June 16, 2024

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Business is my step

Recreational marijuana brought in $14.9 million for Mass. cities and towns as industry enters 3rd year

5 min read

The city of Westfield received $45,000 this fiscal year that it didn’t get last year.

Quite the story in a time when the COVID-19 pandemic has hurt city finances and everything — especially the revenue picture — seems to turn out worse than expectations.

The payment, for the fiscal year’s first quarter, came from the state as the city’s share of marijuana taxes collected this year for the first time. The city’s first marijuana retailer, Cannabis Connection, opened in June.

Westfield is not alone in seeing new money from the state’s growing cannabis industry. But cities and towns, and the businesses themselves, don’t necessarily know what will happen next. As the industry begins to mature, there is burgeoning competition and market fluctuations as consumer acceptance and habits change following pandemic-related lockdowns.

Will the end of COVID-19 restrictions mean more business? Will new shops that open dilute receipts, or will greater social acceptance lead to more sales? Will new shops in neighboring communities — Springfield’s first opened in September, and its taxes aren’t in yet — change the bottom line in communities that had monopolies in the early days?

And will Massachusetts’ cannabis industry feel it if Connecticut — where the governor is pushing for legalization — and New York make adult-use marijuana legal? Voters in New Jersey approved legalization in November.

Westfield Mayor Donald Humason, who opposed legalization as a state lawmaker, said he’s budgeting revenues very carefully because of all the variables.

Even those in the industry are cautious.

“It’s kind of unknown at this point,” said Tom Keenan, CEO of Cannabis Connection.

He said more competition will cut into his business, at least initially.

“The market will expand. It’s just a matter of how quickly,” he said.

Right now, the bottleneck is getting products tested according to state standards. Westfield recently approved an agreement with a marijuana laboratory that plans to open in an industrial building near Westfield-Barnes Regional Airport.

Municipal revenue stream

In Massachusetts communities, the tax on recreational marijuana can add up to 20%: a 6.25% sales tax, a 10.75% excise tax and a local option tax for cities and towns of up to 3%. Communities also impose impact fees not only on marijuana retailers but also on growing and processing facilities.

Only recreational marijuana retailers generate sales tax. Medical marijuana is not taxed.

Recreational marijuana brought in $14.9 million for cities and towns in the fiscal year that ended in June 2020. That’s up from the nearly $2.9 million in local marijuana tax revenue statewide between December 2018 and May 2019, according to the Massachusetts Department of Revenue.

As of the end of October, Massachusetts’ 80 operating marijuana retailers topped $1 billion in total gross sales, according to the state’s Cannabis Control Commission. The milestone was reached two years after the first two pot shops opened in November 2018. They were the first legal recreational marijuana shops on the East Coast.

Cannabis Connection, Westfield

A customer shops at the Cannabis Connection marijuana dispensary in Westfield in December. (Don Treeger / The Republican)

The state does not break down revenue by cities and towns, but area communities provided figures to The Republican.

Northampton is home to three marijuana shops — including NETA on Conz Street, which was one of the first two legal marijuana shops in the state. Colonial Cannabis Co. on Bridge Street opened in June and Resinate on Pleasant Street opened in November.

The city took in $1.6 million in marijuana taxes in fiscal 2020, up from $980,000 the previous fiscal year. Revenue from impact fees also grew to $1.8 million in fiscal 2020, up from $808,000 the year before.

In Boston, the business is new. The city budgeted $1.25 million in tax revenue and another $1.25 million in host community agreement money after not having the items in its previous budgets.

In Worcester, a recent audit report said the city has received $1.1 million in marijuana-related revenue in fiscal 2021, including nearly $991,000 in fees and more than $141,000 in taxes. That’s compared with full-year receipts in fiscal 2020 of $1.7 million, which included $1.2 million in fees and over $499,000 in taxes.

The city saw $230,000 in total marijuana-related revenue in fiscal 2019.

Pittsfield took in $824,116 in sales tax for the most recent fiscal year and $167,500 in host community payments.

So far in fiscal 2021, Easthampton received $502,646 in taxes and fees from its marijuana businesses. Of that, $179,540 was tax, $15,000 was from host community agreements and $308,106 came from impact fees. In the full 2020 budget year, the total was $1.5 million, up from $258,000 in fiscal 2019.

Chicopee received sales tax payments in March and June 2020 totaling $337,300 from cannabis retailers Theory and Mass Alternative Care. The city has received over $21,000 in a cannabis impact fees from Theory.

The city has not updated cannabis revenue estimates for fiscal 2021, said Auditor Sharyn Riley.

Greenfield received host agreement payments of $15,000, impact fees of $260,383 and taxes of $188,139 in the 2020 calendar year.

Putting the money to work

In Pittsfield, the money is divvied up between a tax stabilization account, the city’s general fund and a dedicated fund for public works improvements, said Finance Director Matthew Kerwood.

At Cannabis Connection in Westfield, Keenan said his business hasn’t had an impact on city services beyond some added traffic near an already busy highway interchange. The building’s extensive state-mandated alarm system tripped itself a few times, too.

Holyoke’s first recreational marijuana store, Canna Provisions, opened in early 2020.

The city received $50,00 in host community agreement revenues in fiscal 2019. After sales began, the city received $349,725 in tax revenue in fiscal 2020. The latest tax figure available for fiscal 2021 was $14,696.

Marcos Marrero, the outgoing head of the city’s economic development department, said that in addition to tax revenue, the cannabis industry boosts city finances by creating demand for commercial space that otherwise would be vacant.

“It’s also increasing your tax base in a classical way, which is by having a new business,” he said. “So how do we take this money and help small local businesses?”

Marrero said that means using the marijuana stores as lures to bring foot traffic to other businesses. It also means taking advantage of all the work created by the industry — both work at retail outlets and work for plumbers, electricians, alarm companies and other contractors.

Meanwhile, the marijuana tax money pays for city staffers like teachers, maintenance workers and police.

“You don’t have to take on the argument that this awful and you’re just tolerating it,” Marrero said.

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