How Local Should the State Cannabis Industry Be?

Influential members of Maine’s cannabis industry are trying to clarify the state’s residency requirements in an effort to maintain a certain level of out-of-state investment.  

Some of them made their case Monday at a legislative committee hearing, where they argued that the current rules on ownership of cannabis businesses could stifle out-of-state investment and stymie industry growth.

The Veteran & Legal Affairs committee hearing was held for public input on the Office of Marijuana Policy’s draft rules governing Maine’s adult use cannabis program. Maine’s voters approved adult use cannabis legalization in 2016. The rules were subsequently drafted by the Office of Marijuana Policy with the help of cannabis policy consultants, Freedman & Koski and BOTEC Analysis. Retail sales of recreational cannabis cannot begin until the state’s legislature approves the office’s rules.

Industry members focused their concern on what they see as ambiguity created by definitions for residency requirements in the rules. Maine’s adult-use cannabis statute requires a simple majority in ownership for state residents. In other words, a minimum 51 percent of a cannabis operation needs to be owned by Maine residents, and the rest can be out-of-state investors.

However, the wording in the rules goes beyond the statute’s requirements, according to Patricia Rossi, the CEO of Wellness Connection of Maine, a state-licensed medical cannabis dispensary, and the company’s legal representatives who spoke at the hearing. The rules require all “true parties of interest”—defined as a person who is a sole proprietor, owner, officer, director, manager, or general partner in a cannabis business—to be a Maine resident.

According to the industry representatives, this conflicts with the definition set forth by the statute. Further, the rules define “party of control” as a person, group of persons or entity that “exerts more than minimal influence, through direct or indirect financial interest,” over operational decisions or receives a share of the revenue or profits. A party of control is required to have a majority of Maine residents as well. But the rules do not define “minimal influence” and leave it to the Department of Financial Services, which oversees the Office of Marijuana Policy, to determine whether a cannabis operation is flouting ownership rules on a case-by-case basis, said Sara Moppin, an attorney with Preti Flaherty, who represents Wellness Connection of Maine.

“These rules could prevent traditional arrangements where an out-of-state investor provides startup capital to a Mainer who provides on-the-ground sweat equity,” said Moppin. For example, Moppin added, the department could disqualify an applicant or revoke their license if revenues from the business flow primarily to out-of-state investors who want to recuperate their investment, even if a majority of the business is owned by a Maine resident.

Rossi argued that due to this lack of clarity in rules around residency requirements, combined with the “unfettered discretion” that the Office of Marijuana Policy “has reserved for itself,” out-of-state entities will never be secure in their investments.

The goal of the office has been to put forth the “best rules and regulations possible,” said Erik Gundersen, director of the Office of Marijuana Policy. Speaking about the residency requirements in particular, Gundersen said, “These rules were designed to protect against what we’ve seen in other states—complex business models that have hidden revenue and ownership interests.”

Rep. Kent Ackley said that it’s his “hope” that the concerns are resolved because “it’s in everybody’s interest that we be attractive to out-of-state investors.”

David Boyer, a legislative analyst with Marijuana Policy Project and Maine political director, said that Maine must ensure that residents benefit from the cannabis industry and guard them from being squeezed out by large out-of-state companies. But he acknowledged that out-of-state investment is important for the industry to thrive.

“It’s important for the rules to strike a balance between protecting Mainers and also allowing some investment to come in and help create and establish the industry,” Boyer told Cannabis Wire. “As we know, marijuana operations are very capital intensive.”


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