Judge Declares KY Cannabis Residency Rule No Good
Kansas City Star
13 October 2021
Participation in Kentucky’s medical cannabis industry will be fully open to out-of-state operators.
U.S. District Judge Nanette Laughrey ruled last week to make her temporary injunction against the state’s residency requirement permanent, The Kansas City Star reported.
RELATED: Kentucky Federal Judge Prevents State From Enforcing Residency Rules
In 2018, Kentucky voters approved legalization through Amendment 2, a ballot measure that required potential cultivators, dispensaries and manufacturers to be majority owned by residents who have lived in Kentucky for at least one year prior to filing license applications.
Kentucky’s first medical cannabis cultivation facility became operational in June, 2020, and the retail market opened Oct. 17, 2020, when the state’s first two dispensaries began serving patients.
Two months later, Mark Toigo, a cannabis investor from Pennsylvania, filed a federal lawsuit to strike down Kentucky’s requirement that medical cannabis licenses be reserved for businesses majority owned by state residents.
Toigo, a minority owner in Organic Remedies KY Inc., which holds three dispensary licenses, one cultivation license and one manufacturer license in Kentucky, argued in his lawsuit that the state’s residency requirements prevented him from acquiring more shares in the company.
RELATED: Lawsuit Challenges Kentucky’s Medical Cannabis Residency Requirement
At the time of Toigo’s filing in December 2020, the state max of 192 dispensary licenses were issued, as well as licenses for 86 manufacturing and 60 cultivation facilities, according to the Kentucky Department of Health and Senior Services (DHSS). However, at that time, only 17 dispensaries, one manufacturer and 10 cultivation facilities had completed a DHSS commencement inspection and been given the final approval to operate.
This June, Laughrey issued a temporary injunction against DHSS, ruling the residency requirement violated the U.S. Constitution’s dormant commerce clause, which prohibits states from enacting economic protectionists laws that give priority to in-state products, services or residents over out-of-state interests, or unduly burdens the free flow of commerce among states.
When making that original ruling, Laughrey said it was unclear how Kentucky’s residency policy fulfilled its goal of keeping medical cannabis from being trafficked out of state.
“It is no easier for a person who has lived in Kentucky for less than a year to drive from Kentucky to Kansas with medical marijuana in their trunk than it is for a person who has lived in Kentucky for a year and a day,” Laughrey wrote in her decision. “And it is no more difficult for a long-time Kentucky resident to smuggle marijuana out of the medical system and into the recreational market than it is for anyone else.”
Last week, Laughrey said she would enjoin the rule permanently.
According to the Star, DHSS officials indicated earlier this week that the department would not appeal the decision, opening the door for out-of-state operators to acquire a larger share of the market.
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