By Jay Czarkowski, Founding Partner, Canna Advisors
Just like no one was talking about dispensaries 13 years ago and now the topic is everywhere, interstate commerce is in the same place. And just like with cultivation, people were doing it “before it could be done”. It comes down to an economic business decision – and flipping the argument on its head. Is it REALLY illegal at the state level? Figuring it out will start at the state level and gain momentum — just like medical marijuana in a handful of states has led to close to 40 states with some form of medical and/or adult-use legalization.
Passionate change-makers will find a way to make interstate commerce happen. We’re already starting to see real progress at the micro level with a few states that will lead to macro-level change. People want it. It makes sense for business. It’s going to happen — with or without action at the federal level.
Which Comes First?
It would shock most people to hear that the state-siloed cannabis markets and prohibitions against interstate transport we operate under today are likely unconstitutional. While many think interstate commerce hinges on federal action, the push for interstate commerce could be the impetus for federal action, not the other way around.
It’s no secret that nationwide commerce is old hat in unregulated cannabis. Every year, billions of dollars’ worth of cannabis flower and manufactured products cross state lines in the United States. The massive unregulated market in New York state carries flashy products from California. Both Colorado’s legal and unregulated markets have long since been a supplier to aspiring cannabis moguls or enthusiastic tourists who take large quantities of product back to their home states. Oklahoma, with its 2,000+ licensed commercial cultivation and manufacturing facilities, exports products in all directions.
Flipping the Argument on its Head
Beware—I am not saying to start transporting across state lines. Trafficking cannabis is still illegal under federal and state laws. If you carry cannabis into another state, you may be breaking federal law and subject to a felony, even if you purchased it legally in a state-licensed dispensary. But that should not stop progress. What I am saying is let’s apply the same level of creative problem solving, rigor, and determination that launched this entirely new industry to take it to the next level of success.
The Commerce Clause of the U.S. Constitution prohibits state laws that unduly restrict interstate commerce under a well-established doctrine created by the U.S. Supreme Court and known as the dormant commerce clause. When state laws promote “simple economic protectionism” for their state, they are held to “strict scrutiny” by the courts, which is the highest bar to overcome. Even if a law is not discriminatory on its face, excessive incidental burdens can also be struck down.
Challenges relying on the Dormant Commerce Clause regarding cannabis are already underway as courts are striking down or questioning durational residency requirements for licenses, such as in Maine and Illinois. With residency requirements recently found unconstitutional, it’s a clear example that the dormant commerce clause encourages interstate activity rather than barring it.
Conventional Wisdom vs. Constitutional Analysis
“The true culprit—the real reason we do not have interstate commerce in cannabis today—is that the states have not allowed it to develop. Even as states have grown increasingly tolerant of the commercial production and distribution of marijuana, they have staunchly resisted interstate commerce in the drug. Legalization states have imposed these restrictions on interstate commerce in cannabis to protect the local cannabis industry and the economic benefits associated therewith from out-of-state competition.”[1]
The move to interstate commerce is a pending business decision by the biggest players. MSOs are not pushing for this, yet, because it would do more harm than good, but they could whenever the economic climate suits them. They now enjoy restricted markets whose limited access gives them no incentive to change, yet. The clearest path may be paved in litigation, but when the time is right, the MSO gang might just lawyer up and bust through.
East Coast as a Catalyst?
States intentionally and regularly impose restrictions on the interstate commerce of cannabis. This constitutional violation is tolerated given the federal illegality of cannabis, but won’t be for long.
We all know interstate commerce is inevitable, but how long will the industry have to wait? We could get there via legislation or lawsuit. Leadership from the federal government concerning cannabis would be unexpected.
The West Coast floated a trade compact years ago that fell through. Oregon already has allowances for import and export (after federal legalization) so we know they’re onboard, and a California bill on interstate agreements is working its way through the State Senate.
With the East Coast’s recent cannabis come-up, it’s increasingly likely we see interstate commerce birthed from the East Coast. New York hasn’t been afraid to push the cannabis industry status quos we see in other states, and we’ll continue to see New York and its forward-thinking companies build the future of cannabis.
[1]Boston University Law Review, <http://www.bu.edu/bulawreview/files/2021/07/MIKOS.pdf>
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