Determining that the Constitution’s protection of interstate commerce applies to cannabis despite a federal prohibition, could further open the path to legal weed on a national level, according to legal experts.
“I think the Dormant Commerce Clause does control and that you can’t actually have a residency requirement. But the weird thing is going to be this gray area between federal and state law,” said David Holland, a partner at Prince Lobel who specializes in cannabis law. “You’re not allowed to try to block people from bringing product into your territory if it’s legal in the territory.”
The First Circuit Court of Appeals, seated in Boston, Mass., is currently weighing a case involving Maine’s residency requirement for the ownership of medical cannabis dispensaries. Acreage Holdings and Maine-based Wellness Connection sued the state in December, 2020 over state law requiring residency for all medical cannabis company owners.
Acreage has announced plans to acquire Wellness Connection and their three Maine medical dispensaries, but such a transaction is currently hindered by the state’s resident requirement. Acreage and Wellness Connection prevailed in federal court last summer, before the state and an activist organization, United Cannabis Patients and Caregivers of Maine, appealed to the First Circuit.
The state and the activist group argued that cannabis’ legal status on the federal level precludes any lawful interstate commerce to be regulated, while Acreage argued that they were in the business of investment in cannabis businesses, not cannabis, hence they can conduct business across state lines.
Aside from national legalization, Holland said that he believed it was much more likely that a First Circuit ruling in favor of Acreage of Wellness Connection would open the doors to more direct franchising from multi-state operators.
“If it is found to be unconstitutional, the residency requirement, the question then becomes Can California and everybody else start bringing people in like the game of Risk and rolling armies into other territories,” he said.
The United States Supreme Court declined to take up a cannabis case in the session that just ended, which would have determined whether or not employment compensation insurance should cover the cost of medical cannabis.
Holland said the case could have crucial implications for cannabis’ current Schedule I status, because a ruling in favor of coverage for medical cannabis would indicate that cannabis has some medical benefit. Meanwhile, Schedule I drug classification is reserved for substances with “no accepted medical use” such as heroin.
“Why not just reschedule it?” asked Holland. “I don’t get it, but that’s where we’re at.”
Despite the fact that cannabis sold in Maine must legally be cultivated and cured in Maine without crossing any state borders, there are other facets of running a cannabis business that involves interstate commerce, explained Hannah King, who specializes in cannabis law for Dentons Bingham Greenebaum.
“The Supreme Court has historically taken a very broad definition of interstate commerce,” she said. “So if you are getting your supplies from another state, or if you are selling to individuals who live in another state, you likely fall under the definition of interstate commerce.”
Aside from adult use dispensaries, Maine’s medical cannabis providers are allowed to sell to patients with out-of-state medical cards.
Regardless of the ruling, King said that she expects interstate commerce to arrive in Maine, sooner than later, given the increasingly rising tide of pro-legalization sentiment in the United States.
“The reality is that at some point interstate commerce is going to be here and Maine businesses are going to have to be competing with companies in other states,” she said.
Aside from that, opening the door to interstate investment alone could also benefit existing Maine cannabis companies, according to King.
“Companies need capital, and the amount of private equity in Maine is limited,” she said. “I do think that this will create more opportunities for Maine owned companies to access capital and grow their businesses.”
Earlier in 2020, the state backed away from its residency requirement for adult use cannabis shops, following a similar lawsuit from the same plaintiffs.
A federal court decision in the First Circuit would have implications across the country, and has already been cited in other cases, such as when a federal judge in Missouri struck down that state’s residency requirement for cannabis licenses on Oct. 7, while a case in Detroit, Michigan awaits a 2022 trial. Missouri state officials indicated they will not appeal the ruling and will abide by the Circuit Court’s ruling. Another federal case over Illinois residency requirements was filed last month.
Oral arguments of the case took place in April, during which the panel of judges did not appear convinced that the federal prohibition of cannabis precludes the Dormant Commerce Clause of the Constitution from applying to ownership residency restrictions within a state-wide cannabis market.
Typically, the First Circuit can take a few weeks or as long as a few months after oral arguments to issue a decision in the respective case. Attorneys interviewed for this story indicated that it could be as late as this fall before an opinion is rendered.