Politics
Supreme Court Could Resolve Marijuana Business Licensing Disputes, Congressional Report Says
A new report from congressional researchers says that a split among circuit courts about whether state marijuana business licensing systems can discriminate against out-of-state residents “likely increases the odds” that the Supreme Court will take up and resolve the issue.
The Congressional Research Service (CRS) report, published on Thursday, examines the Dormant Commerce Clause of the U.S. Constitution, which has been interpreted by the Supreme Court to bar protectionist state laws that unduly restrict interstate commerce even in areas where Congress has not directly weighed in.
As more states have legalized marijuana, some have enacted policies that favor business run by in-state residents over those led by people based in other states. Some of those polices have been challenged with federal lawsuits, and appeals courts have reached different conclusions about the issue.
The U.S. Court of Appeals for the for the Second Circuit, for example, ruled that a New York policy that prioritizes licensing for cannabis businesses run by people who have been convicted of marijuana-related charges under that state’s laws, or have a relative with such a conviction, likely violates the Dormant Commerce Clause.
“The Commerce Clause prohibits the enforcement of state laws driven by economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors,” the court ruled.
CRS noted in its analysis that the court acknowledged “the irony behind applying this objective to federally illegal marijuana markets” but said that the Supreme Court previously determined in a medical cannabis case, Gonzales v. Raich, that the illegal nature of marijuana activities “is of no constitutional import” for purposes of the Commerce Clause.
The U.S. Court of Appeals for the First Circuit, for its part, held that a Maine law requiring all officers and directors of a marijuana business to be residents of the state violates the Dormant Commerce Clause.
State officials in the case didn’t dispute that the state law would violate the Dormant Commerce Clause if marijuana were federally legal, but instead argued that the state statute is permissible “because federal law makes participation in the market to which the residency requirement applies illegal.”
They argued that the Dormant Commerce Clause only bars states from “unjustifiably…discriminat[ing] against or burden[ing] the interstate flow of articles of commerce,” whereas there can’t be an interstate commercial market federally illegal cannabis.
The court disagreed, reasoning that the Supreme Court’s Raich ruling determined that marijuana is “a fungible commodity for which there is an established, albeit illegal, interstate market.”
The U.S. Court of Appeals for the Ninth Circuit, on the other hand, declined to apply the Dormant Commerce Clause to challenges to marijuana business ownership residency requirements in Washington State and Sacramento, California.
The court cited Supreme Court guidance to “tread cautiously when considering whether to invalidate state laws under the court inferred dormant Commerce Clause,” ultimately reasoning that there is no “implied constitutional right to engage in illegal interstate commerce.”
“Nothing in dormant Commerce Clause precedent requires us to indulge the obvious ‘irony’ of applying a doctrine implied from an affirmative grant of power to Congress to preserve a national market that Congress does not want to exist,” the Ninth Circuit opinion said.
CRS said that although the Supreme Court has not yet agreed to take up the application of the Dormant Commerce Clause to such marijuana business licensing disputes, the split in views on the issue among circuit courts “likely increases the odds that the Court will review this issue at some point.”
“The fact that all the cases discussed above were decided when all relevant state marijuana activities remained illegal under federal law, however, might make the Court less likely to grant certiorari,” the report said.
The justices may instead “wait to see how future lower court Dormant Commerce Clause analysis in this space evolves” in light of the Trump administration’s move to federally reschedule marijuana, CRS reasoned.
Attorney General Todd Blanche in April issued an order that immediately reclassified state-licensed medical cannabis, as well as marijuana products approved by the Food and Drug Administration (FDA) from Schedule I of the Controlled Substances Act (CSA) to Schedule III.
Under a separate order he signed, a Drug Enforcement Administration (DEA) hearing was held to consider more comprehensively moving marijuana to Schedule III.
In any case, CRS said, lawmakers don’t need to wait for courts to weigh in.
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“Congress has the power to address the issue itself,” the report said. “As the Supreme Court has explained, ‘Congress has undoubted power to…either permit the states to regulate the commerce in a manner which would otherwise not be permissible or exclude state regulation.'”
“Congress could thus pass legislation providing states and localities an ‘unmistakably clear’ authorization to implement protectionist marijuana policies,” CRS said.
It could also “do the opposite and expressly bar states and localities from implementing marijuana-related laws that favor in-state residents over nonresidents,” the report noted.
“Similarly, Congress could establish a federal regulatory system applicable to marijuana activities that fits more closely within the Supreme Court’s existing Dormant Commerce Clause jurisprudence, as opposed to the current status where the Court has never weighed in on how the Clause applies to activities that are illegal under federal law,” CRS concluded.
The Marijuana Policy Project, a pro-legalization advocacy group, recently said that it believes there could soon be a “successful” federal lawsuit concerning the Dormant Commerce Clause’s applicability to interstate cannabis commerce in light of rescheduling.
“DCC protection would bar states with legal markets from discriminating against legal products from other states,” MPP said. “The federal decisions finding no DCC protection have leaned on cannabis’s federal illegality.”
The move to reschedule cannabis “almost certainly changes that for licensed medical operators,” the group said.
“We expect stakeholders to sue states in multiple federal circuits (hoping to consolidate those into one suit), seeking to force open state markets on constitutional grounds,” MPP said.” Interstate commerce in Schedule III drugs between DEA-approved entities is clearly covered by the DCC. A federal case will take time, but assuming rescheduling stands, we expect federal litigation to be ultimately successful.”
