In 2016, Maine voters opted to legalize adult-use marijuana in their state (medical marijuana has been legal since 1999). After spending a few years fleshing out the details and implementing the regulatory structure, state officials recently began accepting applications for licenses for adult-use marijuana businesses. Just last month, Maine issued 31 conditional licenses.
As part of Maine’s licensing scheme, the state severely inhibits the ability of non-residents to obtain licenses. Specifically, the law requires the majority of the ownership interest and all of the officers, directors, managers, and general partners of business applicants to be held by Maine residents, while individual applicants must be Maine residents. A resident is defined in general as a natural person who has resided in Maine for the past four years.
The residency requirement is now being challenged in federal court as discriminatory and unconstitutional under the Dormant Commerce Clause. The complaint filed on March 20, 2020, by businesses affected by the residency requirement, alleges that the purpose for the requirement is simply to benefit Maine residents over non-residents.
As cited in the complaint, the Dormant Commerce Clause generally prohibits laws that on their face provide for “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Oregon Waste Sys., Inc. v. Dep’t of Envtl. Quality of State of Or., 511 U.S. 93, 99 (1994). Such “protectionist” laws are subject to the strictest scrutiny and are acceptable only in the rare case that they are narrowly tailored to achieve a legitimate local purpose. Int’l Dairy Foods Ass’n v. Boggs, 622 F.3d 628, 644-45 (6th Cir. 2010).
Similar to Maine’s licensing scheme, adult-use marijuana laws in Illinois and Michigan contain restrictions on the ability of non-residents to obtain licenses. In Illinois, adult-use licenses have limited availability and are awarded on a point system. Under the statutory selection criteria, 5 points (out of 250) are available to an applicant that is “51% or more owned and controlled by an Illinois resident, who can prove residency in each of the past 5 years.” Michigan’s adult-use law restricts non-residents from obtaining a Class A marihuana grower or marihuana microbusiness license during the first two years after the state begins accepting applications.
Although the Illinois and Michigan residency restrictions may not seem as onerous as Maine’s, they arguably present the same problems under the Dormant Commerce Clause, which is that they could be considered protectionist by benefiting in-state residents to the detriment of out-of-state residents. That said, it is unclear how a federal court will approach the Dormant Commerce Clause issue given the illegality of marijuana under federal law.
While federal courts routinely dismiss claims by would-be marijuana companies on the basis of federal illegality, state courts generally will not. And in Michigan, outside of the cannabis realm, courts have held municipal restrictions on non-residents and preferences for residents unconstitutional (under far more lenient scrutiny) for violating the Equal Protection Clause of Michigan’s Constitution—which is modeled after the Equal Protection Clause of the United States Constitution. See, e.g., Cook Coffee Co. v. Flushing, 267 Mich. 131 (1934) (holding that a city ordinance that conditioned the issuance of a business license on an applicant being a city resident for at least 3 months lacked a reasonable relation to a legitimate government interest and violated equal protection); see also Mich. Att’y Gen. Op. No. 4830 (Oct. 4, 1974) (stating that durational residency requirements for commercial licenses are invalid if the requirement “bears no reasonable relationship to the purpose of the statute.”).
While challenges to state-level restrictions may face real headwinds, challenges to local ordinances that unduly favor local residents and burden or prohibit licensure of non-residents are far more likely to succeed. As we see more Michigan communities attempt local protectionism, the challenge to Maine’s residency requirement demonstrates that industry participants are becoming more willing to bring suit to contest the legality of protectionist measures. Michigan municipalities should take note.
We will continue to follow these issues as the Maine case progresses. Stay tuned to Dykema’s Cannabis Law Blog for further updates.