Legalization vs. The Constitution: Why Most States’ Cannabis Laws Are at Risk
Recent federal court decision is mixed news for Big Weed, but experts say it’s bad news for state equity provisions.
Americans confused and frustrated by the conflicting and contradictory mishmsash of state and federal cannabis law can take solace: US Supreme Court Justice Clarence Thomas doesn’t like it either. But for argumentative types and fans of litigation, good news is here. Thanks to a recent federal court decision, anyone dissatisfied with the status quo in certain states’ cannabis regulatory schemes has more cause to sue and overturn those laws. The era of the cannabis lawsuit has arrived.
The Aug. 17 First Circuit Court of Appeals decision that invalidated a residency requirement in Maine’s medical-marijuana law won’t allow for cross-border shipments of cannabis in between states anytime soon, despite some misleading (or confused) analyses. What it does do, legal experts and federal lobbyists told Cannabis Now, is make it easier for Big Weed to take over otherwise protected state markets—while also, in a twist, putting their current business models at risk.
The decision also set state and local regulators scrambling for their lawyers to see where they’re most exposed. Unfortunately for the social justice minded, well intentioned efforts to ensure minority participation in the cannabis industry’s so-called “equity” programs may be most at risk.
Interstate Commerce vs. Shipping Weed
First, the court case. Like several other states, Maine—which legalized adult-use cannabis in 2016—had on its books residency requirements for anyone seeking a cannabis permit. That’s problematic, as any law that favors locals over out-of-staters violates what’s called the “Dormant” Commerce Clause regulating “interstate commerce.”
As Scott Bloomberg, an associate professor of law at the University of Maine wrote, “Our nation’s current system of regulating marijuana would ordinarily be unconstitutional.”
Recognizing this flaw—one that legal experts have identified as vulnerable for years—an out-of-state Delaware company called High Street Capital that wished to buy out Northeast Patients Group, owner three of Maine’s seven medical dispensaries, sued the state to overturn the residency requirement.
Maine regulators dropped the residency requirement for recreational cannabis but tried to defend the residency requirement for medical cannabis—and lost, twice, first in federal district court and then again Aug. 17 on appeal.
The state could try to appeal to the Supreme Court; it’s unclear if they will. A spokesman for Maine’s Office of Cannabis Policy referred Cannabis Now to the state Attorney General’s Office. A spokesperson for the Attorney General declined to comment.
But in the short term, states with restrictions on “interstate commerce” can expect lawsuits to overturn those restrictions. “I worry,” Bloomberg tweeted, “that [the court] just opened the door to interstate trade via judicial decree.”
Other observers were more circumspect. They pointed out that the decision alone doesn’t mean that multi-state operators can start shipping bud across state lines, as the federal Controlled Substances Act is very much in play.
This may sound like mental gymnastics, but bear with us as we walk through the kind of situation that drives Clarence Thomas up a wall: Though cannabis is illegal, Congress has also tacitly acknowledged an interstate market in marijuana.
“They aren’t saying it’s legal,” said Shane Pennington, a New York-based attorney at Vicente Sederberg LLP, one of the nation’s foremost cannabis-focused law firms. “They’re just saying it exists.”
Congress still classifies cannabis as illegal, and anyone trafficking in an illegal substance across state lines still commits a federal crime.
Several states, including Oregon in 2019 and California this year, have passed laws in anticipation of federal legalization that would allow permit holders to ship cannabis across state lines, provided they hold permits in both states and federal law changes. But those provisions also require major, as-yet unseen changes in federal policy to take effect.
Some legal experts did suggest that someone could try to send a few packs across state lines and then use the First Circuit decision in a defense; other experts said that anyone trying this particular gambit ought to have a very good defense team ready.
What this means is that restrictions that favor in-state residents over out-of-staters are vulnerable to lawsuits—because “interstate commerce” means companies based in other states doing business in other states.
No More Locals Only (Or Locals First)
In this meaning, Facebook conducts interstate commerce. So do Cresco Labs, Trulieve and other cannabis companies with business in multiple states—like, as soon as their sale is approved, High Street Capital.
“What this case says, consistent with case law in alcohol… is that residency requirements passed for state protectionism aren’t allowed under the Commerce Clause,” said Randal Meyer, the executive director of the Global Alliance for Cannabis Commerce, a Washington, D.C.-based lobbying group.
As Meyer and legal observers have said, Maine did not even attempt to find a defense for its residency requirement other than state protectionism, which the Dormant Commerce Clause specifically forbids.
“The 50 states are a free-trade union,” Meyer added. “States simply aren’t allowed to discriminate against other states.”
There are various ways around this prohibition in the form of tax breaks and other favors a state can dole out to companies within its borders. Still, any major cannabis company with intrastate businesses in multiple states—which may want to preserve that status quo as a way of protecting its investments; there’s not much utility in having five massive weed grows in five states unless federal law means you have to—should be prepared for their current business model to be disrupted.
However, other laws, like state and local equity laws that use zip codes of residency or other techniques to reserve equity licenses for drug-war victims who may not be out-of-state residents, are absolutely in jeopardy as a result of this ruling, experts said.
Equity at Risk
There are yet other ways that licensing may be used (or abused) in ways that give preference to local residents. These include “scoring” systems that ultimately favor locals as well as the “arbitrary” choices that local planning, zoning, or even cannabis regulatory boards or commissions may make.
(Oh, the local good old boy who bankrolled the Chamber of Commerce’s pancake breakfast got his permit when the out-of-staters didn’t? It just came down to the merits.)
That’s a stickier situation than a state marijuana law with an explicit residency requirement or other form of protectionism—such as some equity laws. Social equity laws are intended to fulfill marijuana legalization’s unfulfilled promise of ensuring minority participation in the industry. Many of them use residency or an upbringing in local zip codes deemed to be hit hardest by the war on drugs.
“This isn’t necessarily because they’re trying to discriminate against out of state,” Pennington said. “They might be arguing they’re trying to help communities hurt by the War on Drugs… but a court might just say, you can’t do that anymore.”
All of these could remain if, while legalizing marijuana federally, Congress chose to suspend the dormant commerce clause, as Bloomberg wrote in a recent article, even for a short period of time while states experimented with the concept of a national weed market. Some states could opt out, others could opt in. But they can’t now under current federal law—and this spells turbulence ahead, for Big Weed as well as equity licensees.
It sure looks like cannabis lawsuits are in the industry’s immediate future.