Market Overview

Legal Battles Over Maine Residency Rule Ripple Through Cannabis Marketplace

Legal Battles Over Maine Residency Rule Ripple Through Cannabis Marketplace

Maine's adult-use marketplace continues to take shape after being approved by voters with a 2016 ballot question. 

The most recent development came June 2, when businesses sued the state to enforce its residency rule, requiring adult-use business license holders to have at least four years of in-state residency.

The lawsuit stems from a May decision that dropped the residency rule. In a release explaining the judgment, the state Office of Marijuana Policy said that it determined that it was unlikely to win a lawsuit against the dispensary Wellness Connection of Maine.

In March, Wellness of Maine sued the state on the grounds that the residency rule was unconstitutional. The company holds four of the eight licenses in the state.

Wellness Connection of Maine is affiliated with New York State-based Acreage Holdings Inc. (OTCMKTS: ACRGF) through a managed services agreement. Acreage Holdings, which is not a party to the lawsuit, declined comment on this story. 

Wellness Connection of Maine did not respond to requests for comment.

Kara Thorvaldsen is a partner at the firm Wilson Elser in Boston. The New England-based commercial litigator said she has a "certain amount of sympathy" for local operators.

Such small operators would face "stiff competition" from MSOs if allowed into the market, she said. 

The attorney discussed other possible side effects of the ruling.

"Allowing out of state interests to come into the market is also highly likely to put a damper on any attempt to foster social equity in the market."

Kyle Hadyniak, a spokesperson for Maine's Department of Administrative and Financial Services, told Benzinga that the department will not comment on ongoing lawsuits.

Thorvaldsen said she believes that the law will be upheld in time, citing the current intrastate market.

"Because it is purely intrastate commerce, I do not believe the dormant Commerce Clause of the US Constitution will preclude enforcement of this type of residency requirement, which does admittedly discriminate against out of state residents," she said. 

"I also do not believe that a federal court would be willing to rule on the question of whether a law barring out of state residents from participating in an industry that is prohibited at the federal level is constitutional."

Ongoing Maine Marketplace Hurdles

The ongoing residency dispute highlights the continuous legislative back-and-forth throughout the market's maturation.

In 2018, then-Gov. Paul LePage, an ardent anti-cannabis politician, vetoed a bill that established two markets to serve medical and adult use consumers. LePage criticized lawmakers for approving two regulatory structures and tax rates.

LePage's efforts did not thwart the rollout of the market. As lawmaker obstruction appeared to subside, the program's launch was halted once again by the COVID-19 pandemic.

In May, the state further put the market's opening in flux when it announced that sales would not begin until regulators are confident that enough dispensaries could open.

Related Links:

Report: Maine Marijuana Revenue Expected To Begin Flowing In March

RegTalk: Maine's Adult Use Regulations Limit Industry's Access To Capital


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