New Massachusetts Cannabis Law: What it Means

New Massachusetts Cannabis Law: What it Means August 17, 2017

Overview of the New Adult Use and Medical Cannabis Law: Chapter 55 of the Acts of 2017 Cover option 2 Subtitle or Company Name Month Day, Year Proposal or event name (optional) 2015 2017 Foley Hoag LLP. All Rights Reserved. 4

Legislative Background Referendum Background Ballot Question 4 passed by Massachusetts Voters 53.6% to 46.4% in November 2016 11-page detailed legislation 260 municipalities voted yes; 91 voted no Enacted December 15, 2016 as Chapter 334 of the Acts of 2016 2015 2017 Foley Hoag LLP. All Rights Reserved. 6

Legislative Background Legislative Reaction Almost immediately after enactment, the Legislature passed (and Gov. Baker signed) a bill to postpone all deadlines in the Referendum by 6 months Legislative leaders appointed members to a Joint Committee on Marijuana Policy in February The Joint Committee was tasked with writing legislation to overhaul the voter-backed referendum s framework for the regulation of adult- and medical-use cannabis sales 2015 2017 Foley Hoag LLP. All Rights Reserved. 7

Legislative Background House Bill H.3776 In June, the House passed a sweeping bill that would have: - Repealed the 2012 Medical Marijuana law and 2016 Adult Use laws in Massachusetts; - Imposed a 28% tax rate (up from 12%) on adult use licensees; - Created an independent Cannabis Control Commission; - Restricted licensees to just one of each type of adult use license; - Made it much easier for municipalities to prohibit cannabis businesses by a simple vote of elected officials; - Required extensive background investigations into most financing sources of cannabis businesses. 2015 2017 Foley Hoag LLP. All Rights Reserved. 8

Legislative Background Senate Bill H.2090 In June, the Senate passed a narrower bill that left much of the referendum framework in place and would have: - Retained the 12% tax rate on adult use licensees; - Created an independent Cannabis Control Commission; - Imposed no limits on the number of licenses a licensee could hold; and - Retained referendum language that required a city- or town-wide referendum for a municipality to prohibit adult use operations. 2015 2017 Foley Hoag LLP. All Rights Reserved. 9

Legislative Background Conference Committee and Passage of Final Bill Following passage of the competing bills, a House-Senate Conference Committee submitted a conference committee report (H.3818) in mid-july; The bill was signed by Governor Baker on July 28, 2017 The legislation has been codified as Chapter 55 of the Acts of 2017 - Note that there are slight differences between Chapter 55 of the Acts of 2017 and H.3818, most likely because of a late legal review 2015 2017 Foley Hoag LLP. All Rights Reserved. 10

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Cover option 2 Subtitle or Company Name Month Day, Year Proposal or event name (optional) 2015 2017 Foley Hoag LLP. All Rights Reserved. 11

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Chapter 55 Largely Leaves the Same Deadlines In Tact Aug. 1, 2017. Initial appointments to the Cannabis Advisory Board (completed) Sept. 1, 2017. Initial appointments to the Cannabis Control Commission March 15, 2018. The CCC must promulgate initial regulations April 1, 2018. The CCC must begin to accept licensing applications from retailer, product manufacturer and cultivator applicants April 15, 2018. Initial review of Priority Applicants begins May 1, 2018. The CCC must pass regulations for independent testing facility protocols. June 1, 2018. The CCC may issue first adult use licenses. December 31, 2018 (or sooner). Transfer of all medical marijuana regulatory oversight from DPH to CCC must occur. 2015 2017 Foley Hoag LLP. All Rights Reserved. 12

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 New Law Repeals Head Start for Medical Entities The Referendum had provided a head start for medical entities Chapter 55 creates a Priority Review: There is a priority review for applications submitted between April 1, 2018 and April 15, 2018 from an applicant that: - Is an RMD with final or a provisional certificate of registration... that is operational and dispensing to qualifying patients; OR - Demonstrates experience in or business practices that promote economic empowerment in communities disproportionately impacted by marijuana criminalization. The commission shall identify all applications subject to prioritization... and grant or deny such applications prior to reviewing any other applications for licenses. c. 55 55. 2015 2017 Foley Hoag LLP. All Rights Reserved. 13

