Examining the Residency Requirement in Alabama's Proposed Cannabis Law
Cannabis Industry News Alert
We recently wrote that Alabama is on the cusp of enacting a medical cannabis program. Today we turn our focus to a key aspect of the current proposal – the requirement that applicants for limited cultivator and integrated licenses be residents of Alabama – to analyze whether those requirements pass constitutional muster. To do so, we examine (1) the text of the relevant provisions; (2) a recent opinion from the United States Supreme Court discussing residency requirements in the alcohol industry; and (3) recent court cases examining residency requirements in the cannabis industry in other states.
The Text of Alabama’s Proposed Legislation
SB 46, proposed by Sen. Tim Melson, provides a broad framework for a comprehensive medical cannabis regime. The proposal provides for a competitive licensing program, whereby licenses are awarded to a limited number of cultivators, processors, and dispensers of medical cannabis.
There are stringent residency requirements for cultivation and integrated licensees. For example, an applicant for a cultivation license must:
Provide records indicating that majority ownership is attributable to an individual or individuals with proof of residency in this state for a continuous period of no less than eight years preceding the application date.
Likewise, a vertically integrated license:
[M]ust be awarded to entities whose majority ownership is attributable to an individual or individuals with proof of residency in this state for a continuous period of no less than eight years preceding the application date.
Recent United States Supreme Court Precedent Examining Residency Requirements
As we noted in the summer of 2019, by a vote of 7-2 in Tennessee Wine and Spirits Retailers Association v. Thomas, the United States Supreme Court struck down a Tennessee law that required anyone who wanted a retail license to sell alcohol in Tennessee to have lived in-state for at least two years.
The Court’s majority opinion, authored by Justice Alito, held that the Tennessee law’s two-year residency requirement “expressly discriminates against nonresidents” in violation of the Constitution’s Commerce Clause.
All nine justices then on the Court seemed to agree that a similar discriminatory residency requirement would be unconstitutional if it were imposed on retailers selling something other than alcohol, such as food or car parts. However, the Court split over whether the 21st Amendment, which repealed Prohibition and gives each state some leeway in imposing alcohol-related public health and safety measures, saved the Tennessee law. The majority held that the 21st Amendment did not save the Tennessee residency law because the law “has little relationship to public health and safety.”
Challenges to State Residency Requirements in the Cannabis Industry
Most commentators agree that, while the Court was explicitly examining residency requirements in the alcohol industry, the same Commerce Clause analysis undertaken by the Court applies to other industries. It should come as no surprise that since the Court’s decision in Tennessee Wine and Spirits Retailers Association there have been a number of challenges to residency requirements in state cannabis laws. Here are a few examples:
- In Missouri, a marijuana investor from Pennsylvania filed suit in federal court challenging a requirement that medical marijuana licenses go to businesses owned by residents of Missouri. The provision in question requires that medical marijuana requires facilities be “majority owned by natural persons who have been citizens of the state of Missouri for at least one year prior to the application.” That case is still pending.
- In Maine, the Office of Marijuana Policy announced in March 2020 that it would not enforce the residency requirement for business operators seeking adult-use cannabis licenses. The decision followed a statement from the Maine attorney general that he believed the residency requirement would not pass constitutional muster as a prohibited form of protectionism. Then, in August, a federal court in Portland struck down a local ordinance that weighted residency in deciding to whom cannabis licenses in Portland would be awarded. The Court based its decision on dormant Commerce Clause grounds, relying heavily on Tennessee Wine and Spirits Retailers Association.
- Finally, an Oklahoma law that required that a cannabis company must be owned at least 75% by individuals who have resided in Oklahoma for at least two years was subject to a number of challenges in 2020, and those cases are currently pending.
What does all this mean for the likelihood that the residency requirements in Alabama’s proposed medical cannabis program would survive a legal challenge?
On the one hand, it is not difficult to draw a straight line from the Supreme Court’s decision in Tennessee Wine and Spirits Retailers Association to the residency requirements in Alabama’s proposal. As discussed above, courts and law enforcement officers in other states have done just that in the two years since that case was decided. There is certainly a reasonable argument to be made that the types of policies the Supreme Court sought to vindicate in that case are implicated in cannabis residency requirements. Opponents of the residency requirements will argue that Tennessee Wine and Spirits Retailers Association is controlling, that cannabis is not meaningfully different from alcohol for purposes of the dormant Commerce Clause analysis, and that it should be an open-and-shut case.
On the other hand, if the history of cannabis law in the United States has taught us anything it is that things are rarely so simple. Is there something about the cannabis industry that makes it sufficiently different from the alcohol business as to lead to a different result than in Tennessee Wine and Spirits Retailers Association? For example, is the Commerce Clause analysis different because of the federal prohibition on cannabis – i.e., as a matter of law can a state law governing a state program violate Congress’ role in governing interstate commerce when Congress has determined that the activity being regulated cannot be conducted in interstate commerce? A federal court in Portland recently rejected that argument, but another court could reach a different conclusion. Alternatively, do the residency requirements of a medical cannabis program bear a closer “relationship to public health and safety” than those in Tennessee’s alcohol program such that cannabis residency requirements meet the heightened standard set out by the Court? Defenders of the requirements likely will need to prevail on one of these arguments for the requirements to pass legal muster.
Finally, if there is anything we know as a virtual certainty it is that if Alabama passes medical cannabis legislation with residency requirements, there will be litigation regarding, among other things, the constitutionality of those requirements. Given the consequences of that litigation – including tax revenues and the ability for qualified patients to access medical cannabis – that dispute will be significant to the litigants, the cannabis industry, and the citizens of Alabama.
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Bradley lawyers have the breadth of experience to provide full-service representation to our cannabis clients, advising clients on the legality of residency requirements and other common cannabis issues. As strategic advisors, we give each client the practical counsel they need to make the best decisions for their businesses.
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