Why there are corruption issues in the Massachusetts marijuana market

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The new federal charges against Fall River Mayor Jasiel Correia are prompting renewed scrutiny of how marijuana corporations are authorized across Massachusetts.

Correia allegedly applied his position to extort hundreds of thousands of dollars from men and women hoping to open marijuana dispensaries in Fall River in exchange for his office’s approval. Federal prosecutors say the 27-year-old mayor received beneath-the-table money payments, campaign donations, and even a Rolex watch in the spend-to-play scheme.

The case has also highlighted an uncommon alignment of two typically-opposed groups: law enforcement officials and cannabis market advocates.

The two sides share dovetailing issues about the nearby approval method for marijuana businesses in Massachusetts. Although significantly less overtly illegal, businesses in the state are forced to make payments to cities and towns that some argue, in the absence of state oversight, amounts to “extortion and bribery in plain sight.”

“I hope today’s indictment will prompt the Cannabis Manage Commission, the Legislature, and other stakeholders to evaluate what further safeguards or reforms are required,” Massachusetts Inspector Basic Glenn Cunha stated in a press conference Friday announcing the charges against Correia.

“I hope that this egregious instance does not eclipse the related economic shakedowns on the cannabis market present in almost just about every Host Neighborhood Agreement signed to date in Massachusetts,” Jim Borghesani, a cannabis market consultant and the former spokesman for the state’s 2016 legalization campaign, stated in a statement.

Here’s why they have related issues.

How the approval method presently functions

Company owners in the Massachusetts marijuana market have to full a quantity of methods ahead of they can open, starting with nearby permits and ending with a license from the state’s Cannabis Manage Commission. But a single important hurdle is a thing known as the host neighborhood agreement.

Just before they can apply for a state license, corporations are needed to agree to a host neighborhood agreement with the officials in the town or city exactly where they’re positioned. The contracts are negotiated by the two sides and spell out the terms beneath which the new small business will operate and have been intended to assure that communities had a say on any pot shops or cultivation facilities that wanted to open inside their borders.

Host neighborhood agreements also set forth how substantially corporations will spend their nearby neighborhood in costs and taxes.

Cities and towns are permitted to tax marijuana sales up to three %, as effectively as gather a “community influence fee”  from businesses. State law says that neighborhood influence costs need to be “reasonably connected to the charges imposed upon the municipality” by the opening of a new marijuana small business and can not exceed three % of the company’s income. According to the CCC, these costs are supposed to cover factors like police overtime or website traffic style research.

Host neighborhood agreements are not the exact same as non-opposition letters, which prosecutors say Correia applied as leverage in his alleged spend-to-play scheme. Nonetheless, such letters are not legally needed for recreational marijuana businesses and haven’t been broadly applied in a number of years, at least in adult-use licensing, according to these operating in the market (according to the CCC, they’re nonetheless needed for healthcare dispensaries).

Kevin Conroy, an lawyer at the Boston law firm Foley Hoag, who functions with cannabis businesses in the licensing method, says most municipalities call for the nearby legislative physique — town selectmen or city council — to sign off on host neighborhood agreements for each adult-use and healthcare marijuana businesses.

“I haven’t noticed a municipality exactly where a mayor or a city official can unilaterally approve a host neighborhood agreement,” Conroy told Boston.com. “I do feel, in most communities, there are checks and balances to assure that the getting into into a host neighborhood agreement is what’s greatest for the neighborhood.”

The issues are twofold

The initial problem is that, to a degree, these checks and balances finish at the nearby level. And advocates say most municipalities are going beyond the spirit of the law when it comes to the costs they charge fledgling marijuana corporations.

Issues have been raised due to the fact even ahead of any marijuana dispensaries opened in Massachusetts. As The Boston Globe initial reported back in August of final year, the host neighborhood agreements for the initial nine businesses to get a provisional license from the CCC appeared to violate the agency’s personal laws.

All but a single of the contracts incorporated provisions calling for businesses to make annual, lump-sum payments to their communities, in disregard of the law capping neighborhood influence costs at three % of income. And according to the Globe, all of the agreements permitted municipalities to use the funds for any objective.

In January, an market study discovered that 79 % of the state’s 77 host neighborhood agreements at the time needed payments exceeding the three % limit. Practically all of the offers also reportedly known as for “voluntary” donations for third-celebration charities. Although some legal specialists say the law does not explicitly ban such payments, Shaleen Title, a single of the 5 CCC commissioners, has abstained on almost 80 % of the panel’s final license votes in protest of what she thinks are legally dubious host neighborhood agreements, as Commonwealth magazine reported final month.

