A federal court has sided with the state’s largest cannabis company, ruling that Maine cannot bar out-of-state companies from operating medical marijuana dispensaries in the state.

U.S. District Court Judge Nancy Torresen ruled Wednesday in favor of Wellness Connection of Maine and its parent company, High Street Capital Partners, of Delaware, in their suit to overturn the state’s requirement that all medical marijuana dispensaries be owned by Mainers. 

This decision, following on the heels of the state’s agreement to do away with the residency requirement in its adult-use cannabis program, means that out-of-state investors will be able to open both medical dispensaries and adult-use stores in Maine.

In-state licensing preference has been at the heart of Maine’s marijuana laws since the 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.

But Wellness Connection and High Street have pushed back against those residency requirements and in December sued the state to overturn the requirement for the medical market. The company also sued the state in March 2020 to open the recreational market to out-of-state investors. Wellness connection used the same constitutional argument for both cases.

Wellness Connection operated as an allowed nonprofit corporation without any equity ownership for almost a decade, but converted to a for-profit company in March 2020 when a change in state law allowed dispensaries to become for-profit corporations. 

Wellness Connection is owned by three Maine residents, according to the lawsuit, but High Street stated in court documents that if the residency requirement did not prohibit it from doing so, it would purchase all of the equity in the company. 

The plaintiffs argued that not only does the residency requirement devalue Wellness Connection by limiting its universe of potential investors, it also harms all of Maine’s dispensaries by restricting the flow of investment into the state and stifling the dispensaries’ ability to operate within the program.

 

The company claimed 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.”

State officials argued that the clause is irrelevant. The clause does not apply to Maine’s intrastate market for medical marijuana, they said, nor do the laws “burden interstate commerce more severely than Congress, since Congress has eliminated that market entirely” by making cannabis illegal under federal law.

The argument is “not without logic,” Torresen said in her ruling, but because Maine does not prevent qualified nonresidents from purchasing medical marijuana, nor does it seem to prohibit nonresidents who purchase marijuana in the state from taking it home with them (which is illegal but difficult to enforce), “the notion that the medical industry in Maine is wholly intrastate does not square with reality.”

Because the state appears to allow nonresidents to participate in some aspects of the medical marijuana market but not others, Torresen concluded that the dispensary residency requirement does violate the Dormant Commerce Clause. 

The United Cannabis Coalition, a nonprofit trade group that intervened in the case as a third party, also wanted to see the residency requirement stand. 

Coalition members, primarily individual medical marijuana providers known in the market as caregivers, fear that without the residency requirement, 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.”

Susan Meehan, president of the coalition, said she believes the group has “a strong likelihood of success on appeal to the First Circuit Court (of Appeals) in Boston,” should its members choose to pursue that route.

“This is a brand new issue for an appellate court, and the heavy lifting associated with legal research and briefing is already done,” Meehan said in a social media post. “This judge, however, already reached this erroneous conclusion once, which made it easier to default to that original belief.”

The group has 21 days to file an appeal, and Meehan said Thursday that she hopes to know one way or the other by the end of the month.

“It would be a historic move for Maine to set national precedent, but legal battles cost a lot of money,” she said. “Alternatively, we (could) simply educate consumers with ‘shop local’ campaigns and lists.”

Meehan noted that filing a notice of appeal would also provide the opportunity to request a stay of the judgement to prevent the state from issuing any licenses to nonresidents while the appeal is pending.

On Thursday, the state Office of Marijuana Policy announced it was opening applications for individuals and businesses seeking to open medical marijuana dispensaries in Maine, the first time in more than 11 years that the registration has been publicly available. Maine law changed in 2018, expanding the allowed number of dispensaries beyond the eight that were permitted in 2010.

This is Wellness Connection’s third successful lawsuit concerning residency requirements in both the medical and adult-use programs in just over a year. 

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 NPG argued that it was unconstitutional.

Maine Attorney General Aaron Frey agreed with the challenge and found that the residency 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 adult-use cannabis lawsuit.

Using the same argument of unconstitutionality, NPG 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.

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