Cannabis Musings - July 30, 2026

More than you really wanted to know about cannabis interstate commerce.

Friends, over the years we’ve talked a lot about cannabis interstate commerce. It’s one of our favorite topics because the ability to sell across state lines is so fundamental to the way business is done in the US, yet that isn’t a thing in licensed cannabis. This feature is one of the first things we talked about in Cannabis Musings when we started, and here we are, about eight years later, still talking about it, because it still makes no sense and, as the responses to a recent LinkedIn post by AnnaRae Grabstein, one of my This Week in Cannabis LIVE co-panelists, made clear, remains understandably misunderstood. So, let’s talk a little more about cannabis interstate commerce.

By way of background, the US Constitution’s Commerce Clause (Article I, Section 8, Clause 3) gives Congress the power to regulate commerce among the states, i.e. interstate commerce. What that’s been interpreted by the courts to mean is that the states (mostly) don’t have that power. More importantly for our purposes, the courts have read that to also mean that states can’t impose an undue burden on interstate commerce. This is known as the ‘dormant commerce clause,’ I guess because it’s usually asleep and only wakes from its metaphorical slumber when a state tries to do something nefarious like blocking the import of tchotchkes from another state, or impose a tax on them.

The whole idea is that one state can’t favor its own citizens over another’s in terms of the interstate flow of goods (think antitrust protectionist tactics.) So, the State of New York can’t protect its own apple market by prohibiting the import and sale of Washington State apples within its (New York’s) borders, or levy an additional tax on those Washington apples. That’s the heart of the dormant commerce clause – you have to be fair to your non-citizens.

There’s an exception to all of this for health and safety, but that’s a fairly high bar to meet (for our lawyer subscribers, think strict scrutiny) if it’s still treating out-of-state goods differently; however, if the same health and safety benefits treat in-state and out-of-state products the same, then a court will probably deem that kosher. This will be important for our discussion.

Back to cannabis, remember that, until recently, (non-hemp) cannabis was a Schedule I controlled substance under federal law. That’s as illegal as you can get under the Controlled Substances Act. However, as we all know (it’s why we’re all here), many states threw caution to the wind and legalized cannabis in some form or another. When it comes to the Controlled Substances Act, federal law preempts (trumps) state law, so the states risked angering the Department of Justice (of which the Drug Enforcement Administration is an agency) with such chutzpah. In order to mitigate that risk, those states limited their licensees’ commercial cannabis activities to within their respective borders by making it unlawful under the cannabis regulations to cross the state line with the product.

And it worked! To date, doing us all a mitzvah, the federal government has not gone after the states for legalizing cannabis, nor has it prosecuted any state-licensed commercial cannabis activities. The unintended (probably) consequence has been the development of a highly-fragmented mishmosh of individualized, protectionist marketplaces, but that has been the price of doing business. The takeaway here is that the lack of interstate cannabis commerce is due to state law, not federal law (though, to be fair, it’s driven by not wanting to further poke the federal bear).

(If you’re wondering, this is related to last year’s Canna Provisions case, which tried to get the federal courts to overturn standing Supreme Court precedent that these intrastate cannabis operations didn’t violate the Controlled Substances Act, but that didn’t happen. What’s important is that, from a federal law perspective, it didn’t matter whether cannabis was crossing states lines or not – those activities were just as illegal either way for the operator.)

Over the years, there have been a number of dormant commerce clause-based challenges by enterprising lawyers arguing that state cannabis licensing schemes requiring in-state residence are unconstitutional because they favor one state’s residents over another. The fundamental issue in all of those cases has been whether an illegal business (i.e.,cannabis) may be afforded the protection of the Commerce Clause (via the dormant commerce clause). Surprisingly, federal appellate courts are all over the map on this, most recently the Ninth Circuit in 2026 saying ‘no soap,’ with the Second Circuit just last year saying ‘illegal, schlimegal, enjoy that constitutional protection.’ These cases haven’t addressed the interstate transport issue, but the core is pretty much the same, whether cannabis’ illegality is the reason the states’ protectionist laws are able to remain in place under the Commerce Clause (via the dormant commerce clause).

Circling back to rescheduling, a few months ago, we touched on what the move of medical cannabis to Schedule III means for interstate commerce:

State laws that prohibit the crossing of state borders with licensed cannabis would seem to squarely violate the dormant commerce clause, but many federal courts have found otherwise, basically saying ‘yeah, but cannabis is illegal under federal law, so too bad, no Commerce Clause protection for you.’ But, if we have a form of federally legal cannabis, states couldn’t hide behind this defense that there’s no ‘interstate market’ for an illegal product under the dormant commerce clause, at least for DEA-blessed medical cannabis. Meaning that a challenge to these state laws ought to succeed for my THC knish company.

The key is that the rescheduling of cannabis doesn’t in and of itself bring about interstate commerce, because, again, the direct problem is at the state level, not the federal level. Even if the interstate transport of state-licensed medical cannabis sold to, and bought back from, your friendly, neighborhood federal drug dealer - the DEA - under the new licensing regime will no longer violate the Controlled Substances Act (once the scheme is in place and DEA licenses are issued), state laws will still be in place, meaning that an operator would be theoretically risking its state-issued license by crossing the border. Rescheduling didn’t automatically bring us interstate commerce.

