Business

Acreage Lawsuit Raises Constitutional Questions for Cannabiz

By Hilary Corrigan Aug 4, 2020
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Portland, Maine, defended its REC licensing and regulation system in federal court this week after a cannabis company connected to multi-state operator Acreage Holdings sued the city. The case raises questions about how the U.S. Constitution applies to the federally illegal industry.

In June, dispensary Wellness Connection sued the City of Portland, arguing that its scoring system for dispensary applications, which favors state owned businesses, violates the Constitution’s commerce clause. This week Portland responded that the Commerce Clause doesn’t protect the federally illegal industry. (Read Portland’s filing here and Wellness’ complaint here.)

Wellness had applied to the state for a REC retail license before Portland, the state’s largest city, was set to begin accepting license applications. 

Under current rules, Portland will award 20 REC retail licenses—scoring applicants with a point system that favors businesses owned by state residents. Wellness’ complaint argues the residency preference violates the U.S. Constitution’s Commerce Clause “by explicitly and intentionally favoring Maine residents over non-residents.”

Wellness’ complaint calls for the court to stop the city from using its points system and ensure that resident and non-resident owned businesses—including Wellness—can compete for licenses “on equal terms.”

The points system gives certain applicants— including those with five years of Maine residence and those previously licensed by Maine for non-marijuana businesses— additional points in the scoring process. Wellness’ owner, Delaware company and co-plaintiff in the case High Street Capital Partners LLC, is not eligible for those points. High Street’s owners include former Acreage CEO Kevin Murphy and vertically-integrated multi-state operator Acreage Holdings America, Inc., according to court filings.

“Portland’s points matrix explicitly discriminates against residents of other states and is thus precisely the type of local law that is prohibited by the dormant Commerce Clause of the U.S. Constitution,” the complaint states.

Commerce Clause vs CSA

In its Monday filing, the city argues that Wellness has failed to show that it is entitled to Constitutional protection. 

“Despite the desperate attempts by Wellness to paint their business venture as entirely above board and legal, marijuana remains illegal at the federal level,” the city states. “This, alone, defeats any claim by Wellness that it enjoys Commerce Clause protections.”

The Commerce Clause applies only to industries involved in interstate commerce, while the Controlled Substances Act regulates marijuana trafficked both within and between states, the city argues.

“Either Wellness’s business trafficks in contraband, or its business is legal because it is wholly within the borders of the State of Maine and not subject to federal regulation,” Portland says.

Wellness has acknowledged that Portland can ban marijuana within its borders, Portland argues, yet objects to the city’s way of regulating it. “Nothing in the Constitution prohibits Portland from regulating marijuana as it sees fit,” the city says. “That right is simply one subset of its right to prohibit the sale of marijuana altogether.”

Wellness’ June complaint notes that the MED market has become Maine’s third largest industry with more than $111M in sales. Maine’s REC industry, expected to be even larger, is gearing up to launch, years after state voters legalized REC in 2016. Portland—the state’s largest city—adopted its law in May and could start awarding REC dispensary licenses this summer.

Portland’s Monday court filing says Wellness hasn’t cited a single case where a court finds Constitutional protections for a marijuana business. “This is because there are none.” It points to a similar lack of precedent addressing how the Constitution applies to an entire illegal industry. “Therefore, this Court, and the parties, are left to cobble together precedent.”

Portland further argues that Wellness has never been denied a license and may never be denied one, yet claims an injury from an “inability to compete on an equal footing.” It adds that Wellness, already operating MED shops, will continue selling cannabis in Portland.

“The only outstanding question is whether it will continue its current lucrative medical business or will receive one of the City’s 20 licenses and convert to adult use sales,” the city states.

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