1st Precedential U.S. Appellate Opinion on Out-of-State Cannabis Operators Expected This Year

Residency requirements attached to state cannabis laws may not withstand challenges to constitutionality. The first precedential opinion on this issue is expected sometime in the next few months by the 1st U.S. Circuit Court of Appeal in Maine.

The case, Northeast Patients Group et al. v. Figueroa, involves a challenge to the law in Maine (existing in many other states) that contains an in-state residency requirement for license applicants and operators. California doesn’t have a residency requirement law, but operators here may be barred from expanding into other regions due to their state residency requirements. This ruling could impact that barrier.

Last year, the District Court of Maine struck down the state’s residency requirement, finding that it was a violation of the U.S. Constitution’s Dormant Commerce Clause, a measure intended to block discrimination against interstate commerce. However, attorneys for the State of Maine appealed that decision, finding the federal law isn’t applicable to the cannabis industry, as trade remains technically unlawful under U.S. law.

Similar challenges have been brought before in other courts, but as our Los Angeles marijuana business lawyers can explain, this is the first to reach a federal appellate court. A ruling by the First Circuit could have a substantial impact for the cannabis industry throughout the country.

As it now stands, the cannabis industry in the U.S. is mostly governed by a ramshackle patchwork of state laws cobbled together with little federal direction or assistance.

The Dormant Commerce Clause was used in Tennessee a few years back to overturn the state’s residency requirement for liquor stores, the state supreme court in that case holding that the state had no compelling interest in preventing folks who didn’t live there from holding liquor licenses and operating alcohol-related businesses.

Yet when it comes to cannabis, dozens of states and cities have passed – and enforced – requirements of residency that prohibit outsiders from holding licenses or portions of licenses. In some cases, non-residents are prohibited from investing at all in local cannabis businesses. These statutes were primarily intended to boost local ownership, with the hope of also mitigating the potential for interference from the federal government in state-run cannabis programs.

For the most part, these laws have gone unchallenged. Even where it has been raised, some courts have seemingly been reticent to weigh in. For example, a federal court in Oklahoma recently granted a request from the state to dismiss a residency requirement challenge – ignoring the question of the dormant commerce clause altogether.

There have been a few examples, though, where such challenges have prevailed. For example, a federal court in Missouri stopped the state from enforcing the prohibition on non-residents serving as directors, officers, or owners of dispensaries. A federal court in Michigan stopped the City of Detroit from giving preferential treatments to residents in issuing cannabis licenses.

What makes the Figueroa case so noteworthy is that it’s the first time such a matter has made it to a federal appellate court.

It’s one our Los Angeles cannabis business lawyers will be carefully watching.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.

Additional Resources:

NORTHEAST PATIENTS GROUP et al v. MAINE DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES et al, U.S. District Court for the District of Maine