GLOUCESTER — The owner of Happy Valley, the first retail marijuana dispensary to open on Cape Ann, is taking the City of Gloucester to court over what it says are excessive and illegal community impact fees it is being forced to pay to do business.

The suit was filed by attorneys for HVV Massachusetts Inc. on Wednesday in Salem Superior Court. It names the city and outgoing Mayor Sefatia Romeo Theken (in her official capacity) and is asking for the city to refund nearly $500,000 in fees.

The suit says that it first began its efforts to open what initially was going to be a medical marijuana dispensary, but switched to a retail model following legalization of retail cannabis in 2016.

After spending millions of dollars on obtaining permits and developing plans for a retail, cultivation and manufacturing operation, the business began negotiating with the city in 2018 for a host community agreement.

Even after Happy Valley hired a new firm that specialized in cannabis law, the city insisted that it would not sign any host community agreement that called for any less than 3% of gross sales as a fee, plus additional amounts for charitable contributions, the lawsuit says.

The city also insisted on separate agreements for all three parts of the business, with the 3% fee applying to retail, a $100,000 annual fee for the cultivation division and $50,000 a year for the manufacturing division. The city also added a provision for a 5% “late fee,” though that is not apparently provided for under the law.

The law allows communities to seek annual payments of up to 3% of gross sales from a business, plus charitable contributions, for up to five years, based on the effect a dispensary has on a community.

Even as the negotiations were taking place, Happy Valley’s lawyers sought an accounting of anticipated expenses to the city as a result of the business, but according to the lawsuit, the city did not respond.

In August, the company asked again but received only information about the cost of the negotiations for the host community agreement and nothing on costs for police, traffic studies or drug treatment, the types of expenses typically cited.

The retailer is represented by Howard Cooper, Max Stern and Rachel Hutchinson of Todd and Weld. They say that Happy Valley was “forced to agree” to the terms to protect its $21.6 million investment in the project.

The suit comes amid increasing scrutiny of the host community agreement process and those impact fees.

During a hearing last spring before the Legislature’s Joint Committee on Cannabis Policy, the president of a trade group for dispensary owners, the Commonwealth Dispensary Association, called the process “inherently one-sided” and said communities are taking advantage. Some compared it to a “pay to play” situation that in particular disadvantages small business owners in minority-majority communities.

At that hearing, Dispensary Association President David Torrisi called the impact of new dispensaries “negligible,” saying a Dunkin’ Donuts has more impact on traffic than a pot shop.

Earlier this year, the owner of Stem, a Haverhill dispensary, took that city to court over similar complaints that the impact fee it was paying was disproportionate to any actual cost.

Haverhill subsequently responded with a report contending that it has had to put on six additional police officers during day and early evening shifts, and obtain two new police cars, as well as uniforms and equipment. The city also claimed other costs, including health teachers. That lawsuit is still pending.

Courts reporter Julie Manganis can be reached at 978-338-2521, by email at jmanganis@salemnews.com or on Twitter at @SNJulieManganis

Courts reporter Julie Manganis can be reached at 978-338-2521, by email at jmanganis@salemnews.com or on Twitter at @SNJulieManganis

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