Montana Cannabis Ownership Law Faces Legal Challenge over Residency Requirements

LOS ANGELES– A father-and-son investor duo are the latest to challenge state residency requirements for cannabis business ownership, a contentious issue facing multiple states. Two out-of-state investors, Tom and Jerry Reed, have filed lawsuits in Montana aiming to overturn the state’s residency requirement for owners of cannabis businesses. The suit is part of a broader nationwide trend of legal challenges to such requirements.

The Reeds filed their lawsuits in federal and state court in July, claiming that Montana’s ownership residency prerequisites for cannabis businesses are in violation of both the U.S. and Montana constitutions. They argue that the law represents “economic protectionism.”

This issue has been prominent in other states as well. A federal judge’s ruling last year, nullifying a similar residency requirement in Maine, has spurred other would-be cannabis entrepreneurs to lodge similar complaints.

In New York, a legal challenge disrupted the issuance of adult-use retail licenses for several months. The U.S. Supreme Court has previously ruled that residency requirements in other industries are unconstitutional.

According to legal filings, the Reeds invested $2.2 million in a Montana-based cannabis business called MBM Management and Consulting. MBM, which managed another company’s state-licensed business, allegedly failed to disclose Montana’s residency requirement to the Reeds before they made their investment.

The Reeds assert that they discovered the business was failing. Upon approaching the state, regulators found that the investors were not state residents and proceeded to revoke the license, as reported by the Helena Independent Record.

Montana’s residency requirement for cannabis business ownership has been in place for nearly 20 years, first introduced under the state’s 2004 medical cannabis law and reaffirmed in 2020 when voters approved adult-use legalization.

The state’s response to the challenge in U.S. District Court is expected by Aug. 22, according to court filings.

This latest challenge underscores a growing legal battle across the country concerning the rights of non-resident investors in the burgeoning cannabis industry. As states continue to enact and modify cannabis legislation, the intersection of federal and state law is likely to be a focal point for legal scrutiny, potentially shaping the future landscape of the cannabis business sector in the U.S.