News, Insights & Events

Suit Filed Against Governor Baker to Re-open Recreational Marijuana Businesses

April 8, 2020

On Tuesday, April 7, 2020, five recreational (adult-use) marijuana companies and one individual, a veteran of the U.S. armed forces, filed suit against Massachusetts Governor Charles Baker, seeking declaratory and injunctive relief that would, if successful, nullify the Governor’s executive orders to classify recreational marijuana establishments as “non-essential”, which has forced them to close shop. On March 23, 2020, in light of the COVID-19 crisis, Governor Baker issued an executive order that all “non-essential” businesses close their physical (brick-and-mortar) facilities until April 7, 2020 (extended to May 4, 2020 by a subsequent executive order). While medical marijuana establishments were deemed “essential” and therefore able to remain open, recreational marijuana facilities were not. The following are some of the key takeaways from the complaint filed in connection with the suit and related issues impacting the recreational marijuana industry as a result of their forced cessation of operations.

Harm to Recreational Marijuana Businesses. The Governor’s executive orders were a gut punch to Massachusetts’ fledgling marijuana industry and likely killed a number of the commonwealth’s recreational marijuana companies in the cradle. Many of these businesses have only just gotten up of the ground and running, as a result of the lengthy application process and startup efforts required in launching a new enterprise in a budding industry. With (i) mounting debts, (ii) an inability to access the relief provided by the federal government under the CARES Act and other stimulus packages, and (iii) now being denied the ability make sales and receive much needed cash flows, the financial strain may spurn the closure of many of these businesses forever, having a significant long term ripple-effect on the entire industry as a whole.

In addition, many medical marijuana operations are run by companies with recreational components and the inability to continue sales for the recreational portion is likely to render the entire enterprise, including the accompanying medical counterparts, fiscally unfeasible, prompting the closure of medical marijuana facilities as well. As quoted in an article published by Law360, Frank A. Segall, Co-Chair of Burns & Levinson’s Cannabis Business & Law Advisory Group, indicated that he is “seeing massive layoffs, [and] the costs to sustain the operations just for medical is a big burden in and of itself.” He also noted that if, as a result of such financial burdens, the medical portions of the industry do in fact decide “to shut down entirely and ride this out” that those closures would be “exacerbating the health and safety issues by decreasing the availability of medical products, even to those who have [medical marijuana patient] licenses”.

Harm to Massachusetts Residents. A large number of Massachusetts residents rely on the recreational marijuana industry as a supplemental source for their medical marijuana supplies, purchasing the recreational product for medical purposes. The reasons for opting to circumvent the “proper” medical route are many, but often include: (i) high costs and logistical difficulties associated with applying for and receiving medical prescriptions, (ii) limited or no medical dispensaries in proximity to the patient’s residence, and (iii) the stigma or repercussions of being listed on a marijuana database. One such notable repercussion, exemplified by the lone individual person named as a plaintiff in the suit, is that many veterans (who find medical marijuana to be a preferable alternative to prescription opioids, for treating wartime injuries) would be subject to losing their medical and other benefits provided by the federal government, were they to be officially registered as medical marijuana patients. Another leading reason for medical marijuana patients to patronize recreational retail locations in place of medical dispensaries is a lack of access to medical retail, as exemplified in the complaint, which notes that the island of Nantucket only has a recreational retail facility. Given the stay-at-home advisory (aka. shelter-in-place) and the high risk of exposure to the virus that leaving the island would entail, medical marijuana patients remaining on Nantucket have essentially been deprived of their ability to obtain much needed medical supplies.
Plaintiffs’ Claims. The plaintiffs’ complaint sets out four counts for which they are seeking relief:
- A violation of the Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution, which provides that no State shall deprive any person of equal protection of the laws. The plaintiffs claim that the different treatment afforded to recreational marijuana facilities versus their medical counterparts and liquor stores violates the Fourteenth Amendment, causing them irreparable harm.
- A violation of the Massachusetts Declaration of Rights, affording all persons in the Commonwealth the guarantee of the right to equal protection of the laws.
- A violation of the Commonwealth’s Constitution and laws, as a result of the Governor’s executive orders being an excessive and invalid use of his powers and beyond his executive authority.
- A claim for preliminary and permanent injunctive relief, as the injury suffered by the plaintiffs from the executive orders would be irreparable and outweigh any conceivable harm to the public that may result from recreational marijuana being added to the list of “essential” businesses.
Rebuttal of the Governor’s Argument in Favor of the Ban. The only rationale that the Governor has provided in support of his decision to close recreational marijuana facilities and not medical ones, is his claim that residents of other states may cross over into Massachusetts to purchase marijuana products at recreational retail locations, therefore contributing to the spread of the COVID-19 virus. The industry has voiced an obvious and rational counter to this argument (which is echoed in the complaint) that recreational sales could simply be limited to just Massachusetts residents, a measure which could be easily implemented.
Action by the MA Cannabis Control Commission. The Massachusetts Cannabis Control Commission (CCC) recently held a public forum meeting, on May 3, 2020, to discuss some of the approaches that it could take to offer assistance to recreational marijuana establishments adversely affected by Governor Baker’s executive orders. As noted in a recent article, one such course of action would be for the CCC to fold the cultivation and processing portions of the recreational sector into the medical marijuana supply chain, permitting those operations to sell wholesale directly to medical marijuana enterprises. By reclassifying those portions of the recreational marijuana industry as a part of the larger medical marijuana supply network, such a move would thereby effectively allow them to re-open for business. The CCC, in a courageous move, recently adopted this measure and is now permitting recreational growing and manufacturing facilities to restart operations and sell product to medical marijuana establishments, providing some much needed relief to the industry.

Of all the other states that have legalized both medical and recreational marijuana, Massachusetts is the only one to have ordered recreational businesses to shut down while medical remains operational. This move by the Governor has imposed a critical health and safety measure during a time of crisis and one that has the potential to cause great harm to not only the commonwealth’s nascent marijuana industry, but also to the many Massachusetts residents who rely on the recreational marijuana industry to obtain important medical treatment. As such, Burns and Levinson is encouraging our clients and all Massachusetts residents to reach out to their state legislators and Governor Baker to voice their support in favor of designating recreational marijuana as an “essential business”.

About the Authors: Joshua Robinson and Frank A. Segall

Joshua Robinson is an associate at Burns & Levinson and a member of the firm’s Corporate, Finance, Restructuring, and M&A practices. As a member of the Cannabis Business Advisory group, he represents both borrowers and lenders in connection with loan and other credit-related transactions in the marijuana industry. He also counsels equity investors, operators, consultants, businesses, and other enterprises seeking to enter the cannabis market and advises them on mergers, acquisitions, capital raises, and other corporate and commercial transactions. He can be reached at jrobinson@burnslev.com or 617.345.3541.

Frank A. Segall leads Burns & Levinson as part of its Executive Committee and as Chair of the firm’s Business, Finance, Restructuring and Venture Capital & Private Equity groups. Known for his business savvy, thoughtfulness and legal expertise, Frank has helped build the firm’s practice and focus on the needs of growing companies. Highly networked and capitalizing on his business acumen along with lawyering skills, Frank has helped his clients create, develop, and build synergies, negotiated highly complex and sophisticated transactions, secured billions of dollars of financing, brokered strategic partnerships and expanded revenues for his clients. He can be reached at fsegall@burnslev.com or 617.345.3684.