The state’s largest cannabis company is continuing its efforts to eliminate Maine’s marijuana residency requirements for sellers, now with a federal lawsuit against the state’s medical program.
And despite agreeing not to enforce the requirement in the recreational cannabis program, the state is pushing back.
U.S. District Judge Nancy Torresen heard oral arguments on the case in U.S. District Court in Portland on Friday, a case she said was unusual given the “elephant in the room,” that marijuana sales violate federal law.
Wellness Connection of Maine and its parent company, High Street Capital Partners, of Delaware, sued the state in December to overturn a requirement that all medical marijuana dispensaries be owned by Mainers, making the same constitutional argument it used earlier in 2020 to open the state’s recreational market to out-of-state investors.
The state’s medical marijuana market can be lucrative, the lawsuit notes, bringing in more than $100 million in 2019. Medical marijuana became the state’s most valuable cash crop in 2020, bringing in over $260 million.
The plaintiffs say that not only does the state’s residency requirement devalue Wellness Connection by limiting its universe of potential investors, it also harms all of Maine’s dispensaries.
“The self-evident purpose of the residency requirement is to discriminate against nonresidents such as plaintiff High Street, a prospective out-of-state investor, and to exclude them from the economic opportunities available to medical marijuana dispensaries in Maine,” they argued, thereby restricting the flow of investment into the state and stifling the dispensaries’ ability to operate within the program.
Furthermore, the plaintiffs said, the law violates the U.S. Constitution’s so-called “dormant Commerce Clause,” which prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce, “by explicitly and purposefully favoring Maine residents over nonresidents.”
But state officials argue that the clause is irrelevant. The “ultimate test of whether state laws violate the dormant Commerce Clause asks whether a state has done something to restrict interstate commerce in a manner more severe than where Congress has left the market,” the Maine Attorney General’s Office wrote in court documents.
The clause does not apply to Maine’s intrastate market for medical marijuana, nor do the laws “burden interstate commerce more severely than Congress, since Congress has eliminated that market entirely,” they said.
The state also argued that it should be protected under the 11th Amendment, which prohibits citizens from suing a state or state agency in federal court unless the state has consented to being sued or Congress has repealed the state’s immunity from such.
The United Cannabis Coalition, a nonprofit trade group and an intervenor in the case, also wants to see the residency requirement stand.
Coalition members, primarily medical marijuana providers known in the market as caregivers, say they have a legal and economic interest in the statute because if the residency requirement is struck down, they risk economic harm from the “shifting market forces throughout Maine’s medical-use marijuana industry caused by spikes in out-of-state funding or competition.”
Torresen did not issue a decision on Friday and did not set a timeline to do so.
This is the third lawsuit in just over a year arguing that Maine’s marijuana laws discriminate against residents of other states.
As written, Maine law requires every officer, director and manager of an adult-use cannabis business – and most of its ownership – to live and file taxes in Maine for at least four years.
In March 2020, Wellness Connection’s sister company, NPG LLC, sued the state over the residency requirement in the adult-use marijuana statute – the first time a marijuana company had challenged such a requirement.
The requirement would have given locals a leg up when the adult-use market launched in October, but Wellness Connection argued that it was unconstitutional. The company is controlled by multinational corporation Acreage Holdings, whose investors reside outside of Maine.
Maine Attorney General Aaron Frey agreed with the challenge and found that the requirement “is subject to significant constitutional challenges” and would likely not hold up in court.
Accordingly, state officials announced in May 2020 that they would abandon the in-state residency requirement, resolving the lawsuit.
State officials could not be reached for comment Friday about why they did not make the same concession for the medical program, choosing instead to continue litigation.
Using the same argument of unconstitutionality, NPG LLC sued the city of Portland over its ordinance that gave preference to Maine residents when awarding retail marijuana licenses. In response, the City Council voted to give licenses to all qualified first-round applicants, though in November, voters decided to eliminate the retail license cap altogether.
The plaintiffs in Friday’s case said the residency requirement for dispensaries is “cut from the same cloth” as the residency requirement in the adult-use marijuana law and is worse than Portland’s ordinance because it bans nonresidents altogether.
Local licensing preference has been at the heart of Maine’s marijuana laws since the medical dispensary system was created in 2011 and recreational marijuana was approved by voters in 2016. Marijuana advocates used the residents-only language to gain political support for legalization, characterizing it as a jobs generator.
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