The City of Gloucester, Massachusetts struck back at local cannabis operator HVV Massachusetts, saying that the court lacks the authority to invalidate a trio of host community agreements (HCAs), in a Jan. 10 filing in Essex County Superior Court.
The city’s filing was in response to the complaint in HVV Massachusetts Inc. v Mayor Sefatia Romeo Theken and the City of Gloucester.
Massachusetts law requires cannabis operators to sign host community agreements with their local municipalities. Business owners have decried the agreements for allowing towns and cities to demand up to 3% of gross sales revenues.
The town of Haverhill is facing legal action, meanwhile the former mayor of Fall River, Jasiel Correia will start a six-year sentence later this month for extorting bribes from cannabis companies in exchange for favorable HCAs.
HVV, which was originally incorporated in 2015 as Happy Valley Ventures before converting from a non-profit medical cannabis company to a for-profit enterprise in the adult-use market, sued Gloucester on Nov. 24, 2021, claiming that the city was demanding fees in excess of what state law allows.
HVV runs a vertically integrated cannabis operation, with cultivation, processing and retail dispensing all happening within the same building in Gloucester, a harbor town located in the northeast corner of the state. The town’s government demanded separate Host Community Agreements with each element of HVV’s operation in town.
Their retail storefront agreed to pay 3% of its gross sales revenue as a community impact fee with an additional annual “charitable donation” of $25,000. HVV’s cultivation operation is expected to contribute $100,000 for an annual impact fee and $25,000 for an annual charitable donation, and $50,000 each year for the manufacturing operation. The city also planned to levy a 5% penalty fee for late payments. Gloucester confirmed all of those fees in its response to the complaint.
HVV said that it had already paid $491,283 in impact fees since entering an agreement with the city in the lawsuit.
As part of their for-profit conversion, HVV engaged with Gloucester to negotiate a HCA in early 2018, according to HVV’s lawsuit. HVV signed the trio of HCAs on March 28, 2019.
Although the law does allow an impact fee as high as 3% of gross sales, the municipality must be able to justify that charge by showing how the town or city would be financially impacted by a new cannabis business.
HVV claims that none of the HCAs include explicit financial impacts to the city from the respective cannabis facility, Gloucester claimed that all three agreements state “the plaintiff anticipates that the city may incur additional expenses and financial impacts.”
HVV filed a records request with the city in 2019 that went unanswered. They filed an additional one in August, 2021, but the city responded that they did not have any documents that could fulfill the request.
The city said that HVV’s former attorney told the city “hold off on the records request for now,” when the initial request from the company was made in February 2019.
The city also claimed that although they did not have documents to release about potential community impacts when HVV filed its record request, the city has since obtained such information. The city’s filing makes no reference to whether or not those documents were ever released to HVV.
The case is still within its pre-trial phase, and both parties will likely submit documents for the discovery phase.