Litigation Update: Maryland District Court Finds that ‘Dormant Commerce Clause’ Does not Apply to Adult-Use Cannabis in Maryland, Denies Injunction

Foley Hoag LLP - Cannabis and the Law

Foley Hoag LLP - Cannabis and the Law

We have an update about the recent lawsuit challenging the constitutionality of the Maryland Cannabis Administration’s (MCA’s) Social Equity Program.

To recap, on January 26, 2024, a California-based attorney filed suit in the U.S. District Court for the District of Maryland on behalf of a California resident who was denied eligibility for a retail cannabis permit in Maryland because she could not qualify as a Social Equity Applicant (noting the MCA’s first round of licensing is only open to Social Equity Applicants). The Plaintiff sought an injunction to block the MCA from processing applications and an injunction to prevent the MCA from issuing adult-use cannabis licenses in Maryland.  

The Complaint alleged that MCA’s third Social Equity Criterion—attending a four-year institution of higher education in Maryland, where at least 40% of attendees are eligible for Pell Grants, for at least two years—is unconstitutional because it violates the “dormant Commerce Clause,” which prohibits states from enacting laws that discriminate against citizens of other states. The Plaintiff, who attended a four-year institution in California where 40% of attendees were eligible for a Pell Grant, was told by the MCA that “out of state universities do not qualify” for Social Equity criteria. 

On February 27, 2024, the Maryland District Court denied the Plaintiff’s motions for injunctions. The Court found the Plaintiff had a redressable injury—she was denied Social Equity Applicant status and was therefore unable to participate in the first round of licensing—but the “balance of equities and the public interest weigh against the granting of the preliminary injunction.” The Court also noted that the Plaintiff waited almost four months from when she was informed of her ineligibility to file this litigation; meanwhile, the MCA “dedicated hundreds of thousands of dollars and hundreds of staff hours to processing nearly 2,000 applications from individuals hoping for a license.” In light of this, the Court determined the “balance of equities” weighed against granting an injunction.  

Additionally, the Court explained that it was “strongly persuaded by the District Court for the Western District of Oklahoma’s reasoning [in the 2021 case Original Invs., LLC v. Oklahoma] that it is not the place of a federal Court to facilitate federally prohibited activity.” Therefore, the Court declined to grant a preliminary injunction based on the dormant Commerce Clause, because doing so “would ultimately serve to encourage interstate participation in a federally illegal practice,” therefore, the Court declined to “use its equitable power to encourage participation in activities that Congress has expressly prohibited.”  

Further, the Court found that the Plaintiff did not demonstrate likelihood of success on the merits of the case, because the Court determined the dormant Commerce Clause does not apply to adult-use cannabis. In its opinion, the Court noted the First Circuit’s holding that the dormant Commerce Clause applies to cannabis for medical use, then it discussed how District Courts throughout the United States have reached opposing conclusions regarding the dormant Commerce Clause’s applicability to adult-use cannabis. As outlined in the opinion, “[b]ecause this Court finds that the dormant Commerce Clause does not apply to the recreational cannabis industry, Plaintiff is not likely to succeed on the merits of her claim, and it is not necessary to analyze whether the challenged provision is discriminatory.”

The Court denied the Plaintiff’s requested preliminary injunctions. Therefore, the MCA can proceed with processing applications and issuing licenses in the first round.

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Foley Hoag LLP - Cannabis and the Law

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