Until now, many states have treated participants within their legal cannabis industries as second-class citizens, depriving these businesses of certain constitutional protections that apply in any other marketplace. Conventional wisdom said that cannabis businesses were either so grateful to be operating in the light of day, in a legal marketplace, that they would take these abuses without a fight, or that they were too stoned to know or care what to do about it. It turns out the conventional wisdom was wrong because, now, we are at a pivotal moment where the whole landscape seems poised to change. Let me explain.
The most obvious example of states overstepping when it comes to cannabis regulations are the residency requirements popping up around the country. By residency requirements, I mean those laws that exclude non-residents from fully participating in a state’s cannabis market. It’s black letter law, as we lawyers like to call things that are obvious and incontrovertible, that residency requirements aren’t allowed in ‘normal’ industries because the dormant Commerce Clause of the federal Constitution prohibits such protectionism. As recently as last year, for example, the U.S. Supreme Court struck down a Tennessee law that limited Tennessee liquor licenses to those who had been residents of the state for at least two years. This decision, called Tennessee Wine & Spirits Retailers Ass’n v. Thomas, made it very clear that state laws are unconstitutional if their “predominant effect” is “simply to protect” citizens of that state “from out-of-state competition.”
Residency requirements in the cannabis industry are clearly intended to protect residents from out-of-state competition and, under the traditional analysis, are unconstitutional. But they are widespread and commonplace. A few examples include Oklahoma which prohibits non-residents from owning more than 25 percent of a licensed medical marijuana business; Washington which has a six-month residency requirement for its adult use program; and Portland, Maine (close to home, for me) which recently established licensing criteria that favors Maine residents over others.
There’s no good explanation for the widespread disregard for the Constitution in cannabis regulation, except perhaps that many state and local regulators have assumed that the Controlled Substances Act and its federal prohibition on cannabis somehow immunizes the industry from the usual constitutional safeguards. Indeed, many a commentator has shared this view that the Constitution, or at least parts of the Constitution including the dormant Commerce Clause, do not apply to state-legal cannabis markets. There are many problems with this viewpoint, starting with the fact that, at least in certain contexts, its obviously wrong. A state could not exclude people of a certain race, religion or nationality from owning cannabis businesses, for example. Nor could a state revoke someone’s right to free speech merely because that person was a medical cannabis patient or caregiver. These constitutional safeguards clearly remain intact, unbothered by the Controlled Substances Act .
Once we establish that the Constitution applies in all the obvious ways (free speech, equal protection of the laws, etc.) to the cannabis industry, we have to question the conventional wisdom that regulators can take certain liberties with cannabis, like residency requirements, that the Constitution would normally prohibit. This reality is that this industry is not so different than many other highly regulated trades. Federal illegality is the obvious difference, but there’s no well-established or even well-articulated reason that the nominal federal prohibition on cannabis would strip the industry of its constitutional rights.
But there’s another reason, beyond the academics of whether and when the Constitution applies, that regulators have been so bold when it comes to cannabis. The industry, until recently, hasn’t really fought back and constitutional rights only matter when they’re enforced. Regulators, perhaps not illogically, have regulated state-legal cannabis markets however they wish, Constitutional concerns aside, because no one has meaningfully challenged these laws. Recently, that has changed.
Sticking with the example of residency requirements, cannabis operators are fighting back in a big way. This year lawsuits have been filed against the State of Maine, the City of Portland, Maine, the State of Oklahoma, and the State of Washington, all challenging one type of residency requirement or another. (Disclaimer here: I have been involved as a lawyer for plaintiffs in three of these lawsuits against Maine, Portland and Oklahoma.) The lawsuit against the State of Maine ended quickly after Maine decided that, rather than litigating, it would stop enforcing the state’s two-year residency requirement for its adult use market. This was on the advice of the state’s Attorney General that the residency requirement was “subject to significant constitutional challenges and is not likely to withstand such challenges.”
What will the practical effect of these lawsuits be on the industry as a whole? Of course that depends in part on how they turn out, but my intuition is that, regardless, regulators will begin to think twice when crafting cannabis laws in their jurisdictions. As the industry shows that it is willing and ready to stick up for itself, and not afraid to ask the courts for help as needed, lawmakers will take a more thoughtful approach, balancing the rights of the industry against the other important policy goals in every state-legal market.
This article has focused on residency requirements, largely because that’s where the action is at the moment. But the industry is beginning to challenge other types of state regulations more often, and more successfully as well, including laws that favor certain classes of businesses or business-owners over others, and laws that are overly restrictive of advertising or advocacy by cannabis operators. The same logic applies regardless of the precise legal right or Constitutional protection we’re talking about – an industry that is more willing to invoke these rights and protections is going to be treated more fairly by lawmakers.
The practical takeaway here, I hope, is that cannabis operators should not be afraid to invoke federal law and the federal Constitution when appropriate, to ensure they are being treated legally and fairly. As the industry trends toward broader legalization, this is a necessary step along the way.