On Wednesday, a U.S. Court of Appeals for the First Circuit panel applied the U.S. Constitution’s Dormant Commerce Clause (DCC) to the medical cannabis industry in a 2-1 decision, striking down local laws requiring state residency as unconstitutional and protectionist. While cannabis remains federally illegal, Maine legalized medical cannabis in 2018 and imposed limitations on who could own state-legal cannabis businesses in the state.
Background
Plaintiff Northeast Patients Group (NPG), a medical cannabis company that operates dispensaries in Maine, wanted to sell their business to a Delaware corporation, in violation of a Maine law that allows only residents of the state of Maine to operate dispensaries within its boundaries. Specifically, Maine cannabis law required that all individuals holding a management or ownership interest in a medical cannabis dispensary must be a state resident. In December 2020, NPG and the Delaware company filed suit, challenging the state’s residency requirement as unconstitutional under the DCC because it favors Maine residents over residents of other states.
Shortly thereafter, a nonprofit representing medical cannabis businesses owned by Maine residents intervened as a defendant. This intervenor argued that while the DCC is intended to protect interstate commerce, there is no interstate market for cannabis since it is illegal to transport cannabis between states. The intervenor concluded that the DCC was therefore inapplicable because there was no interstate commerce to burden.
Ruling on cross motions for summary judgment, the district court held that the DCC applied even in the absence of interstate commerce in medical cannabis and struck down Maine’s residency requirement as unconstitutional. This decision was appealed, and the long-awaited decision was just released.
The Decision
The First Circuit affirmed the lower court’s decision. The appellate panel held 2-1 that the DCC was applicable to state cannabis regulations despite ongoing federal cannabis prohibition. Specifically, the panel noted its holding “reflects the reality” that there is a market for medical cannabis that would, absent the residency requirement, “attract entrants far and wide.” The panel relied on the Rohrabacher-Farr amendment, a spending bill rider that forbids the U.S. Department of Justice (DOJ) from using its funds to interfere in state-legal cannabis markets, as evidence that Congress has “acknowledged the existence of a market” in medical cannabis. The decision upheld the permanent injunction against the state residency requirement as unconstitutional under the DCC.
The lone dissenter argued that the DCC was inapplicable because its protections were meant to promote competition within legal markets and should not be applied to those that are illegal under federal law.
Implications
The First Circuit’s decision highlights the salience of the DCC in assessing state and local cannabis systems, especially as Congress debates proposals to promote interstate commerce in cannabis. Elsewhere in Maine, for example, NPG won a case against the city of Portland under the DCC, invalidating an ordinance granting preference for long-time city residents. Residency-based preferences in Detroit and Missouri were similarly struck down on DCC grounds last year.
The First Circuit is the first federal appeals court to wrestle with cannabis and the DCC, and it is unlikely to be the last. As we have written elsewhere (see here and here), continued ambiguity between state and federal authorities regarding cannabis-related DCC concerns is likely to prompt further litigation for regulated businesses and applicants, frustrating the industry, regulators, and the public.