Washington Marijuana: Is the Residency Requirement Doomed?

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On June 26, 2019 the Supreme Court of the United States (SCOTUS) issued a ruling in Tennessee Wine and Spirits Retailers Association v. Thomas invalidating a two-year residency requirement for Tennessee retail liquor shops. The Washington State Liquor and Cannabis Board (LCB) has a related six-month durational-residency requirement needed for any particular person applying to be a correct celebration of interest (TPOI) in a marijuana small business. The Thomas choice could imply that days are numbered for Washington’s durational residency requirement.

Tennessee demands alcoholic beverages distributed in the state to pass via a 3-tiered method overseen by the Tennessee Alcoholic Beverage Commission (TABC). TABC challenges licenses to producers, wholesalers, and retailers of alcoholic beverages. Producers might sell only to wholesalers, wholesalers only to retailers, and retailers might sell to buyers. In order to hold a retailer license, an person will have to show that he or she has been a resident of Tennessee for the final two years. SCOTUS noted that this requirement is extremely restrictive, specifically when it is applied to corporations:

The rule for corporations is also extraordinarily restrictive. A corporation can not get a retail license unless all of its officers, directors, and owners of capital stock satisfy the durational-residency needs applicable to folks. In practice, this suggests that no corporation whose stock is publicly traded might operate a liquor shop in the State.

In 2012, the Tennessee lawyer basic issued an opinion stating that the durational residency requirement violated the Commerce Clause of the constitution and TABC stopped enforcing the needs against new applicants. Immediately after TABC advisable approval of various applicants who did not meet the residency requirement, Tennessee Wine and Spirits Retailers Association (Association), a trade association of in-state liquor shops, threatened to sue. In turn, TABC’s executive director filed a declaratory judgment in state court to settle the query of the residency requirements’ constitutionality. The case was removed to federal court and the needs had been deemed unconstitutional. The Association appealed and the Court of Appeals for the Sixth Circuit affirmed the choice. The Association appealed the choice on the constitutionality of the two-year residency requirement.

The Court’s evaluation focused on no matter if or not Tennessee’s law was “saved” by Section two of the 21st Amendment. The 21st Amendment ended alcohol prohibition and Section two provides every State leeway in regulating alcohol in light of public well being and security measures. The Court determined that Section two did not save Tennessee’s durational-residency requirement stating that Section two “is not a license to impose all manner of protectionist restrictions on commerce in alcoholic beverages. Simply because Tennessee’s two-year residency requirement for retail license applicants blatantly favors the State’s residents and has tiny connection to public well being and security, it is unconstitutional.”

Nonetheless, the Court also determined that the residency requirement violated the Commerce Clause of the Constitution. The Commerce Clause gives that “Congress shall have Energy. . . to regulate Commerce with foreign Nations, and amongst the various States[.]” SCOTUS has interpreted a “dormant Commerce Clause” (DCC) which implies that the Commerce Clause does not let states to implement protectionist measures that inhibit trade amongst states. We have been writing about this in the context of cannabis residency restrictions for a lengthy time.

Below the DCC, “if a state law discriminates against out-of-state goods or nonresident financial actors, the law can be sustained only on a displaying that it is narrowly tailored to advance a reputable neighborhood objective.” SCOTUS determined that “Tennessee’s two-year durational-residency requirement plainly favors Tennesseans more than nonresidents, and neither the Association nor the dissent beneath defends that requirement beneath the regular that would be triggered if the requirement applied to a particular person wishing to operate a retail shop that sells a commodity other than alcohol.”

Below this evaluation, Washington’s residency requirement seems out-of-line with the DCC and, by extension, unconstitutional. Like Tennessee’s regulation of liquor, Washington makes use of a 3-tiered method to regulate marijuana sales, licensing producers, processors, and retailers. All TPOIs in all license varieties will have to meet Washington’s six-month residency requirement. This restriction drastically impacts corporations, even much more so than Tennessee’s needs mainly because it is imposed on all shareholders and their spouses. That suggests that a particular person holding significantly less than 1% of an ownership interest and her spouse will have to qualify as Washington residents.

Marijuana is a distinctive commodity offered that it remains illegal beneath federal law. It is also illegal beneath Washington law to import marijuana from any other state. All Washington marijuana will have to be grown in-state. Nonetheless, Washington’s six-month is a clear protectionist measure favoring Washington owners. It would be challenging for Washington to argue that this is the narrowest way for Washington to undertake the reputable interest of regulating marijuana, offered that several other legal states have either never ever imposed such residency needs or have removed them or loosened these needs. Utah was the newest state to do so with its healthcare marijuana regulations, as reported by the Salt Lake Tribune.

Even though, the Thomas choice is arguably distinguishable from the existing residency scenario in Washington marijuana, it undoubtedly does not assistance the state’s case if the requirement is challenged. Washington’s residency requirement is strict and controversial. As marijuana legalization spreads across the nation it appears like the residency requirement is not sustainable, lengthy term. It remains to be observed no matter if the Thomas choice is the final straw.

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