The Eastern U.S. District Court of California wanted to avoid ruling on whether Sacramento’s requirement that all cannabis storefront owners be city residents violated the U.S. Constitution’s dormant commerce clause, but the Ninth Circuit Court of Appeals will not let it.
The Ninth Circuit Court of Appeals, which operates out of San Francisco, Calif., reversed and remanded a lower court ruling on March 4, rejecting the Eastern District of California’s 2022 decision to avoid ruling on Peridot Tree Inc. v. City of Sacramento, which involves a constitutional challenge to the city’s residency requirement for dispensary license holders.
“We understand the district court’s hesitation to resolve whether the Constitution’s dormant Commerce Clause prohibits Sacramento’s alleged conduct, which may require venturing into the murky forests of state and federal recreational-marijuana law. Nor do we doubt that Peridot Tree’s lawsuit presents ‘difficult’ and significant questions,” wrote U.S. Circuit Judge Salvador Mendoza, citing Cohens v. Virginia. “But as the Court wisely noted in 1821, ‘[q]uestions may occur which we would gladly avoid; but we cannot avoid them. All we can do is, to exercise our best judgment, and conscientiously to perform our duty.’”
Peridot Tree, whose owners do not live in Sacramento, claims that the city law requiring residency violates the U.S. Constitution’s dormant commerce clause. At the time, the district court avoided a definitive ruling, staying the case while other similar cases in California, Washington, Maryland and New York were still underway.
The case will return to the district court so that U.S. District Judge Kimberly Mueller can issue an updated ruling.
One of several constitutional challenges to cannabis licensing rules
The ruling is the latest in a series of legal challenges that could potentially upend how the dormant commerce clause is applied to state cannabis law.
Peridot, a prospective cannabis operator, sought to open a storefront in Sacramento only to run into the roadblock of a municipal ordinance barring out-of-town operators.
Kenneth Gay, majority owner of Peridot, sued the City of Sacramento in February 2022 alleging that the city’s residency requirement violated the Constitution. His attorney, Jeffrey Jensen, holds multiple stakes in related companies, and has made similar claims in cases in New York, Washington and Maryland, with varying levels of success.
Gay and Jensen obtained a court order in New York halting the state’s licensing process over social equity requirements, until they settled for a guaranteed license. Similar efforts from Jensen were recently rebuffed by the federal court in Maryland and Washington state.
The district court attempted to duck the constitutional question, arguing that the lawsuit was better left to state court, rather than in a court where federal legal precedent could be set.
“Abstention is the wisest course in these circumstances. States like California are experimenting with marijuana policies and programs. Those experiments are within their traditional police powers over the health, welfare, and safety of their citizens,” wrote U.S. District Judge Kimberly Mueller in a 20-page opinion released Oct. 18, 2022.
The district court also noted its consideration that Jensen is currently litigating similar claims across the country.
“We understand the district court’s hesitation to resolve whether the Constitution’s dormant Commerce Clause prohibits Sacramento’s alleged conduct, which may require venturing into the murky forests of state and federal recreational-marijuana law. Nor do we doubt that Peridot Tree’s lawsuit presents ‘difficult’ and significant questions,” wrote U.S. Circuit Judge Salvador Mendoza in the 36-page opinion, issued March 4.
The appellate court also cited preceding cases that contemplated the issue of whether the application of the dormant commerce clause to cannabis was legally allowable. Those cases included a Maine case where the First Circuit Court of Appeals found that the state’s residency requirement for medical dispensary ownership was constitutionally forbidden and a case out of Washington state over social equity requirements, in which attorney Jensen is also directly involved.
Jensen’s attempt to halt Maryland’s social equity license lottery recently failed in federal court. That lawsuit involved his spouse, Justyna Jensen, who was suing over Maryland’s requirement for social equity status that gave preference for individuals who attended a university in the state where at least 40% of the student body qualified for the Pell Grant.
In Washington, Jensen and Gay sued to again challenge social equity licensing status but were shut down in federal court, which was then affirmed by the Ninth Circuit of Appeals.
Jensen was more successful in New York in early 2023, but a second case against the Empire State’s beleaguered cannabis license roll out remains pending without having resulted in a temporary restraining order.
