A case being heard by the U.S. Supreme Court on Monday could have huge implications for the ability of states to legalize marijuana.
The case, Christie v. NCAA, centers on whether the Constitution’s anti-commandeering doctrine prevents the federal government from forcing states to keep prohibitions of certain federally- proscribed activities on their own lawbooks.
It began when New Jersey voters approved a 2011 ballot measure to legalize sports gambling. The following year, state lawmakers enacted legislation to regulate and license sports wagering at casinos and racetracks.
But the National Collegiate Athletic Association (NCAA) and four professional sports leagues sued, alleging that the state law violated a federal statute, the Professional and Amateur Sports Protection Act (PASPA). That law, enacted by Congress in 1992, prohibits states and local governments from licensing or otherwise authorizing betting on amateur or professional team sports. (It exempted prior state gambling schemes, namely the one that exists in Nevada.)
The U.S. Court of Appeals for the Third Circuit ruled for the sports leagues in 2013, interpreting PASPA to bar states from affirmatively licensing or permitting sports betting but not necessarily from merely repealing their own state prohibitions on gambling.
The Supreme Court rejected New Jersey’s request to hear the case on appeal, so the state enacted a new law that deleted its own prohibitions on certain gambling activities without enacting a new authorization or licensing scheme to regulate betting.
The leagues filed suit again, against the narrower revised law. Once more, the Third Circuit agreed, ruling in 2016 that PASPA prevents states from repealing their own sports gambling prohibitions in addition to blocking them from affirmatively licensing the activity.
The court essentially ruled that the Constitution’s anti-commandeering doctrine only prohibits the federal government from compelling states to adopt and enforce new policies and “does not command states to take any affirmative actions.” In this way, the court reasoned, it’s constitutional for the federal government to block states from amending policies they had previously adopted.
New Jersey appealed the case again, and this time the Supreme Court agreed to hear it. Oral arguments are scheduled for Monday morning and, although the statute in question concerns gambling, the outcome of the case could potentially throw up a huge roadblock to future state marijuana legalization efforts.
If the high court agrees with the Third Circuit, “the federal government may be able to regulate other areas like recreational marijuana…by freezing existing state laws in place, instead of through direct federal regulation,” according to the Congressional Research Service.
Sam Kamin, who serves as the Vicente Sederberg Professor of Marijuana Law and Policy at the University of Denver’s Sturm College of Law, filed an amicus brief in the case along with other law professors, arguing that the Supreme Court should rule in favor of New Jersey. He told Marijuana Moment that the Third Circuit’s ruling is “shockingly wrong.”
“If the federal government can make the states pass laws, or keep laws that its citizens hate on the books, the core promise of anti-commandeering is a lie,” he said. “The point is that the citizens should be able to express their views through their state governments and should be able to remove those elected officials who are not working on their behalf. When the federal government meddles in this process, it muddies the waters and stifles the will of the voters.”
That said, if the Supreme Court rules for the sports leagues in favor of the federal gambling law’s broad reach, it wouldn’t automatically invalidate state marijuana laws. Rather, Congress would then be empowered to pass a new law, broader than the current Controlled Substances Act (CSA), that requires states to keep cannabis prohibitions on the books.
Under the CSA as currently written, Congress specifically says it doesn’t intend to “occupy the field” when it comes to drug policies, “including criminal penalties, to the exclusion of any State law on the same subject matter which would otherwise be within the authority of the State…” Instead, the CSA only seeks to preempt state laws that are so inconsistent with its provisions that the two cannot stand together.
Legalization supporters will likely take comfort that in the current political climate — in which a growing number of states are ending prohibition and polls continue to show growing bipartisan voter support for reform — it would be difficult for congressional marijuana opponents to form a majority of lawmakers in support of a new affirmative prohibition to punish states that dare to enact popular cannabis laws.
(That’s of course separate from the issue of congressional leadership blocking measures to reform current federal marijuana laws, an issue which has become more prominent as the House Rules Committee, for example, has repeatedly prevented cannabis amendments from being considered on the floor over the course of the past year.)
It is more than a little ironic that New Jersey Gov. Chris Christie (R), an ardent and vocal legalization opponent, is bringing a case in defense of states’ rights to enact their own laws which could have implications for cannabis policy.
During the course of his failed presidential campaign last year, Christie consistently pledged that if elected he would enforce federal marijuana prohibition even in states that have opted to legalize the drugs.
