Overview
Before a change in regulations related to HCAs that CCC implemented in March 2024, CCC did not review new and/or renewed HCAs for unenforceable or noncompliant provisions. CCC was authorized to regulate HCAs in 2022, as further described below. Following this change in regulations in 2024, CCC did not review existing HCAs for unenforceable or noncompliant provisions. During the audit period, CCC operated under two distinct processes for reviewing HCAs: One procedure was in place until March 2024 and the other was in place from March 1, 2024 through the end of the audit period.
HCA Review Process Effective Starting March 1, 2024
CCC did not conduct a historical review of existing HCAs entered into before March 1, 2024, allowing noncompliant agreements to remain in effect during a critical regulatory transition period.17
On August 11, 2022, the Massachusetts Legislature passed Chapter 180 of the Acts of 2022, enabling CCC to create regulations on HCAs between individual marijuana establishments and municipalities. Effective November 10, 2022, Chapter 94G of the General Laws, as amended, granted CCC oversight of HCAs. CCC finalized these regulations on October 27, 2023 but allowed an implementation period extending until March 1, 2024. As a result, there was a 14-month regulatory development period and an additional four-month implementation window, during which CCC did not enforce the new HCA requirements, and it did not review existing agreements. This created a prolonged period in which noncompliant agreements persisted without oversight. For example, some HCAs from this period contained Community Impact Fees (CIFs) that exceeded the 3% statutory limit or mandated donations to municipalities or charities.
CCC staff members confirmed that the HCA review process that was effective starting on March 1, 2024 did not include a review of HCAs executed before March 1, 2024. Therefore, HCAs executed before this date would be reviewed for compliance only after a corresponding licensee submits a renewal application, potentially allowing noncompliant terms to remain in effect for a full license year or longer.
Marijuana establishments continued to operate under agreements that violated statutory requirements, in some cases paying excessive or improper fees. CCC’s decision not to review existing HCAs may potentially lead to noncompliant agreements remaining in effect for a year, or possibly longer, depending on whether extensions were granted, before CCC reviews them for noncompliant terms. This process is procedurally unfair to marijuana establishments that submitted HCAs before the March 1, 2024 cutoff.
HCA Review Process Effective Through February 29, 2024
Under the prior regulatory framework, CCC did not conduct compliance reviews of HCAs submitted by marijuana establishments. As a result, the municipalities and marijuana establishments negotiated HCA terms that led to widespread inconsistencies and terms that violated statutory requirements.
We selected a sample of 26 HCAs executed between July 1, 2022 and March 1, 2024. Of these 26 HCAs, we found that 18 were noncompliant. Specifically, we found the following instances of noncompliance:
- Of the 18 noncompliant HCAs in our sample, 1 contained a CIF of 3.5%.
- Of the 18 noncompliant HCAs in our sample, 1 mandated that the CIF be $100,000, regardless of the 3% maximum.
- Of the 18 noncompliant HCAs in our sample, 9 required mandatory charitable donations.
- Of the 18 noncompliant HCAs in our sample, 11 required mandatory donations to the municipality, separate from the CIF.
- Of the 18 noncompliant HCAs in our sample, 3 had no expiration dates.
Noncompliant HCAs put undue financial burdens on small businesses in a burgeoning industry.
We identified 11 new marijuana establishments that were required to make large payments to the municipality before making their first sale—one of these establishments was required to pay over $100,000. This practice is in violation of applicable regulations and creates an environment in which only the largest businesses, often multi-state operators, can thrive and further incentivizes municipalities to show preferential treatment to large businesses capable of providing more funding.
Given the nature of the cannabis industry, this disfavors smaller Massachusetts-based entrepreneurs in favor of non-Massachusetts businesses that have existing cannabis operations in other states, and, therefore, greater financial means to afford such payments. We also identified HCAs in municipalities that had unequal terms between different marijuana establishments of the same license type, even though the establishments were in the same municipality. For example, one marijuana establishment in Brookline had a mandated charitable donation of $975,000, while another in Brookline had no such requirement.
Authoritative Guidance
Section 3(d)(2)(i) of Chapter 94G of the General Laws states,
The community impact fee shall . . . (B) amount to not more than 3 per cent of the gross sales of the marijuana establishment or medical marijuana treatment center; (C) not be effective after the marijuana establishment or medical marijuana treatment center’s eighth year of operation; (D) commence on the date the marijuana establishment or medical marijuana treatment center is granted a final license by the commission; and (E) not mandate a certain percentage of total or gross sales as the community impact fee.
