Cannabis Musings - January 9, 2024
Cannabis Musings - January 9, 2024
Cannabis Interstate Commerce - the gift that keeps on giving.
Friends – back in Fall 2022, the State of California enacted a law allowing for cannabis interstate commerce pacts with other states if, among other things, the state’s Attorney General issued a legal opinion that doing so would “not result in significant legal risk to the State of California under the federal Controlled Substances Act . . ..” Seems like a no-brainer, right? I mean, what’s the likelihood the Department of Justice would go after the State of California for agreeing with another state to allow for cannabis trade between them?
So, a few months later, California’s Department of Cannabis Control sent a letter to its Attorney General asking for said opinion. We talked about this back in January 2023, one of too many (or, if you’re a law nerd, not enough) Cannabis Musings discussing the dormant commerce clause. If you’re not familiar with this zaftig topic, it’s a court-created doctrine based in the Commerce Clause of the Constitution that says that states generally can’t impose an undue burden on interstate commerce, such as blocking products from another state. It’s the reason, say, New York can’t ban imports of out-of-state rugelach.
It took a while, but California’s Attorney General finally issued its opinion in December 2023 – it came and passed with barely a whimper, because, well, it wasn’t what the industry had hoped for. In short, the state’s AG concluded that there could indeed be “significant legal risk” to the state (and, more importantly, state officials) if California were to enter into cannabis commerce pacts with other states. The opinion relies heavily on a deep analysis of whether the Controlled Substances Act preempts (basically, overrules) state laws permitting cannabis interstate commerce, concluding that it might or it might not, but that uncertainty isn’t enough for a legal opinion.
So, where does that leave the State of California’s efforts? Well, it needs to either wait for federal legalization, or, as is also allowed by the September 2022 law, the U.S. Department of Justice could “issue an opinion or memorandum allowing or tolerating” cannabis interstate commerce. Kind of an enhanced Cole Memo 2.0, which is the industry’s latest Godot. But, given the federal lawsuit filed in October challenging Congress’ ability to regulate intrastate cannabis commerce, as I noted, I’m somewhat skeptical that the DOJ (which also has to defend that lawsuit) would issue anything public on cannabis policy any time soon.
So, whither cannabis interstate commerce? We can always look towards the courts for relief, right? Right?
Well, no. Just yesterday (paywall), another federal court rejected a dormant commerce clause challenge to a state’s social equity licensing requirements. The federal district court in Washington, in the case of Peridot Tree v. Washington State, sided with a number of other courts in finding that the dormant commerce clause does not protect cannabis interstate trade because, well, it’s federally illegal.
We talked about this concern last year when we noted that a federal court in Michigan came to the same conclusion, rejecting the Federal 1st Circuit Court of Appeals’ earlier determination that the dormant commerce clause does indeed offer protection. Though it pains me to say it, I think that the district courts here are somewhat correct that the 1st Circuit’s decision was kinda wobbly, and also really depended upon Rohrabacher-Farr’s protections against using federal funds to keep states from implementing licensed medical cannabis laws. At heart, however, it’s still purely a policy decision the courts are ultimately making here (every case is judicial activism to some extent), and the trend is that they’re not doing the industry any favors.
So, it looks like the industry will likely be stuck with bans on interstate commerce for the time being, whether it likes it or not. The result is geographical weirdness, like what’s happening in Sundland Park, New Mexico, right over the border from El Paso, Texas. Just like how there’s a dozen “world’s largest fireworks store” establishments in Indiana right across the Illinois border.
Be seeing you!
© 2024 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.