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Locals Sue, Seeking to Force Maine to Re-instate Residency Requirement for Marijuana Licenses

Posted by on Saturday, June 27, 2020 in News, Updates.

As I blogged about earlier, the state of Maine recently abandoned a residency requirement for obtaining commercial adult use marijuana licenses. See Company Sues Maine for Discriminating Against Non-residents When Licensing Marijuana Businesses and UPDATE: Maine Drops Residency Requirement for Adult-Use Commercial Licenses, Moots Legal Challenge. Residency had been expressly required by the state’s adult use marijuana law (the 2018 Marijuana Legalization Act), but the state’s licensing agency dropped the requirement after the state attorney general advised that the requirement probably violated the dormant commerce clause. (The issue arose when the licensing agency was sued by an out-of-state marijuana company, Wellness Connection, back in March.)

Now some residents of Maine want the state licensing agency (the Maine Department of Administrative and Financial Services) to reinstate the residency requirement. A group calling itself “United Cannabis Patients and Caregivers of Maine” and two individual Maine residents have sued the state licensing agency, demanding that it enforce and defend the residency requirement. I have posted the full complaint (it’s only 10 pages long, including one of the exhibits), which was filed in state superior court:

United Cannabis Patients and Caregivers v. Maine Department of Administrative and Financial Services complaint

I’ll excerpt some key language from the complaint, then I’ll briefly explain why I think the suit is likely to fail.

The complaint starts with the obligatory description of the plaintiffs and their interest in bringing the lawsuit:

15. Plaintiff United Cannabis’s members, including Plaintiff Dawson Julia, operate licensed medical marijuana storefronts, as provided by the Maine Medical Use of Marijuana Act, as caregivers involved with the cultivation and sale of medical marijuana.

16. Licensure and operation of new adult use dispensaries will create new economic competition that affects licensed medical marijuana caregivers’ business operations, including the businesses of Plaintiff United Cannabis’s members and Plaintiff Dawson Julia.

17. Plaintiff Christian Roney has applied for an adult use medical marijuana license in compliance with all requirements of.the [Marijuana Legalization] Act, including the Residency Requirement.

18. Plaintiff Roney has developed business plans in order to obtain the necessary grow and sales licenses from the Department to operate an adult use marijuana establishment as provided by the Act.

19.Plaintiffs have all invested in their Maine marijuana businesses, and developed and tailored their anticipated business operations in reliance on the express language of the Department’s Rules and the Act, including the Residency Requirement.

20. The Residency Requirement provides an economic advantage to plaintiffs by limiting the eligibility for adult use marijuana businesses to Maine residents.

21. Plaintiffs have reasonably relied upon the economic advantage provided by the Residency Requirement in the Act and the Department’s Rules.

22. Plaintiffs have an economic interest in the Department’s enforcement of the Residency Requirement when the Department exercises its exclusive statutory authority to grant or deny applications for licensure as marijuana establishments under the Act.

23. Issuance of an adult use marijuana license to any individual or entity that cannot comply with alt requirements of the Act injures Plaintiffs by wrongfully increasing economic competition to Plaintiffs’ business operations that the Maine Legislature expressly excluded from Maine’s marijuana marketplace.

The complaint then notes that the defendant licensing agency has publicly acknowledged that it “‘will not be enforcing the Residency Requirement or any agency rules, regulations or guidance which enforce or implement the Residency Requirement.'” (Paragraph 27, quoting the Stipulation of Dismissal of Wellness Connection’s lawsuit against the state.)  It also notes that no court has yet ruled that the Residency Requirement is unconstitutional, and the Maine legislature has not amended the Marijuana Legalization Act to remove the requirement.

The complaint alleges that the licensing agency’s decision to abandon the Residency Requirement thus “violates the Act and its statutory mandate to enforce the provisions of the Act.” It requests that the court order the agency to re-instate the requirement — i.e., to refuse to issue any cannabis licenses to non-residents (like Wellness Connection).

Ultimately, this is going to be a very tough lawsuit for the Plaintiffs to win. For one thing, they have to convince the state court that the state licensing agency exceeded its authority when it dropped the Residency Requirement. That’s no easy task. Generally, courts give agencies a lot of leeway to decide how to implement statutes they are charged with enforcing. Courts are hesitant to force an agency to take  action against one private party at the request of another private party. For example, no private citizen could successfully sue the federal Department of Justice to force it to bring civil or criminal enforcement actions against state-licensed marijuana distributors. To be sure, some states might be more receptive to such requests, and Plaintiffs are not asking for the licensing agency to punish anyone — they’re just asking the agency to consider residency before it awards commercial marijuana licenses. Still, this reluctance to let private Plaintiffs direct agency action is one obstacle the Plaintiffs need to overcome.

Second, the Plaintiffs have to establish standing to sue the licensing agency. Among other things, standing requires that the Plaintiffs suffered a direct and concrete injury because of the agency’s decision to abandon the Residency Requirement. The allegations the Plaintiffs make in the complaint — that they will face greater competition and thus lose money if the agency licenses non-resident companies (perhaps, because they are better financed) — are probably enough to survive a motion to dismiss. However, the Plaintiffs will likely have to back up these claims if the lawsuit moves forward, and there’s no guarantee they will be able to demonstrate an injury from the agency’s action. For example, if the agency demonstrates that the Plaintiffs failed to meet some other licensing criteria or would have gone out of business quickly anyway, then the Plaintiffs would not have suffered a cognizable injury from the agency’s decision to award some licenses to non-residents.

Third, the state might be able to convince the court that the Residency Requirement really is doomed. True, as the Plaintiffs point out, no court has yet found the requirement to be unlawful. However, as I discuss in my original post on the Wellness Connection lawsuit, linked above, there is a good chance that a court would hold that the Residency Requirement violates the dormant commerce clause. So the court in this case may refuse to order the licensing agency to do something unlawful — namely, to discriminate against non-residents.

Let me quickly point out that the Maine suit is similar to one brought in California by a group of small California marijuana suppliers. Those small suppliers sued the California marijuana licensing agency for abandoning limitations on cultivator size that were supposed to be imposed under Proposition 64. However, the group later abandoned its suit. See Cases to Watch: California Growers Association vs. California Department of Food and Agriculture .


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