Connect with us

One-Hit Wonders

You Can Go Your Own Way: Washington’s Cannabis License Residency Requirement Upheld, Breaking the Chain of Contrary Decisions



Oh Daddy! It’s not “Rumours” or one of your “Dreams” – although it may be “Second Hand News” to our most knowledgeable readers: A federal court in Washington recently upheld the state’s cannabis residency requirement for operators.

The Federal Government’s Current Position

If you’re reading this, you surely already know: Marijuana is a Schedule I drug under federal law, meaning that Americans (with extremely limited exceptions) may not grow, process, sell, or possess marijuana. At the same time, however, approximately 40 states and territories permit medical marijuana and more than half of those allow adult-use (i.e., “recreational”) marijuana.

We previously wrote about this dichotomy, suggesting its insanity. While the federal government has not legalized cannabis, it has not thwarted the states’ ability to do so. But this post has a narrower focus. There are approximately 40 medical cannabis regimes and approximately 40 different sets of rules. A common rule in cannabis legislation is to require that some portion of the licensee be owned by a resident of the state. There are a number of purported benefits of these so-called residency requirements, but the residency requirements have come under fire lately for allegedly violating the dormant Commerce Clause. Stick with us – it gets interesting.

WTH Is the Dormant Commerce Clause?

Generally speaking, the dormant Commerce Clause prohibits states from treating in-state business interests differently than out-of-state business interests in a discriminatory way. For example, in Tennessee Wine & Spirits Retailers Association v. Thomas, 139 S. Ct. 2449, the U.S. Supreme Court held that Tennessee’s residency requirement for retail liquor store licenses violated the dormant Commerce Clause. In that case, Tennessee required applicants for a retail liquor store license to reside within the state for at least two years prior to submitting the application. The Supreme Court found that “the residency requirement [was] not needed to enable the State [of Tennessee] to maintain oversight over liquor store operators.” Rather, the residency requirement was found to be discriminatory for no other reason but to prevent out-of-state competition. This kind of discrimination is not permitted under the dormant Commerce Clause.

Cannabis law jurisprudence has most often seen this clause applied to challenge residency requirements embedded in state cannabis laws. Let’s say a state with a medical cannabis program prevents a person who has not lawfully resided in the state for at least six months prior from obtaining a business license to produce, process, research, deliver, or sell cannabis. Litigants have argued that residency requirements such as this one treat in-state businesses differently than out-of-state businesses in a discriminatory way that violates the dormant Commerce Clause.

Federal courts in Maine, New York, Missouri, Michigan, and Illinois deciding this issue have agreed that certain residency requirements for a cannabis business license violate the dormant Commerce Clause. Most recently, the U.S. Court of Appeals for the First Circuit held that a Maine residency requirement violated the dormant Commerce Clause.

Just as a trend of finding in favor of out-of-state residents seemed to be developing, another federal court recently went the other direction and reminded those paying attention that the CSA continues to apply in this space.

A Brief Description of the New Washington Decision

Washington legalized adult-use cannabis in 2012. On February 7, 2023, in Brinkmeyer v. Washington State Liquor & Cannabis Bd.,a Washington federal court rejected an Idaho resident’s dormant Commerce Clause argument, finding no violation when his cannabis business license was denied based on Washington’s residency requirement.

Todd Brinkmeyer, an Idaho resident, sought to own a cannabis retail store in Washington. Brinkmeyer previously provided debt financing for his friend’s cannabis retail stores in Washington. His friend desired Brinkmeyer to become a partial owner of and to invest in his cannabis retail stores. In Washington, the Washington State Liquor and Cannabis Board (LCB) issues cannabis business licenses. The LCB confirmed that it would not issue Brinkmeyer a cannabis license because he was not a resident of Washington.

Brinkmeyer filed suit in Washington federal court arguing, among other things, that Washington’s residency requirement was “unconstitutional because [it] discriminates, without justification, against out-of-state citizens,” and therefore, violated the dormant Commerce Clause.

