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September 17, 2014

Legal Issues Associated with MA Registered Marijuana Dispensaries: An article by Andrew Levine, Robert Blaisdell, and Kathleen Harrell

By Andrew Levine, Robert Blaisdell and Kathleen Harrell

"The Medical Use of Marijuana and Legal Issues Associated with MA Registered Marijuana Dispensaries,” by Donoghue, Barrett & Singal partners Bob Blaisdell and Andrew Levine, and law clerk Kathleen Harrell, will appear in the Summer 2014 edition of the Boston Bar Association's Health Law Reporter. The article reviews the myriad legal challenges facing Registered Marijuana Dispensaries (“RMD”) as they seek to establish themselves in Massachusetts. Read the full article here.

Article Summary

The use of marijuana for medical purposes became legal under Massachusetts law on January 1, 2013, eliminating state civil and criminal penalties for the possession of marijuana for individuals with statutorily-defined debilitating clinical conditions. The law also allowed for the creation of up to thirty-five RMDs, and charged the Massachusetts Department of Public Health (“DPH”) with creating policies and regulations related to their implementation.

Local Legal Issues

State legislation is only part of RMDs’ complicated legal landscape. Municipal legal and regulatory issues present particular challenges. RMD staff must make sure facilities meet state-mandated siting requirements, obtain local political and community support, ensure that they can meet submitted timelines for opening, and comply with local zoning ordinances.

Although DPH’s regulations set forth the Commonwealth’s siting requirements, a September 2013 State House News Service analysis found that nearly one-third of all Massachusetts’ municipalities had placed temporary moratoriums on the building and operation of RMDs. Since that time, most communities have enacted zoning ordinances governing the siting of RMDs. These ordinances are often stricter than those adopted by DPH, however, and establish dimensional requirements for RMD buildings, parking and loading logistics, signage restrictions and special permit criteria.

The DPH regulations state that dispensaries must be located at least 500 feet from “a school, daycare center, or any facility in which children commonly congregate.” In its “Guidance for Municipalities Regarding the Medical Use of Marijuana” (updated December 13, 2013) (“DPH Guidance”), DPH specified that the 500 foot buffer zone is generally measured from “building to building rather than property line to property line,” but the Department clarified that the term “facility” is not limited to a building, and includes any place where children commonly congregate in a “structured, scheduled manner,” such as a playground.

Some cities and towns take this a step further, measuring from property line to property line, rather than structure to structure, making siting RMDs even more rigorous. A number of municipalities also include public parks, conservation land, and establishments that offer programs such as play groups or youth activities in their definition of facilities in which children commonly congregate.

Copyright - Boston Bar Association

RMDs also seek to garner community support and work with local municipalities to ensure access to appropriate public services - such as police, fire, and other emergency services – all of which are paid for, in part, by municipal taxes. Although RMDs are required to be nonprofit organizations under Massachusetts law , a nonprofit organization is not automatically a tax-exempt organization. Nonetheless, the MA Department of Revenue will decide whether these entities will be assessed a state tax and, if so, at what rate. Consequently, RMDs are entering into agreements with local cities or towns to make payments that can be put toward municipal services, known as Good Will Contracts or Good Citizen Agreements. RMD leadership teams must therefore devise realistic financial plans that balance cooperation with local officials with the need to run a sustainable organization.

State Legal Issues

RMDs must also comply with various other state business requirements when opening dispensaries. In addition to meeting legal requirements associated with running any state charitable organization, dispensaries will have to establish policies and procedures for almost every aspect of their business. These include everything from storage and record keeping, to product testing, to staffing requirements. In particular, RMDs must develop and implement appropriate policies and procedures for suitability checks on all employees, including criminal offender record information (CORI) and other appropriate background checks.

These compliance issues underscore the need for a strong leadership team with healthcare and regulatory experience. Teams must also include at least one individual whose sole focus is on regulatory compliance, or the RMD can contract with legal counsel to ensure that all local, state and federal laws are being met.

Federal Legal Issues

Despite the legalization of marijuana for medical use at the state level, the cultivation, possession and distribution of cannabis for any purpose remains a federal crime. The Department of Justice (“DOJ”) issued a memorandum to federal prosecutors in August 2013 indicating that, despite changes in state laws, the DOJ remains committed to enforcing marijuana laws under the Controlled Substances Act (“CSA”).

This creates significant legal challenges for RMDs. First, the Drug Enforcement Agency (“DEA”) has told physicians serving as medical directors at RMDs that they risk losing their licenses to prescribe certain medications. Second, many large banks have declined to work with dispensaries due to fears that federal agencies will impose severe penalties. In January, however, U.S. Attorney General Eric Holder announced that his staff would review current banking rules to try and ease the apprehension that many lenders were having about doing business with RMDs. On February 14, 2014, the Department of the Treasury – Financial Crimes Enforcement Network issued a Guidance to clarify the Bank Secrecy Act (“BSA”) requirements of financial institutions seeking to provide services to marijuana-related businesses. The Guidance outlines the need for increased due diligence by financial institutions when working with marijuana-related entities.

These challenges represent just a few of the issues currently facing RMDs as they seek to operationalize and open in the coming months. Donoghue, Barrett & Singal will continue to track and write about those issues as they develop.

To read the full article in the Boston Bar Association Health Law Reporter, click here.

About the Authors

Andrew Levine

Andrew Levine is the senior partner overseeing the firm’s Health Law Regulatory practice. He provides regulatory guidance, business and corporate legal services, as well as strategic advice to healthcare clients. You can find him on LinkedIn.

Robert Blaisdell

Robert Blaisdell is Managing Partner and Chair of the Firm's Health Law group. He provides general business and corporate legal services to healthcare clients. You can find him on LinkedIn.

Kathleen Harrell

Kate Harrell is a Boston attorney with Barrett & Singal’s Health Law practice where she advises a wide range of healthcare providers. You can find her on LinkedIn.

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