A Maine-based medical cannabis company and the multi-state operator that wants to acquire it argued Maine’s residency requirement violated the Constitution’s dormant commerce clause by hindering the out-of-state investment market, in a brief filed in the First Circuit Court of Appeals on Feb. 7.
“There is an actual interstate market in investment in marijuana businesses that the federal government acknowledges and supports. It is simply not true that Congress has somehow eliminated commerce in marijuana in the United States,” said the 40-page briefing. “If not for the residency requirement, Maine would be part of a booming national market for investment in medical marijuana companies.”
The filing was the initial brief in NPG v. Maine Department of Administrative and Financial Services from two companies that successfully sued the state, only to face an appeal from the state and a group representing caregivers and cannabis patients in Maine.
Northeast Patient Group (NPG), which does business as Wellness Connection, which operates three of the seven medical cannabis dispensaries in the state, and it’s would-be parent company, Acreage Holdings sued the state in Dec. 2020 to strip the state’s medical cannabis operations ownership residency requirement.
Acreage, a multi-state operator based in New York City, argued that it was a proper party to the case because it planned to acquire NPG, but could only do so if the state lifted its ban on out-of-state medical cannabis operators.
Acreage and NPG were successful in federal court, despite advocacy group United Cannabis Patients and Caregivers of Maine inserting themselves into the legal fight. United Cannabis argued in favor of the residency requirement on behalf of the state’s vibrant medical cannabis caregiver market. United Cannabis and the state filed dual appeals to the ruling in the First Circuit in Oct. 2021.
“The State has somewhat halfheartedly defended the residency requirement,” said briefing, referencing the state’s previously filed brief which stated that the state had been advised by Maine’s Office of the Attorney General that a similar residency requirement for adult-use would likely be found unconstitutional if challenged in court. Although the state would eventually decide to not-enforce the existing residency requirement for adult-use, the state also stated that it was taking part in the appeal in order to get a final court ruling on the constitutionality.
The dormant commerce clause prohibits any state law that would excessively burden interstate commerce.
In their previously submitted brief, the state and the coalition claimed that the residency requirement does not violate the dormant commerce clause of the Constitution as long as there is a federal prohibition on cannabis. Basically, without national legalization, cannabis cannot be sold across state lines.
The appellees, NPG and Acreage, dispute this claim, arguing that despite a federal prohibition, intrastate commerce does exist within the cannabis industry, in that Maine allows out-of-state medical cannabis patients to purchase from medical dispensaries and caregivers. They also argued that the residency requirement does not just apply to the sale of medical cannabis, but also hinders the cannabis investment market, which the federal government has allowed to exist.
“Medical marijuana is legal in 37 states and the District of Columbia. Even with the nominal federal prohibition, there is a booming national market in marijuana investment”
The appellees further argue that there is not a true national prohibition so long as the federal government continues to legitimize cannabis businesses.
“Far from shuttering medical marijuana businesses, the federal government regulates, oversees, and profits from their operations in many different ways,” said the brief. “Marijuana businesses pay taxes to the Internal Revenue Service. They are bound by the requirements of the Occupational Safety and Health Administration. Banks may serve marijuana-related businesses if they meet the Treasury Department’s reporting requirements.”
NPG previously sued Maine in March, 2020, alleging that the state’s residency requirement for adult-use cannabis violated the dormant commerce clause. Before a judge to officially rule on the case, the state reached a settlement with NPG where it agreed to not enforce the requirement. NPG returned to court in Dec. 2020 when it sued to block the rule in the medical market.
The appeals case will likely set a precedent for other residency requirement fights across the country. The Circuit Court decision 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 officials have indicated they will not appeal the ruling and will abide by the Circuit Court’s ruling.
The court has yet to schedule oral arguments, but the state and the caregivers have until Feb. 28 to submit a response to this brief.