But in New Jersey’s petition asking the Supreme Court to take up the case, the state makes a point to raise concern about the case’s potential to block state marijuana reforms.
“If Congress can freeze in place existing state laws by prohibiting contrary state-law ‘authorizations,’ then the federal government can effectively force States to enact federal policies and thus will have greatly aggrandized its own power while foisting accountability for those policies entirely onto the States. Future efforts by States to legalize private conduct currently prohibited by state law—anything from recreational use of marijuana, to carrying concealed firearms, to working on Sundays—can be thwarted not just by a direct federally enforced prohibition of that conduct, but now also by a federal ban on state legislation that ‘authorizes’ such conduct. This is not a minor intrusion on state sovereignty. It is a sea change to our system of federalism. This Court should grant the petition to protect the Constitution’s carefully calibrated federal-state design and restore the balance between state and federal power that the Third Circuit’s decision has so thoroughly upended.”
“If the Third Circuit’s construction of ‘authoriz[ation] by law’ in PASPA as forbidding an undefined array of repeals is upheld, it is not difficult to imagine other examples in which Congress could dictate policy outcomes in States without ever having to legislate directly. Rather than enact gun control measures of its own, for example, Congress could prohibit States from relaxing existing restrictions on the purchase of firearms by particular persons. Or, no longer willing to expend the resources to police limitations on the usage of marijuana, Congress could repeal its own prohibitions on the use and sale of marijuana and instead prohibit States from repealing their own restrictions by enacting a PASPA-like law that prohibits States from authorizing the sale or use of marijuana ‘by law.’ Because few States would accept the choice of having totally unregulated gun possession or marijuana usage, Congress could achieve its policy objectives of stopping the spread of firearms or marijuana use even as it sets up the federal government’s own exit from those fields of regulation.”
The Trump administration, in a brief from its acting solicitor general filed in May, urged the Supreme Court not to take up the case.
A decision is expected sometime before next summer.
Marijuana Banking Bill Would Save Federal Money, Congressional Budget Office Says
The federal government would save money if a bipartisan bill to give marijuana businesses access to banks is approved, according to a report released by the Congressional Budget Office (CBO) on Friday.
The legislation, which cleared the House Financial Services Committee in a bipartisan vote of 45 to 15 in March, would change federal law to protect financial institutions that service the cannabis industry from being penalized by regulators. That reform would set off a chain of events, beginning with a likely increase in the number of banks accepting deposits from those businesses, CBO reasoned.
Assuming the bill takes effect near the end of the 2019 fiscal year, the office estimates that starting in 2022, banks would see a $1.2 billion increase in deposits, and credit union deposits would grow by $200 million. By 2029, the amounts “would rise to $2.1 billion and $350 million, respectively.”
Because those deposits would have to be insured through the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA), the CBO took into account the possibility that individual financial institutions will fail, and the estimated cost of resolving those failures is $5 million.
That said, those direct spending costs would be “offset by assessments levied on insured financial institutions,” which would amount to about $9 million.
“As a result, CBO estimates, H.R. 1595 would decrease net direct spending by $4 million over the 2019-2029 period,” the office reported.
Rep. Ed Perlmutter (D-CO), the bill’s chief sponsor, told Marijuana Moment that its enactment would have benefits beyond fiscal savings.
“Getting cash off our streets and making our communities safer will come at no cost to the federal government and actually save money while providing a much-needed long-term banking solution for legitimate marijuana businesses across the country,” he said.
“This CBO score should only increase the significant momentum in Congress behind passing the SAFE Banking Act,” Neal Levine, CEO of the Cannabis Trade Federation, told Marijuana Moment. “It is now apparent that we can help diminish a serious threat to public safety at no net cost to the federal government. We look forward to the bill passing through the House and hope the Senate will follow suit.”
There are some implementation costs to take into account, CBO says. The administrative costs are estimated to be $3 million. But the FDIC and NCUA are able to charge premiums on the financial institutions they regulate to cover much of those costs. The total net administrative costs would, therefore, be about $1 million.
The Federal Reserve would also have to spend funds to implement the bill, and that would reduce remittances to the Treasury Department. Those remittances are considered revenue, which is expected to decrease by about $1 million if the legislation is implemented.
Then there are costs related to other provisions of the bill. Financial regulators would have to update and issue new guidance, which would “cost less than $500,000 over the 2019-2024 period.”
