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New Study Defends Constitutionality of Racial / Gender Preferences in the Award of State Marijuana Licenses

Posted by on Thursday, January 18, 2018 in News, Updates.

At least two states (Maryland and Ohio) have attempted to use racial preferences in the award of their commercial marijuana licenses. However, as discussed in the book, Maryland’s licensing board abandoned that state’s preferences in 2015 after a Deputy State Attorney General wrote a brief letter suggesting the preferences would likely violate the Equal Protection Clause of the Fourteenth Amendment (see pages 522-525). And as discussed in this post from December 2017, Ohio’s preferences have recently been challenged in court on similar grounds.

The letter that deterred the Maryland licensing board suggested that the only way to defend the use of racial preferences in the award of licenses would be to “identify discrimination in the relevant market in which the entity is participating” (page 523). The licensing board apparently assumed this meant the state would have to demonstrate discrimination against minorities in the licensed medical marijuana itself—something it couldn’t do, of course, since that market did not yet exist when the first licenses were issued.

However, a new study commissioned by the Maryland Governor might provide the evidence Maryland needs to defend racial (and gender) preferences in the commercial marijuana market. The 2018 Study still doesn’t gauge race (or gender) discrimination in the marijuana industry itself (likely because of data limitations). Rather, it builds the case for racial (and gender) preferences in the marijuana market on data demonstrating significant racial disparities in related industries. Those disparities had already been documented in a 2017 Disparity Study completed by the author of the 2018 Study.

The key language of the 2018 Study can be found on page 13:

[T]he 2017 Disparity Study provides a strong basis in evidence, consisting of both quantitative and qualitative findings, that supports the use of race- and gender-based measures to remediate discrimination affecting minority- and women-owned businesses in the types of industries relevant to the medical cannabis business.

. . . The 2017 Disparity Study found that, notwithstanding . . . race- and gender-neutral activities [the State had already undertaken to address disparities], . . . disparities continue to exist in both public and private contracting in the same geographic and industry markets in which medical cannabis licensees and independent testing laboratories are likely to operate. These disparities, in general, are large, adverse, and statistically significant. . . . Absent . . . affirmative remedial efforts by the State, I would expect to see evidence in the relevant markets in which the medical cannabis licensees will operate that is consistent with the continued presence of business discrimination.

The 2018 Study is an important document. As noted, it might provide enough evidence to sustain the constitutionality of racial (and gender) preferences in marijuana licensing in Maryland (and perhaps elsewhere).

I have just a few thoughts to share on the 2018 Study.

First, unfortunately, the author of the 2018 Study doesn’t list the specific related industries to which he compared the medical marijuana industry. Instead, he refers to an un-enumerated list of 109 North American Industry Classification System (NAICS) codes that another firm had previously found “relevant to the major activities of he medical cannabis business, 95 (87.2%) [of which] were also included in [his] 2017 Disparity Study.”

Each NAICS code can cover a broad range of activities, and the risk is that some of these may be only marginally relevant to the marijuana industry. For example, I searched the 2017 NAICS database (here) for “marijuana” and it returned only 4 codes. And even these 4 codes included many activities that are only loosely related to growing, processing, testing, or distributing marijuana. Consider, for example, code 111419 (which I presume was included in the 2018 Study). This code refers to “establishments primarily engaged in growing food crops . . . under glass or protective cover.” To be sure, the code includes “Marijuana, grown under cover”; but it also includes the growing of sundry other crops (herbs, fruit, vegetables, etc.) as well.

The evidence marshaled by the 2018 Study is certainly better than nothing. However, I’m not sure a court will be convinced that evidence of discrimination in the growing of fruits or vegetables in general is sufficient to support racial (or gender) preferences in the award of licenses to grow marijuana (or other specific crops). For similar reasons, the 2018 Study’s impact might be limited to Maryland — after all, a court might be reluctant to find that conditions in Maryland necessarily resemble those in Ohio (or elsewhere).

Second, I wonder whether the Maryland licensing board could simply reinstate racial preferences now, without having to wait for legislative (re)authorization. This issue is well beyond the scope of the 2018 Study, but as noted above, the Maryland legislature already authorized such preferences in its original 2014 medical marijuana law. To be sure, the licensing board refused to implement those preferences due to doubts about their constitutionality. However, it’s possible the board could simply change its mind and revise its regulations to re-instate them, based on the information provided by the 2018 Study. (It would need new legislation to institute gender preferences, as the 2014 statute did not appear to authorize those.)

For more on the 2018 Study and related developments, see Fenit Nirappil, Report: Maryland can give minorities a leg-up in entering legal marijuana market, Washington Post, Jan. 17, 2018, and Ian Duncan, State Consultant finds grounds to consider race in awarding medical marijuana licenses, Baltimore Sun, Jan. 17.

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