Courts and states have eliminated residency requirements, Arkansas could join

The amendment Arkansas voters passed in 2016 approving medical marijuana requires at least 60% of ownership of a cultivation facility or dispensary to be by Arkansas residents. The medical marijuana amendment did not make any residency requirements for ownership of a processing facility. 

A federal court ruling in Maine and an affirming decision by the First Circuit Court of Appeals found the residency requirements to be a violation of the United States Constitution. The ruling will likely have a domino effect in the states within the First Circuit but will likely only apply to the medical cannabis market, according to an analysis by regulatory law firm Troutman Pepper. The impact on the recreational market is unknown, according to the analysis. 

When asked why the Arkansas amendment would do away with the requirements, Eddie Armstrong, chair of the amendment’s sponsor, Responsible Growth Arkansas, pointed to the courts. 

“Courts in several states have held the residency requirements to be unconstitutional,” he said.

Some states have ditched residency requirements without a court ruling and others have done so as legal challenges loomed, according to a report from MJBizDaily:

Oregon, for example, initially required majority control of marijuana businesses by individuals who had been residents for at least two years. The state got rid of those requirements in 2016.

Colorado passed a law in 2019 that opened its marijuana industry to out-of-state investors.

An Idaho businessman is challenging Washington state’s residency requirement in the courts.

In Maine, legal action by an affiliate of New York-based Acreage Holdings prompted the state to abandon a residency requirement for adult-use licenses. The issue is still being fought in the courts.

Oklahoma, which otherwise is a wide-open medical marijuana market, is facing a legal challenge to its two-year residency requirement that allows nonresidents to own only up to 25% of an MMJ business.

Opponents of Responsible Growth’s legalization measure have pointed to the elimination of residency requirements as a reason to vote against the measure. 

One of the first bullet points on a downloadable “pastor brief” posted on the website of Family Council Action Committee, a marijuana opposition group, states: 

Crime: It will allow drug cartels to operate marijuana dispensaries and cultivation facilities anywhere in Arkansas, because there are no residency requirements for owners and no criminal background checks for those who work there and none for certain people who apply for a license to grow or sell marijuana.

Scott Hardin, spokesman for the state Medical Marijuana Commission, said the state requires background checks by the state police and the FBI for all “owners, agents and employees of a facility (whether cultivator, dispensary, or processor.” 

If voters pass Issue 4 next month, background checks will no longer be required for people who hold an ownership stake of less than 5% but other background check requirements will remain, Armstrong said. 

“There will continue to be the same background checks currently in place for employees and anyone else with a card authorizing access to restricted areas of the facility and also anyone with more than 5% ownership interest,” Armstrong said. 

Melissa Fults, a longtime marijuana advocate who opposes Issue 4, provided a list of reasons to vote against the amendment. The fourth bullet point on the 12-item list states:

Removes the limitation on companies holding and seeking licenses to be majority-owned by Arkansas residents

Robbin Rahman, executive director of Harvest dispensary in Conway, said residency requirements, including the one in Arkansas, are unconstitutional and the requirement in Arkansas only exists because it hasn’t been challenged. Rahman said he expects the Arkansas residency requirement to be challenged and eliminated even without Issue 4 on the ballot. 

“The people that are railing against this have no understanding of the law,” Rahman said. “That provision only exists right now because it’s never been challenged. It is patently and facially unconstitutional . . . There is no industry in the United States that has these protectionist provisions that prohibit out-of-state people from coming in and investing in a business. That’s called a violation of the constitution.”  

Harvest dispensary is 75% owned by Arkansas residents and 25% owned by people who live outside of the state.