So, how then do we get to free-flowing interstate commerce? The most obvious and direct solution is for states to change their laws to allow for those particular activities. However, state legislatures move slowly, and there may be some that are reluctant to voluntarily remove measures that protect their internal markets. More practically, they’re almost definitely waiting to see how the process plays out, particularly the pending lawsuits challenging rescheduling. Understandably, they don’t want to make a permanent change that is quickly mooted by a Federal appellate court. (States could also enter into pacts with other states allowing for commerce among within the alliance, something that we talked about a few years ago when it looked like they might actually happen, but I’m skeptical those would take root for the same protectionist reasons.)

The second solution is for Congress to fully legalize cannabis and make it clear in the legislation that states that choose to license cannabis may not restrict interstate transport. Yeah, sure, okay, but that’s not gonna happen any time soon - we can’t even get banking done. (Relatedly, it’s been argued that, for the good of the cannabis industry, federal legalization should come with a slow phase-in of interstate commerce, which Congress could do because of the Commerce Clause. However, I’m skeptical that would happen because Congress generally doesn’t like manipulating the marketplace that way.)

The most likely route then is by suing. It’s the American way. Once the DEA drug dealing scheme is in place and licenses are issued (this all probably has to wait until then), one of the licensees could then bring a lawsuit in federal court arguing that its state’s law, as well as the law of the DEA-licensed buyer’s state, prohibiting interstate commerce violate the dormant commerce clause. The defendants in these cases will be the states – not cannabis operators who might be harmed by state borders opening up (they might file an amicus (friend of the court) brief in the appeal). With the states no longer being able to argue that these activities are federally illegal, there’s a pretty strong likelihood that a federal court will agree that those laws are unconstitutional.

The proverbial raspberry seed in the wisdom tooth here is the FDA’s Food, Drug, and Cosmetic Act. Just like consumable hemp THC products, the FDA might argue that it has jurisdiction over Schedule III DEA-blessed cannabis, and until it issues regulations, those cannabis products violate the FDCA. In other words, Schedule III DEA-blessed cannabis will arguably still be somewhat illegal under federal law. Now, the THC hemp industry was able to grow regardless of this, mainly because the FDA didn’t crack down and enforce the FDCA (other than with companies making farkakteh medical claims), but a Federal court might consider that to be just unlawful enough to knock DEA-licensed cannabis out of the dormant commerce clause’s penumbra. That’s a big unknown at this point.

The other issue is time. Putting aside the FDA item, it’ll be a while before we get final resolution on any sort of lawsuit. First, as noted above, the plaintiffs (a buyer and a seller in different states who are ready to transact) will probably need to be DEA licensed in order to claim a redressable harm. Second, the lawsuit will need to go through the Federal district (trial court) process, though since this is really a question of law, not fact, that’ll shorten the timeline. But, then, the losing party will most definitely appeal, which will mean briefing and argument.

How long will this take? Who even knows when the DEA licenses will be issued, but from the filing of the initial lawsuit, it could be 12-18 months before we get final resolution. And even then, any positive decision may only apply to the states within that court’s jurisdiction (there are 11 circuits), meaning that similar suits might need to be brought in other Federal circuits.

Back in April, we said that “lawyers and accountants are basically being granted a federally-sponsored pension plan” by the Final Order’s rescheduling. Cannabis Musings stands by that characterization.

One last wrinkle. Recall that the argument being made is that state-licensed medical cannabis under Schedule III will no longer violate the Controlled Substances Act because of the DEA licensing and buy/sell regime - Schedule III medical cannabis that doesn’t flow through the DEA structure will arguably still violate the CSA (it just gets the 280E bump). If the DOJ/DEA reschedules adult use cannabis, it’ll arguably need a similar DEA-centered structure to ‘launder’ the CSA’s taint; however, it’s uncertain whether the DOJ/DEA will offer up a similar mechanism for adult use. And without that, the dormant commerce clause challenge for Schedule III adult use cannabis would be much harder to sustain. (It’s the same problem with uplisting – even if adult use cannabis goes to Schedule III, if there’s no DEA-centered structure addressing the CSA problem, then exchanges are going to be much less likely to allow adult-use operators to list (particularly because law firms probably won’t write them comforting legal opinions affirming legality.)) The hopes and dreams of adult use rest on that DEA structure emerging, which is both funny and disheartening.

And then what? Well, states are going to have to then figure out how to deal with the inflow of cannabis products from other states. They’ll have to regulate for different testing regimes and quality standards, work with METRC and other seed-to-sale tracking companies to integrate those products into state systems, and change vertical integration requirements. That’ll mean changing existing regulations, which will also take time, and which, as noted above, can’t discriminate against out-of-state products with undue ‘health and safety’ requirements. It’s gonna be sticky.

Who loses? Cultivators and weaker brands who don’t either offer the lowest cost or something unique, and holders of operating permits in limited license states. Who wins? The consumer.

There is a path to cannabis interstate commerce, but it’s muddy and long. Der gleichster veg iz ful mit shtainer. (“The smoothest way is full of stones.”)

Finally, and completely unrelated, science proves what Deadheads have known all along.

Be seeing you.

© 2026 Marc Hauser. 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. The foregoing represents my own views and not those of Jardín, B&Y Ventures, or anyone else who employs/hires me.

Watch me schmooze almost every Friday at Noon ET on This Week in Cannabis LIVE with Jeremy Berke and Jay Rosenthal of Cultivated Media and AnnaRae Grabstein and Ben Larson of the High Spirits Podcast. Access the livestream and recordings here.