‘Uniqueness’ Of New Hampshire’s Proposed State-Run Marijuana Stores Could Create Federal Liability, AG’s Office Says

A New Hampshire commission charged with drafting legislation to legalize marijuana through a series of state-owned stores heard from a representative of the state attorney general’s office on Thursday who spoke to some of the unique legal considerations that could arise from the state-run sales model.

Myles Matteson, a senior assistant attorney general who heads the office’s criminal justice bureau, told the commission that while no state-level cannabis regulatory regime is completely free from liability, New Hampshire’s decision to chart an entirely new course could attract additional scrutiny in the form of both federal criminal prosecution and civil lawsuits.

“The uniqueness of any particular regime or structure may attract some of those liabilities,” Matteson said.

“The probability or extent of those liabilities is unknown to the attorney general’s office,” he added, but “any state-controlled or state-managed system certainly creates liabilities. There’s no doubt about that.”

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Matteson is one of 19 members of the state Commission to Study With the Purpose of Proposing Legislation, State-Controlled Sales of Cannabis and Cannabis Products, which was created through legislation in August. The panel’s job is to consider cannabis legalization’s possible impacts on New Hampshire and craft recommended legislation by December 1. Lawmakers would then take up the bill in the coming 2024 session.

While the panel was formed to consider state-run stores, last month members turned to consideration of an alternative, franchise-style model, under which stores would be privately owned but overseen by the state government. Officials have likened the model to McDonalds and Dunkin’ Donuts.

While the goal appears to be a middle ground between state control and private industry, the novel regulatory model raises a number of unexplored questions.

One member of the panel, Rep. Jared Sullivan (D), asked about how such a franchise model would conform with federal law, given that franchises are federally regulated. Matteson admitted he didn’t know the answer offhand, but he acknowledged there could be state–federal conflict problems similar to those that have largely prevented federally regulated banks from working with state-legal cannabis businesses.

“If franchises are generally regulated at the federal level,” Sullivan noted, “then I can see that potentially being a conflict that maybe we haven’t thought about in this committee, and I think that’s something we should probably dig into.”

Other questions from panelists involved how to protect state revenue from potentially being seized by federal law enforcement if the U.S. Department of Justice decided to prosecute New Hampshire, or if a private party tried to sue. Matteson said that while there are ways to limit the state’s exposure, moving forward with the plan would still involve some level of risk.

The commission is scheduled to revisit the proposal next Tuesday, October 24, at which time panelists are expected to take public comment.

During the second portion of Thursday’s hearing, the commission heard from representatives of existing medical marijuana dispensaries, known in the state as alternative treatment centers (ATCs). Among the matters they raised were the way such businesses are structured and how the state would eventually integrate ATCs into an adult-use market.

Matt Simon, the director of public and government relations at medical marijuana provider GraniteLeaf Cannabis, spoke to the commission at length about the ATCs’ concerns. Generally, however, he said the state’s medical marijuana dispensaries are prepared to move forward with a franchise model.

With less than a month and a half before draft legislation is due, Simon told Marijuana Moment in an interview that he believes the commission will ultimately proceed with the franchise model.

“My sense is that the commission views the franchise model as a potential compromise, and all work will focus on fine-tuning that model,” he said. “It was a productive discussion today, and we look forward to continuing it at future meetings.”

Among the items Simon flagged as concerns are a current requirement that ATCs organize as not-for-profit businesses at the state level, which dispensaries have said actually increases compliance burdens and costs to patients.

“The for-profit conversion language does not seem to be controversial at this point,” he told Marijuana Moment in an email, noting that the provision is included in a current draft bill that is being circulated as well as other versions presented earlier this year. “I hope we’re done arguing about that once and for all and there’s an understanding that the ATCs will be able to transition.”

Another issue Simon raised was who controls the look and feel of medical marijuana dispensaries that expand into adult-use sales. Under the draft currently being discussed, state regulators would control the branding and layout of all adult-use stores, but ATCs, which are privately run, worry that restriction would undercut their ability to differentiate themselves from competitors.

(Disclosure: Simon supports Marijuana Moment’s work via a monthly Patreon pledge.)

While the commission’s chair, Sen. Daryl Abbas (R), has repeatedly referred to draft legislation in during the panel’s meetings, he has not made the document public. At the group’s last meeting, Abbas offered to send the draft to other commission members as well as licensed medical marijuana companies, but his office has not replied to Marijuana Moment’s emailed requests following each of the last two commission meetings.

Of course, crafting a recommended bill is only the first step. From there, lawmakers in the coming legislative session must hammer out the details and get the measure across the finish line.

Simon, for his part, thinks the legislature will be up to the task.

“There is a tremendous amount of pent-up demand for legalization in New Hampshire, so lawmakers are looking for a way to get this done,” he said. “If this is the way that it can be done and meet the governor’s standards, then I think the House and Senate are going to be amenable to this.”

“They’re going to have a lot of questions about the details,” he continued. “We’ll have to deal with that through the legislative process in 2024.”

Some New Hampshire farmers aren’t so keen on the state-owned model, according to a recent survey. A New Hampshire Cannabis Association poll of 69 farmers found that 87 percent support legalization in general and 78 percent percent have an interest in growing marijuana. But only 11 percent said they would support a state-run model, 63 percent said they were opposed and 26 percent remained undecided.

In addition to generally studying the feasibility of a state-run cannabis model, which has the support of Gov. Chris Sununu (R), the commission is specifically tasked with looking at the possibility of drafting legislation that:

1.  Allows the state to control distribution and access
2. Keeps marijuana away from kids and out of schools
3. Controls the marketing and messaging of the sale of marijuana
4. Prohibits “marijuana miles” or the over-saturation of marijuana retail establishments
5. Empowers municipalities to choose to limit or prohibit marijuana retail establishments
6. Reduces instances of multi-drug use
7. Does not impose an additional tax so as to remain competitive

House Commerce and Consumer Affairs Committee Chairman John Hunt (R), a member of the commission, worked extensively on marijuana reform issues this year and attempted to reach a compromise on legislation to enact legalization through a multi-tiered system that would include state-controlled shops, dual licensing for existing medical cannabis dispensaries and businesses privately licensed to individuals by state agencies.

Hunt’s House panel, however, reached an impasse on the complex legislation, which was being considered following Sununu’s surprise announcement that he backed state-run legalization. Meanwhile the Senate defeated the a conventional legalization bill, HB 639, despite its bipartisan support.

The underlying commission legislation that the governor signed into law with the legalization study provisions would also remove an existing requirement that pain patients try opioid-based treatments first before receiving a medical cannabis recommendation for their condition.

It also includes provisions to clarify that the state’s hemp law is not intended to authorize the sale of hemp-derived intoxicating products, such as delta-8 THC.

In May, the House separately defeated a different marijuana legalization amendment that was being proposed as part of a Medicaid expansion bill.

Also, the Senate moved to table another piece of legislation that month that would have allowed patients and designated caregivers to cultivate up to three mature plants, three immature plants and 12 seedlings for personal therapeutic use.

After the Senate rejected reform bills in 2022, the House included legalization language as an amendment to separate criminal justice-related legislation—but that was also struck down in the opposite chamber.

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