Reasons for Issue
HCA Review Process Effective Through February 29, 2024
CCC management told us in a post-audit meeting that, before March 1, 2024, they did not have statutory authority to review the HCAs reached by marijuana establishments and host municipalities.
HCA Review Process Effective Starting March 1, 2024
CCC management told us in a post-audit meeting that, after March 1, 2024, they did not have statutory authority to review an HCA that is not actively going through the renewal process or new application process.
Recommendation
CCC should review all existing HCAs to ensure that they do not contain noncompliant terms. CCC management should adhere to their responsibilities to ensure functional oversight with respect to proper application of the law.
Auditee’s Response
As explained to the [Office of the State Auditor] Audit team in a meetings throughout the course of the audit, the Commission’s statutory oversight authority underwent significant revision during the course of the audit period. See Chapter 180 of the Acts of 2022 (Chapter 180). Prior to the passage and implementation of Chapter 180, the Commission did not have oversight authority over HCAs. Chapter 180 went into effect 90 days after it was enacted on August 11, 2022—thus the effective date was November 9, 2022. Per Section 28 of Chapter 180, the Commission had 1 year to promulgate or amend regulations consistent with Chapter 180, and the Commission’s updated regulations relative to its authority to review and approve HCAs became effective on March 1, 2024. All new license and renewal applications since March 1, 2024, have included review and approval of HCAs for statutory compliance and all Post Provisional License inspections have required a statutorily complaint HCA since March 1, 2024. Accordingly, the CCC has been acting fully in accordance with its statutory and regulatory obligations.
In addition, as explained to the Audit team in the March 25, 2025, meeting, a significant number of municipalities have taken the position that Chapter 180 did not grant the Commission the authority to review HCAs executed prior to the statutory effective date. In fact, the only Court that has reviewed the issue thus far has ruled in the municipalities’ favor in a case in which the Commission was not a party. See Haverhill Stem v. Fiorentini et al, Essex Superior Court (C.A. No. 2177CV00375). As the Commission strenuously disagrees with that Court’s decision and believes that it rests upon a fundamental misunderstanding of the Commission’s licensing process, it has moved to intervene in a Middlesex Superior Court case that presents the identical question regarding the Commission’s authority to review HCAs which pre-date Chapter 180. See Theory Wellness, Inc. et al v. Town of Great Barrington, Middlesex Superior Court (C.A. No. 2481CV693). A hearing was held on the Commission’s motion on June 9, 2025, and the motion is currently under advisement. The Commission is also actively looking at other pending cases which raise the same issue in which it might seek to intervene. Until the courts definitely resolve the issue, the Commission’s ability to review HCAs which pre-date Chapter 180’s effective date will continue to be challenged. Many licensees across the Commonwealth are trapped in legal limbo until the issue is resolved as their license renewals cannot be approved without a compliant HCA (which, to date, certain municipalities have declined to provide). For this reason, the Commission has authorized the granting of administrative extensions to licensees for HCA compliance purposes.
Auditor’s Reply
Our finding is that upon obtaining regulatory authority, effective March 1, 2024, CCC failed to proactively review existing HCAs and delayed implementation of the new HCA review process even after the new regulations passed. Although CCC implemented the new regulations in March 2024, nearly 16 months passed without review of existing HCAs despite the known pattern of excessive fees, mandatory donations, and other noncompliant terms. It is our opinion that the CCC was in a position to grant regulatory relief by proactively reviewing existing HCAs for unenforceable terms and chose not to do so.
Additionally, CCC stated in its response that litigation issues with the municipalities are to blame for the limited effectiveness of the new HCA review process. We agree with CCC that it has the authority to review HCAs that predate Chapter 180 of the Acts of 2022 and understand CCC’s position regarding the complications caused by litigation surrounding this issue; however, we maintain that CCC unnecessarily delayed implementing the HCA review process even after the new regulations were approved. The litigation issues do not negate our finding regarding the untimely promulgation of regulations and the failure to begin to implement oversight in accordance with said regulations and law.
| Date published: | August 14, 2025 |
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