Federal Court to Address Key Issue Impacting Medical Cannabis Dispensaries

Federal Court to Address Key Issue Impacting Medical Cannabis Dispensaries

A federal judge recently agreed to decide a case that could have a significant impact on medical cannabis companies across the country. The dispute centers on whether a deed restriction that forbids any “unlawful” purpose can be used to prohibit the operation of a medical marijuana dispensary. The case, PharmaCann Penn, LLC v. BV Development Superstition RR, LLC is pending in the Eastern District of Pennsylvania.

Deed Restrictions and Medical Marijuana Dispensary

The deed to a property at a shopping center prohibits using the property as a drug store or for any “unlawful” purpose. PharmaCann Penn, the new owner of the property, sued in state court, seeking a declaratory judgment that it may open a medical marijuana dispensary on the property despite these deed restrictions.

The property in question is part of the Franklin Mills shopping center (now called the Philadelphia Mills). The shopping center is managed by defendants Simon Property Group, Franklin Mills Associates, and Franklin Mills Residual. Defendants Western Franklin Mills and BV Development Superstition are previous owners of the property.

In 2017, BV Development conveyed the property to PharmaCann. PharmaCann then obtained a permit from the Commonwealth of Pennsylvania to operate a medical marijuana dispensary pursuant to the Pennsylvania Medical Marijuana Act. In addition, the City of Philadelphia granted PharmaCann a zoning permit for the dispensary. The deed to PharmaCann’s property contains several restrictions. As relevant to the case, the deed prohibits “[a]ny activity or use which is unlawful.” It also prohibits the operation of a drug store, defined in part as “a store used for the sale and display of drugs.”

PharmaCann sued in state court for a declaratory judgment interpreting the deed’s prohibitions on “unlawful” uses and on “drug stores” as inapplicable. Franklin Mills sought to remove the case to federal court given that marijuana remains illegal under the federal Controlled Substances Act. Meanwhile, the dispensary sought to keep the case in the state’s Common Pleas Court because medical marijuana is legal under state law in Pennsylvania. 

Court Denies Motion to Remand

Judge Gene Pratter denied PharmaCann’s motion to remand, concluding that the court has federal question jurisdiction over the case. “The deed to PharmaCann’s property prohibits “unlawful” uses. That single term opens the door for federal question jurisdiction by teeing up a fundamental clash between state and federal law in this case,” Judge Pratter held.

In reaching her decision, Judge Pratter determined that satisfied the four-factor test set forth in Gunn v. Minton, 568 U.S. 251, 257 (2013). It holds that “federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”

The court first held that federal question of the dispensary’s lawfulness is necessarily raised because a court must consider and ultimately apply federal law in order for PharmaCann to get the relief it seeks. “The resolution of the federal question — namely, whether a medical marijuana dispensary is ‘unlawful’ under the Controlled Substances Act — is necessary to decide whether the dispensary is an ‘unlawful’ use under the deed. Indeed, PharmaCann seeks a court’s declaration that its marijuana dispensary is lawful, which requires a court to apply federal law to PharmaCann’s chosen use,” Judge Pratter explained.

The court also noted that the issue raised in the case is “substantial.” First, First, the court held that the “need to pursue certainty on the legal status of marijuana dispensaries looms large.” In her opinion, Judge Pratter noted that 29 states have authorized some form of medical marijuana and nine have authorized “recreational” marijuana. “The federal status of these state schemes could be clarified or brought into sharper focus by a ruling on whether PharmaCann’s proposed dispensary violates federal law,” Judge Pratter wrote.

The court further concluded that the “issues at hand counsel in favor of review by a court used to federal drug law and versed in principles of federalism.” Judge Pratter added: “If a court were to rule that PharmaCann’s dispensary violated federal law, the Supremacy Clause could cast doubt on the validity of dozens of state marijuana schemes. Such a ruling, in other words, would require a court to consider the delicate comity between our federal and state systems.”

Key Takeaways for NJ Cannabis Industry

The dispute will now continue in federal court, which is significantly less advantageous for cannabis businesses. The judge’s decision to keep the case in federal court heightens the possibility that the business will be deemed “illegal.” If application of federal law in this manner occurs, the Supremacy Clause, which provides that federal law overrides state law, will operate to chill the medical marijuana industry because any landlord could take their medical cannabis tenant to federal court to have them evicted. It would also make it difficult for anyone to operate a medical marijuana dispensary on property that they do not own.  The defendants have filed a motion to dismiss, which is scheduled for oral argument in May.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Medical Cannabis Dispensary Seeking Immunity in IRS Audit
• Industrial Hemp Farming Poised for Growth Under NJ Bill
• Gov. Murphy Greenlights Expansion of the NJ Medical Marijuana Program