The legislation also requires the Government Accountability Office to study barriers to entry in the marijuana industry and to financial services for minority- and women-owned cannabis businesses. The costs are estimated to be less than $500,000 annually from 2020 to 2024.
The CBO also estimated that enacting the legislation “would not increase on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2030.”
The CBO outlined “several noteworthy areas of uncertainty” that could change the calculus.
1. New guidance from federal financial regulators could be more or less stringent than existing guidance implemented under the Obama administration, which could impact the amount of deposits banks and credit unions will receive.
2. Data on cannabis-related deposits is currently “limited,” as federal restrictions have forced marijuana businesses to operate on a largely cash basis. That means CBO’s estimates on the amount of deposits financial institutions will see could end up being “greater or smaller.”
3. If those estimates do end up being different, costs associated with the bank and credit union insurance funds “could be higher or lower depending on the amount of premium collections and capital deposits and on changes in the resolution costs for financial institutions.”
Sahar Ayinehsazian, an associate attorney at Vicente Sederberg LLP who specializes in cannabis banking, told Marijuana Moment that most of the figures lined up with her expectations. However, given that many marijuana businesses have gravitated toward credit unions rather than banks, she said the estimate increase in deposits to those financial institutions may well end up being larger.
“Looking at the chances of this legislation passing from an economic standpoint, I think [the CBO score is] good news,” she said.
Other advocates agreed that the CBO estimate should help efforts to advance the bill.
“For years, cannabis advocates have been preaching the net benefits SAFE Banking would have on consumers, patients, financial institutions, regulators and taxpayers. This CBO cost estimate confirms that,” Michael Correia, director of government relations for the National Cannabis Industry Association, told Marijuana Moment. “The increase of insured deposits, coming from the added certainty this legislation brings, far outweighs the minor administrative costs to implement this bill.”
The House marijuana banking bill currently has 184 cosponsors, and a companion Senate version has 30 lawmakers signed on. The committee of jurisdiction in the upper chamber has not yet set a hearing or a vote, but pressure is increasing.
Banking associations from all 50 states urged the Senate to take up the legislation earlier this week. Other organizations that have called for a resolution to the cannabis banking dilemma include the National Association of Attorneys General, which has endorsed the bill, and the National Association of State Treasurers, representing state treasurers and finance officials, which adopted a resolution last week in favor of the legislation’s passage.
Want 4 million more reasons why members of Congress should support the #SAFEBankingAct, which would allow cannabis businesses to access the banking system in the 33 states where it’s legal? @USCBO says the legislation will save taxpayers $4M over 10 years.
— American Bankers Association (@ABABankers) May 24, 2019
The new analysis is just the third time that the CBO, which is mandated to score bills that pass full committees, has issued a report on the economic impact of standalone cannabis legislation. The agency scored two marijuana research bills that cleared committees last year.
This story was updated to include comment from Perlmutter and Correia.
Federal Small Business Administration Pressed On Supporting Marijuana Industry
Sen. Jacky Rosen (D-NV) pressed a federal official responsible for advocating for small businesses on Wednesday about whether existing laws and regulations are preventing the growth of state-legal marijuana markets.
The line of questioning comes as members of Congress are preparing legislation aimed at removing barriers to small business assistance for cannabis industry participants.
The senator said at a hearing of the Senate Small Business and Entrepreneurship Committee that her state’s legal industry is attracting small businesses and entrepreneurs who are selling millions of dollars of product each month. She asked Major Clark, acting chief counsel of the office of advocacy at the Small Business Administration (SBA), about the unique barriers these companies face under federal prohibition.
“Senator, that’s a difficult question,” Clark replied. “We have not actually studied the issue of marijuana in that regard, and we have not because the federal government has not yet legalized it.”
“We do, in conversations with a lot of businesses, get inquires as to what they can do and how they can do it. But to actually do an analysis of it, we have not yet done that,” he said. “I’m sure that as soon as the federal government decides to legalize this substance, we will begin to study its impact and the ability to use it in a more economical context within the state.”
Watch the conversation about small business assistance for cannabis operators at 35:50 in the video below:
Rosen followed up to get Clark’s opinion about whether marijuana companies would benefit from some of the guidelines and resources the SBA offers to small businesses in other industries.
“These types of businesses can benefit from some of these types of things, but again, because this issue is an issue that has not reached the surface of being legalized, we have actually stayed away from trying to advise these businesses on these particular aspects,” he said.
