Recently, the Department of Health and Human Services recommended to the Drug Enforcement Administration that cannabis be rescheduled on the Controlled Substances Act (“CSA”) from a I to a III. At the same time, the SAFER Banking Act is winding its way through the Senate. And as of October 26, the cannabis industry will try to end prohibition through the courts. Cannabis litigation at this level has been tried before and failed. This time, however, may be different for a few important reasons (not the least of which is that renowned litigator David Boies is leading the charge). I’ve been practicing in this space for 14 years, and this is really the first time that all three branches of government are seeing the cannabis movement all at once, which is exciting and should give the industry some much needed hope.
On October 26, a group of large cannabis companies (based in Massachusetts) filed suit in the Western District of Massachusetts federal court against Merrick Garland, our current U.S. Attorney General. The facts section of the complaint does a good job laying out the regular nightmares of working and owning a business in the cannabis industry that are all caused by unwarranted federal prohibition—lack of access to banking, no institutional funding, public safety risks from keeping all cash businesses, constant risk of federal prosecution, no bankruptcy protection, the havoc wreaked by IRC 280E, etc.
Cannabis litigation: cannabis commerce
The complaint states that, while Congress has the constitutional power to ban cannabis from interstate commerce, the CSA exceeds that power by overreaching to ban cannabis from purely intrastate commerce. Essentially, neither the Commerce Clause nor the Necessary and Proper Clause of the Constitution give Congress a “general police power” to take over regulation of strictly intrastate commerce.
Gonzalez v. Raich
The complaint then addresses the gorilla in the room for this kind of cannabis litigation—Gonzalez v. Raich. If you don’t know that case, see here. To summarize, in 2004, a group of medical cannabis patients challenged the constitutionality of the CSA as applied to purely intrastate medical cannabis activities as an overreach of Congressional power under the Commerce Clause. The California district court ruled against the patients. The Ninth Circuit then reversed and ruled the CSA unconstitutional as it applied to intrastate medical cannabis use in that such activity did not “substantially affect” interstate commerce and therefore could not be regulated by Congress. The U.S. Supreme Court then reversed the Ninth Circuit, ruling that the Commerce Clause gave Congress authority to prohibit the local cultivation and use of cannabis despite state law to the contrary.
In the majority opinion, the Court stated that precedent “firmly established” Congress’s Commerce Clause power to regulate purely local activities that are part of a “class of activities” with a substantial effect on interstate commerce. Basically, Congress could ban local medical cannabis activities because they were part of a “class of activities”, namely the national cannabis market, whereby local use affected supply and demand in the national market, making the regulation of intrastate use “essential” to regulating that market.
The Thomas Dissent
Interestingly, Thomas dissented in Raich. He did so on the grounds that the medical cannabis patients’ personal cultivation of cannabis was neither “commerce” nor “interstate activity”, and that the majority’s decision represented a gross overreach of federal power in the name of the Commerce Clause (he also argued that the application of the CSA in this instance was neither necessary nor proper). In his dissent, he almost comes out and says that if a state heavily controls its medical cannabis trade it actually lends itself to controlling interstate commerce anyway.
Why this cannabis litigation is different
The Plaintiffs in the Garland suit posit that the three main facts the Supreme Court relied upon in Raich are no longer true today. Those facts were:
- possession and distribution of controlled substances “contribute to swelling the interstate traffic in such substances”;
- cannabis was a fungible commodity like wheat; and
- intrastate cannabis commerce undermines Congress’s goal of a “close regulatory system” meant to stop commercial cannabis transactions in interstate commerce altogether.
Plaintiffs claim in response to each of those “facts” from Raich that:
- highly regulated state markets actually reduce interstate cannabis commerce (meaning, heavy state government oversight reduces illicit interstate transactions);
- cannabis isn’t fungible anymore—state-legal products (that are tracked, traced, packaged, labeled, and tested in line with strict state rules) are easily distinguishable from illegal ones; and
- Congress long ago abandoned its alleged goal of banning cannabis intrastate for the sake of keeping it out of interstate commerce (using as examples the continually renewed federal spending bills in support of state-legal medical cannabis, the fact that D.C. allows for medical cannabis, and the multiple (now rescinded) DOJ memos that essentially let the states take over intrastate cannabis control anyway).
The requests for relief
In this cannabis litigation, plaintiffs are asking the Massachusetts federal court for a declaratory judgment that the CSA is unconstitutional as applied to intrastate commercial cannabis activity (both adult use and medicinal) and for a permanent injunction against Garland (and the DOJ) from enforcing the CSA in a manner that interferes with intrastate commercial cannabis activity.
What happens now?
Plaintiffs’ complaint is essentially lockstep with parts of Thomas’s dissent in Raich, and Plaintiffs (in my opinion) have much better facts in their favor than the Raich plaintiffs did when there were no highly regulated commercial cannabis markets in existence in the United States. There’s no reason to think at least Thomas has changed his stance on cannabis from 2005 (he’s definitely not a fan of the federal government’s current approach). Plus, the fact that we have a patently states rights-friendly Supreme Court right now cannot hurt.
While Plaintiffs’ ultimate victory here could spell a total shift in state legal cannabis for the better, if they lose, it could cement even further Congress’s power under the Commerce Clause and the industry will have certainly run out of arguments that highly regulated state markets actually support the goals of the CSA and should therefore be left alone. Undoubtedly, this case will take a very long time to litigate. The chances of seeing Raich-like battles are high between the district court, the court of appeals, and the Supreme Court. So, definitely stay tuned!
Husch Blackwell’s Cannabis team has the experience to assist companies in navigating the complex and evolving federal legal landscape surrounding the cannabis industry. Contact Hilary Brickren or your Husch Blackwell attorney.