Imagine you just moved to Colorado. You see opportunity in the legalized marijuana industry. You decide to apply for a license to sell recreational marijuana in hopes of opening a small retail store. As you prepare your application materials you come across the following language in the Colorado Revised Statutes: “a license shall not be issued to or held by an owner who has not been a resident of Colorado for at least two years prior to the date of the owner’s application.” Your application is now on hold until you have lived in state long enough to satisfy Colorado’s residency requirement.
Residency requirements are used to award rights or privileges to residents of a state in favor of non-residents. They are often used by state universities to offer scholarships, or discounted tuition, to in-state residents only. Residency requirements are becoming commonplace in marijuana legislation.
The hypothetical from the first paragraph demonstrates the advantage Colorado residents have over residents of other states in their access to the marijuana industry. Colorado’s regulatory scheme allows residents to own a marijuana business while prohibiting non-residents from doing the same. The restrictions extend to would-be consumers of recreational marijuana as well. Visitors may not purchase more than ¼ ounce at one time, while residents can purchase up to a full ounce at a time.
Washington state has taken a different approach to its residency requirement. Like in Colorado, licenses are only issued to applicants who can satisfy a temporal residency requirement, which will be extended from 90 days to 6 months if HB 2136 and SB 5052 are successful in establishing a single marijuana market. Unlike in Colorado, Washington’s residency requirement extends beyond buyers and sellers to all members of any partnership, employee cooperative, association, nonprofit corporation, or corporation, all agents and managers — basically anyone involved in a Washington state marijuana business must be a Washington resident.
The status of recreational marijuana residency requirements in Alaska and Oregon is not as clear. Alaska will require applicants to live in the state for at least one year before submitting an application. Oregon’s Measure 91 originally did not contain a residency requirement, but that could always change once all of its regulations are in place.
These requirements are in place for a variety of reasons. They ensure a licensee has some connection to the local community and that the profits from marijuana businesses will stay within the local economy. They also allow states to protect the small businesses that currently compose the marijuana industry because large corporations are often unable to satisfy residency requirements. This has allowed states to control the market without facing pressure from large corporations in the vein of “Big Tobacco” and “Big Pharma.” Residency requirements have helped prevent “Big Marijuana” from becoming a reality. Finally, these requirements are used to show compliance with the Cole Memo, which outlines the U.S. Attorney General’s enforcement priorities in dealing with states that have legalized marijuana. One such priority is preventing the diversion of marijuana from states where it is legal to other states. A licensee is theoretically less likely to transport marijuana across state-lines when he lives in the same state in which his business operates.
Residency requirements also have downsides — most simply, they oppress business growth. We previously reported on how residency requirements depress investing in marijuana businesses. When marijuana business owners are prohibited from looking beyond state lines to raise capital, they must consider a smaller pool of investors. On the other end, potential investors may be discouraged from entering the industry. These requirements can effectively stifle competition, which can in turn reduce options available to consumers. Finally, with so many residency requirements, it is difficult to imagine a large marijuana market with participation from multiple states coming to fruition any time soon. These residency requirements may also violate our Constitution’s interstate commerce clause.
For better or for worse, residency requirements undeniably influence the marijuana market.
What are your thoughts on them?