Supreme Court Could Resolve Marijuana Business Licensing Disputes, Congressional Report Says

A Congressional Research Service report finds that conflicting federal appeals court rulings on whether state marijuana licensing systems can favor in-state residents likely increase the chances the U.S. Supreme Court will take up the issue. The analysis examines Dormant Commerce Clause challenges in New York, Maine, Washington State, and Sacramento, and notes Congress could act on its own.

A new report from the Congressional Research Service says a split among federal appeals courts over state marijuana business licensing residency rules “likely increases the odds” that the U.S. Supreme Court will resolve the issue. The analysis, published Thursday, examines the Dormant Commerce Clause, which the Supreme Court has interpreted to bar protectionist state laws that unduly restrict interstate commerce even where Congress has not directly acted.

The U.S. Court of Appeals for the Second Circuit ruled that a New York policy prioritizing cannabis licenses for people with state marijuana convictions, or relatives with such convictions, likely violates the Dormant Commerce Clause. The court acknowledged “the irony behind applying this objective to federally illegal marijuana markets” but said the Supreme Court’s Gonzales v. Raich decision made clear that marijuana’s illegal status “is of no constitutional import” for Commerce Clause purposes.

The First Circuit held that a Maine law requiring all officers and directors of a marijuana business to be state residents violates the Dormant Commerce Clause. State officials argued the clause only bars discrimination against interstate commerce, and no legal interstate market exists for federally illegal cannabis. The court disagreed, reasoning that Raich determined marijuana is “a fungible commodity for which there is an established, albeit illegal, interstate market.”

The Ninth Circuit declined to apply the Dormant Commerce Clause to residency requirements in Washington State and Sacramento, California. It cited Supreme Court guidance to “tread cautiously” and reasoned there is no “implied constitutional right to engage in illegal interstate commerce.” The Ninth Circuit said nothing in dormant Commerce Clause precedent requires indulging the “irony” of applying a doctrine implied from Congress’s power to preserve a national market that Congress does not want to exist.

CRS said the circuit split “likely increases the odds that the Court will review this issue at some point,” but noted that because all relevant state marijuana activities remained federally illegal when the cases were decided, the justices might wait to see how lower court analysis evolves after the Trump administration’s move to federally reschedule marijuana. Attorney General Todd Blanche in April issued an order reclassifying state-licensed medical cannabis and FDA-approved marijuana products from Schedule I to Schedule III, and a DEA hearing was held on broader rescheduling.

The report said Congress does not need to wait for courts. Lawmakers could pass legislation giving states “unmistakably clear” authorization to implement protectionist marijuana policies, or do the opposite and expressly bar states from favoring in-state residents. Congress could also establish a federal regulatory system for marijuana that fits more closely within existing Dormant Commerce Clause jurisprudence.

The Marijuana Policy Project said it expects stakeholders to sue states in multiple federal circuits seeking to force open state markets on constitutional grounds, arguing that rescheduling to Schedule III “almost certainly changes” the analysis for licensed medical operators. The group said interstate commerce in Schedule III drugs between DEA-approved entities is clearly covered by the Dormant Commerce Clause.