A federal court ruling blocked the city of Portland, Maine, from using its residency restrictions as criteria for awarding dispensary licenses. The decision can be seen as a warning for jurisdictions looking to privilege locally owned cannabis businesses.
Dispensary Wellness Connection, a company with ties to multi-state operator Acreage Holdings, sued Portland in June, arguing that the city’s application scoring system favors in-state owned businesses in violation of the U.S. Constitution’s commerce clause. Portland countered that the clause doesn’t apply to the federally illegal industry.
The Friday ruling from Maine U.S. District Court Judge Nancy Torresen notes the commerce clause prohibits protectionist state regulations designed to benefit in-state economic interests by burdening out-of-state competitors.
While the plaintiff must show the discrimination, the government must show legitimate local purposes and a lack of non-discriminatory alternatives, according to the ruling. But rather than disputing the “discriminatory character” of the residency provisions, the city argues that licensing marijuana retail stores is unique because of its federally illegal status, the ruling says.
Maine’s REC market is slated to open in October, nearly four years after state voters legalized it through a ballot initiative.
Although the Controlled Substances Act criminalizes marijuana, it doesn’t give states the power to burden interstate commerce in a way they otherwise couldn’t, the ruling states. “I have no authority to invent such an affirmative grant where Congress has not provided it,” the judge, a Barack Obama-appointee, ruled.
The ruling highlights “statements by City officials suggesting a protectionist purpose.” It also notes an urgency since the market is new and customers have not yet formed brand allegiances.
The city had argued for the court to dismiss the case, partly because Wellness has suffered no harm from the licensing system, hasn’t been denied a license, and hasn’t yet applied for one. Wellness argued that the city’s points system created an “injury-in-fact” by denying a chance to take part in the licensing process on equal footing with other applicants.
An attorney for the plaintiff declined to comment on the case, but pointed to a recent similar case in Oklahoma. An attorney for the city could not be reached for comment.
In Maine, applicants must obtain a conditional state license from the state’s Office of Marijuana Policy as well as a license from the local municipality. After those steps, the applicant can get an active license from OMP. Wellness seeks a license from Portland, the state’s largest city, which plans to issue 20 licenses, based on a point system.
The ruling notes that the state had its own residency requirements for applicants but declined to enforce them after the attorney general “believed that the requirement was ‘subject to significant constitutional challenges’” that it likely could not withstand.
Portland’s licensing system awards extra points to applicants that are at least 51% owned by individuals who have been Maine residents for at least five years. It also awards extra points if an applicant’s owner has previously received a state or city license for a non-marijuana business.
Wellness currently operates the sole MED dispensary in Portland. It has also received a conditional state license to apply for a REC retail license in the city. It intends to apply in Portland before an Aug. 31 application window closes.
‘A hornet’s nest’
Hoban Law Group Managing Attorney Garrett Graff, who is not involved in the case, called Friday’s ruling “very thorough and thoughtful.” While it’s not clear how much one case can stand as a precedent, he noted it may be influential.
Graff has seen similar licensing issues play out across the country, although not necessarily connected to residency requirements. In Maryland, for example, litigation over a licensing system slowed the roll out of the state’s MED program. Graff questions the fairness of some scoring systems that can rely on subjective criteria, and pointed to a high potential for litigation. And there’s little meaningful recourse courts can provide after licenses are issued—other than rescinding licenses and restarting that process.
“It’s a hornet’s nest, to say the least,” Graff said of such licensing and scoring issues.
Graff also highlights Maine residents’ sensitivity to locals and wariness of outsiders coming into the state to run a new industry. He isn’t sure the issue would have been so contentious elsewhere. While Portland’s aren’t the only residency requirements, they are strict. And they contrast with regulations Graff sees now across the U.S., as more places enable larger, out of state companies—including those from Canada—to operate.
He also warns that municipal governments seeking to set residency restrictions shouldn’t be as blatant about it as Portland. The entire admitted purpose of those limits was to provide an advantage to in-state residents, he noted.
“This is over the line. This is too far,” he said of the city’s rules. “Which is precisely what the dormant Commerce Clause prohibits.”
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