Will SCOTUS Strike Down Cannabis Social Equity Programs?

On August 17, 2022, the U.S. Court of Appeals 1st Circuit issued a new ruling regarding medical marijuana. Maine’s law that prohibits non-residents from owning a medical marijuana business within the state violates the U.S. Constitution, according to the court.

This decision comes after the 2019 Supreme Court case, Tennessee Wine and Spirits Retailers Assn. v. Thomas. In this case, SCOTUS concluded that states could not require a person to live within a state for two before obtaining a liquor license. The Supreme Court noted that such a requirement would violate the Constitution’s Interstate Commerce Clause by imposing trade barriers between the states.

These two decisions could open the door to broader interstate cannabis commerce. Sellers can use the same rationale, invalidating the residency restrictions that relate to state-level bans on marijuana imports and exports. Banning imports and exports of medical cannabis between consenting states could be construed as protectionist and unconstitutional. Without a way to distinguish licensing preferences from those bans on imports and exports, there is a real legal issue here.

Our lawyers believe that this decision could create sweeping complications for social equity programs.

Cannabis and Social Equity Programs

Social equity provisions, such as those in New York, are designed to help communities disproportionately impacted by the enforcement of cannabis prohibition. These programs provide licensing prioritization to these applicants, and they prevent out-of-state people from competing, keeping the market for in-state residents only.

How the Court’s Decision Can Affect These Programs

Given the 1st Circuit’s ruling, social equity provisions could be unconstitutional because of the Constitution’s Dormant Commerce Clause (DCC).

The DCC is a legal doctrine that bars states from enacting policies that intentionally discriminate against goods or economic actors from other states. This doctrine, supported by economic theory, holds that free trade enlarges markets and allows more efficient production. It also encourages specialization and allows consumers to access a wide array of products.

In the 1st Circuit’s 2-to-1 decision, the court affirmed that the DCC does, in fact, apply to the marijuana industry, regardless of ongoing federal cannabis prohibition. Therefore, the DCC broadly prevents states from enforcing laws that unduly restrict interstate commerce. Only Congress can approve this action in specific situations. Maine’s “residency requirement” for medical marijuana licensing is an example of excessive regulation, according to the panel’s majority.

What Happens Next?

Our firm believes there is a reason for caution about this decision and its impact on social equity marijuana programs. If Maine’s residency requirement violates the Dormant Commerce Clause as unconstitutional, the same could be said of state laws that prioritize licensing for social equity applicants. These applicants hail from communities disproportionately impacted by cannabis prohibition.

Hamilton Clarke’s takeaway, from an equity perspective, is this: Everyone concerned about fair markets should understand the 1st Circuit case and be prepared to pivot their licensing game plan. It is the best way to counter legal confusion and disorder will bigger companies with more resources.

Our team is keeping a close watch on any changes to cannabis law. If you believe you’ve been mistreated as a business owner, you can reach out for a free consultation. Our number is (646) 603-0522, and you can reach us online.

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