The court held that since Congress holds the power to “deem certain substances federally illegal” and that the there is “no legal interstate market” for cannabis, the dormant Commerce Clause did not apply. Thecourt also noted that “citizens do not have a legal interest in participating in a federally illegal market.” Consequently, the court granted the LCB’s motion for summary judgment and dismissed Brinkmeyer’s suit.

Why Does Any of This Matter?

The central question of the dormant Commerce Clause analysis in these cases – whether a state has the authority to impose residency requirements in its cannabis regime – is hugely consequential for the cannabis industry both within any given state and on a national level. On the one hand, states understandably want control of their cannabis programs, and voters and legislatures typically want to ensure their own people benefit from the program.

On the other hand, allowing non-residents to operate cannabis businesses has its benefits. For example, the amount of capital available is substantially greater if out-of-state operators are allowed to participate, and well-capitalized operators are more likely to have the wherewithal to survive during difficult market conditions and ensure that quality is not sacrificed to save money. In addition, out-of-state operators are almost by definition more experienced in the industry and best able to provide safe and effective product to patients.

State residency requirements aren’t the only ones in the dormant Commerce Clause’s crosshairs. For example, a licensee in Oregon’s cannabis program sued Oregon officials, seeking to use the dormant Commerce Clause to invalidate Oregon’s prohibition on in-state operators from exporting cannabis to other states.

And the case may impact California’s new Senate bill 1326, which creates a process for the interstate shipment of California-produced cannabis to other states, and more recent efforts by California officials to have the state’s attorney general weigh in on that effort.

What Now?

Brinkmeyer further muddies the already murky water as to how federal courts will employ constitutional doctrines in the cannabis space. From one perspective, the decision certainly provides ammunition for state officials seeking to uphold cannabis residency requirements. From another perspective, it is a single decision from a single federal court in Western Washington – one that represents a minority position when viewed against recent decisions nationwide.

Will the issue continue to divide federal courts, or will there be some judicial resolution? For the latter to occur, it is likely that the Ninth Circuit Court of Appeals (or some other federal appellate court) would have to side with the Brinkmeyer rationale and create a federal circuit court split that could be decided by the United States Supreme Court. We suspect that Court would be reluctant to wade into these waters, but it would certainly bring much-needed clarity.

In the meantime, the inconsistent and fascinating interplay between the federal government’s treatment of cannabis and its state-created legality across the country continues. We’ll continue to monitor the situation as it unfolds, and cannabis operators and investors around the country would be wise to do the same. Put another way, and with our thanks for sticking with all of the Fleetwood Mac references, “Don’t Stop Thinking About Tomorrow.”

Source link

Continue Reading

One-Hit Wonders

Driving Under the Influence of Marijuana




No national standard exists to determine how long someone should wait to drive after consuming marijuana. However, experts at the Colorado Department of Public Health and Environment recommend waiting at least six hours after smoking less than 35 milligrams of THC and eight hours after eating or drinking something containing less than 18 milligrams.

For reference, a “typical” marijuana cigarette contains at least 60 milligrams of THC, and most edibles contain around 10 milligrams per serving size. A 12-hour wait is safer, as the high (and subsequent drowsiness) from smoking a typical amount lasts far longer.

Source link

Continue Reading

One-Hit Wonders

How can it help distressed cannabis companies today?




Without the option to declare bankruptcy—due to federal illegality—the only recourse for cannabis businesses in distress to become solvent and / or distribute assets to creditors is to enter into an expensive and difficult judicial cannabis receivership. Receiverships are inherently adversarial, and the required input from third-party experts, lawyers and regular engagement with the courts can be incredibly costly.

Meanwhile, businesses operating in mainstream sectors have the ability to declare bankruptcy. This is also a court-ordered procedure that allows companies to satisfy lenders by liquidating assets, restructuring operations and finances, and to enjoy a break of sorts to make deals with creditors and renegotiate contracts and leases. Without a change to federal banking laws, cannabis companies are blocked from the benefits of bankruptcy, and the situation is only getting worse.

Given the current tight capital market environment, the increase in cannabis distressed assets, and the shortage of options to cannabis operators to address said challenges, is there a possible alternative option to alleviate the rather dire situation?


