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State restrictions on the free movement of persons and capital, even in the cannabis industry, are unconstitutional.
Geoffrey Lawrence, Managing Director September 13, 2022
The U.S. First Circuit Court of Appeals ruled last month that state-regulated cannabis markets are subject to the dormant commerce clause. Over the past decade, multiple states have enacted policies that intentionally impede the free movement of goods, persons, and capital within this particular industry. With this ruling, however, these impediments are likely unconstitutional.
The dormant commerce clause is a doctrine of constitutional law derived from a series of court cases interpreting the interstate commerce clause of the U.S. Constitution. The Constitution’s framers were expressly motivated to replace the original form of American government, as articulated under the Articles of Confederation, to prevent the states from erecting trade barriers. Through the years, courts’ interpretations of the dormant commerce clause have generally held that states cannot enact policies that impede the free movement of goods, persons, or capital within the union.
A decade ago, many state policymakers may have thought preventing trade in cannabis goods was a necessity. In 2013, U.S. Deputy Attorney General James Cole issued the so-called Cole Memorandum to federal prosecutors, urging them to concentrate federal enforcement efforts against marijuana toward achieving a set of enumerated priorities. As Leafly put it:
The memo indicated that prosecutors and law enforcement should focus only on the following priorities related to state-legal cannabis operations:
- Preventing the distribution of marijuana to minors;
- Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
- Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
- Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
- Preventing marijuana possession or use on federal property.
It was modeled after a similar memorandum issued by Deputy Attorney General David Ogden in 2009 that directing US attorneys to “not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing laws providing for the medical use of marijuana.”
The Cole Memo represented a significant shift in the federal government to de-prioritize the use of funds to enforce cannabis prohibition under the Controlled Substances Act towards a more laissez-faire, hands-off approach.
After the memo was issued, most federal prosecutions were halted unless they met the listed criteria.
For this column’s purposes, the focus is on the memo’s goal of “preventing the diversion of marijuana from states where it is legal under state law in some form to other states.”
This guidance was never binding on federal prosecutors. Still, it likely reinforced a belief among some state policymakers that federal authority to enforce the Controlled Substances Act did not extend to purely intrastate commerce. Since the interstate commerce clause grants Congress the authority to regulate commerce between the states, one traditional interpretation has been that Congress held no authority to regulate commerce that did not cross state lines, which is why states could implement commercial cannabis markets.
However, a U.S. Supreme Court decision in 2005 had already made clear that Congress held the authority to regulate even non-interstate, non-commerce in cannabis by ruling that it could seize assets from a seriously ill cancer patient who consumed cannabis she grew in her own home. This decision was the logical extension of a dubious Supreme Court decision from 1942 in which the court ruled that federal agencies held the authority to fine an Ohio farmer for avoiding New Deal-era price controls because he fed his animals with wheat grown on his farm. In that case, the court ruled the farmer’s actions affected interstate commerce because it prevented him from purchasing wheat elsewhere and thereby affected the supply and demand for wheat offered in interstate commerce.
Regardless of the dubious rationale for these decisions, those cases implied that state-regulated cannabis markets were in no way exempt from the requirements of the dormant commerce clause. To avoid implicating a Cole Memo priority, every state has banned exporting cannabis to, or importing cannabis from, other states.
Some states that have legalized cannabis have gone as far as stipulating that nonresidents could not operate or invest in a legal cannabis business within their borders—impeding the free movement of persons and capital.
The U.S. Supreme Court ruled in 2019 that a state-imposed residency requirement to gain a retail liquor license violated the dormant commerce clause and was unconstitutional. Although this was a direct parallel to state residency requirements for cannabis licenses, defendants before the First Circuit Court argued that the dormant commerce clause could not be extended to contraband items.
In its August ruling, however, the First Circuit’s majority pointed to the Rohrabacher-Farr rider attached to every federal spending bill since 2014. That rider prevents the Justice Department from spending resources to prosecute state-licensed cannabis companies in good standing. The majority observed:
…whatever the circumstances may be with respect to other goods that Congress has deemed contraband, this is not a case in which Congress may be understood to have criminalized a national market with no expectation that an interstate market would continue to operate. Quite the opposite.
In other words, Congress has already recognized the legitimacy of a market in cannabis, and therefore cannabis cannot be excluded from the requirements of the dormant commerce clause.
If it is clear that state restrictions on the free movement of persons and capital, even in the cannabis industry, are unconstitutional, it is also reasonable to expect the same regarding the movement of goods. It is, therefore, incumbent on state policymakers to begin working immediately to facilitate interstate trade in cannabis goods amongst the states where those products are legal.
This article was originally published on reason.org. Read the original article. Republished with permission.