Maine’s cannabis industry continues to attract out-of-state investment, but it is unclear how much of that is the result of the First Circuit Court of Appeals striking down the state’s residency requirement for ownership in the medical cannabis market.
Six weeks ago the First Circuit ruled that allowing out-of-state ownership of medical licenses violated the dormant commerce clause of the U.S. Constitution, which prevents unfair burdens on interstate commerce. In the case, state and local medical cannabis activists argued that the federal prohibition of cannabis exempted the state market from the dormant commerce clause. Instead, the court agreed with an argument from the plaintiffs that business stakes and not cannabis itself were traveling over state lines.
The decision was a boon for plaintiffs Acreage Holdings and The Wellness Connection, the Maine medical company it intends to buy.
Building on Acreage’s planned purchase, investors are now looking to the growing cannabis market in the nation’s Northeast corner.
“A couple of people have reached out to me about starting something in cultivation. I have heard less from [multi-state operators],” said Jarrett Annenberg, Director of Acquisition at NewLake Capital Partners.
Maine’s adult use market is just days away from its two-year anniversary. Despite voters legalizing adult use in 2016, it took about four more years before legal sales were allowed to take place. At this point, there are 107 active adult use retail licenses and 29 medical dispensary licenses.
Now that the market has finally been allowed to age, Maine could be establishing itself as a destination for investor cash flow, with or without the influence of court rulings.
“I think adult use is going to grow into a $300M market. It will be a decent-sized market,” said Annenberg. “If you can create a brand and vertically integrate, you can build a successful business.”
Alysia Melnick, an attorney for Bernstein Shur who also works with the Maine Craft Cannabis Association, said that the organization’s members have long had the eye of out-of-state investors.
“This is not something new there,” she said. “These interests have always been here in Maine and even though there was technically prohibitions on who could be listed as certain positions running a dispensary, four of the original licenses were given to California-based companies.”
Technically the ruling directly applied to the state’s residency requirement for medical cannabis licenses. A previous lawsuit challenged the state’s requirement for adult use licenses, but that case was settled when the state agreed to stop enforcing the rule without directly repealing it.
“The ruling really opens that up to more investment and more interest in Maine, but the adult use market had also opened,” said Melnick.
At the same time, Annenberg suggested that Maine could still be under the radar of most multi-state operators (MSOs). The state’s unlimited license rules makes it less appealing to investors with concerns about wholesale markets getting flooded, creating subsequent drops in prices, such as what previously happened in Oregon and Michigan.
That said, a benefit of Maine’s market is that it is relatively off the radar of larger MSOs. This means less competition for smaller operators that aspire to grow into multi-state businesses.
“The MSOs generally look more toward limited license states where wholesale prices have held up better,” he said. “Major players may not be paying as much attention to Maine as say toward Florida.”
Regardless of stature, there is certainly interest, according to Hannah King, an attorney with Dentons Bingham Greenbaume.
“We have been seeing an increase in attention in Maine from MSOs and other out of state operators in recent months,” she said. “I am not sure that this is being driven by the First Circuit’s decision, as the state has never enforced residency requirements for Maine adult use businesses, and it is in the adult use market that we are seeing the most interest.”
King dismissed the idea that the First Circuit court ruling directly predicated the spike in interest, and that it had more to do with the development of the market as a whole.
“I think out-of-state companies are, rightly so, starting to recognize Maine, with its high utilization rate and 15 million-plus tourists a year spending $7.9 billion annually, as a market worth being in,” she said. “Also, this month, Maine is entering the third year of its adult use market. This means that there are Maine companies with two years of financials and the market has had a chance to mature and stabilize, which is attractive to prospective buyers.”
At the same time, King did not dismiss the influence of the court’s ruling.
“It is possible, if not likely, that the publicity around the First Circuit decision has brought Maine to the attention of out-of-state companies that were unaware that Maine might be an option,” said King.
Regardless of the ruling, the state’s medical market’s development from caregiver into a more organized business model, lends itself to greater investor interest.
“We’ve had medical cannabis since 1999 but it really has changed dramatically from that direct caregiver model to more of a professionalized business model,” said Melnick. “I think that is a good thing in a lot of ways.”
Although there might be fewer opportunities for acquisitions of medical dispensaries, Melnick said she can imagine there being an influx of applications from new licenses.
“It will not surprise me if we see more applications for dispensaries and dispensaries opening,” she said.
Currently, Maine’s Office of Cannabis Policy is considering changes to its testing requirements for adult use cannabis, among other considerations that could potentially decrease operating costs for the adult use market. Whatever happens, it seems like Maine could be at a tipping point in its development as a cannabis destination.
