None of the 20 promised dispensary licenses for new recreational cannabis stores in Rhode Island will be issued anytime soon after a federal judge issued a preliminary injunction against the state’s law dictating how they will be awarded.
U.S. District Judge Melissa DuBose entered the preliminary injunction on April 8, blocking the state from:
The order once again brings the long-delayed rollout of new recreation cannabis dispensaries to a halt. Here’s what to know:
The order comes after three lawsuits challenging the state’s special process for so-called “social equity” licenses. DuBose had previously dismissed those lawsuits, but the First Circuit Court of Appeals sent the cases back to her and ordered her to adjudicate the case on the merits of the Dormant Commerce Clause.
The Dormant Commerce Clause is an implied restriction on the ability of states to pass legislation that discriminates against, or excessively burdens, interstate commerce, according to the Cornell Law School Legal Information Institute.
DuBose initially had found that the plaintiffs – who are from California and Florida – didn’t have standing to sue because they never took any actual steps to have viable applications, such as getting a lease for a space or a zoning certificate.
But the appeals court ruled that, in order to sue, the plaintiffs only needed to say that they want to apply for a license and then be disqualified.
Why stop all licenses? While the headline in the three lawsuits is their challenge to the state’s social equity applications, DuBose noted that the state’s residency requirement is just as problematic, if not more so.
Under the current law, 51% of a company needs to be owned by a Rhode Island resident, although the remaining 49% can be owned by someone out of state.
In granting the preliminary injunction, DuBose found that there is a likelihood that the three lawsuits will succeed in overturning the state’s law requiring that 51% of a dispensary be owned by a Rhode Island resident, because that violates the Dormant Commerce Clause, per the First Circuit Court of Appeals.
DuBose also found that the two Californians and one Floridian suing the state will “suffer irreparable injury absent injunctive relief” because the Cannabis Control Commission won’t hold any new lotteries or application periods, even though only 20 of the 24 allowed licenses were set to be awarded. She wrote that, knowing that the state law was facing legal challenges, the Cannabis Control Commission proceeded anyway.
“The resulting fall-out will be, to be blunt, self-inflicted,” DuBose wrote.
Companion bills (S 2497, H 7410) have been introduced in the General Assembly to remove the residency requirement from state law. Both have had their first committee hearings but have no new hearings scheduled.
What’s not clear is what happens if those bills pass and the residency requirements are eliminated.
The Cannabis Control Commission would need to change its rules, and DuBose ordered that the Cannabis Control Commission can’t go forward with “the current application or licensing period, including (1) holding the lottery to select applicants, and (2) processing any applications submitted under the current licensing period, for both Adult-Use and Social Equity licenses.”
In comment submitted for the House bill, the American Civil Liberties Union of Rhode Island wrote that eliminating the residency requirement “only goes halfway.”
“As the appellate court noted, some of the standards for qualifying for a social equity license are exclusively related to Rhode Island residency. However, this legislation leaves those standards in place, and we therefore believe that the statute could continue to be subject to constitutional challenge,” according to the ACLU testimony.
If the General Assembly wants to end the legal challenges, it needs to “reexamine the social equity standards in the statute and consider whether they also need to be amended to avoid Commerce Clause or other constitutional pitfalls,” the ACLU testimony said.
During a March 12 hearing, Rep. Scott Slater, D-Providence, who introduced H 7410, said the residency requirements have been a losing battle in other states, and removing them might allow the process to go forward.
DuBose acknowledged that the theoretical harm that the people who thought about applying would face considering the residency requirement is weighed against the strong mandate in the state rules that require applicants to pay on leases or promissory leases for property and other costs associated with having a location ready before winning the lottery.
Cooperative applicant Andre Dev said allowing out-of-state applicants to apply now would hugely advantage them, because they know where other cooperatives have their leases.
“It’s not fair to let them come in at the last minute when others have put in time and money, and a lot of that is unique to Rhode Island, as other states don’t require site approval and lease agreements,” Dev said. “In Baltimore, social equity applicants just pay $5,000 to apply.”
The Cannabis Control Commission will have to make hard decisions about the people who have already applied, as many may decide to stop paying or let go of their leases, as they bleed money with no lottery date in sight, he said.
Whatever the solution is, it needs to honor all the money that the current slate of applicants have spent to meet the state and the Cannabis Control Commission’s requirements, Dev said.
While the total pause on the current application period is “self-inflicted,” as DuBose wrote, the Cannabis Control Commission was already trying to slow down the issuance of licenses because of conflicts among the state’s existing dispensaries, which are concerned about the competition, and the state’s cultivators, or cannabis growers and processors, who need more dispensaries to sell their products to and have warned they will go out of business if the process drags on.
This story has been updated to correct an inaccuracy.