A state agency and a top industry group have appealed a court order that would allow out-of-state companies to operate medical marijuana dispensaries in Maine.

Maine originally required all medical and recreational marijuana businesses to be owned by residents. But the state’s largest cannabis company sued to challenge that rule in both markets. The state agreed last year to drop the residency requirement for adult-use stores, but it is fighting a judge’s ruling that overturned that same requirement for medical dispensaries.

Marijuana is displayed in a “bud bar” in Wellness Connection’s HighNorth marijuana store in Gardiner in April. Joe Phelan/Kennebec Journal

It appears the case is the first of its kind to reach a federal appeals court, where the opinion could have ramifications in other states. The question at hand is whether the residency rule violates the U.S. Constitution by restricting interstate commerce. The rule remains in place while the 1st U.S. Circuit Court of Appeals considers the issue. Oral arguments have not yet been scheduled.

The plaintiffs are Wellness Connection of Maine and its parent company, High Street Capital Partners of Delaware. Court documents show that three Maine residents own Wellness Connection, but that High Street would purchase all of the equity in the company if not for the residency requirement.

The companies filed the lawsuit last year against Kirsten Figueroa, commissioner of the Maine Department of Administrative and Financial Services. The Maine Cannabis Coalition, a nonprofit trade group that supports the residency requirement, also intervened in the case as a third party.

The plaintiffs argued that the residency requirement harms the state’s dispensaries by restricting the flow of investment and stifling their ability to operate. They said it violates the Constitution’s “dormant commerce clause,” which prohibits states from passing laws that discriminate against or excessively burden interstate commerce.

The state argued that Congress has eliminated the interstate market for medical marijuana entirely by making cannabis illegal under federal law, so that clause cannot apply in this situation.

U.S. District Judge Nancy Torresen sided with the cannabis companies in August. While the judge said the state’s argument was “not without logic,” she also noted that Maine does not prevent qualified nonresidents from purchasing medical marijuana in the state or taking it home with them.

“The notion that the medical marijuana industry in Maine is wholly intrastate does not square with reality,” Torresen wrote.

Torresen also said she felt the limited precedent in these cases supported her ruling.

“I recognize that none of the courts that have confronted this specific constitutional issue have rendered final judgments, and it also seems that no circuit court has addressed it,” she wrote. “But given the Supreme Court’s and First Circuit’s unmistakable antagonism towards state laws that explicitly discriminate against nonresident economic actors, I conclude that the Dispensary Residency Requirement violates the dormant Commerce Clause.”

The coalition and the state both filed notices of appeal in September and submitted written briefs to the 1st Circuit this month.

“Here, the dormant Commerce Clause does not apply to Maine’s intrastate market for medical marijuana,” the state’s brief says. “Nor do the residency requirements in the Maine Medical Use of Marijuana Act burden interstate commerce more severely than Congress, because Congress has already eliminated that market. Because striking down Maine’s residency requirements at issue in this case would do nothing to expand legal interstate commerce in the United States, they should stand.”

Wellness Connection and High Street have not yet filed their response to the 1st Circuit. The companies have twice been successful in changing residency requirements in marijuana programs in Maine.

In March 2020, Wellness Connection’s sister company, NPG LLC, sued the state over the residency requirement in the adult-use marijuana statute – the first time a marijuana company had challenged such a requirement. Maine Attorney General Aaron Frey found that the residency requirement “is subject to significant constitutional challenges” and would likely not hold up in court. The state announced in May 2020 that it would abandon that rule, which resolved the lawsuit. That agreement did not address the requirement for medical dispensaries.

NPG also sued the city of Portland over its ordinance that gave preference to Maine residents when awarding retail marijuana licenses. In response, the Portland City Council voted in October 2020 to give licenses to all qualified first-round applicants, and voters decided in November 2020 to eliminate the retail license cap altogether.