Genesis—Transition from Equity Financing to Debt Financing

Equity financing has been the most prominent way to raise capital in cannabis for the last several years. However,recent data collected by Viridian Capital Advisorsreveals that debt currently makes up 93% of capital raised by U.S. cannabis cultivation and retail companies, compared to 55.7% in U.S. industries overall.

This change in the capital-raising environment, which has led to an increased number of creditors in the sector, combined with continued market pressures on cannabis businesses to remain competitive, make it highly likely that the industry will inevitably see more receiverships.

Ultimately, while debt financiers are willing to lend cannabis businesses money, they expect to be paid back on time and often with high interest. If the business begins to struggle and enters a distressed phase that leads to receivership, the business assets will be sold off and the secured lenders will be the first to get paid, while the business itself is likely not to recover much.

Consider an Administrative and Collateral Agent

With receiverships punishingly expensive and the debt financing landscapebordering on predatorial, distressed cannabis businesses are desperate for any assistance or support available.  An Administrative and Collateral Agent (ACA) could be the alternative support required, benefitting borrowers, lenders and regulators alike, and offering a more cost-effective and less punitive option to courts, receivers and lawyers.

Instead of dealing with the courts and an expensive court-appointed receiver, cannabis companies seeking relief could turn to an ACA to facilitate mediation between parties and create alignment within the industry, which does not exist today.

An ACA could create a level of trust, transparency and complementary positioning with industry participants that simply has not yet existed in cannabis. The use of an ACA could challenge the competing perceptions that there is already alignment between regulators, operators and lenders, or that a useful alignment between these parties could ever exist.

An ACA could be a real and valuable tool for state governments and regulators as they begin to understand that it is in their best interests to assist cannabis businesses in their states in the face of continued federal illegality and restrictions. Under a private agreement between parties, the ACA would conduct something more akin to an administrative receivership as opposed to the traditional judicial receivership that is the only current option for insolvent cannabis businesses to seek relief.

Building upon a Cannabis Credit Rating Framework

Ideally, an ACA would work within an industry-specific credit rating system for cannabis businesses in distress in order to work within an established framework for potential investors. If cannabis companies are ranked across an equitable, systematic and formulaiccredit rating system, borrowers, lenders and regulators would benefit from the quantifiable transparency afforded by said rating, and debt financing would have an inherent regulatory-like structure to prevent predatory lending. By avoiding the courts, the distressed cannabis company would save time, money and create a more attractive scenario for potential lenders.

Initial Path to Mitigating Solutions

While the current challenges facing cannabis businesses today are well documented and have risen to both creditors and regulators attention, a viable solution has yet to be identified. Most likely no one solution exists beyond waiting for the economic and capital environments to evolve. Yet, mitigating options do exist.

The introduction of an ACA is one such option. Questions remain as to the mechanics, regulatory, operative and fiscal alike, as well as who to trust to take it on. The introduction of a credit rating framework is the first step to creating a solid foundation from within which an ACA can operate transparently and equitably. Any potential buy-in from regulators, creditors and operators remains an open question.

All of that said, there is today an unprecedented set of market forces that is pushing all cannabis stakeholders to think outside of the box. The still growing opportunities in the cannabis industry, the will of operators to survive and succeed, as well as the increasing exposure from creditors, all point to not only an acceptance for the need of an alternative, but to the drive to do things differently.

Is your cannabis business in distress? Would you benefit from expert guidance and support in deciding on whether to enter into a receivership?Reach out to United CMC today.

Source link

Continue Reading

One-Hit Wonders

United States: Alex Malyshev And Melinda Fellner Discuss The Intersection Of Tax And Cannabis In New Video Series – Part VI: Licensing (Video)




Carter Ledyard is pleased to announce the launch of our short-video series on the cannabis industry focusing on business and legal issues for those companies and entities interested in doing business in New York.

This series offers a perspective on tax policy and specific statutes affecting cannabis businesses today. Our cannabis shorts are a great way to get to know our professionals, Alex Malyshev and Melinda Fellner, in quick and easy to watch clips, packed with the salient information you need.

In Part VI of our series, Alex and Melinda discuss licensing for cannabis businesses in New York. Watch below!


Source link

Continue Reading


Copyright © 2021 The Art of MaryJane Media