Oklahoma wins residency rule challenge
An out-of-state challenge to Oklahoma’s residency rule has ended with a Federal Judge dismissing the suit due to federal illegality of marijuana.
It pays to be an Oklahoman. And that was the intention behind the residency provision in SQ788—to provide Oklahomans the opportunity to enter their own emergent cannabis market before being captured by already established out-of-state entities. The Unity Bill of 2019 further defined the residency rule by requiring 75% of cannabis business ownership to be held by an Oklahoma resident of at least two years spurring a series of continued challenges to its standing.
Most recently, Washington State company Original Investments brought a constitutional challenge to Oklahoma’s residency requirement citing that it violated the dormant commerce clause because it discriminates against non-residents. Oklahoma’s position was that the doctrine doesn’t apply to a market congress has made illegal and as is the case the court should not facilitate federally illegal activity, stating in brief:
"Plaintiff offers no authority whatsoever to support its claim that an appropriation restriction alters the implications of the dormant commerce clause to a market that Congress has deemed illegal. Nor does this appropriation restriction overturn the CSA."
Despite the outcome with a similar challenge in Maine which resulted in the state overturning their residency rule, that position stuck with U.S. District Judge Stephen Friot who dismissed the suit last week abruptly ending Original Investments bid for Oklahoma cannabis licensure by way of legal challenge.
"Selling marijuana is a criminal offense, punishable by imprisonment, everywhere in the United States. The dispositive question in the matter now before the court is whether the court should facilitate the plainly criminal activity in which plaintiff proposes to engage in the State of Oklahoma. The court declines to do so."
-U.S. District Judge Stephen Friot
While federal law helped Oklahoma win the fight for now, Judge Friot did note the case was “not frivolous.” Without a direct ruling as to the constitutionality of Oklahoma’s residency requirements and federal cannabis prohibition seeming poised to end in the not-so-off future, it may only be a matter of time before another challenge comes from another company attempting to take stake in what Oklahomans believe is rightfully theirs to own. Until then, residency requirements remain to benefit Oklahomans as intended by SQ788.
Oklahoma’s Residency Requirement
SQ788 created the framework for Oklahoma’s medical marijuana program and residency requirement. It stated that 75% of each applying entity must show all members, managers and board members are Oklahoma residents. The bill didn’t go far enough however in defining “resident” or what was required for proof, and after its passing over 1,000 licenses were awarded to applicants who later would not qualify as residents based upon the clarified definitions set forth by HB 2612, otherwise known as the “Unity Bill.” Ultimately, those thousand-some licensees were grandfathered into the program, but the residency requirement remains the same today for new applicants:
11. In order to be considered an Oklahoma resident for purposes of a medical marijuana business application, all applicants shall provide proof of Oklahoma residency for at least two years immediately preceding the date of application or five years of continuous Oklahoma residency during the preceding twenty-five years immediately preceding the date of application. Sufficient documentation of proof of residency shall include a combination of the following:
a. an unexpired Oklahoma-issued driver license,
b. an Oklahoma voter identification card,
c. a utility bill preceding the date of application, excluding cellular telephone and Internet bills,
d. a residential property deed to property in the State of Oklahoma, and
e. a rental agreement preceding the date of application for residential property located in the State of Oklahoma;
There is no workaround for Oklahoma’s residency requirement. Non-residents who want in on the program will instead need to work with the law and partner with an Oklahoma resident at no more than 25% ownership until they qualify as a resident themselves.
If you have questions about Oklahoma’s residency requirements, operating agreements and partnerships or need to ensure your OMMA application has the required representation, contact us today.
