A federal judge has struck down Missouri’s residency requirement for ownership in the state’s medical marijuana companies, which could open the door to out-of-state operators capturing a larger share of the fledgling industry.
The requirement had already been blocked from enforcement in June by U.S. District Judge Nanette Laughrey of the Western District of Missouri. Last week, after a seven-minute trial, Laughrey said she would enjoin the rule permanently, according to records of the case. An official order has not yet been issued by the court.
It’s not clear if there will be an appeal by the Missouri Department of Health and Senior Services, which oversees the medical marijuana program. A department spokeswoman could not immediately be reached for comment.
As part of the constitutional amendment allowing medical marijuana that Missouri voters approved in 2018, state-licensed marijuana cultivation plants, dispensaries and manufacturing facilities must be majority-owned by Missouri residents of at least one year.
The rule was challenged in a lawsuit by Pennsylvania-based investor Mark Toigo last December, arguing that it violated the U.S. Constitution’s commerce clause.
Toigo is a minority owner of Organic Remedies MO Inc., a company which was awarded three Missouri dispensary licenses, one for cultivation and another for manufacturing. The company is 51-percent owned by Missouri residents, according to Toigo’s suit. The residency requirement bars Toigo both from acquiring more shares or selling his shares to other non-Missouri residents.
Missouri argued the requirement was needed to help the health department do better background checks on license applicants who had lived in the state for at least a year. Laughrey rejected the argument in blocking the regulation earlier this year, ruling that it violated a doctrine in constitutional law that prohibits states from making laws that discriminate against out-of-state residents doing business.
The state did not make any oral arguments in favor of the residency requirement during last week’s trial, said Benjamin Stelter-Embry, Toigo’s attorney.
Similar suits have been filed in other states. In August, a federal judge overturned Maine’s medical marijuana ownership residency requirement.
“I think what the impact is going to be is for better or worse, there’s going to be a lot of out-of-state companies from Oregon, California, Colorado, that are going to infuse and put a lot of investment funds in existing Missouri companies,” Stelter-Embry said Monday.
Jack Cardetti, spokesman for the state’s primary medical marijuana industry organization MoCannTrade, declined to comment on the most recent ruling or its impacts on Missouri’s marijuana industry.
“It’s really too early to speculate,” he said.
The first legal medical marijuana sales in Missouri began about a year ago. The state has licensed about 380 cultivation, manufacturing and dispensary facilities. MoCannTrade expects sales to about 139,000 card-holding medical marijuana patients and their caregivers to exceed $200 million this year.