Kenneth Gay, a Michigan resident, has filed a lawsuit challenging the constitutionality the cannabis social equity program in Los Angeles. Gay has a stake in an LA-based company and had applied for a license under the social equity program.
According to the suit, Gay has submitted his social equity application, but as of October 24, 2022, the City of Los Angeles hadn’t completed verifying his eligibility and yet a lottery to select licensees is slated for Dec. 8, 2022. He filed his lawsuit on Nov. 30, 2022.
Under LA law, to be eligible for the social equity program permit, one has to have a prior arrest/conviction or come from a low-income area or an area that has been negatively affected by police brutality. Gay claims he qualifies in all the three categories, but the arrest happened in Michigan and not LA. In his suit, he argues that LA law provides preferential bias against out-of-state residents with regards to the social equity program lottery, yet the U.S. Constitution has a clause against such bias.
This dormant commerce clause stops states and local governments from discriminating against out-of-state residents and offering preferential treatment to the locals. From Gay’s lawsuits presented in New York State and California, he had a reprieve when his lawsuit caused a halt in licensing in some parts of New York. The New York suit has also created a degree of disarray in that New York regulators have to wait before they issue some adult-use marijuana retail licenses until after the case is resolved.
In this lawsuit the plaintiff has a 51% stake in a company, Variscite, that applied for licenses in regions that are not significantly connected to New York. The New York judge granted the injunction. He declared that the defendants, including New York State, the New York State Office of Cannabis Management (OCM) and the agency’s executive officer, did not show the legitimacy of the initial license requirements.
In Sacramento, California, Gay claims that the Sacramento cannabis social equity program requirement violates one’s constitutional rights. In the lawsuit, Gay stated that he met all but one of the requirements for eligibility for the cannabis social equity license. This one requirement that Gay missed out on shows bias because licenses issued by Sacramento City favor current or former residents but not outsiders. Gay is not a resident of Sacramento, although he has a business there.
The lawsuits are another manifestation of the contradictions between federal law and state law, especially with regard to marijuana. On one hand, marijuana is illegal at the federal level so one wouldn’t expect federal law to be invoked in order to allow a company to conduct that business anywhere in the country.
On the other hand, many states’ laws allow marijuana, and it would be expected that states ought to be allowed to pass their own enabling laws without undue interference from federal agencies or laws. How this plays out is likely to be closely watched by companies that are active in the marijuana industry in different jurisdictions, such as Flora Growth Corp. (NASDAQ: FLGC).
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