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Maine’s largest cannabis company sues to open state’s medical marijuana market to outsiders

The state’s largest cannabis company has asked the court to strike down the residency requirement in Maine’s medical marijuana law, making the same constitutional argument it used to successfully open the state’s recreational market to out-of-state investors earlier this year.

Wellness Connection of Maine and its parent company, High Street Capital Partners of Delaware, filed papers in U.S. District Court in Maine last week to overturn the state’s requirement that medical marijuana dispensaries be owned by Mainers. It is seeking an injunction to prohibit the state from enforcing that part of the law until the dispute is settled in court.

“The self-evident purpose of the residency requirement is to discriminate against non-residents such as Plaintiff High Street, a prospective out-of-state investor, and to exclude them from the economic opportunities available to medical marijuana dispensaries in Maine,” the lawsuit reads.

The state’s medical marijuana market can be a lucrative one, bringing in more than $100 million in 2019, Wellness and High Street note. While not mentioned in the suit, medical marijuana sales have increased this year despite the pandemic, making medical marijuana Maine’s most valuable crop. It is on pace to top $266 million by the end of the year, according to state records.

The plaintiffs claim the state’s residency requirement harms all of Maine’s dispensaries, not just Wellness and its High Street investors. “The residency requirement harms both non-residents and Maine dispensaries … by arbitrarily limiting the universe of potential investors and business partners available to these businesses,” the lawsuit states.

The plaintiffs also want the Maine Department of Administrative and Financial Services to cover all legal fees related to the lawsuit.

A recent change in state law allowed Maine’s medical marijuana dispensaries to convert from nonprofits to for-profit companies as long as the owners lived in Maine. Wellness Connection lobbied for this change and converted shortly after it went into effect. In the lawsuit, it identified its three owners as Ron MacDonald and Kathryn and Timothy Tolford, all of Falmouth.

In this lawsuit, as they did earlier this year, Wellness and High Street argue that it is unconstitutional to prohibit out-of-state residents to obtain the licenses needed to grow, manufacture or sell medical marijuana out of Maine’s seven dispensaries. There used to be eight, but earlier this month Wellness converted one of its four medical dispensaries to an adult-use store.

The courts have struck down residency requirements on constitutional grounds before, but never in the cannabis industry, which is still outlawed by federal law. In March, a Wellness lawsuit prompted the state to agree that it would not enforce the residency requirement for recreational applicants, but that agreement didn’t address the state medical marijuana law.

Other legalized states such as Colorado and Oregon have abandoned resident-only licensing mandates in cannabis for policy reasons, not legal ones, after concluding the policy had cut their businesses off from the out-of-state investments needed to succeed. Alaska continues to ban non-residents from getting a marijuana business license, without legal challenge.

Local licensing preference has been at the heart of Maine’s marijuana laws since the medical dispensary system was created in 2011 and recreational marijuana was approved by voters in 2016. Marijuana advocates used the residents-only language to gain political support for legalization, characterizing it as a jobs generator.

Wellness used its constitutional argument to persuade Portland to give out-of-state applicants equal opportunity to land one of its limited number of marijuana retail licenses. In response, the City Council voted to give licenses to all qualified first-round applicants. On Election Day, city voters decided to eliminate the retail license cap altogether.

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