April 06, 2020
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Maine marijuana company sues state over residency requirement

Susan Montoya Bryan | AP
Susan Montoya Bryan | AP
This April 6, 2018, file photo shows the leaves of a marijuana plant inside Ultra Health's cultivation greenhouse in Bernalillo, New Mexico.

Wellness Connection filed a lawsuit in federal court Friday against the Maine department that oversees marijuana policy, claiming that residency restrictions on owners of recreational cannabis businesses violate the U.S. Constitution.

The Auburn-based company said the residency requirement is delaying its entry into the adult-use market because it needs more capital investment, which it said is more available outside of Maine. It also said the requirement may stymie job and economic growth for recreational marijuana businesses and for the entire Maine economy.

“We as an industry can’t work within the confines of the residency requirement,” said Matthew Warner, an attorney at Preti Flaherty who is representing Wellness Connection, which is 49 percent owned by a Delaware investor. “We still don’t have the money we need to execute our business plan.”

He said that because marijuana is illegal on a federal level, banks cannot provide loans. And Maine doesn’t have large investors, so the company has had to search for money out of state.

The lawsuit seeks a preliminary injunction that would keep the Maine Department of Administrative and Financial Services, whose Office of Marijuana Policy oversees both medical and marijuana businesses in the state, from enforcing the residency requirement in the recreational marijuana law.

The law requires that a majority of the ownership in the company be held by persons or businesses whose owners are Maine residents. It also states that every officer, director, manager and general partner of the marijuana business must be a Maine resident.

The Department of Administrative and Financial Services declined to comment on pending litigation, said spokesperson Kyle Hadyniak.

The lawsuit was filed by Wellness Connection and Wellness and Pain Management Connection of Delaware. Wellness and Pain Management Connection has been an investor in Wellness Connection. The defendants are the Department of Administrative and Financial Services and Kirsten Figueroa, in her official capacity as commissioner of the department.

While the federal court has suspended many activities until May 1 because of the coronavirus outbreak, it will hear cases it deems to be emergencies.

“This emergency motion asks for preliminary injunctive relief, which means we need to show irreparable harm that cannot be paid back in a fixed amount,” Warner said.

Wellness Connection, which plans to sell recreational marijuana, is owned 51 percent by Wellness Connection of Maine, a medical marijuana business that runs four of the eight licensed medical marijuana dispensaries in the state. High Street Capital Partners of Delaware owns 49 percent of Wellness Connection.

Wellness Connection said it has applied to Maine’s Office of Marijuana Policy for cultivation, manufacturing and retail adult-use marijuana licenses. It was not among the 31 companies recently issued conditional licenses by the office, but Warner said it does qualify because it is majority owned by an in-state company. Municipalities still must approve those licensees.

In an exhibit filed with the lawsuit, Wellness Connection board member Ron MacDonald said the residency requirement, however, is hampering Wellness Connection’s ability to raise money, which is not readily available in Maine.

He said the company needs more money to increase its capacity to produce products because it cannot buy additional automated weighing and packaging equipment.

“The natural consequence of Wellness Connection being undercapitalized at the launch of the adult-use market is that we will not be able to capitalize on the opportunities that will only be available in this new market in the same way we could if we were fully capitalized,” he said. “Wellness Connection’s return on investment will certainly be lower, as a result, when the market launches.”

Retail sales of medical marijuana in Maine reached $111.6 million last year, making it the third-largest industry in the state. But those sales are expected to be eclipsed quickly by adult-use businesses if Maine follows the patterns in other states that have legalized medical and adult-use marijuana, the lawsuit said.

MacDonald said if the court does enjoin the department from enforcing the residency requirement, Wellness Connection would be able to raise additional capital quickly from non residents of Maine.

The lawsuit said there is legal precedent showing that Maine’s residency restrictions on adult-use marijuana are unconstitutional and should be removed.

Warner said the U.S. Constitution’s commerce clause, or 14th amendment, forbids restrictive, discriminatory commercial regulations between the states. He said that makes the residency clause in Maine’s Marijuana Legalization Act a constitutional violation.

“One of the bedrock principles of the Constitution is that each state is equal and cannot discriminate against other states,” he said.

He cited a legal precedent in a case in Tennessee in 2019 when the U.S. Supreme Court ruled against that state’s two-year residency requirement for anyone seeking an initial license to operate a liquor store there. Maine law requires a four-year residency before a person can open a recreational marijuana business.

“Colorado and Oregon initially had residency requirements and revised or repealed them,” he said.

“We believe we meet the residency requirement and can open our businesses in early summer, but not in the most effective way possible,” he said.

 

Correction: An earlier version of this story misstated Figueroa’s first name.

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