The 1st U.S. Circuit Court of Appeals this week upheld a lower court ruling that Maine’s residency requirement for owners and operators of medical marijuana dispensaries is unconstitutional.

The court’s split decision, following the state’s 2020 agreement to do away with the residency requirement in its adult-use cannabis program, means that out-of-state investors will be able to open both medical dispensaries and adult-use stores in Maine.

The Maine Attorney General declined to comment on the case Friday and did not answer questions about what its next steps may be.

In-state licensing preference has been at the heart of Maine’s marijuana laws since the 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, saying it would generate jobs.

But Wellness Connection of Maine, the state’s largest cannabis operator and its parent company High Street Capital Partners, of Delaware, pushed back against those residency requirements and in December 2020 sued the state to overturn the requirement for the medical market.

U.S. District Court Judge Nancy Torresen sided with Wellness Connection in her August 2021 ruling that states can’t bar out-of-state companies from the medical market. The state and a group known as United Cannabis Patients, which intervened in the case, filed an appeal. The residency requirement stayed in effect while the appeal was pending. 

Wellness Connection did not respond to requests to be interviewed about the case Friday.

The company also sued the state in March 2020 to open the recreational market to out-of-state investors. Wellness Connection used the same constitutional argument for both cases.

Wellness Connection operated as an allowed nonprofit corporation without any equity ownership for almost a decade but converted to a for-profit company in March 2020 when a change in state law allowed dispensaries to become for-profit corporations.

Wellness Connection is owned by three Maine residents, according to the lawsuit, but High Street stated in court documents that if the residency requirement did not prohibit it from doing so, it would purchase all of the equity in the company. 

The plaintiffs argued that not only does the residency requirement devalue Wellness Connection by limiting options for potential investors, it also harms all of Maine’s dispensaries by restricting the flow of investment into the state and stifling the dispensaries’ ability to operate within the program.

The company said that the law violates the U.S. Constitution’s so-called “Dormant Commerce Clause,” which prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce, “by explicitly and purposefully favoring Maine residents over nonresidents.”

State officials argued that the clause is irrelevant. The clause does not apply to Maine’s intrastate market for medical marijuana, they said, nor do the laws “burden interstate commerce more severely than Congress, since Congress has eliminated that market entirely” by making cannabis illegal under federal law.

The argument is “not without logic,” Torresen said in her initial ruling, but because Maine does not prevent qualified nonresidents from purchasing medical marijuana, nor does it seem to prohibit nonresidents who purchase marijuana in the state from taking it home with them (which is illegal but difficult to enforce), “the notion that the medical industry in Maine is wholly intrastate does not square with reality.”

The appeals court backed that sentiment. The fact that Maine seeks to impose a ban on out-of-state operators entering the market reflects that the market continues to operate, justices David Barron and Sandra Lynch wrote in the ruling issued Wednesday.

“That prohibition even indicates that the market is so robust that, absent the Medical Marijuana Act’s residency requirement, it would be likely to attract entrants far and wide,” they wrote. And, while the act does attempt to restrict out-of-staters from selling medical cannabis, it does encourage out-of-staters to participate as customers, they added.

Because the state appears to allow nonresidents to participate in some aspects of the medical marijuana market but not others, the courts concluded that the dispensary residency requirement does violate the Dormant Commerce Clause. 

Justice Gustavo Gelpi, the dissenting judge, was clear as to why he disagreed the commerce clause played a role in the issue: it is illegal.

“The Commerce Clause does not recognize an interest in promoting a competitive market in illegal goods or services or forestalling hypothetical interstate rivalries in the same,” he said. “To be sure, if Congress were to legalize marijuana … I would join the majority in finding this legislation unconstitutional under the dormant Commerce Clause. But the dormant Commerce Clause does not provide the right to engage on equal footing in a federally illegal market.”

Paul McCarrier, a medical marijuana caregiver and member of the Maine Craft Cannabis Association, said Friday that the ruling was not a surprise and that since companies with out-of-state interests like Wellness Connection and Curaleaf can already operate in the state, not much is likely to change.

McCarrier is the president of Legalize Maine, a nonprofit advocacy group that helped to pass a statewide ballot measure that legalized recreational marijuana in 2016.

“It shows consumers will be the final arbiter of who succeeds in this market,” he said. “It’s all about consumer choice now. If they want to buy local, craft cannabis, they need to buy at local stores.”

A year ago, the state Office of Cannabis Policy opened applications for individuals and businesses seeking to open medical marijuana dispensaries in Maine, the first time in more than 11 years that the registration had been publicly available. Maine law changed in 2018, expanding the allowed number of dispensaries beyond the eight that were permitted in 2010. There are now 25 licensed dispensaries in Maine, and another 16 in various stages of the approval process.