Stem owner sues city over impact fees

Allison Corneau, The Eagle-Tribune, North Andover, Mass.
·7 min read

Apr. 11—HAVERHILL — As Caroline Pineau looks back, she says there is no disputing the impact she has made on the city through her downtown marijuana shop, Stem. That impact, however, is at issue as the shop approaches its one-year anniversary May 30.

No stranger to litigation, Pineau is facing a new courtroom battle after filing suit against the city over the $400,000 in fees she pays to do business in Haverhill.

Like the two other Haverhill pot shop owners, Pineau negotiated an agreement to pay 3% of Stem's gross sales to the city annually for five years, as long as the expenses are "reasonably related" to the costs imposed upon the city by Stem's operation.

Mayor James Fiorentini, through City Solicitor William Cox, argues that Stem — located in the downtown business district — has had a variety of detrimental impacts locally. However, he has refused to go into detail on just how those issues have related to the community or how the city's budget has taken a hit.

Now, with the lawsuit underway, Fiorentini accuses Pineau of going back on the initial agreement signed by both parties in December 2018.

"Those agreements are crucial to us being able to balance our budgets and being able to avoid layoffs," Fiorentini said. "It (the host community agreement) doesn't say they'll pay us only if they meet certain requirements. It says they'll pay us and they're required to pay us. Had they not agreed to this, they wouldn't be here in the first place."

A detailed list of the ways in which a marijuana shop has impacted a city and the costs assessed by the city in association with its operation is required by Massachusetts General Law to be submitted to the state Cannabis Control Commission so that Stem may apply for its license renewal.

According to the mayor, Stem and the two other shops currently open in Haverhill — CNA Stores and Full Harvest Moonz — are among the "dealers" across the state in a "concerted effort" to renege on agreements made with their host cities.

"This is not about transparency or itemization: This is about a company that comes here, makes an agreement and tries to get out of it," Fiorentini said. "It's a request for special privileges."

For her part, Pineau said she always intended to pay the impact fee and is only asking the city to explain where the money she pays is going. Pineau has set aside approximately $400,000 ahead of her first payment's May 30 due date and wants a judge to decide if all or part of it will go to the city if costs are deemed reasonably related.

"When we signed our HCA with the city we agreed to pay sales taxes and an impact fee. We fully expected that the impact fee would be properly documented and would be reasonably related to our operations, as required by law," Pineau said in a statement, adding that she also pays $400,000 in sales tax.

Following Pineau's repeated attempts to get an impact statement and associated costs, Cox, the city solicitor, submitted a letter on Feb. 28 highlighting some of the city's concerns without costs attached to them.

In addition to an increased need for police and fire services, Cox said Haverhill has "seen an increase in need for drug abuse and mental health services, in both our community, and more specifically, our schools, as well as an increase in domestic issues" as a result of Stem and the other shops being open.

"We have seen an increase in anxiety, depression and drug use in our schools, including the use of marijuana," the city solicitor said. The increase is so high, he said, that he and other city officials believe a survey needs to be done to gauge students' addiction levels to arrange for counseling and other services.

Fiorentini declined to go into detail about the costs when pressed further by The Eagle-Tribune.

"We know that every business downtown — whether it's The Hidden Pig, The Tap or Stem — requires us to fix sidewalks or potholes, pave streets, and have our police officers walk up and down (those) streets," he said. "It's probably difficult to say how much is caused by Stem and how much is caused by The Tap or The Hidden Pig, but all of them make agreements with us when they come here and we expect them to live up to their agreements."

Fiorentini wants to see the 3% fee from marijuana shops go into the city's general fund, he said. Others in the city have different ideas.

The City Council sent several letters to the mayor on the matter over the last two years. Fiorentini responded to their request in writing on Oct. 28, 2019, explaining that while he was opposed to earmarking funds he "fully (understood) and fully (supported) the need for transparency in how marijuana revenues are allocated."

"This is good public policy," he said in the letter, which was written when no shops were open, but three host community agreements had been signed and four special permits issued.

At the time, Fiorentini suggested what he called a "reasonable alternative" to create separate line items in the budget to "clearly show marijuana revenues" so that all parties know "where every dollar is being spent."

Council Vice President Colin LePage said he hopes money from the retail shops can be allocated for addiction education, among other things.

Municipal inspection costs, public safety overtime and substance abuse prevention education are considered reasonably related costs associated with the operation of marijuana shops, according to the CCC.

According to LePage, $6,000 spent on a youth risk behavioral survey could yield results used to apply for other addiction prevention grants or related services in schools and in the community. LePage said he would like to see the impact fee from marijuana shops like Stem go to funding such a survey, along with the additional substance abuse counselors that are needed in schools.

Those in the cannabis community and others familiar with impact fees say no other businesses in the state face scrutiny like marijuana retailers.

David O'Brien, president and CEO of the Massachusetts Cannabis Business Association, compares the information Pineau received from the city to getting "an invoice without detail."

"If you take this (letter) to a reasonable person and they laugh while you're reading the list, it's probably not reasonable," O'Brien said.

Shaleen Title, a former Cannabis Control Commissioner who had a hand in approving Stem's license, agrees with O'Brien.

"These references to 'agreements' and 'deals' are exactly the problem. That is not what community impact fees are," Title said. "It's absurd that a municipality would not have documentation of costs and maintain that it is entitled to fees anyway."

While Fiorentini compared Stem to other businesses — The Tap and The Hidden Pig — O'Brien said the comparisons are not quite accurate. Not only is the cannabis industry more heavily regulated, he said, but it also pays heftier fees.

"Show me a liquor store that pays 3% just to live on their block: It just doesn't happen," O'Brien said. "Show me the Dunkin' or McDonald's or any other local place that pays this exorbitant fee. Nobody does. Frankly, it's legalized extortion."

Title praised Pineau for being brave enough to blaze a trail for what could potentially be a landmark case.

"My guess is that the only reason that so many municipalities have been able to act this brazenly for so long is because potential applicants feared retaliation if they challenged these practices," she said.

Both sides say they look forward to holding the other accountable.

"We are simply asking that the city act in compliance with the law," Pineau said in a statement. " Stem already pays hundreds of thousands dollars directly to the city in the form of sales taxes. If the city wants more it should be required to follow the law."