BY HANNAH LACLAIRE on THE PORTLAND PRESS HERALD
If you want to open a recreational cannabis store in Manchester, near Augusta, you’ll have to pay about $100 a year to license your business.
About 100 miles south, in Lebanon, you’ll have to fork over $40,000 and then $20,000 each year afterward.
The two towns are perhaps the most extreme examples, but licensing fees in the roughly 60 Maine municipalities that allow recreational cannabis stores are all over the map.
In Bangor, the fee is $217. In Sanford, it’s $22,500. In Hallowell, it’s $250. In Windham, it’s $10,000.
Fees even vary widely between neighboring communities. In Portland, the cost to obtain a license for an adult-use cannabis store is $10,000. In South Portland, it’s $1,400.
The difference creates a disparity some say can disproportionately hurt small businesses. Municipal officials, on the other hand, argue that the fees are the only way to cover the cost of regulating a new and complex market.
Maine law stipulates that the fees established by a town or city “must reasonably reflect the municipality’s costs associated with the license or permit procedure and enforcement.”
That leaves wide room for interpretation, which may be part of the reason fees across the state vary so widely, said John Burke, a Scarborough-based attorney who specializes in cannabis licensing. Each town or city looks at cannabis-related costs differently.
Most of the approximately 60 municipalities that have opted to participate in the state’s adult-use retail cannabis market charge between $1,500 and $3,500 to license retail stores. But there are plenty of outliers.
COVERING COSTS
In Portland, setting up cannabis business licensing and regulation has been time-consuming and costly for the city, said Jessica Hanscombe, director of the city’s department of permitting and inspections. With licenses in high demand, the $10,000 fee makes sense, she said.
The Portland City Council initially decided in 2020 to cap the number of new licenses at 20 in order to open the market slowly and lower the risk of flooding the market with too many cannabis stores. The council later scrapped the cap after a federal judge ruled that some of the city’s licensing requirements were discriminatory. A month later, residents voted to eliminate the retail cap permanently.
Now, there are 23 licensed stores in Portland and another 10 still pending approval.
When the ordinance was first drafted, the 20-store limit seemed reasonable, Hanscombe said. But when that was eliminated, her department faced a tidal wave of additional work.
“It doubled our work immediately, just for retail,” she said.
Hanscombe hired a marijuana compliance coordinator and an additional licensing assistant and probably could have justified another, she said.
There are a lot of considerations for licensing a marijuana business that wouldn’t come up with, say, a liquor store. They include standards for ventilation and odor control, hazardous waste disposal, public safety and more, Hanscombe said. For that reason, her staff frequently needs to work with other departments, which takes additional time.
“(The fees) are clearly relatable to the amount of work that we do every year on these licenses,” she said.
Matt Hawes, director of the Maine Cannabis Industry Association, understands that licensing and enforcement around a cannabis business will cost a little more than the typical gas station or deli.
The $2,500 he pays to license his cannabis beverage manufacturing facility in Scarborough may seem expensive, but he thinks the price is probably close to the costs of the multi-agency inspections and administration.
Much higher, though, and Hawes isn’t buying it.
“I think some of these municipalities have gone well in excess,” he said. “It’s certainly hard to believe (any town) is incurring $40,000 in costs.”
But in Sanford, Mayor Anne-Marie Mastraccio said the city’s $22,500 licensing fee doesn’t even begin to cover the expenses.
Sanford has tried to regulate cannabis just as the city would regulate any other business, she explained. At the same time, Mastraccio doesn’t want to see Sanford footing the bill, especially since the city doesn’t get anything back in revenue sharing.
Recreational cannabis products are subject to a 10% state excise tax, all of which goes to Maine’s General Fund and none to local coffers.
Sales figures have steadily ticked up since the market launched in October 2020, with August’s $17 million making it the most lucrative month so far. This year, the adult-use market has brought in about $98.2 million, earning almost $10 million in tax revenue for the state.
But none of that is making its way back to the host communities.
Sanford’s legal fees, the council and staff time, the code enforcement officer training and other necessities all add up to what Mastraccio said is an adequate fee. Like so many others, Sanford is operating with a lean staff and strapped resources, and the extra workload is costly.
“I don’t think we can be accused of being punitive,” she said. “If I was in Portland, I’d be charging a whole lot more” than $10,000, she said.
If it turns out that the $22,500 fee is too high, Sanford will consider lowering it, she added.
To date, the city has only received one application since the ordinance was passed in March.
WHO WILL PAY?
Expensive licensing fees won’t keep cannabis businesses away, according to both Burke and Hawes.
“So few municipalities have opted into that specific activity, and, as a result, many cannabis businesses looking to open an adult-use retail store will go anywhere a license is possible, even though the licensing fees may be excessive,” Burke said.
But Hawes worries the high fees may affect the types of business owners who can set up shop in Maine towns and cities.
The cannabis industry doesn’t have the lucrative profit margins many people think it does, he said, and the fees can create a barrier to entry that takes small-business owners out of the running.
“Somebody will pay it,” he said. It’ll just be the “highly capitalized folks.”
Burke recommended that towns and cities simplify their licensing ordinances and use the Maine Office of Cannabis Policy as a resource on compliance matters. He also suggested that municipalities adopt cannabis advisory boards, which could provide an annual audit of the fees.
And there’s some good news for local governments. In April, the Legislature passed a bill to reimburse municipalities up to $20,000 for costs associated with opting into the adult-use cannabis market. Lawmakers hoped the reimbursement will encourage more towns and cities to allow retail marijuana sales.
According to state Sen. Benjamin Chipman, D-Cumberland, many communities are not participating because of the cost of rule development, issuing licenses, inspection, enforcement and more.
Because of that, Chipman told the Senate, the state still has a viable black market. Allowing a reimbursement of up to $20,000 should help persuade towns and cities that have held off because of the cost, he said.
Applications for reimbursement opened last month, and Portland is already working to put together an application.
Burke isn’t sure the law will entice more towns to opt in or that communities that are reimbursed will then lower their licensing fees.
In Sanford, which has applied for the money, Mastraccio said that if awarded, the funds “will only begin to pay back the staff time taken up with development of the adult-use marijuana ordinance.”
Meanwhile, Maine isn’t the only state grappling with how to balance the fees for businesses and the costs for municipalities.
Until last month, Massachusetts law allowed communities to collect “impact fees” of up to 3% of a cannabis store’s annual revenue as long as the fee was “reasonably related” to the costs of regulating the facility.
However, many towns and cities charged businesses large fees without citing specific impacts – in some cases, collecting hundreds of thousands of dollars. The large fees prompted a change in Massachusetts law and at least one lawsuit.
A new statute dictates that communities in the state cannot charge a percentage of sale proceeds, that the fees cannot equal more than 3% of a business’s revenue and that they must be reasonably related to the associated costs.
H/T: The Portland Press Herald
