- A Maine law requiring medical marijuana dispensaries to be owned by Maine residents has been struck down by the First Circuit Court of Appeals.
- NPG and High Street Capital argued the residency requirement violates the federal Dormant Commerce Clause because it expressly privileges Maine residents over residents of other states by allowing them to invest in Maine’s marijuana industry.
- Anything in every state scheme that says ‘only residents in our state’ will potentially come under fire.
A Maine law requiring medical marijuana dispensaries to be owned by Maine residents has been struck down by the First Circuit Court of Appeals. The decision upholds a lower court ruling that found Maine’s residency requirement violates the U.S. Constitution by restricting interstate commerce, according to Maine Public.
This is due to a lawsuit filed by Northeast Patients Group (NPG) and High Street Capital Partners against the Maine Department of Administrative and Financial Services challenging the Maine Medical Marijuana Act. NPG and High Street Capital argued the residency requirement violates the Dormant Commerce Clause because it expressly privileges Maine residents over residents of other states by allowing them to invest in Maine’s marijuana industry.
Fast forward to August 2022, and the First Circuit Court of Appeals affirmed the residency requirement violates the Dormant Commerce Clause of the Constitution. According to the First Circuit’s order, NPG is a corporation that operates three of Maine’s seven licensed marijuana dispensaries, which is wholly owned by three Maine residents. The other plaintiff, High Street Capital, is a Delaware corporation owned exclusively by non-Maine residents, and wanted to acquire NPG, according to Law Street Media.
What is the Maine Medical Marijuana Act?
Under Maine’s Medical Marijuana Act, a dispensary cannot be licensed to sell medical marijuana unless all the officers or directors are residents of Maine. Therefore, an acquisition of NPG by High Street Capital would disqualify the resulting company from being an authorized dispensary under the law.
What Does All of This Mean?
Essentially, the Constitution gives Congress the authority to regulate interstate commerce, and the Supreme Court has held for years that a part of Congress’s authority to regulate interstate commerce has affirmative power. With this also comes restrictions on states – because Congress has the authority, that authority prohibits the states from discriminating against out-of-state commerce, according to Shane Pennington, Council at Vicente Sederberg.
For example, if you live in Washington and want to buy apples from another state, the Dormant Commerce Clause says the state cannot prevent you from doing so, since it would overtly discriminate against interstate commerce.
Now, since marijuana is not federally legal and as each state develops their own cannabis laws, the Dormant Commerce Clause is coming into play to prevent states, such as Maine, from blocking non-residents from running marijuana dispensaries within their borders. Pennington says that for a long time, the cannabis industry was not impacted by this because the federal government basically allowed the state markets to develop their own laws regarding cannabis. As each market grew, it became clear that there would be spillover effects in state policies that were unsurprisingly protectionist and had residency requirements.
“Those policies put these markets directly in the crosshairs of the Dormant Commerce Clause, but at first, nobody did anything about it and did not bring lawsuits about, but now things are starting to change,” Pennington said. “These businesses are big enough to have enough money to bring lawsuits into the picture. We had all of these markets developed under state laws, but now that some are starting to litigate it, it will bring a lot of state policies, including programs that are overtly discriminative against interstate commerce, under fire.”
What Happens Next?
Under federal rules, the losing side will have a period of time where they can pursue a few different options at the Circuit, according to Pennington. They can:
- Ask for a rehearing, where the same three judges that just decided this issue will come back and reconsider their opinion.
- Ask for the full Circuit, which would include more than just the three judges, and take the case to the full court to rehear the issue.
- Ask the Supreme Court to grant a writ of certiorari and have them review the case. The Supreme Court only takes a small amount of petitions each year, and they are not under any obligation to hear each case, so this will be the hardest option.
If the courts do not do any of these options, after a certain amount of time when the law passes, the case will be gone and the decision becomes final.
What This Means for Other States with Similar Laws
According to Pennington, this decision will only bind the First Circuit, such as Maine, Massachusetts, and other small areas in the North East where this controls, but it will be a very influential decision in other courts. Other courts will see this issue, and even though they do not have to follow it since they are under a different circuit, they will read the First Circuit judges’ opinion and think the ball should get rolling in their area, as well.
“Many are wondering if the Commerce Clause would even apply to the cannabis industry since it is illegal at the federal level. It is one thing to say that states cannot discriminate against legal commerce, such as apples, but the difference here is that the cannabis market is illegal,” Pennington said. “Even still, I do think this will top off a lot of other lawsuits other than just residency requirements within states. Anything in every state scheme that says ‘only residents in our state’ will come under fire. I guarantee these cases will start coming hot and heavy now.”