Maine’s largest medical marijuana dispensary and a New York-based investment firm say they’re prepared to sue the state if there aren’t changes to a group of proposed rules designed to make sure businesses in the adult-use market are owned by Maine residents.
The prospect of a legal challenge could slow down efforts to start commercial sales and efforts by state officials’ to enact long-delayed regulations.
Organizers of the 2016 ballot initiative that legalized the commercial sale of adult-use marijuana often said the voter-approved law was designed to give Mainers a leg-up in the nascent industry, so they included a provision that required all marijuana establishments have a majority ownership by Maine residents.
But now, attempts to enforce that provision in rules drafted by the Office of Marijuana Policy are being challenged by Wellness Connection of Maine, which owns four of the state’s eight medical marijuana dispensaries.
“These rules go well beyond the statute and threaten our ability to serve Maine people and continue to raise the bar regarding public welfare and safety,” says Patricia Rosi, CEO of Wellness Connection.
Rosi told lawmakers on the Legislature’s Veterans and Legal Affairs Committee during a public hearing held Monday that her company can live with the residency requirement in the voter-approved law. But she and Wellness’ corporate attorney, Sara Moppin, say the draft rules designed to enforce the residency requirement could disrupt the company’s ability to garner investment from outside of Maine.
“Wellness needs the ability to contract beyond Maine borders. These threaten to embargo, and even more than the underlying statute, they threaten these interstate relationships, and that’s the reason why our support is conditioned on further changes to the rules,” Moppin says.
Those regulations include provisions that make it difficult for out-of-state companies to subvert the residency requirement by creating complex ownership structures that give the appearance of local ownership, while out-of-state entities actually pull the strings — a technique often referred to as a corporate veil.
Erik Gundersen, director of the Maine Office of Marijuana Policy, has said that the residency provisions were drafted because other states that legalized adult-use marijuana saw big companies push out small, local businesses.
But Dan Walker, a lobbyist representing Wellness Connection, say the agency’s rules could violate the commerce clause in the U.S. Constitution.
“My client, or one of its partners, will be forced to sue the state on the grounds that the residency requirement in the statute is unconstitutional,” he says.
One of Wellness’ partners is Acreage Holdings Inc., a New York investment firm that claims cannabis investments in several states that either have legalized medical or adult-use marijuana.
The publicly-traded firm last year made headlines when former U.S. House Speaker John Boehner and Massachusetts Gov. Bill Weld joined its advisory board and, more recently, for acquiring Canada-based Canopy Growth in a deal that could create the world’s largest marijuana company.
In public comments submitted to the marijuana policy office on the draft rules, Acreage Holdings threatened to sue the state if it doesn’t change the residency requirements.
The policy office has since proposed modifying the regulations, but it’s unclear whether state lawmakers will adopt looser residency requirements.
Independent Rep. Kent Ackley of Monmouth says the adult-use rules should benefit Maine entrepreneurs while not stifling out-of-state investment.
“My hope would be that we can find a solution to that particular concern that would meet both goals,” he says.
But striking that balance will be difficult. There is already fear among some Maine-based cannabis companies that they’ll get shoved out of the adult-use market by big operators.
And, with the Legislature scheduled to adjourn by the middle of the month, lawmakers don’t have a lot of time for finesse if they want to approve rules that could allow commercial sales as early as next spring.
The Legislature’s Veterans and Legal Affairs Committee will continue work on the proposed rules over the next few days.