On August 17, the First Circuit Court docket of Appeals affirmed the the holding of the US District Court docket for the District of Maine that the residency necessities of Maine’s Medical Use Marijuana Act violate the Dormant Commerce Clause (“DCC”). The First Circuit has added itself to the listing of jurisdictions which have invalidated comparable state hashish legal guidelines on DCC grounds, together with within the Sixth and Eighth circuits.
Northeast Sufferers Group (“Northeast”) and Excessive Avenue Capital Companions (“Excessive Avenue”) sued the Maine Division of Administrative and Monetary Providers in 2020. The grievance challenged Maine’s requirement that every one homeowners of medical marijuana dispensaries should be residents of the state. The First Circuit’s choice successfully eliminates all residency necessities for changing into a hashish licensee within the state.
The historical past right here was fascinating. In 2020, the state issued policy guidance stating it will not implement the residency requirement for hashish licensees within the leisure market. There, the state was suggested by the Legal professional Basic that the residency necessities for grownup use hashish licenses wouldn’t face up to DCC scrutiny. Northeast put that concept to the take a look at.
Northeast owns and operates 3 medical marijuana dispensaries in Maine and is wholly owned by three Maine residents. Excessive Avenue is a Delaware company that’s owned fully by non-Maine residents. Excessive Avenue wished to buy all the fairness in Northeast, however as a result of Excessive Avenue had non-resident homeowners the Maine Act prohibited Excessive Avenue from changing into the proprietor of Northeast’s dispensary operation.
Admirably, to finish their transaction with out making a convoluted enterprise construction of doubtful regulatory legitimacy (which we see a great deal of) the plaintiffs filed a lawsuit difficult the Maine Act’s residency necessities underneath the DCC.
The Dormant Commerce Clause
With out getting within the weeds right here, basically the DCC prohibits states from enacting legal guidelines that place substantial burdens (discriminate) on interstate commerce. Which means when a state enacts a regulation that regulates interstate financial exercise by favoring its personal residents, as with Maine’s residency requirement, it should be “narrowly tailored”.
Broadly talking, this implies the state should be capable to justifiable the discriminatory regulation. That’s the rub: Maine’s (and plenty of different states’) requirement that medical marijuana licensees be state residents is clearly discriminatory in opposition to non-residents. On this case, Maine didn’t dispute that the regulation was not narrowly tailor-made and because of this the First Circuit discovered it unconstitutional.
The DCC and state hashish rules
The DCC has been used to invalidate many state legal guidelines just like Maine’s residency requirement for hashish licensees. In 2019, the Supreme Court invalidated Tennessee’s 2-year residency requirement for proudly owning a retail liquor retailer. Nevertheless, within the hashish context there are a number of unresolved questions amongst sure of the federal circuits– together with whether or not the DCC is relevant to hashish within the first place because of the plant’s federal illegality.
The First Circuit held that the DCC just isn’t preempted by the truth that the Managed Substances Act (“CSA”) makes marijuana manufacturing, possession, and sale illegal. Additional, it acknowledged that the CSA and DCC are “distinct quite than coterminous means” of federal regulation to manage state regulation. Additionally notable is almost all’s disagreement with the dissenting choose on an essential level. The dissenting choose acknowledged that federal prohibition of hashish prevents a federal courtroom from utilizing its energy to facilitate unlawful conduct. The concept right here is that the courtroom can’t rule in a approach that permits for the plaintiff to take part within the hashish trade as a result of it’s federally unlawful.
That argument was utilized by a federal courtroom in Oklahoma in 2021 to throw out a case making a DCC problem to the state’s residency requirement for hashish licensees. There, the courtroom dismissed the case with out contemplating the deserves of the DCC declare by invoking the “clear fingers doctrine”. The courtroom acknowledged that it will not use its energy to facilitate (federally) unlawful conduct.
Whereas that federal courtroom’s invocation of unpolluted fingers could be the minority view on this problem, many states nonetheless have residency necessities for hashish licensees. Difficult them in courtroom just isn’t so simple as having a courtroom rule on whether or not they violate the DCC.
Right here in Washington, for instance, the residency necessities for proudly owning a hashish license stay on the books and final month, a WA superior courtroom choose granted abstract judgment in favor of the state in a DCC lawsuit difficult their constitutionality. The courtroom held that the plaintiff, an Idaho man, lacked standing to convey go well with difficult WA residency necessities, and, like within the Oklahoma case, didn’t contemplate the deserves of the DCC declare. It stays to be seen whether or not the case will proceed to an enchantment.
What’s subsequent?
This choice could result in extra challenges of comparable state hashish rules throughout the First Circuit in addition to in different jurisdictions. For functions of residency necessities of licensees, that might in all probability be factor.
We should always say, that not all protectionist state rules are essentially unhealthy. Sweeping DCC software to some state hashish rules might not be factor. Some protectionist hashish rules are aimed toward addressing actual issues. For instance, the consolidation and domination of the market by a number of massive firms must be guarded in opposition to. Some states both have taken, or are taking motion to cap the variety of licenses that may be issued. Others are limiting vertical integration of producer to retailer licensees.
Love them or hate them, these rules do have some impact on addressing the market consolidation issues. Residency necessities then again simply serve to stifle improvement and maturity in an trade that wants each and they don’t have a tendency to realize their acknowledged functions, which is mostly a lose-lose scenario. So, at the least with respect to residency necessities for hashish licensees, we see the First Circuit’s choice as a optimistic step in the suitable route and setting precedent for different circumstances.
Now we have been writing right here on the Canna Legislation Weblog in regards to the DCC and state hashish licensing regimes since at the least 2015– effectively earlier than the doctrine was used to problem state licensing legal guidelines. We’re completely happy to see this concept being examined, and getting outcomes as well.
For a extra in-depth dialogue of the DCC within the hashish context, try the next posts: