Weed Retailers Paying “Sweetners”

Photo: Shutterstock

Community pacts with legal marijuana retailers around the U.S. are providing money for food pantries, landscaping and traffic improvements.

Moments before two marijuana retailers got permission to set up legal sales in Hoboken, New Jersey, the city had a request: Would the new operators be willing to cover the costs of two police officers?

The applicants agreed — and said yes to other asks, including cash for affordable housing and the community food pantry. The sweeteners total at least $300,000 annually for Hoboken, a square-mile city one train stop from Manhattan.

Such freebies increasingly are being requested by cities and towns as millions of dollars in taxes from legal pot sales start to flow into the coffers of U.S. states. Businesses use them to speed the all-important licenses that can give them an early advantage over competitors in what’s expected to be a $43 billion industry by 2025. Towns and cities, meanwhile, use the extra money to promise boosted or broadened municipal services without dreaded property tax hikes.

In Davis, California, where almost one in three people live in poverty, the school district and a community group get as much as $50,000 each annually for drug education and public safety outreach. In Lowell, Massachusetts, one pot retailer had to pay for janitorial supplies, snow removal and catered meals for city workers. Elsewhere, the pacts, called host-community agreements, are intended to cover downtown landscaping, traffic improvements, library technology and more.

“A firefighter, a police officer — that’s a huge part of the municipal budget,” said Mike Russo, a councilman and cannabis review board member in Hoboken, where the average annual residential property-tax bill is $8,402. “Now you’re getting these newer industries to fund that for you.”

Little Oversight
Throughout the U.S., though, the budget sweeteners worry even some who favor legalized pot amid a federal ban. The pacts often are so vague that municipalities can use pot businesses’ payments for any purpose, with little oversight.

In Massachusetts, which mandates the pacts, former Fall River Mayor Jasiel Correia II got a six-year prison sentence after an extortion conviction that involved host-community agreements. Meanwhile, the state Senate on April 7 approved reform legislation after a University of Massachusetts study of 138 towns’ pot-business pacts found at least $2.46 million in unlawful fees from applicants, including compulsory charity “donations” and “community benefit payments” with unclear purposes.

In Easthampton, 100 miles (161 kilometers) west of Boston, more than $1.7 million in pot fees were collected in the two years after retail sales began, according to Mayor Nicole LaChapelle. The cannabis-related needs the city had expected, though, were mostly off base.

“We were prepared for increased crime. We were prepared for fires, because people were going to be smoking these mega-joints and dropping them,” LaChappelle said. “We get going and there are not a lot of people to arrest. Nobody lights their house on fire. What was radically unexpected was 40 hours of legal time per application, and the traffic increase that upended our traffic patterns and pitted our roads.”

In early 2020, fearful of losing track of pot fees amid general spending, the city isolated the money, creating an account that can be spent only on cannabis-related matters, and with a two-thirds council vote. The cash so far has paid for road safety, police contracts and library computers for job seekers.

Social Equity
Doling out licenses to the highest bidder runs counter to the stated intentions of many localities to direct pot-sale proceeds toward communities that suffered disproportionately from decades of marijuana arrests.

It’s challenging enough to put together a business, let alone bankroll towns’ and cities’ high-ticket wish lists, said Warren Lynch, 47, who is seeking to open a dispensary in Malden, Massachusetts, after a marijuana conviction.

“Out-of-state operators are coming in with tens of millions of dollars,” he said. “Social-equity companies have $100,000 or $200,000 that they scraped together from friends and family.”

As of November, 18 states had legalized non-medical marijuana. By 2025, 42% of U.S. pot demand is projected to be met by legal purchases, up from 24% in 2020, according to cannabis analyst New Frontier Data.

In New Jersey, Hoboken is racing to become first in the New York City area with adult-use recreational weed. The sweeteners to be paid come atop the 2% in gross sales that the dispensaries will hand to Hoboken as a tax. The city plans to spend three quarters of the revenue for local social-justice needs and the remainder for general purposes.

The annual contributions it secured from the two dispensaries, in February and March, are generally a good idea, according to Tiffanie Fisher, a Hoboken councilwoman. At the same time, she said, the city needs more transparency on what the payments can cover.

“How are they negotiated, who’s negotiating and what’s being negotiated?” Fisher said. “Just because they’re paying the equivalent of two police officers’ salaries doesn’t mean we’ll hire two more police officers.” Also, it’s not clear whether additional police would be used solely for cannabis law enforcement, she said.

Reached by telephone and email, representatives of Story Dispensary and Village Hoboken, the two approved shops, declined to comment, citing upcoming municipal reviews.

A New Industry
Ron Mondello, the attorney for Hoboken’s cannabis board, said the extras are merely requests, not requirements.

“This is a negotiation, with Hoboken saying: You don’t have to agree to any of this,” Mondello. “If you can afford it and you agree to it, great. But it shouldn’t be one of these things where it’s quid pro quo.”

Hoboken, which turned a mob-run waterfront into family-friendly luxury housing, has a median income of $153,400, or 80% higher than the statewide total. Still, homeowners are sensitive to city spending: In January, voters defeated an effort to issue $241 million in debt to build a high school with an ice hockey rink and a rooftop-turf football field.

For an owner paying an average $8,402 in property taxes on a home assessed at $525,162, the borrowing would have meant a roughly 6% tax increase, or about $500.

Russo, the Hoboken council member and cannabis board member, said pot sales will have an immediate payoff for budget-minded residents. When retail applicants were asked at public meetings whether they would contribute to more police, affordable housing and the other requests, he said, each took less than 5 minutes to agree.

“Years ago we were asking developers to pave streets and do our sewer systems,” Russo said. “Now we have a new industry, in new places, that can kick in and say, ‘I want to be a viable community advocate and member, so we are true neighbors.”’