Post date: Nov 08, 2019 1:34:45 PM

Federal grand jury investigating municipal marijuana contracts

By Dan Adams, Felicia Gans and Naomi Martin Globe StaffNovember 4, 2019, 2 hours ago

Andrew Lelling, US Attorney for the District of Massachusetts.Jonathan Wiggs/GlobeStaff/file/Globe Staff

A grand jury convened by US Attorney Andrew Lelling is investigating contracts and payments between Massachusetts municipalities and the marijuana companies they host, a major escalation of an effort by federal prosecutors to crack down on local corruption related to the burgeoning cannabis industry.

At least five communities — Eastham, Leicester, Newton, Northampton, and Uxbridge — confirmed Monday that they have received subpoenas from Lelling’s office seeking information about so-called host community agreements.

The controversial contracts, which each recreational marijuana firm must sign with the community in which it hopes to operate before applying for a state license, typically call for substantial payments to the municipality. Critics have long charged that local officials frequently demand more money than allowed under state law, and that the state’s system of strong local control over cannabis companies is ripe for corruption.

A spokeswoman for Lelling’s office declined to comment, and would not say how many subpoenas had been issued. However, it appears likely the investigation extends well beyond those five communities. Several marijuana industry lawyers and local officials said a substantial number of other municipalities have also received the same request.

A copy of one of the subpoenas obtained by the Globe references a mid-November grand jury hearing led by Assistant US Attorney Mark Grady, a member of Lelling’s public corruption unit.

It seeks a variety of documents: copies of host community agreements, including unsigned early drafts; all communications between marijuana companies and local officials, plus e-mails and other communications among officials regarding the agreements; records indicating community support or opposition to proposals for local marijuana facilities; records regarding current and former municipal employees or officials attempting to win local marijuana permits or working for marijuana firms; and records about public meetings or votes on applications by marijuana firms for local approval.

In September, Lelling’s office charged Fall River Mayor Jasiel Correia II with pressuring four marijuana businesses to pay $575,000 in cash bribes in exchange for city approval. Correia, a 27-year-old Democrat first elected in 2015, has pleaded not guilty.

At the time of Correia’s indictment, Lelling said that Correia “has engaged in an outrageous, brazen campaign of corruption that turned his job into a personal ATM” — and warned that his office would continue probing corruption around marijuana businesses.

In the wake of Correia’s indictment, many critics said the mayor’s alleged shakedowns were the predictable result of a system that often allows a single local official to choose — behind closed doors — which marijuana license applicants move ahead. And the Globe’s Spotlight Team found earlier this year that securing local approval of marijuana facilities is a game often won by teams that can afford to hire former municipal officials and other influential insiders.

Massachusetts law limits the value of payments under host community agreements to 3 percent of a company’s annual revenue, for a maximum of five years. It also mandates that any payments be “reasonably related” to the actual costs imposed by the marijuana facility. But many communities have side-stepped those limits, seeking additional money while arguing the law doesn’t technically prohibit them from requiring separate fees or mandatory “donations” to local nonprofits in exchange for local approval. The payments typically total tens or hundreds of thousands of dollars.

Marijuana industry leaders, plus state cannabis regulators and legislators who helped draft the limits on host community agreements, believe the large payments sought by cities and towns are a major barrier preventing smaller, locally-owned marijuana firms from gaining a foothold in the industry — and that they give a significant edge to large, investor-backed pot conglomerates that can afford to bolster the local coffers.

Some of those critics said greater scrutiny of host community agreements is good for the industry.

“Without commenting on this specific investigation, any indication that the laws governing host community agreements are being enforced would be a welcome relief,” said Commissioner Shaleen Title of the Cannabis Control Commission, who stressed she was speaking on her own behalf.

Title said a company wrote to her Monday complaining that officials in a town had said they would approve only businesses that offered a “donation” of $15,000, and that when the company demurred, officials said, “perhaps this isn’t the right town for you.”

“I receive complaints almost every day that the process is out of control,” Title said.

Amid growing evidence of widespread abuses, the commission voted in January to ask the state Legislature for clear authority to oversee the contracts. Several bills that aim to overhaul the local marijuana facility approval process are pending, but have yet to advance.

Still, marijuana industry experts said Lelling’s subpoenas were somewhat puzzling.

For one thing, the records they seek are likely public anyway. And, the experts said, while many municipalities may have overreached in seeking payments and other benefits from marijuana companies, Correia’s behavior was an outlier.

“I’ve negotiated a lot of host community agreements, and that’s just not how this operates,” said Jim Smith, a Boston attorney who works with numerous marijuana firms. “Cities and towns — they might want fire engines and traffic lights and charitable donations in excess of what the law allows, but that’s not going into an individual official’s pocket. That’s trying to benefit their communities. It’s a typical tension between companies and municipalities that you see any time development comes in.”

Lelling, Smith added, is unlikely to discover the type of malfeasance alleged in Fall River elsewhere. However, he said, any scrutiny of the deals by a federal prosecutor is likely to have a chilling effect on the demands made by local officials.

Ordinarily, federal grand juries subpoena documents because there is evidence of wrongdoing, but they also have the freedom to go on “a fishing expedition,” said Martin G. Weinberg, a prominent federal criminal defense lawyer in Boston.

“It sounds like a very wide-ranging and very preliminary collection of documents with the goal being to assert some federal supervision over whether or not licenses are being sought and provided without any evidence of public corruption,” Weinberg said.

He added that Lelling is almost certainly seeking out overt bribery or the kind of personal corruption alleged in Fall River — not going after state-legal marijuana sales just because the drug is prohibited by federal law, nor seeking to punish cities and towns that sought relatively small payments that could be interpreted as being in excess of state law.

Jacqui Beebe, the town administrator of Eastham, said her community received a subpoena Friday — and said her counterparts in other Cape Cod municipalities told her they, too, had been subpoenaed. Overall, the request is fairly vague, Beebe said.

Eastham has signed host community agreements with two companies, and neither is in business yet.

“We are very satisfied with our agreements,” Beebe said. “The applicants proved to us that they had the capital and the ability to do it.”

In Northampton, city officials have asked cannabis firms to pay 3 percent of their revenue, plus $10,000 annually to a nonprofit — with the exception of an edibles microbusiness, which agreed to pay $5,000 — that will educate consumers and youth about safe marijuana consumption.

Garden Remedies, the sole marijuana store to open in Newton so far, agreed to pay the city 3 percent of the store’s medical and recreational marijuana revenues, plus make a $2,500 annual donation to a local charity.

Dan Adams can be reached at daniel.adams@globe.com. Felicia Gans can be reached at felicia.gans@globe.com. Naomi Martin can be reached at naomi.martin@globe.com.

Joel B. Bard, Esq.

KP | LAW