CANNABIS and the potential for iNTERSTATE COMMERCE
We will be hosting a call with Adam Smith from the Alliance for Sensible Markets on the progress California has made toward implementing Interstate commerce.
Today we will be hosting a call in 10 minutes with Adam Smith. On January 30th, California Governor Gavin Newsom’s Department of Cannabis Control sent a strong and well-reasoned argument to the state’s attorney general articulating the Governor’s belief that regulating commerce in legal cannabis between state markets would pose no additional legal risk to the state. The move heralds the arrival of an important new phase of the struggle for a more rational industry.
CALL DETAILS:
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Below are bulleted highlights from the Alliance for Sensible Markets, which has led this fight since Oregon’s first-in-the-nation interstate commerce law in 2019. The goal is to move legal cannabis between two or more adult-use or medical states before the end of 2023. CA has taken an essential step to make this happen.
Key points:
- California Governor Gavin Newsom came out swinging on Monday, arguing in an 8-page memo to his state’s Attorney General that the state would face “no increased legal risk” in regulating commerce between legal or medical markets.
- Governor Newsom’s core argument is that there is NO DIFFERENCE under federal law between growing cannabis in Northern California and sending it to San Francisco or growing it in California and sending it to the East Coast. Under 80 years of Supreme Court precedent, it is ALL interstate commerce the moment is passes from the hands of a grower and “enters commerce.”
- An AG’s opinion agreeing with Newsom’s analysis would fulfill the requirement under CA’s new interstate commerce law and allow the Governor to move toward commerce without waiting for federal legalization. Obviously, a partner state or states would be required. (Note: The Alliance for Sensible Markets participated in drafting the original version of the CA interstate bill that CA passed in 2022.)
- Newsom becomes the first US Governor (but won’t be the last this year) to make an affirmative move - beyond signing an interstate bill - towards state-regulated commerce in legal cannabis.
- The move should prompt new Oregon Governor Tina Kotek and Washington Governor Jay Inslee (yes, both primary producer states) to act soon. Oregon’s interstate law - the first in the nation, written and championed by the Alliance in 2019 - would require some indication of tolerance from the US Department of Justice before proceeding with commerce. Washington’s interstate commerce bill, modeled on Oregon’s law, requires the same and is moving quickly through the WA legislature with bipartisan support.
Adam Smith Bio
More Details from ASM:
California Governor Gavin Newsom, via his cannabis regulatory agency, the Department of Cannabis Control (DCC) asked the state’s Attorney General to issue an opinion stating that California could regulate interstate trade in legal cannabis without additional legal risk to the state. But the administration didn’t just ASK Attorney General Rob Bonta for that opinion; they sent the AG an eight-page memo arguing that the state would NOT, in fact, face increased legal jeopardy and that the administration ought, therefore, to be able to move forward towards commerce under, the state’s new interstate commerce law. Core to the Governor’s argument is the fact (as the Alliance has been preaching for four years) that there is NO DIFFERENCE UNDER FEDERAL LAW between growing cannabis in Humboldt County and sending it to San Francisco or growing it in Humboldt County and sending it to New Jersey. It’s all interstate commerce under federal law the minute it leaves the grower’s hands.
To be clear, everything the industry does, adult use, AND medical IS ALREADY INTERSTATE COMMERCE under federal law, regardless of whether the product leaves or is ever intended to leave the state. This is backed up by 80 years of Supreme Court Precedent, from Wickard v. Filburn (1942) through Gonzales v. Raich (2005,) which is a medical cannabis case, btw. Counterintuitive though it might be, nothing magical happens, nothing changes, no new laws are broken no new jurisdiction is entered, nor any penalties enhanced when you actually take the cannabis from one state to another. You committed the crime the minute the cannabis went into “commerce”, your crime fell under federal jurisdiction at that moment, and money didn’t even have to be exchanged to make it so. The point is that since the US Department of Justice is already tolerating interstate commerce being regulated by every single state-legal industry in the country, doing so between legal markets rather than simply within legal markets would present no new legal risk to the states involved.
The only risk, if we are to believe one exists, is that THIS Department of Justice, under a President and Attorney who have both repeatedly stated that they will not interfere where states are regulating cannabis - might draw an arbitrary line - without legal distinction, and thus a purely political one - between state-regulated interstate commerce and state-regulated interstate commerce. We strongly believe that faced with governors prepared to regulate the trade, DOJ and AG Garland would stick to their stated policy of allowing states to make decisions around regulating cannabis and maintain their current “hands off” policy towards state regulation.
The question of whether the DOJ will prosecute state-legal cannabis businesses operating under state regs, or at what point along the continuum of interstate commerce they might draw a line, is entirely a political question, not a legal one, and it always has been. For this reason, the Newsom Administration can argue that regulating commerce between legal (or medical, more on that later) state markets will not change or increase his state’s legal risk one iota. The CA Attorney General’s thumbs up would satisfy the “trigger” requirement contained in California’s new interstate commerce law and would give the administration the authority under state law to begin regulating interstate trade as soon as it secured a willing partner.
This is a California earthquake in the economics of legal cannabis, already starting to be felt up and down the west coast. But very soon, the aftershocks will begin in medical and consumer markets to the east, benefiting just about everyone.
