When states decide to legalize cannabis in some way, they must consider whether only state residents will be allowed to obtain cannabis business licenses. In 2016, Massachusetts and Maine became the first two New England states to legalize adult use cannabis. While adult use is legal in Vermont, the state has yet to pass legislation that establishes a system for retailing recreational cannabis.Massachusetts did not establish a residency requirement, so those that own cannabis businesses in Massachusetts do not have to be Massachusetts citizens, as long as their businesses are registered in the state as a domestic business corporation or another domestic business entity. Conversely, Maine established a residency requirement when it legalized adult use cannabis, but, in May 2020, the state announced that it would stop enforcing this requirement.
According to Foley Hoag’s “Cannabis and the Law” blog, “[Maine]’s decision to drop the residency requirement is big news for marijuana companies already in Maine and for companies and investors hoping to enter the Maine marketplace. For companies already in Maine, the announcement means much-needed access to out-of-state capital. For out-of-state companies and investors, the announcement means increased access to a budding marketplace.”However, according to Vanderbilt’s “Marijuana Law, Policy, and Authority” blog, United Cannabis Patients and Caregivers of Maine and two individual Maine residents sued their state’s licensing agency, arguing that failing to enforce the residency requirement violates Maine’s 2018 Marijuana Legalization Act, which includes a residency requirement to obtain a cannabis business license.
When determining whether Maine will ultimately benefit from cutting its residency requirement, we must establish the residency requirement’s pros and cons. Harris Bricken’s “Canna Law Blog” notes that a residency requirement can be negative since it forces cannabis business owners to consider a much smaller pool of investors when attempting to raise capital and stifles competition and could ultimately reduce options available to consumers.On the other hand, “Canna Law Blog” notes that a residency requirement can be positive in that it keeps profits from cannabis businesses within the local community, protects small businesses by prohibiting out-of-state corporations, and better assures that businesses will comply with the Cole Memo (a licensee has no need to transport cannabis across state lines when she lives in the same state in which she runs her business).
Since Massachusetts is the only other state in New England to permit the recreational sale of cannabis, it is the best state to use as a benchmark when considering the necessity of Maine’s now unenforceable residency requirement. The following list is comprised of licensing aspects that are heavily impacted by residency requirements:
- Cultivation Fees:
- Massachusetts requires a $20,000 annual fee for indoor cultivator licensees and a $10,000 annual fee for outdoor cultivator licensees harvesting up to 20,00 square feet of canopy.
- Maine requires a $30,000 annual fee for indoor cultivator licensees and a $15,000 annual fee for outdoor cultivator licensees harvesting up to 20,00 square feet of canopy.
- Conclusion for Maine: Those attempting to start a cultivation business in Maine must pay more in annual fees than those attempting to do so in Massachusetts. With higher annual fees in Maine, prospective cultivators there will be less likely to attract investors. Maine cultivators would benefit from being able to contact out of state investors because doing so would expand their potential investor pool from an already small Maine population, decreased by high annual fees, to interested investors from all over the country.
- Number of Licenses per Entity
- Massachusetts prohibits any one person or entity from having more than three licenses in a particular stage of the seed to sale process.
- Maine prohibits any one person or entity from having more than three cultivation facility licenses or multiple cultivation facility licenses with a combined total licensed amount of plant canopy exceeding 30,000 square feet (unless the cultivator has permission from the state licensing authority to have over 30,000 square feet of canopy). Also, Maine prohibits testing facility licensees from having an interest in a registered dispensary, cultivation facility, products manufacturing facility, or marijuana store, or vice versa. Finally, Maine prohibits a cannabis retail store licensee from having a financial interest in more than 4 marijuana store licenses.
- Conclusion for Maine: While Massachusetts seeks to prevent one entity from monopolizing any of the stages in the seed to sale process, Maine only seeks to prevent one entity from monopolizing the cultivation stage and the retail stage. Consequently, one entity can apply for an unlimited number of processing licenses or testing licenses in Maine. Businesses must raise a significant amount of capital to vertically integrate, but Maine locals who wish to take advantage of their state’s licensing limits do not need as much capital to dominate the processing market or the testing market. Thus, Maine’s residency requirement would benefit local processors and testers because they would enjoy the protections that the residency requirement gives them and have less of a need to solicit financial help from out of state investors.
- Environmental Considerations
- Massachusetts requires that cannabis businesses identify potential energy use reduction opportunities (such as natural lighting and energy efficiency measures), consider opportunities for renewable energy generation (such as putting together building plans showing where energy generators could be placed at a site) and an explanation of why the identified opportunities were not pursued (if applicable), strategize to reduce electric demand (such as implementing lighting schedules, active load management, and energy storage), and engage with energy efficiency programs offered by the state.
- Maine has no environmental requirements for those applying for a cannabis business license.
- Conclusion for Maine: Rapid Finance, a small business financing group, explains, “Although going green is not a new concept, much of the technology associated with it is fairly new and certainly more expensive than conventional technology. This means that steps to become more environmentally friendly can be costly initially . . . Often, choosing green products over conventional ones will result in more money being spent. This translates straight back to the consumer as the prices of products or services supplied by the organization are increased.”Since running a business in a consistently sustainable manner can become expensive, local cannabis business owners in Maine would need more capital and would need a larger pool of potential investors, but this is not the case. Therefore, Maine’s residency requirement would benefit local cannabis business owners because they would enjoy the protections that the residency requirement gives them and have less of a need to solicit financial help from out of state investors.
After comparing Massachusetts’s and Maine’s licensing regulations, unless you are a Mainer seeking a cultivation license, Maine’s residency requirement seems to benefit potential Maine licensees more than it hinders them. Overall, the residency requirement stops profits from leaving the local community and safeguards small businesses by disallowing out-of-state, large companies. Now that the residency requirement is being repealed, however, hopefully Mainers will find ways to adequately compete with the out of state corporations that are soon to enter their state.