Portland marijuana ordinance headed to federal court

The state’s largest marijuana company is challenging the constitutionality of Portland’s cannabis licensing system in federal court.

Wellness Connection of Maine, which operates four of Maine’s eight medical marijuana dispensaries, claims Portland is depriving out-of-state companies such as itself of the constitutional right to interstate commerce by using a scoring system that favors Maine residents as the city decides which businesses will get one of its 20 recreational marijuana store licenses.

If it faces a surplus of applications, which is likely, Portland will use a scoring matrix to award up to 34 points in eight categories of what city councilors consider favorable licensing criteria, such as having $150,000 in liquid assets. Two of those categories favor locals, including a four-year residency bonus worth five points and a previous state business license bonus worth four points.

Wellness would like to sell recreational marijuana at its Congress Street dispensary, but Portland’s scoring matrix puts it, an out-of-state business owned by High Street Capital Partners LLC of Delaware, at a significant competitive disadvantage, according to the lawsuit, filed Monday. Under the matrix, Wellness could score no more than 25 out of 34 points.

“The points matrix in Portland’s ordinance heavily favors Maine residents,” Wellness wrote in its complaint. “More than 25% of the points available either are reserved for Maine residents or are awarded based on a consideration that strongly favors Maine residents … Portland’s points matrix explicitly discriminates against residents of other states.”

Wellness argues that being shut out of Portland – Maine’s biggest city, its top tourist destination and its highest grossing medical marijuana market – at the start of the adult-use marijuana market would cause Wellness irreparable harm, especially because the company expects adult-use cannabis to largely replace the medical market.

“Limiting the opportunities for (Wellness Connection) to create a brand, build a reputation, and establish customer loyalty in Portland at the adult-use market’s inception would harm them in ways that cannot be reduced to a monetary damages award,” Wellness alleges in its lawsuit.

Wellness didn’t quantify local market projections, but Maine is projecting the statewide market to clock in at $300 million a year.

Wellness is asking the court for an injunction that would stop Portland from awarding any retail licenses until the court settles the legal matter. The city ordinance took effect Wednesday, but a spokeswoman said the city would not begin its review of retail store license applications until after Aug. 31. She said the Wellness lawsuit would not change that timeline.

“We were expecting this lawsuit and we are prepared to defend,” said Portland spokeswoman Jessica Grondin.

In fact, a Wellness lawyer warned the Portland City Council of a legal challenge on May 18, the night the council voted 8-1 in favor of the overall marijuana ordinance. Councilors rejected a staff recommendation to strip out the residency bonus, arguing that a system that gives locals an advantage isn’t the same as a licensing system that bans out-of-state applicants altogether.

The vote on the staff amendment to strip the residency bonus points from the business license evaluation failed by a 5-3 vote. Councilors who voted to get rid of the residency bonus worried a pandemic-stressed city wasn’t in the financial shape to defend a costly lawsuit, while residency supporters said local preference had been one of their main reasons for joining the market at all.

“Many of us felt that we wanted to make sure we were focused on allowing the local market to grow,” said Councilor Belinda Ray.

The state Office of Marijuana Policy abandoned its four-year residency requirement for state marijuana business licenses in May, just two weeks before the Portland vote, after the state Attorney General’s Office concluded it would be unlikely to defend against a Wellness Connection court challenge based on similar constitutional grounds as the ones cited in the Portland suit.

The courts have struck down residency requirements on constitutional grounds before, but not in the cannabis industry, which is still outlawed by federal law. The lawsuit Wellness filed in March marked the first time a marijuana company had challenged the constitutionality of the licensing preference.

The state decision is under fire from local cannabis activists, who have gone to court to uphold the state residency requirement.

The Portland ordinance has been more than a year in the making. City voters approved legalization by a 2-to-1 margin in the 2016 statewide referendum, but Portland has been slow to adopt local regulations. The council has been debating the details of the local licensing system since it adopted a cannabis zoning map in February 2019.

Portland joins 40 other Maine communities, from Eliot to Grand Isle, that have agreed to allow some kind of adult-use industry. Maine had expected its first recreational sales by July, but the pandemic put that plan on indefinite hold. Regulators cited public health concerns posed by the potentially large opening day crowds.