Advocates Hold Event At The OSU Law School's Drug Enforcement And Policy Center To Highlight Importance of Protecting State Residency Requirements for Cannabis Licenses

Drug policy reform advocates gathered virtually at The Ohio State University's Moritz College of Law on Thursday to discuss the implications of state residency requirements for cannabis licenses as the foundation of social equity and a bulwark against corporate consolidation of the nascent industry.

The debate over the legality of those residency requirements -- which require applicants seeking a cannabis license, in some cases, to be a resident of the state in which they seek to operate their business -- is nothing new, but Thursday's event, co-sponsored by The Parabola Center, a federal policy think tank, highlighted the particular importance of those policies in the context of protecting market pathways for smaller companies owned by those most harmed by the war on drugs.

The stakes for those smaller operators, in particular those equity applicants that were most directly harmed by the drug war, continue to compound by the day due to the influx of lawsuits filed by multi-state cannabis operators (MSO's), flush with cash and intent on preventing states from enacting policies that favor local residents in the application process.

Without those protections, some smaller operators have said they simply cannot compete against the rush of wealthy out-of-state companies seeking to dominate state-level markets.

Shaleen Title, distinguished cannabis policy practitioner in residence at the Drug Enforcement and Policy Center and co-founder of the Parabola Center, moderated the event in the context of that ever-evolving dynamic. Title was joined by Richard Juang, Parabola's legal director and co-founder along with the Center's entrepreneurship director, Shanel Lindsay.

Juang, speaking to me in an interview Thursday afternoon, explained the dangers that exist when courts strike down residency requirements for cannabis licenses;

"Residency requirements are typically part of a bundle of regulations concerned with equity. So, when you begin picking apart these regulations through litigation, piece by piece, you're likely to create a lot of policy consequences that the courts are not able to predict and, of course, not equipped to manage."

This litigation, he tells me, has potentially disastrous consequences for equity program applicants and impedes the work of those who advocate on their behalf;

"Underfunded regulatory agencies have to manage the consequences, not simply in response to state law mandates, but now in the light of court cases that do not take the need to have a coherent and well-managed cannabis sector into account. Bottom line: the work of achieving equity as well as having a competitive cannabis sector becomes harder and more unpredictable."

A map of states in which residency requirements were upheld as legal (green), invalidated (red) or not yet fully challenged (yellow)

While a number of states have had residency requirements dating back to 2012 (Colorado) only some states, such as Washington, have had those requirements challenged and upheld in court.

Other states have not been so lucky.

In Maine, a residency requirement enacted by the legislature was challenged in court by Wellness Connection, a multi-state operator. The legal challenge drove the state government to quickly drop enforcement of the residency requirement in a settlement, however a citizens' group (United Cannabis Patients and Caregivers) have taken it upon themselves to file a lawsuit, still ongoing, seeking to have the rules reinstated.

At issue, as explained by the Supreme Court of the United States in Department of Revenue of Ky. v. Davis, 553 U.S. 328 (2008) is a "...concern about economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors,”

That standard, imposed under what is known as the "dormant Commerce Clause", is a potential fatal flaw for proponents seeking to defend the local residency requirements on a state-by-state basis.

Another option, currently missing from all federal legalization bills according to Title's remarks at Thursday's seminar, could potentially come into play; specific federal language extending states the power to create exactly the kind of programs that exist under current state law.

That approach could have a manifold of benefits, Juang tells me, if such a directive is implemented properly;

"Such a directive should ideally come in the form of a law clearly giving states the authority to regulate state cannabis markets fully, including closing their borders to interstate commerce and ownership, provided that states use that authority principally to support effective social and economic equity measures."

Such an intentional structure, says Juang, would yield the kind of benefits that equity operators need;

"The positive result of such a directive would be to preserve existing state level measures and to promote exploring different ways of achieving social and economic equity at the state level, without such efforts being upended by court cases that don't take into account the fact that this is a time of complex state experimentation with governing the cannabis sector and which don't recognize that the cannabis marketplace is uniquely organized around remedying the failure and racism of the war on drugs."

A potential solution to the residency requirement dilemma is an explicit federal framework for their legality

Interestingly, the Parabola Center has proposed a full set of amendments to the federal MORE ACT (one of a number of proposals to federally legalize cannabis in the US), some of which provide specific language to protect state residency requirements.

"One possibly", the document notes, "would be to allow for regional compacts, such as an agreement among West Coast or New England states to allow for limited interstate commerce, essentially creating pilot programs that can be studied and analyzed. "

"Another", the report goes on, "would be to allow only equity-licensed businesses to engage in interstate commerce, as proposed by the Craft Cannabis Alliance."

For some equity applicants staring down a torrent of MSO lawsuits designed to chip away at state protections, that kind of federal anti-trust work may be the best hope for a brighter future.