WHAT DOES THIS MEAN FOR OREGON AND WASHINGTON - AND CALIFORNIA, FOR THAT MATTER?
While California’s interstate law allows the state to move forward with just a state AG’s opinion, Oregon’s interstate law, (did we mention that we wrote and championed that bill?) requires at least some indication of tolerance from the US Department of Justice. And Washington’s bill, as currently written, requires the same.
This would seem to put California’s neighbors to the north at a disadvantage, and in some respects, that’s true. But the reality is that while California producers could very likely drive product to a state like Nevada - assuming California moves forward with a regulatory path to do so, and Nevada is interested in allowing out-of-state cannabis into their system - things get sticky when we think about ways to transport legal cannabis to the big consumer and medical markets out east. If you look at a map, you will see that while you might be able to get all the way to Illinois by truck, once you try to go east from there, you have to pass through a line of states that we’d classify as risky (that’s the nicest way we’d classify them). There’s a good chance that some yahoo sheriff will pull you over, take your shit, and grin a Deliverance grin while the local DA charges you with a state crime carrying an ungodly number of years in some red state prison.
So, everyone will ultimately need some public indication of tolerance from the DOJ regardless of whether interstate commerce will allow us to reach the markets we need.
WHAT WOULD DOJ TOLERANCE DO? AND IS THAT REALISTIC?
- An indication of DOJ tolerance would allow us to ship legal cannabis between producer states and consumer states on opposite sides of the country by either rail or air, which are federally regulated.
- It would make it easy for consumers and medical states benefiting from trade to participate in commerce.
- It would force every medical state to either allow their patients to access the best and most cost-effective medicines available on the legal market or to justify why it won’t. (The bottom line of some limited license MSO will not stand up for long as a reason to deny legal patients access to legal medicines they need and can afford.)
- It would force every current and prospective adult use state to examine the impacts of incentivizing investment in production where it may not be competitive long-term, vs. focusing on and allowing their retail, distribution, delivery, product development, small manufacturing, wellness, and hospitality businesses (nearly all of which are far less capital intensive, and more likely to be small businesses than indoor production at scale) to access thousands of the nation’s best and most efficient suppliers instead of remaining hostage to a few local producers.
- There is every reason - legal, political, and based on their previously stated intent - to believe that DOJ if asked, will stick with their hands-off policy where states are regulating.
DOJ tolerance of commerce between legal markets - even just a statement to that effect, which is all the guidance and protection that the industry operates under now - would change the entire game. Ever since Jeff Sessions tore up the Cole Memo in 2016, the state-legal adult-use industry has operated without written guidance or protection. Fortunately, the days of Jeff Sessions (and Bill Barr, for that matter) at the helm of DOJ are (mercifully) behind us. Currently, the entire operation of the adult use industry rests on the verbal assurances of Merrick Garland (most officially in Congressional testimony) that he sees no DOJ priority in getting involved (prosecuting) where states are regulating cannabis. Therefore, DOJ tolerance for commerce between markets would need only a verbal assurance that such commerce - which is the same under federal law as the current siloed markets - will be afforded similar tolerance. To this point, however, no one has asked the AG this question. That should soon change.
That assurance would give interested adult-use states and every medical state the go-ahead to explore and engage in commerce to benefit their industries, consumers, patients, and state revenues. It would also make it difficult for medical states to deny their legal patients the right to access better, more appropriate, and less expensive medicines that are legally available anywhere in the country. And finally, it would make it suddenly possible to trade among participating states from coast to coast, as instead of having to drive truckloads of cannabis through prohibitionist states, producers would be able to put cannabis on trains or planes - both federally regulated and beyond the grasp of state law enforcement - to get it to a participating market.
On transportation, it is important to understand that if DOJ says it won’t prosecute, and if two or more governors have agreed on a protocol for allowing commerce, neither the FAA nor the Railroad Administration is likely to take it upon themselves to stand in the way.
A QUICK NOTE ON MEDICAL
The DOJ is already forbidden, under the Bluemauer-McClintock Amendment, which has been included in every federal budget since 2013, from interfering is state medical cannabis programs. On the question of commerce in medical cannabis, say, a state like Delaware or Minnesota, or even Washington DC, decides that needs to allow cannabis to come in to adequately serve patients, it is quite arguable that DOJ would already be barred from interfering. A statement by DOJ clarifying its understanding of that would be even less of a political lift for them than a tolerant response on adult use. And, particularly given President Biden’s repeated assurances that he believes medical cannabis should be legalized entirely, it is even more unlikely that they would stand in the way of states on this issue.
SO, WHAT’S NEXT?
The inability to move cannabis from where it is best and most efficiently produced to where there is greatest demand is the issue at the very core of legal cannabis’ stunning and persistent economic failure. Because history shows that while it is easy to get around prohibition laws, the laws of supply and demand are ironclad. Governor Newsom, Governor of the state that has provided the nation with the lion’s share of its domestically grown cannabis for generations knows that Adam Smith (the other Adam Smith) had this right. And by his and his administration’s actions this week, he has put himself in a position to lead California’s storied cannabis industry into a more rational, sustainable, and broadly beneficial economic future.
