PROVINCETOWN — A law that passed the state legislature almost unanimously in July and was signed by Gov. Charlie Baker in August will cut in half the revenue from marijuana sales that come to town governments across the state.
The law leaves in place the local option tax on marijuana, which is capped at 3 percent of total sales. But it, in effect, removes the “community impact fee” that the Outer Cape towns — along with nearly every town in the state that hosts a dispensary — had set at 3 percent of sales.
The law still allows for impact fees, but now they must be shown to be “reasonably related” to the actual costs imposed on a town by the existence of the dispensary, such as police or fire calls or traffic management. Those costs must be tracked and submitted to the dispensary annually and can be contested in court, with the town covering the legal fees of the marijuana business if the impact fee is found to be unwarranted.
Additionally, all impact fees must end after the dispensary’s eighth year of operation, and impact fees cannot be defined as a percentage of the business’s sales. Requirements for donations to local charities, often set at one percent of total sales, were also eliminated by the new law.
The Mass. Municipal Association lobbied against these provisions, arguing that more than 1,000 host community agreements across the state would be affected. The MMA asked the legislature and then the governor to insert language that would allow existing five-year host community agreements to stand until their original expiration date, which would allow the 3-percent-of-sales formula to continue for a few more years. Neither the legislature nor the governor agreed, and the law passed unanimously in the state Senate and by a vote of 153 to 2 in the House.
The marijuana industry’s complaint has been that the impact fees were being abused. Lawsuits were filed by dispensary owners against local governments in Haverhill and Pittsfield seeking to overturn their community impact fees, with the dispensary owners arguing that the local option tax was the town’s rightful share and “impact fees” were being assessed beyond the conceivable negative impact of any one retail business.
In Provincetown, Curaleaf has paid $372,000 in impact fees since it opened in February 2020. B/well has paid $186,000, Hennep has paid $60,000, Heal has paid $6,600, and Haven, which was the last of the five local pot shops to open, has paid $2,600. These figures do not include payments for the second quarter of 2022, or for the two months since then.
For town governments, the change will be twofold: it will cut the incoming revenues from marijuana sales in half, and it will end the need for town governments to find a “reasonably related” way to spend the money. Provincetown has discussed spending those funds on its mental health plan (see related story on page A10).
Provincetown received $374,554 in community impact fees from total marijuana sales in fiscal 2021, which ran from July 2020 through June 2021. The Independent is still awaiting the town’s figures on impact fees that cover sales in the last quarter of fiscal 2022, which ended June 30, but based on the year’s sales tax figures, the impact fees should total around $300,000 for that year.
Impact fee revenue could continue for one or two more quarters while the state Cannabis Control Commission establishes a timeline for revising the host community agreements to conform with the new law. But it’s clear the impact fees will be dramatically reduced before long.
The local option tax will remain, and use of that money is unrestricted. Provincetown took in $312,000 in local option marijuana taxes in fiscal 2021 and $294,000 in fiscal 2022, all of which went into the general fund.
Karen Nash, owner of the B/well dispensary, said that the total volume of pot sales in Provincetown — around $10 million per year — is smaller than she had expected. Competition from stores in Wellfleet and Eastham has mattered.
“My projections before I opened factored in six dispensaries,” Nash said. “The total Provincetown market is about half of what I thought it would be.”
The sixth Provincetown dispensary, Green Harbor at 79 Shank Painter Road, has had a license for two years but still hasn’t opened. There are now three shops open in Wellfleet and two in Eastham, plus another one on the way in Orleans, according to Nash. People who were driving to Provincetown for legal pot can now shop closer to home.
The bottlenecks that the state had been experiencing in cultivation, production, and testing have all eased significantly, Nash said. She has put her planned production facility on Court Street on hold.
“There are so many more cultivators and manufacturers online now,” said Nash. “Before it was ‘If you have gummies, we’ll buy them,’ but now we can pick and choose, curate a menu, because there’s so many more providers.
“There’s even white-label companies now, so I can bring my formulation to a manufacturer, they’ll make it for me, and I can have it branded B/well,” said Nash.
With the pressure to integrate vertically having eased, Nash is looking at horizontal moves — opening other retail outlets in Massachusetts and possibly in New Jersey and New York, which recently legalized recreational use.
Andrew Koudijs, owner of Hennep, has expanded his store into the adjacent retail space to help create a better customer experience, he said. He is also looking forward to the opening of his cultivation project in Franklin next spring, so he can sell his own line of products.
“If we all have the same product, then what’s the point” of having so many outlets, Koudijs said. “Having our own products will be a differentiator.”
He also said the margins in his business are smaller than people imagine. “We can’t deduct a lot of our business expenses — only cost of goods sold — when it comes to state and corporate taxes,” said Koudijs. “A lot of people have the conception that these stores rake in money, but it’s pretty far from the truth.”
Both Nash and Koudijs said that the demise of the 3-percent impact fee would help them and their competitors.
“The way it was designed, it was for impacts, like if we closed down the road for a delivery or something,” Koudijs said. “It turned into a revenue generator for the towns across Massachusetts, so that’s why they tweaked it.”