Maine Cannabis Company Challenges City’s Residency Rules

The plaintiffs are calling the preferential treatment to residents discriminatory.
Maine Cannabis Company Challenges City's Residency Rules
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Maine’s largest chain of medical marijuana dispensaries has filed a lawsuit against the City of Portland over an ordinance governing licenses for recreational cannabis businesses that gives preferential treatment to state residents. The suit was filed in federal court on June 15 by Wellness Connection of Maine, which plans to apply for a license to sell cannabis for adult-use at its medical marijuana dispensary in the state’s capital city.

Last month, the Portland City Council approved an ordinance to regulate recreational marijuana businesses. The ordinance puts a cap of 20 licenses for adult-use cannabis retailers in the city and includes a scoring system to award licenses should more than that number of applications be submitted. Applicants can receive up to 34 points in a total of eight categories of criteria the city council has deemed favorable, such as having at least $150,000 in liquid assets. 

Two of those criteria award points to local applicants, including five points for those who have been residents of Maine for at least four years and another worth four points for previous holders of a state business license. Matt Warner, an attorney representing Wellness Connection, said that the provisions violate the company’s constitutional right to interstate commerce. Wellness Connection is owned by Delaware-based High Street Capital Partners LLC.

“As a matter of constitutional law, states and cities can’t discriminate against citizens of other states based purely on residency,” said Warner.  

“More than 25% of the points awarded through Portland’s competitive licensing process are based on residency, so we’re automatically disqualified for those points, based purely on our owner being from Delaware,” he added.

In its court filing, Wellness Connection wrote that “Portland’s points matrix explicitly discriminates against residents of other states.”

“Limiting the opportunities for (Wellness Connection) to create a brand, build a reputation, and establish customer loyalty in Portland at the adult-use market’s inception would harm them in ways that cannot be reduced to a monetary damages award,” the company alleges in the lawsuit.

State Abandoned Similar Residency Requirement

Portland’s recreational marijuana ordinance was passed just two weeks after regulators with the state’s Office of Marijuana Policy abandoned a four-year residency requirement for licenses, citing a threatened suit on constitutional grounds by Wellness Connection. Portland city staff recommended an amendment to the ordinance that would have removed the residency provisions, but the city council voted against the change by a vote of 5 to 3. Members of the city council said that they wanted to support local businesses and that the ordinance was legal because it only showed a preference to locals and did not enact an outright ban on out-of-state applicants. 

“What we’ve done is again, a scoring system that really functions as a tie-breaker only in the event that we get more applicants than licenses, which especially in the midst of a pandemic, no one knows if that will happen,” said City Councilor Justin Costa at the time.

“What we’ve done is simply give some scoring merit to that qualification,” he explained. “It’s not a requirement. You can still be absolutely licensed no matter your ownership structure or where you’re based.”

But Warner said the ordinance would not pass constitutional muster.

“It’s a basic tenant of the American Constitution that states have to treat each other’s citizens equally,” he said. “This is called the dormant commerce clause and it’s been part of the U.S. Supreme Court jurisprudence for more than 200 years now.”

Wellness Connection has asked the court for a temporary injunction that would prevent Portland from issuing any retail cannabis licenses under the ordinance until the lawsuit has been resolved. Jessica Grondin, a spokeswoman for the city, said that retail cannabis license applications would not be reviewed until after August 1, a timeframe that would not be affected by the suit.

“We were expecting this lawsuit and we are prepared to defend,” she said.

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  1. Wellness Connection was granted 4 out of the 8 existing Medical Marijuana Dispensary licenses that have existed for the last 12 plus years in our state . By being allowed to gain the vast majority of the market share in Maine , (especially in Portland and because Portland has the largest market share to offer) Wellness Connection has succeeded in establishing an unfair advantage over all other newcomers. Wellness connection gained their four dispensaries because the State created unfair barriers to entry based on wealth and the ability to pay exorbitant salaries and rents. Citizens of Maine have invested life savings to enter this market and should not be stonewalled by large powerful corporations.
    The real analysis that should be developed legally is one of monopoly and antitrust doctrines that are clearly being violated. Federal authorities are aware of collusion among large corporations throughout the US that are attempting to squeeze small businesses out of the market. Wellness Connection has used its monopoly to establish large marijuana grow operations throughout the State which small business owners cannot compete with. These grows are already existing and supplying the monopoly market share that Wellness Connection has enjoyed for too long a period of time including the last four years since the citizens of Maine have voted to legalize the recreational use of Marijuana.
    This dilemma has become an issue that should be investigated by the State’s Attorney General’s office. The unfair market share already held by Wellness Connection is clearly in violation of antitrust regulation and would be disastrous to all other small businesses trying to enter this market. If Wellness Connection were to succeed in gaining licensure, severe restrictions should be placed on their existing facilities. Also, their licenses to operate their four medical marijuana facilities throughout the state should be revoked as violative of antitrust safeguard guarantees.

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