A court case winding its way through the federal appeals process could have serious consequences for the U.S. cannabis industry—and could pave the way for Big Weed to overturn what little authority governments have to steer lucrative marijuana business opportunities toward people harmed most by the war on drugs.
Along with jobs and tax revenue, one of marijuana legalization’s central promises was restorative. At least some of the legal weed industry’s estimated $17.5 billlion to $20 billion to $50 billion worth of economic opportunity (a figure that varies depending on who you ask, but is always in the many of billions) would go to people with cannabis arrest records or living in areas with high arrest rates.
But figuring out how to fulfill this promise has proven difficult. One method, tried by local governments in Maine as well as Georgia, was to impose a residency requirement. Under Maine’s initial legalization laws, both medical and adult-use cannabis business licenses could go only to permit-holders who had lived in the state for a certain amount of time.
Though Maine is a relatively small state with a relatively young adult-use cannabis industry—voters legalized adult-use cannabis in 2016, but licenses were not awarded until 2020—residency requirements nevertheless severely limited the ability of out-of-state companies to compete.
Residency laws are bad for Big Weed, in other words, and Big Weed did not stand pat. As the Portland Press Herald pointed out, Wellness Connection of Maine, described as the “state’s largest cannabis company,” sued to overturn the rule. And last year, a judge ruled in the company’s favor.
According to records, Wellness Connection’s parent company is High Street Capital Partners. In 2018, High Street Capital Partners changed its company name to Acreage Holdings.
And Acreage Holdings, a publicly traded company whose executives are New York financiers, according to records, but is traded on Canadian exchanges, is one of the largest marijuana companies in the United States.
Last year, a lower court sided with the company and tossed out the residency requirement for adult-use cannabis licenses. A federal judge in the District of Maine ruled that residency requirements violate the U.S. Constitution’s dormant commerce clause, which reserves the power to regulate interstate commerce—which, even though interstate cannabis is illegal, extends to marijuana—to the federal government.
Out-of-state companies owning Maine cannabis business licenses appears to be a settled question. However, both the company and Maine state regulators have appealed the ruling’s application to medical-cannabis permit holders to the U.S. First Circuit Court of Appeals.
Who would benefit if residency requirements are ruled unconstitutional by a federal appeals court? Big Weed certainly has a major stake in the game.
Acreage Holdings did not respond to a request for comment sent via email on Friday. But if the company and its subsidiaries continues to be successful in challenging the residency requirement, it would be a win for Big Weed across the United States.
It would also be a setback for local governments, regulators, and advocates for “social equity,” the concept of guaranteeing that cannabis legalization does mean economic opportunity only for mostly white and male venture capitalists and entrepreneurs while people of color and others who have worked in the underground cannabis economy for years are shut out.
“It’s the best laid plans of mice and men,” said David C. Holland, a New York cannabis attorney who is co-founder of the New York State Cannabis Industry Association. A residency requirement “is a great idea, but somewhere down the line a court is going to say it does violate the dormant commerce clause.”
Arguments in the appeal have not yet been scheduled, but already, cannabis businesses in other states are using the ruling as precedent to challenge similar residency requirements.
In August, a company called Georgia Atlas, which according to court records is affiliated with a similarly named company based in Illinois, sued to overturn the Georgia HOPE Act’s residency requirement.
According to a brief filed last month, the litigants cited both the situation in Maine as well as a brief effort by the city of Detroit to impose residency requirements there.
Acreage achieved a level of notoriety in 2018 when the company engaged John Boehner, the former Republican Speaker of the House of Representatives who had consistently opposed cannabis reform while one of the most powerful lawmakers in Washington, as a board member and spokesman.
But Acreage would achieve even more notoriety if the company and its subsidiaries succeed in completely overturning the Maine residency requirements.
In an interview, Holland suggested states might be able to find other ways to guarantee business opportunities to locals, including minorities harmed by marijuana arrests. At the same time, Big Weed may be able to find ways around those rules, too—and as this case demonstrates, Big Weed certainly wants to do so.
And if governments can’t reserve cannabis licenses to locals instead of out-of-state companies, the list of methods they do have to give small entrepreneurs a head start—and fulfill one of marijuana legalization’s promises—gets even smaller.