Navin Shah's cannabis shop plan on the table in Lenox amid U.S. Attorney Andrew Lelling's probe into host community agreements
LENOX — In the race to open the first of two retail marijuana businesses in the town, hotel entrepreneur Navin Shah has emerged from the starting gate with a nearly complete host community agreement proposal for his vacant restaurant building in the Lenox Commons complex.
However, a federal anti-corruption investigation into host agreements launched this week by Boston-based U.S. Attorney Andrew Lelling cast a shadow over Wednesday's Select Board meeting, where Shah's plan was presented.
Multiple towns across the state with retail pot shops already operating, including Great Barrington and Lee, have received subpoenas from a federal grand jury seeking extensive documents about their host community agreements for retail cannabis businesses.
"It's very difficult to understand what they're trying to look for in this subpoena," said Lee Select Board member Thomas Wickham, who discussed the issue briefly at Tuesday's meeting. The board is freezing discussion of any new host community agreements pending clarification of the federal probe.
Shah's Pittsfield attorney, Andrew Hochberg and James E. Smith, his high-profile Boston attorney who represents about three dozen cannabis operators around the state, presented an overview of his plan to three members of the Lenox board.
The restaurant building on Pittsfield Road (Route 7/20) property owned by Shah has hosted a half-dozen operators since 2006, most recently Bobby Macs.
"Shah's now looking to turn it into a profitable enterprise," Hochberg said. "It's an ideal location; we have a four-lane highway, a crosswalk, plenty of parking and plenty of space inside to accommodate the number of customers we need."
Acknowledging that there are only two permits available for retail cannabis in Lenox, Hochberg asserted that "we are very well-suited to operate one." He cited Shah's local residency and his operation of the Howard Johnson Inn on Pittsfield Road, a Days Inn and a Holiday Inn Express, both in Great Barrington, and also a soon-to-open Fairfield Inn & Suites in Williamstown.
Smith, noting the cannabis industry is rapidly evolving and changing, shied away from his reputation as an expert, and emphasized the security plan for Shah's proposed facility, incorporated as Krishna LLC.
He also stressed a"importance of being a good corporate citizen as critical to our industry" under state law, which imposes taxes and fees totaling 20 percent of gross revenue, including 3 percent for the town. In addition, the five-year host community agreements, now under a federal grand jury probe, allows a local impact fee of up to 3 percent.
"A store might do $10 million a year," he estimated, while conceding that while only 29 retail pot stores are currently operating in the state, the total could grow to more than 200 in the next five years. "The market will determine how many of those stores will survive," Smith said.
The attorney also described the applicant's residency in the town where he proposes a cannabis business as "very rare across Massachusetts. We were very excited when he called, because we haven't had a chance to work with somebody with a much better understanding of what's important in the community, and that's very helpful for long-term success here."
Smith described the Cannabis Control Commission's security requirements as "very intense." He pointed to constant video surveillance, asserting that "you cannot approach our building without being on video. I have great respect for privacy, but under state law, you will not be off that camera until you leave the area, our employees included."
Adults only are admitted, with 21 as the minimum age with ID proof and two required verifications, Smith said, and a third ID checkpoint when purchasing a cannabis product.
"I might argue the security is over the top; I have argued that in the past," he said, "but it is the plan, and we will be delivering the regulations."
Smith emphasized that the security plan will be shared with local police. He also predicted that while entering a cannabis store is a novel experience now, "but ultimately it will be a normal, everyday business occurrence."
Shah first signaled his interest in pursuing a host community agreement with the town last June.
"We've anticipated you folks coming in here for quite some time," Select Board Chairman Edward Lane said. "We've done a lot of homework on the Cannabis Control Commission."
Another potential retail cannabis operator, James Nejaime, owner of the Spirited Wine Shop on Pittsfield Road, worked on a host community agreement with the town last summer, but withdrew his second proposed location, the Different Drummer's Kitchen shop, after opposition arose in the adjacent residential community. He had first proposed leasing vacant space in the former Essencials day spa site next to Electra's Cafe and Papa John's pizzeria.
Nejaime told The Eagle on Wednesday he is close to securing an agreement on a new location.
Lee-Lenox Chief Administrative Officer Christopher Ketchen noted that Shah's attorneys have been working with Town Counsel Joel Bard of KP Law on the framework for a host community agreement.
"We're very close to an understanding," Smith said. "The town has been very reasonable."
However, Lane acknowledged concern over the federal court challenges to a number of existing host agreements in the state, as first reported this week by the Boston Globe.
"You can understand this makes us a little bit gun-shy on the next step," Lane told Smith. "In fairness to you, we need to move forward with it."
U.S. Attorney Lelling convened a grand jury to probe contracts and payments between Massachusetts towns and the marijuana companies they host in a stepped-up federal drive by prosecutors to ferret out any local corruption involving host community agreements, specifically the payments to municipalities outlined in the documents.
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, the Globe reported.
The subpoenas seek massive documentation, including:
- 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.
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 sidestepped those limits, the Globe reported, 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.
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, who lost his bid for reelection on Tuesday, has pleaded not guilty.
"I've negotiated a lot of host community agreements, and that's just not how this operates," Smith said earlier this week in a Globe interview. "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.
Information from the Boston Globe was included in this report.
Clarence Fanto can be reached at email@example.com, on Twitter @BE_cfanto or at 413-637-2551.
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