Regardless of whether legal or not, cannabis market members and advocates have argued that the agreements have slowed the statewide rollout of pot shops and exacerbated the lack of diversity in the market.

“It squeezes the small guys out,” Peter Bernard, the president of the Massachusetts Growers Advocacy Council, told Boston.com. “The men and women who are going for these smaller sized corporations are acquiring squeezed out since they do not have the income to compete with the deeper pockets and can not afford to spend these type of ransoms.”

And, presently, state regulators say they can not do substantially about it.

In a statement, a CCC spokesperson told Boston.com that the commission has “strong suitability requirements for licensure.” But for far more than a year, the CCC has maintained that it does not have the legal authority to overview host neighborhood agreements — an opinion that has been affirmed by at least a single state judge.

The agency voted in January to ask state lawmakers to pass a bill providing them clear authority more than the agreements.

“It has been a barrier to entry for some of the communities and the men and women that we’ve been attempting to assistance,” CCC chairman Steven Hoffman stated at the time. “There’s a dilemma right here.”

Cannabis Manage Commission chairman Steven Hoffman, and Commissioner Shaleen Title listen throughout a public meeting on draft regulations for the pot market this previous March in Boston.—Josh Reynolds / The Boston Globe

The second concern is far more straight connected to a far more classic style of government corruption. In spite of the nearby checks and balances, each law enforcement officials and cannabis market advocates say the program is ripe for the variety of “pay-to-play” abuse alleged in Fall River without the need of state oversight.

Bernard says that the approval of a host neighborhood agreement can in the end reside with a single official, no matter if it be a mayor or a council member with a deciding vote. Andrew Lelling, the U.S. lawyer for Massachusetts who brought the charges against Correia, says the dynamic “invites this variety of petty corruption.”

“It creates an massive quantity of temptation,” Lelling stated in the press conference Friday.

“With marijuana legalization for recreational use getting occurred fairly not too long ago, there’s now a surge in these applications,” he explained. “Many corporations, in a fairly quick interval, are hunting for permission to set up what they feel will be a profitable small business. On leading of that, at this point anyway, they are typically a money small business since marijuana corporations can not use the federal banking program. So you have a scenario exactly where nearby authorities, nearby mayors could be sorely tempted in taking bribes in exchange for a letter. And that single letter can be the ticket to a marijuana dispensary opening a incredibly profitable small business.”

Lelling stated the topic is a concern “more broadly than in Fall River.”

So what takes place subsequent?

The episode in Fall River appears to have reenergized the debate about host neighborhood agreements just as Massachusetts lawmakers reconvened for the fall legislative session.

Gov. Charlie Baker told reporters Monday that he would assistance the CCC’s recommendation with regards to alterations to the existing law. And in an interview with the Globe, the Massachusetts Republican recommended he was open to some type of state oversight of the nearby agreements. Although as the State Residence New Service noted, the governor and legislative leaders appeared frequently unfamiliar with the topic.

The Legislature’s Joint Committee on Cannabis Policy held a hearing in July on two bills connected to host neighborhood agreements. 1 bill, introduced by state Sen. Julian St. Cyr, would give the CCC far more explicit authority more than the nearby offers, as the agency requested earlier this year. The other, backed by state Rep. David Rogers, would far more clearly prohibit neighborhood influence costs that exceed three % of a company’s income.

“Requesting far more than what is statutorily needed is a distortion of the marketplace that we would not tolerate in any line of small business,” Rogers stated throughout the hearing. “It’s about what is fair.”

St. Cyr told the Globe Monday that far more urgent action on the legislation could at least be a “silver lining from the reprehensible actions of the mayor of Fall River.”

Municipal representatives have opposed tighter oversight and regulation of the host neighborhood agreements. Geoff Beckwith, the executive director of the Massachusetts Municipal Association, which represents nearby city and town governments, says the group “strongly opposes” each of the aforementioned bills.

“The MMA believes that these bills are overreaches and would usurp nearby authority,” Beckwith wrote in a July letter to legislators, arguing the policymakers really should as an alternative concentrate on applications to help smaller players in the market, rather than “undermining” communities’ “ability to represent the public’s interest.”

Conroy cautions against overreacting to “one terrible actor” in Fall River and thinks the vast majority of municipal officials are producing very good-faith efforts to represent their communities. Nevertheless, he thinks that lawmakers have to have to act to resolve uncertainty about host neighborhood agreements, each with regards to the CCC’s authority and the neighborhood influence costs.

“I feel everyone in this market appropriate now is just hunting for clarity,” Conroy stated. “I feel municipal officials are hunting for clarity. I feel the Cannabis Manage Commission is hunting for clarity. And the private market is hunting for clarity.”

He added: “We now have to have the Legislature to offer clarity.`



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