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  • Writer's pictureTina Maiolo, Esq. and Stephen Rutigliano, Esq.

U.S. District Court Rules Dormant Commerce Clause Does Not Apply to Maryland’s Social Equity Cannabis License Program.

Under the Maryland Cannabis Reform Act, resident social equity licensees may receive financial assistance with startup capital and operational costs for growers, processors, and retailers. Maryland began accepting social equity applications in November 2023. Social equity applicants seeking cannabis business licenses must have at least 65% ownership in the company and meet one of the following criteria of the statutory definition of social equity applicant:

 

  • Lived in a disproportionately impacted area for 5 of the last 10 years;

  • Attended a public school in a disproportionately impacted area for at least 5 years; or

  • For at least two years attended a four-year higher education institution in Maryland where at least 40% of the attendees are eligible for a Pell Grant.

 

In January 2024, a California resident, who has never lived in Maryland, filed a lawsuit in federal court against the Maryland Cannabis Administration (MCA) contending that the social equity program is unconstitutional. According to the complaint, the plaintiff applied for a social equity license in Maryland based on the third eligibility prong of the lottery (the “Pell Grant provision”): her attendance at a 4-year institution where at least 40% of students were eligible for Pell Grants. She alleges that her license application was denied because she did not attend a higher education institution in Maryland. The complaint argues that by requiring applicants to have attended a Maryland college to be eligible as a social equity applicant, the MCRA unconstitutionally discriminates against out-of-state residents in violation of the dormant Commerce Clause of the U.S. Constitution as it prevents her from participating in interstate commerce on equal footing with Marylanders. The complaint asks the court for a preliminary injunction to prevent the MCA from running the lottery and issuing the resultant licenses based on the existing criteria and a declaration that the statute and implementing regulations are unconstitutional.

 

On February 27, 2024, the U.S. District Court for the District of Maryland denied the plaintiff’s request for a preliminary injunction to prevent MCA from issuing any licenses under the social equity lottery pending the resolution of her case. The Court found that the balance of equities and the public interest weigh against the granting of the preliminary injunction”, in part considering the fact that the Plaintiff waited four months to file suit while the MCA had already dedicated hundreds of thousands of dollars and manhours to processing thousands of applications. Additionally, although recreational and medicinal marijuana use is legal in certain states, at the federal level it is still illegal. Accordingly, the Court noted that if it granted a preliminary injunction based on the dormant Commerce Clause, it would effectively encourage “interstate participation in a federally illegal practice.”

 

The Court also determined that the Plaintiff failed to demonstrate a likelihood of success on the merits of her case. When a law is challenged as unconstitutional under the dormant Commerce Clause courts must first ask whether the law discriminates against interstate commerce. Noting that District Courts throughout the country are split as to whether the dormant Commerce Clause applies to state laws regarding recreational cannabis, the Court determined that it does not and thus, it did not need to analyze whether the law is discriminatory. Since the Court found that the Plaintiff is not likely to succeed on the merits of her claim, the preliminary injunctions were denied and the MCA can continue processing applications and issuing social equity licenses.

           

 

           

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