Nevada’s cannabis industry cannot thrive without access to financial services. At yesterday’s @SmallBizCmte hearing, I asked what steps @SBAgov is taking to break down regulatory barriers for our nation’s legal marijuana businesses to ensure they can continue to grow. pic.twitter.com/lyfXGwpoRf
— Senator Jacky Rosen (@SenJackyRosen) May 24, 2019
Sen. James Lankford (R-OK), chair of the committee, weighed in on the issue after the Rosen’s time expired, saying that he recognizes the difficulty that federal agencies face when it comes to regulating a controlled substance.
“It is a unique challenge dealing with a Schedule I drug on the federal side and to also know that some states, including my own, have said that they want to allow it,” Lankford said, referring to the medical cannabis law that Oklahoma voters approved in 2018. “And the federal government and the [Food and Drug Administration] continues to study it and say there’s no medicinal gain from this product.”
“It’s a Schedule I drug. I get it,” he said. “The science, and whether it is SBA or whoever it is continues to be able to deal with that.”
While lawmakers push to get marijuana businesses access to federally authorized financial services, industry advocates say that SBA-specific reform legislation may be on the horizon.
The day after Rosen questioned the SBA official about cannabis policy, Khurshid Khoja, a board member for the National Cannabis Industry Association, said at a press conference on Capitol Hill that a bill was being drafted to “essentially get SBA services for cannabis businesses and for cannabis businesses from disproportionately impacted communities.”
Watch the SBA reform discussion at about 32:15 in the video below:
“The House Small Business Committee is looking into the issue and is interested in holding a hearing and drafting legislation this summer that addresses these issues,” a cannabis policy lobbyist who didn’t wish to be named in order to discuss plans that are in development, told Marijuana Moment separately.
Photo courtesy of Brian Shamblen.
GOP Congressman Exposes Flaws In VA Marijuana Research Projects
Rep. Matt Gaetz (R-FL) emphasized the importance conducting clinical trials on medical marijuana at the U.S. Department of Veterans Affairs (VA) on Tuesday, a topic on which he has often focused.
He also criticized the catch-22 of VA cannabis research, arguing that while the department is able to conduct clinical trials on marijuana, it doesn’t effectively publicize those studies, leaving veterans who might be interested in participating in the dark.
The congressman started by asking whether Mike Colston, director of mental health policy and oversight at the Department of Defense, felt that giving veterans access to medical cannabis could reduce suicides.
Colston said “there’s far more research to be done” and that there’s “insufficient evidence for or against that position.”
Gaetz cited research showing reductions in opioid use in states that have loosened cannabis laws, and he questioned whether “the current offramp for opioid addiction,” which typically involves prescribing long-term opioids that are less potent and less prone to abuse, “is a more effective offramp than medical cannabis.”
“I just think those are the three evidence-based therapies right now that meet the medical bar,” Colston said, referring to bupenehprine, methadone and naltrexone. “Obviously more research can change that.”
That prompted Gaetz to expand on VA policy as it pertains to medical cannabis. He asked for confirmation that the department’s doctors cannot currently recommend marijuana to veterans in states where it’s legal.
They can’t do that because “there’s a federal law against it right now,” Keita Franklin, national director of suicide prevention at the VA, claimed. (This has been a point of contention for legalization advocates, who argue that only the VA’s own internal administrative policies, and not an overarching federal law, blocks such recommendations.)
But VA officials can conduct clinical trials on marijuana, Franklin said.
“We have two ongoing research studies going on right now in this space,” she said. “I think we are open to research, yes.”
The congressman wanted to know if the VA publishes information about these studies and where to find it. The VA official wasn’t sure—and that was exactly Gaetz’s point.
“I don’t think anyone is clear, which is the source of my frustration because I think that there are a lot of these clinical trials that are seeking veterans,” he said. “The VA, due to a lack of clarity, won’t publicize that information or make it available, and then we’re unable to do the research that Captain Colston says is necessary to advance additional options for veterans trying to get off opioids and to stop them from killing themselves.”
Lawmakers have introduced legislation this session that would allow VA doctors to issue medical cannabis recommendations and require the department to conduct clinical trials on the plant’s potential therapeutic benefits for veterans, among other cannabis and veterans-related bills.
But if the VA is mandated to research the plant, Gaetz wants the department to better publicize the studies so that would-be participants actually know about them.
Photo courtesy of YouTube.