By Aubrey Gann-Redmon
While its not exactly a case of “we have to pass the bill to know what’s in it,” nearly two months after the enactment of Missouri’s Amendment 2, navigating the practical implications of the new law is raising eyebrows among entrepreneurs, farmers, and citizens. Many farmers and hopeful business owners were discouraged to learn that some of the licensing requirements in Amendment 2 will probably be cost-prohibitive for newcomers to the industry. But are the same requirements that could potentially strangle competition in this new market for Missouri also be unconstitutional? A close look at recent trends in constitutional law reveals that the State might face the following legal challenges:
The dormant Commerce Clause might be waking up
Most people know that there is something called the “Commerce Clause” in the United States Constitution. The Commerce Clause refers to Article 1, Section 8, Clause 3 of the U.S. Constitution, which gives Congress the power “to regulate commerce with foreign nations, and among the several states,” among other things. Historically, Congress has used the Commerce Clause to legislate activities of states and their citizens, always leaving a wake of controversy over the proper balance to strike between State and Federal power. The Clause has both granted congressional authority as well as restricted States’ ability to regulate commerce.
The “Dormant” part of the Commerce Clause refers to an implicit prohibition against States passing regulations or legislation that excessively burdens or discriminates against commerce. The term most often used is “protectionist,” as in, a State passes laws or regulations that “protect” its citizens from outside competition from other States, while penalizing out-of-state interests. In West Lynn Creamery Inc. v. Healy, 512 U.S. 186 (1994), the Supreme Court struck down a Massachusetts state tax on milk products, because the tax hampered interstate commerce by discriminating against non-Massachusetts businesses.
More recently, though, the Dormant Commerce Clause has been used to attack state legislation and regulations pertaining to the liquor industry. In a moment of unity, most members of the Supreme Court hammered a Tennessee liquor license law that discriminated against new residents and out-of-state businesses in oral argument. In Tennessee Wine & Spirits Retailers Association v. Blair, two challengers to Tennessee’s law, a couple from Utah with a disabled daughter, and a wine and spirits company from Maryland, challenged the Tennessee law that required a person be a resident of the state for two years before obtaining a liquor license and ten years of residency for any license renewal. The family from Utah had moved to Tennessee in search of a better life for their severely disabled daughter and purchased a historic liquor store with aspirations to begin a business that would allow them greater flexibility to provide for their daughter’s care.
Interestingly, Tennessee’s own Attorney General had previously opined the residency requirements weren’t constitutional and declined to file a brief or even appear in support of the State’s law at oral argument. Instead, the Solicitor General from Illinois argued against the challengers, along with a wine and spirits association from Tennessee. Numerous justices, regardless of their political leanings, seemed leery of Tennessee’s protectionist law, wondering if allowing Tennessee’s law to stand would open the floodgates to States legislating that only resident businesses could be contracted to build liquor stores, or whether online wine clubs might be prohibited, or whether States could impose requirements allowing only generational business licensing. If protectionist legislation were constitutional, the States could be permitted to put any type of arbitrary requirement in place to protect residents at the expense of commerce from beyond their borders.
How does this impact Amendment 2? The current law requires that all medical marijuana businesses obtaining licensure in Missouri must be majority owned by Missouri residents who have resided within the State for at least one year prior to submission of the licensing application. Nonresidents and out-of-state entities may only hold a minority interest in such companies. Sec. 7(3). Yet, oddly, the law also requires a merit-based scoring system for medical marijuana business licenses that has, as one factor to be scored, “experience in a legal cannabis market.” Sec. 3(1)(h). When read these two provisions are read together, the law requires that applicants be at least 51% Missouri owned by residents who have been in the State at least since August 3, 2018, yet it would also seem to require these same Missouri residents partner up with out-of-state businesses and individuals – because the only place to have gained experience in a legal cannabis market would be in a State other than Missouri – in order to gain an advantage in the scoring system. Under the cases discussed above, this is text book protectionist law that in one breath mandates residency for all business applicants. The law also prohibits nonresidents and out-of-state businesses from stand alone applications. And, appears to force nonresidents and residents to partner up if their applications are to gain any kind of scoring advantage. If left intact, Amendment 2 is likely to be challenged by residents for being forced to partner with out-of-state companies in order to boost scoring; by non-residents for being unable to apply alone; and by those who live in the State but haven’t been here since August 3, 2018.
Fourteenth Amendment challenges to privileges & immunities
If Commerce Clause challenges aren’t sufficient enough, the Fourteenth Amendment Challenges to Privileges & Immunities might be. The Fourteenth Amendment’s Privileges & Immunities Clause, which was enacted after the Civil War, sought to end the “Black Codes” that prevented newly freed slaves from moving to a new State in order to make a living. In its simplest form, the purpose of the Clause was to ensure that when an individual moved to a new State, that their residency status would not preclude them from the ability to find a job or start a business in their new location. The Clause seeks to put newly arrived residents on the same footing as established residents of a State. In a similar vein, Amendment 2’s one-year residency requirement unlawfully discriminates against newcomers to Missouri who are moving here to pursue this new economic opportunity under the Privileges and Immunities Clause.
Special interests helped to write Amendment 2, and along the way, their interests were put ahead of the interests of entrepreneurs and farmers, creating unconstitutional restraints on commerce in Missouri’s new medical marijuana market. Its not too late to remedy these issues by implementing constitutionally-sound regulatory and legislative fixes that would open up the market and allow opportunity to those wanting to enter into the medical marijuana industry.
Aubrey Gann-Redmon is a Kansas City lawyer specializing in medical cannabis law along with probate, estate, and trust litigation.