PA: How A Federal Judge In Philly Could Blow Up The Marijuana Business

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Photo Credit: Jim Wilson

Is a marijuana dispensary an “unlawful” business? A federal judge in Philadelphia will decide.

The dispute over language in the deed of a marijuana dispensary in Northeast Philadelphia could carry outsize implications. A ruling by U.S. District Judge Gene Pratter could affirm the superiority of federal law, which considers marijuana  illegal, over state law, where in Pennsylvania and 29 other states it is not.

Pratter’s decision came Thursday in a strongly worded memo that described the case as “a fundamental clash between state and federal law.”

“The need to pursue certainty on the legal status of marijuana dispensaries looms large,” she wrote.

PharmaCann, an Illinois-based medical marijuana grower and retailer, has a permit to build a dispensary where a Mexican restaurant once stood. It bought the site on the periphery of the Philadelphia Mills shopping center for a reported $1.1 million.

But Philadelphia Mills’ owner, Simon Property Group, doesn’t want the dispensary there. Simon, which has no claim on the property, hasn’t explained why it’s opposed. But it filed a legal challenge against PharmaCann, claiming the property deed prohibits using the site for “a drug store” or any “unlawful” purpose.

“It’s a case with potentially far-reaching implications,” said Bill Roark, a Lansdale lawyer who co-chairs the Pennsylvania  Bar Association’s Medical Marijuana and Hemp Law Committee. “It’s not a new question. But you don’t want a federal court answering it, because you know what they’re going to say. This could create a ripple effect through dozens of states.”

By definition, a drug store is one “used for the sale and display of drugs,” the judge wrote. Medical marijuana dispensaries only sell marijuana oils. When the deed was drafted, no one imagined marijuana would be legal to sell in Pennsylvania. The state’s dispensaries, which sell only cannabis oils, bear little in common with a CVS or Walgreens.

The judge is not focusing on whether a dispensary is a drug store but on whether the proposed store would be unlawful.

Because of the conflict between state and federal law, the definition of “unlawful” is open to interpretation. Pennsylvania, New Jersey, Delaware and 27 other states have legalized medical or recreational marijuana. The federal government, under the Controlled Substance Act, flatly forbids it in any form.

PharmaCann had sought to have the matter resolved in Common Pleas Court.

“We viewed the case as a local dispute over a 27-year-old property deed restriction,” said PharmaCann’s attorney, Jeremy Unruh.

Simon countered. In October, the mall owner had the case bumped up to federal court. PharmaCann sought to send the case back to the state level. That effort failed.

On Wednesday, Pratter, calling this case “exceedingly rare,” said she would hold onto it. She didn’t say when she would rule.

“The deed to Pharmacann’s property prohibits ‘unlawful’ uses,” Pratter wrote. “That single term opens the door for federal question jurisdiction by teeing up a fundamental clash between state and federal law in this case.”

“If a court were to rule that PharmaCann’s dispensary violated federal law, the Supremacy Clause would cast doubt on the validity of dozens of state marijuana schemes,” Pratter said.

The Supremacy Clause of the Constitution asserts that federal law overrides state law. Since 1796, Congress has repeatedly upheld that. But on the issue of medical marijuana, Congress has prohibited the federal government from spending money to interfere with state-sanctioned medical marijuana programs.

Roark, the attorney, said it was unlikely a decision by the judge would deliver a “knockout punch” to Pennsylvania’s marijuana program. But it could set a national precedent.

“Primarily, this could make it harder for someone to operate a dispensary if they don’t own the property. Every lease out there has the ‘unlawful use’ language.” Roark said. “Any landlord could take their tenant to federal court to evict them.”

Karen O’Keefe, director of state policy for the Marijuana Policy Project, said the ruling could delay access to medical cannabis for patients in Northeast Philadelphia. “However, there should be no confusion — it is not an existential threat to medical cannabis programs,” she said.

Such a federal ruling still could send a chill through the industry, according to Hoban Law Group‘s Steve Schain.

“Any legal authority supporting a prohibition on  ‘marijuana growing, processing or selling’ could be cataclysmic —  ranging from impeding the flow of capital through derailing dispensary operations,” Schain said.

“Even the most obscure legal opinion could be leveraged to torpedo a real estate deal or embolden anti-marijuana groups to hinder legal, compliant and transparent medical marijuana sales in strip malls or other highly trafficked commercial areas.”

PharmaCann’s attorney said the company was still evaluating the ruling.

“While we respect the authority of the court, we’re disappointed the court has gone to such lengths to make a local property dispute a federal case,” Unruh said. “But it’s early, we’re weighing how this will affect our strategy going forward.”

And the case could still go away. If PharmaCann withdraws its plan to build on the property, Roark said, the question could become moot.

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