR 500 and 501 et seq.
[2] See W. St. Assocs. LLC v. Planning Bd. of Mansfield, 488 Mass. 319, 324, 173 N.E.3d 329, 333 (2021).
[3] 2017 Mass. Acts c. 55, § 72.
[4] The SJC exercised its right of direct appellate review.
[5] See Art. 89, § 6, of the Amendments to the Massachusetts Constitution.
[6] State law can preempt local bylaws either expressly (“express preemption”) or by implication (“implied preemption”). See Bos. Gas Co. v. City of Somerville, 420 Mass. 702, 704, 652 N.E.2d 132, 133 (1995) (“To determine whether a local ordinance is inconsistent with a statute, this court has looked to see whether there was either an express legislative intent to forbid local activity on the same subject or whether the local regulation would somehow frustrate the purpose of the statute so as to warrant an inference that the Legislature intended to preempt the subject.”)
[7] W. St. Assocs. LLC v. Planning Bd. of Mansfield, 488 Mass. 319, 323-24, 173 N.E.3d 329, 332-33 (2021) (internal quotation marks omitted).
[8] G.L. c. 94G, § 3 (A “marijuana establishment or a medical marijuana treatment center seeking to operate or continue to operate in a municipality which permits such operation shall execute an agreement with the host community setting forth the conditions to have a marijuana establishment or medical marijuana treatment center located within the host community”).
[9] The SJC exercised its right of direct appellate review.
[10] Mederi, Inc. v. City of Salem, 488 Mass. 60, 65-67, 171 N.E.3d 158, 162-64 (2021).
[11] G.L. c. 94G, §3(d) (Community impact fee “shall not amount to more than 3 per cent of the gross sales of the marijuana establishment or medical marijuana treatment center….”)
[12] https://www.bostonglobe.com/2021/11/15/opinion/massachusetts-is-failing-grow-marijuana-industry-equitably/?p1=BGSearch_Advanced_Results.
[13] 935 CMR 500 and 501 et seq.
[14] Valley Green Grow, Inc. v. Town of Charlton, 99 Mass. App. Ct. 670, 677, 173 N.E.3d 395, 402 (2021).
[15] https://www.bostonglobe.com/2021/05/14/metro/our-city-was-sale-fall-river-officials-react-after-former-mayor-jasiel-correia-found-guilty-extortion-fraud/?p1=BGSearch_Overlay_Results; https://www.bostonglobe.com/2021/09/28/metro/judge-orders-former-fall-river-mayor-jasiel-f-correia-ii-pay-back-more-than-310000-restitution-investors-smartphone-app/?p1=BGSearch_Advanced_Results.
Stephen Bartlett is a regulatory attorney at Foley Hoag focusing on cannabis, environmental, energy and infrastructure matters.