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 New Law Repeals Head Start for Medical Entities Chapter 55 also creates an Expedited Review: Medical entities that hold a provisional certificate (PCR) or final certificate (FCR) must be presumed to be accredited by the CCC. Cannot be subjected to any application requirements already functionally completed by DPH. There must be an expedited review for this category of applicants compared to general applicants. The commission shall ensure an expedited review process for applicants for a license to operate a marijuana establishment who have achieved accreditation status and shall only require that such applicants submit specific information not previously required, analyzed, approved and recognized by the department of public health. c. 55 73(b). 2015 2017 Foley Hoag LLP. All Rights Reserved. 14

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 For Profit Medical Cannabis Entities Chapter 55 Eliminates the Requirement that RMD licensees be organized as Nonprofit Corporations: Chapter 55 provides procedures for not-for-profit RMDs to convert to for profit corporations consistent with Massachusetts law. Conversion requires vote of two-thirds of the Board of Directors of the non-profit. Conversion involves complex issues of tax liability as holders of stock in new for-profit entity will be receiving value. Conversions should include an independent valuation. 2015 2017 Foley Hoag LLP. All Rights Reserved. 15

Changes in the Law as a Result of Chapter 55 the Acts of 2017 For Profit Medical Cannabis Entities Timing of Conversions: Chapter 55 allows for conversions to take place immediately But Chapter 55 provides the medical marijuana structure governed by DPH remains in place until transfer agreement between DPH and CCC is executed - Transfer must occur no later than December 31, 2018 but likely sooner DPH will need to make determination whether conversions can occur before transfer agreement is executed 2015 2017 Foley Hoag LLP. All Rights Reserved. 16

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Changes to Local Control Provisions Chapter 55 Retains Language Regarding Permissible Zoning: Municipalities may pass reasonable zoning bylaws and other time, place and manner regulations Provided regulations are not unreasonably impracticable Unreasonably Impracticable local ordinances are those that: subject licensees to unreasonable risk or require such a high investment of risk, money, time or any other resource or asset that a reasonably prudent businessperson would not operate a marijuana establishment G.L. c. 94G (1)(p). 2015 2017 Foley Hoag LLP. All Rights Reserved. 17

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Changes to Local Control Provisions Co-Location of Adult Use and Medical Operations: The Referendum made clear that: - The CCC could not prohibit a registered medical entity (PCR or FCR holder): from operating a medical marijuana treatment center and a marijuana establishment at a shared location. - Municipalities could not prohibit locating an adult use establishment in any area in which a medical marijuana treatment center is registered to engage in the same type of activity. G.L. c. 94G, 3(a)(1). 2015 2017 Foley Hoag LLP. All Rights Reserved. 18

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Changes to Local Control Provisions Co-Location of Adult Use and Medical Operations: Chapter 55 s Limitations on municipal regulation of Co-located facilities changes the referendum language: zoning ordinances or by-laws shall not operate to:... prevent the conversion of a medical marijuana establishment treatment center licensed or registered not later than July 1, 2017 engaged in the cultivation, manufacture or sale of marijuana or marijuana products to a marijuana establishment engaged in the same type of activity under this chapter. c. 55 23. Chapter 55 retains the referendum language that the CCC may not prohibit a registered RMD and a current FCR or PCR holder: from operating a medical marijuana treatment center and a marijuana establishment at a shared location. 2015 2017 Foley Hoag LLP. All Rights Reserved. 19

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Municipal Control Options and Limitations Different Rules Based on How Municipality Voted on Question 4: For any municipalities whose citizens voted for Question 4: A municipality s elected officials (i.e., a City Council or Board of Selectmen) may not: - Prohibit the operation of any type of adult use marijuana establishment; - Limit the number of marijuana retailers to fewer than 20% of the number of alcohol package stores in the municipality; - Limit the number of adult use marijuana establishments to fewer than the number of RMDs. Any of these restrictions can only be enacted by city- or town-wide referendum 2015 2017 Foley Hoag LLP. All Rights Reserved. 20

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Municipal Control Options and Limitations Different Rules Based on How Municipality Voted on Question 4: For any municipalities whose citizens voted against Question 4: A municipality s elected officials (i.e., a City Council or Board of Selectmen) may - Prohibit the operation of any type of adult use marijuana establishment; - Limit the number of marijuana retailers to fewer than 20% of the number of alcohol package stores in the municipality; - Limit the number of adult use marijuana establishments to fewer than the number of RMDs. With a vote of the elected body; not a referendum only until December 31, 2019 2015 2017 Foley Hoag LLP. All Rights Reserved. 21

