Maryland's Ability to Mandate State Cannabis License for Hemp Producers Temporarily Restricted

Maryland's cannabis licensing program faced a legal challenge, and hemp producers and retailers came out on top. However, there was a problem. Instead of creating a separate licensing system for hemp products, the CRA required anyone selling a product intended for human consumption or inhalation with more than 0.5 milligrams of THC per serving or 2.5 milligrams of THC per package to be licensed as a cannabis business. And here's the kicker - the definition of THC included delta-8, delta-9, and delta-10 THC, which are found in both hemp and marijuana.

This lack of distinction between hemp and marijuana meant that existing producers and retailers of hemp-derived THC products were being included in the new cannabis program.

Thankfully, hemp producers and retailers stood up, fought back, and won! This is a significant victory for the industry and an important step towards clarifying the regulations around hemp and marijuana products.

The court has ruled in favor of the plaintiffs in a recent case, granting their request for a preliminary injunction. The court found that the hemp industry plaintiffs' fundamental rights to "life, liberty, and property" were at stake, and they are likely to succeed for three key reasons.

Firstly, the court determined that Maryland's licensing program is in conflict with federal law because the state has not submitted the required plan to the U.S. Department of Agriculture (USDA). While federal law allows states to create their own hemp licensing and regulatory systems, the state must first obtain USDA approval. Maryland did not submit the plan for approval, leading the court to conclude that the licensing remains under USDA jurisdiction.

Secondly, the court found that the cannabis licensing program established by the Controlled Research Act (CRA) created an unfair monopoly. This monopoly infringes on individuals' right to pursue their chosen profession, to the detriment of the public. The program initially only allowed existing medical cannabis licensees to participate in the THC product market, excluding existing hemp producers and retailers. The court also noted that the program imposed geographic restrictions that prevented most Marylanders from applying for a license. In sum, the court recognized that this program grants significant benefits to a select few while preventing many, including the hemp producer plaintiffs, from engaging in their chosen occupation - an occupation that is legal under federal law.

The court has ruled that the social equity criteria in the Cannabis Regulatory Agency (CRA) are not logically connected to their goal of rectifying the harms caused by the war on drugs. The CRA grants social equity status to residents of communities that have been disproportionately affected by the war on drugs, based on the percentage of marijuana charges in their area. However, the court noted that it doesn't matter if an applicant was actually impacted by the war on drugs, only that they live in a specific zip code. Ultimately, the court found that the CRA discriminates against those who don't live in designated zip codes, violating equal protection provisions.

This decision is significant because it may influence other courts, including those in neighboring states like Virginia, when considering their own regulations on hemp businesses. It could set a precedent that states cannot create their own hemp licensing programs without USDA approval.

It's also important to note that this order highlights a recurring issue with social equity provisions in cannabis licensing programs. Courts have previously found that geographic limitations and state residency rules discriminate against out-of-state commerce. This order shows that such requirements can also be in violation of state law by excluding applicants who don't meet specific social equity criteria. We anticipate that similar restrictions in state licensing programs will continue to face scrutiny.