Cannabis Musings - October 27, 2023
Cannabis Musings - October 27, 2023
Considering another lawsuit challenging federal cannabis law.
Friends, we’ve talked a few times about the general pointlessness of trying to sue to the federal government over cannabis policy. Well, someone clearly doesn’t read Cannabis Musings (though it’s good someone else is giving legal advice, unlike this newsletter). A group of cannabis operators is suing the federal government (specifically, U.S. Attorney General Merrick Garland) to block application of the Controlled Substances Act to intrastate commercial cannabis activities.
This lawsuit was teased nearly 18 months ago, and, to be honest, it’s much narrower than I expected, which is probably a good thing. It doesn’t argue that the Controlled Substances Act is unconstitutional, or that 280E is so unfair that it violates the Geneva Convention, or a hazy preemption or 10th Amendment (federalism/states’ rights) argument. The complaint (which is embedded in the linked article, and is worth reading) focuses on a policy argument that Congress no longer has the authority to police intrastate cannabis commerce.
Some background: back in 2005, the U.S. Supreme Court held in Gonzales v. Raich that the Controlled Substances Act applies to intrastate cannabis because it affects interstate commerce, which Congress has the power to regulate under the constitution’s Commerce Clause.
Justice Thomas more recently signaled in a delicious dissent from 2021 that he might be open to a reconsideration of Raich:
Whatever the merits of Raich when it was decided, federal policies of the past 16 years have greatly undermined its reasoning. Once comprehensive, the Federal Government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana. This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.
As we discussed in October, the Supreme Court recently declined to hear a different challenge to Raich (as is its wont), so what’s different here? Why would the powerhouse litigation firm Boies Schiller take up this challenge?
I suspect the attorneys realized that their strongest path towards success was to aim straight for Justice Thomas’ support if they can get this to the Supreme Court (which is by no means guaranteed, or likely), because the complaint reads that way to me. Without getting into the specific details, the complaint basically argues that the factual reasons that laid the groundwork for SCOTUS’s decision in Raich (that intrastate commerce fuels interstate commerce; that cannabis is a commodity; and that Congress wants to create a closed regulatory system to eliminate interstate cannabis commerce) no longer apply in today’s state-licensed commercial cannabis world. That’s effectively what Thomas said in his 2021 dissent.
In addition, the complaint notes that the federal government, specifically the Department of Justice, is no longer really trying to stop intrastate cannabis:
The federal government no longer operates under any assumption that banning intrastate marijuana is necessary to policing interstate marijuana.
That’s kind of true. If it weren’t true, I wouldn’t be writing these Cannabis Musings.
The argument can basically be summed up as: intrastate cannabis commerce is no longer the same as interstate cannabis commerce, and the states can regulate the former without interfering with Congress’s right to regulate (and stop) the latter. Cannabis can indeed remain illegal and highly regulated at the same time (again highlighting the quantum mechanics duality of cannabis).
Will this succeed? I have no idea. I mean, the lawyers at Boies Schiller are no schmucks, and so they’ve narrowly tailored this lawsuit to the path that’s most likely to have success. But, only the Supreme Court can overturn its own precedent – a lower court can’t do that. So, they have to litigate this in the district (trial) court, take it through appeal, persuade the Supreme Court to accept the case for hearing (recall that SCOTUS denies about 99% of its requests for hearing), and then convince at least five of nine Justices to overturn nearly two decades of criminal law precedent. That’s a tall and expensive order.
I’m not certain that all of the facts are favorable, and the plaintiffs here – larger cannabis companies - are arguably not as sympathetic as the individuals who appealed in Raich. But, I’m a legal pragmatist and cynic, and think that judges usually fit the law and the facts to how they want to decide the case (and not the other way around). And attitudes towards cannabis certainly have changed since 2005. Despite my earlier missives about the utter pointlessness of suing the federal government, it’s a viable shot across the bow.
Besides, it’s not like Congress is going to do anything for the industry any time soon anyway, particularly given the new Speaker of the House, who is no friend to cannabis.
One of the (possibly unintended?) consequences of this lawsuit is how it sort of forces the hand of the Department of Justice to thread the needle of arguing that it’s indeed very interested in banning intrastate commerce, even though, as a practical matter, the DOJ hasn’t actually done anything about state-licensed commercial cannabis for years. That’s gonna be a fun response to read.
Additionally, for a while now, there’s been chatter about a “Garland Memo” to replace the now-defunct Cole Memorandum that set DOJ policy towards state-legal cannabis operators (namely, they took a hands-off approach). I can’t imagine the DOJ issuing anything in the wake of this lawsuit – it’s not going to make any public statement suggesting policy leniency that could contradict its defense in the lawsuit. Nor would I expect the DOJ to provide any comfort to the State of California in its efforts to establish interstate commerce pacts.
Beyond that, if intrastate markets have indeed effectively reduced interstate commerce as the complaint argues, what does that mean for the pending dormant commerce clause challenges to state bans on interstate cannabis?
Finally, what would it mean for the Controlled Substances Act to apply to interstate cannabis, but not intrastate cannabis? I would imagine that would quickly spur Congress to try to regulate and tax newly-legal intrastate cannabis like any other agricultural or consumer product.
Ver es poret zich mit staleh, shmirt zich ein di hent (“If you deal with tar, expect to get your hands dirty.”)
Be seeing you!
Hauser Advisory provides advice and strategy on business lifecycle events and cannabis industry navigation, tapping into a deep, national network and twenty-five years of dealmaking and capital markets experience.
© 2023 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.