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Municipal Control Options and Limitations Host Community Agreements are Now Required for Medical and Adult Use Licensees The Referendum only allowed Host Community Agreements to compensate municipalities for actual cots incurred Chapter 55 mandates that medical and adult use operators must execute a host community agreement with the municipality - may include impact fee, no greater than 3 percent of gross revenue; - the impact fee is effective for no more than 5 years. 2015 2017 Foley Hoag LLP. All Rights Reserved. 22

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Limitation on Number of Licenses Held Referendum - No limit. Chapter 55 - A company may hold no more than 3 marijuana retailer licenses, 3 medical marijuana treatment center licenses, 3 marijuana product manufacturer licenses, and 3 marijuana cultivator licenses. Limitation on Number of Licenses Issued Referendum - The referendum contemplated a potential temporary cap of 75 retailer, product manufacturer, and cultivator licenses Chapter 55 - The law does not cap the number of licenses that may be issued 2015 2017 Foley Hoag LLP. All Rights Reserved. 23

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Finances Tax Rate The Referendum s effective tax rate was 12%: - Sales tax of 6.25%; - 3.75% state excise; and - Optional 2% municipal tax. Chapter 55 s effective tax rate is 20%: - Sales tax of 6.25%; - 10.75% state excise; and - Optional 3% municipal tax. No tax is assessed on medical marijuana. 2015 2017 Foley Hoag LLP. All Rights Reserved. 24

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Regulatory Structure The Cannabis Control Commission The Referendum created CCC within Treasurer s Officer; Treasurer appointed all three members a la ABCC Chapter 55 creates an independent CCC There are five commissioners - 1 appointed by Treasurer one with a background in corporate management and finance; - 1 appointed by the governor with public health background; - 1 appointed by AG with public safety background - 2 appointed by consensus, 1 with legal, policy or social justice background and 1 with experience in regulated industries - Treasurer appoints chair 2015 2017 Foley Hoag LLP. All Rights Reserved. 25

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Other New Requirements Miscellaneous Potency Restrictions. The CCC may pass regulations limiting potency; no serving size of any marijuana product may have more than 10 mg of THC. Cultivation Co-Ops. The CCC is directed to create a craft marijuana cultivator cooperative system, including but not limited to, the following: (1) a limitation on ownership interests in a marijuana cultivator cooperative; (2) a limit on the total marijuana produced by a craft marijuana cultivator by the number of plants, surface area used for cultivation or output by weight; and (3) a reasonable fee for licensure as a craft marijuana cultivator cooperative. 2015 2017 Foley Hoag LLP. All Rights Reserved. 26

Changes in the Law as a Result of Chapter 55 of the Acts of 2017 Other New Requirements Miscellaneous Transfer of Medical Program. Transfers Department of Public Health ( DPH ) Medical Marijuana Regulatory Program and employees to the CCC. No existing medical requirements are repealed until Transfer Agreement is in place (per 83), with the possible exception of for-profit conversion. Independent Testing Requirement Strengthened. All cannabis and finished products shall be testified by certified independent laboratories, and shall be marked as tested prior to sale. - Testing labs must register with CCC; may have no financial stake in any licensee. 2015 2017 Foley Hoag LLP. All Rights Reserved. 27

Issues to Watch Going Forward Can the Cannabis Control Commission Issue the First Licenses on or Around June 1, 2018 as allowed in Chapter 55? - Tight deadlines and requirements of the open meeting law make quick decision making difficult - CCC may make priority of executing transfer agreement with DPH so as to benefit from expertise of DPH personnel Will it become easier to site dispensaries in communities? - Many municipalities have instituted temporary moratoriums. When those moratoria expire, will the municipalities ban marijuana dispensaries? - How will municipalities exercise their control options? - Will the protections in Chapter 55 lead to easier siting of facilities? 2015 2017 Foley Hoag LLP. All Rights Reserved. 29

Issues to Watch Going Forward What will the Application process look like? - Suitability Investigations of Investors, Consultants? - How advanced in local zoning process must an applicant be? - Will the Priority and Expedited Review processes create significant advantages? - How will the CCC determine who qualifies as a social justice applicant that are given a priority start on licensure? What will craft cultivation look like? What will potency, marketing, and labeling restrictions look like? Will the CCC and other state regulators take action to address the black market? 2015 2017 Foley Hoag LLP. All Rights Reserved. 30