Certain states where cannabis (or marijuana) is legal have long been getting away with a practice that has been declared unconstitutional in almost all other contexts: giving their residents preferential treatment over nonresidents when issuing permits to operate a cannabis business. Earlier this year, we wrote about the widespread use of residency rules in the cannabis industry and their conflict with the U.S. Constitution’s dormant commerce clause, which has been cited as protecting this country’s commerce against “the evils of ‘economic isolation’ and ‘protectionism.'” City of Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978). At that time, one case challenging residency rules made it to a federal appeals court, and we eagerly awaited the result.
Now, the First Circuit Court of Appeals has spoken. In a 2-1 decision, the court affirmed a lower court’s decision to strike down a Maine law that required officers or directors of a medical cannabis dispensary to be residents of the state. The law was challenged by an out-of-state company, High Street Capital, which sought to acquire a Maine company with three dispensary licenses (Northeast Patients Group). The state argued that the dormant commerce clause should not apply to cannabis regulation because cannabis businesses are federally illegal, and the Controlled Substances Act (CSA) has therefore eradicated the interstate market for cannabis. Rejecting these arguments, the majority observed that, despite cannabis’ federal illegality, there continues to be an (illegal) interstate market for the plant. Moreover, Maine laws explicitly allow out-of-state qualified patients to purchase and possess limited quantities of cannabis in Maine — a requirement that, as the court pointed out, necessarily acknowledges the existence of an interstate market.