Last October, an alliance of cannabis-industry operators and investors hired David Boies, head of Boies Schiller Flexnor, to file suit against Attorney General Merrick Garland alleging that they have been significantly harmed and have faced unfair challenges to their business operations due to the Controlled Substances Act (“CSA”) barring the production, distribution, and possession of marijuana.

What does the Canna Provisions lawsuit argue?

Plaintiffs argue that the criminalization of these state-regulated industries at the federal level “unfairly burdens legal operations and expands the production and sale of illegal marijuana that is unregulated, can be unsafe, and is likely to find its way into other states.” (PRN Newswire, Lawsuit Seeks Equal Treatment for Cannabis Businesses [Oct. 26, 2023])

The crux of the Plaintiffs’ argument is that while multiple states have now enacted some form of legalized marijuana industry, the country is now at a point where the criminalization of marijuana at the federal level harms those in the industry as their daily operations – legal in the state in which they operate – are deemed criminal at the federal level.

As such, these state-authorized operations are burdened in several ways. Specifically:

• They cannot apply for small business loans
• They face discriminatory tax policies
• They cannot provide certain employee benefits, and
• Several financial institutions refuse to work with them, resulting in being charged fees that are discriminatingly high from those that will work with them.

Is there other Supreme Court precedent?

In 2005, the Supreme Court justices rejected a challenge to the CSA’s criminalization of cannabis in Gonzales v. Raich, holding that Congress has an interest in preventing illegal marijuana from entering interstate commerce, and state marijuana laws do not protect individuals from federal prosecution.

The Canna Provisions plaintiffs argue that Raich was decided when both the laws and attitudes towards marijuana were less tolerant, but there has since been a seismic shift in those attitudes at the state and federal levels. For example, Congress has included provisions in appropriations acts in each fiscal year since 2015 that prohibit the DOJ from “using appropriated funds to prevent certain states, territories, and Washington, D.C., from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana” (internal quotes omitted) (CRS Report, The Federal Status of Marijuana and the Expanding Policy Gap with States [March 6, 2023]).

The plaintiffs further argue that since both the executive and legislative branches have practically abandoned enforcement of federal marijuana laws in jurisdictions that regulate it themselves, “the federal government no longer has any basis for insisting that state-regulated, intrastate marijuana must be banned to serve Congress’ interstate goals.” Plaintiff’s Mem. Of Law in Opp. To Defendant’s Mtn. to Dismiss, at 3.

How has the government responded to this lawsuit?

The government filed a Motion to Dismiss in January, arguing that (1) the Plaintiffs lack standing; (2) the criminalization of marijuana under the CSA does not exceed Congress’s power under the Commerce Clause; and (3) the CSA does not violate substantive due process.

Standing

The government argues that the plaintiffs’ fixation on the changing attitudes towards marijuana is precisely why they are not in fact injured and thus have no standing here. The plaintiffs do not claim they were arrested, that any property was seized, or that the Department of Justice has otherwise enforced the CSA against them to prohibit them from cultivating, manufacturing, possessing, or distributing marijuana.

The government further argues that as a pre-enforcement challenge to the law, the plaintiffs lose as they fail to show a substantial risk of future enforcement by the government. The plaintiffs noting that the DOJ does not seek to prosecute those who comply with state laws regulating marijuana “negate[s] the existence of such a substantial risk.” (emphasis in original) Mem. In Support of Mtn. to Dismiss, at 7.

While the government acknowledges that the plaintiffs might not be able to: (1) get a loan from the Small Business Administration; (2) claim certain deductions or credits on their taxes; and (3) secure their premises with a firearm, all due to public policy, none of these policies are unconstitutional or exceed federal authority.

Likewise, regarding financial institutions and insurance companies who do not work with plaintiffs, the government notes that plaintiffs do not allege that any government entity has told or persuaded them not to work with the plaintiffs. Rather, these companies have simply chosen not to work with those in the cannabis industry. There are banks who do choose to work with cannabis operators, and while plaintiffs might be annoyed or inconvenienced for being charged more for their services, that it is not a legal injury.

Commerce Clause

It is well-settled that Congress has broad power to regulate classes of intrastate economic activity that substantially affects interstate commerce. The Raich decision affirmed this. Here, the plaintiffs are clearly engaged in intrastate economic activity by cultivating, manufacturing and selling marijuana within the commonwealth of Massachusetts.

While the plaintiffs point out that “the federal government has abandoned any goal of eliminating marijuana from interstate commerce,” the government argues that this does not mean that marijuana regulation under the CSA is no longer constitutional.

To survive a Commerce Clause challenge, all the government need show is that the “statute itself deals rationally with a class of activity that has a substantial relationship to interstate or foreign commerce.” Reply Mem. In Support of Mtn. to Dismiss Complaint., at 8-9 (citing United States v. Nascimento, 491 F.3d 25, 42 (1st Cir. 2007)). It remains to be seen whether the government can show that here.

Substantive Due Process

Lastly, the government argues that there is no fundamental right to cultivate, grow, distribute or possess cannabis products, and thus there is no need for any heightened scrutiny under the Due Process Clause. Because there is no fundamental right, only scrutiny under the rational basis test is required.

The plaintiffs do not dispute that the CSA rationally served legitimate government purposes; rather they argue that it has been rendered irrational by the executive and legislative branches exercising prosecutorial discretion and allowing states and territories to self-regulate its cannabis industries. The government argues that “these actions and inactions serve the rational purpose of facilitating state and local experimentation with marijuana laws while focusing federal law resources on conduct that most significantly affects federal interests.”

What’s Next

While the Plaintiffs will certainly have public support as approximately 70% of Americans think marijuana should be legalized in some capacity, the Plaintiffs here face a hurdle they do not appear poised to clear—that of standing. Plaintiffs here have claimed no injury in fact. While they state that they cannot apply for federal grants or loans due to marijuana being criminalized at the federal level, no plaintiff states that he or she has actually applied for said loan or grant and been refused. Further, neither plaintiffs nor the government are likely to dispute that the government maintains a “hands-off” approach when it comes to cannabis operators working within the boundaries set within their jurisdiction. Thus, the government argues, potentially with merit, that Plaintiffs are unable to show a substantial risk of future enforcement.

Regardless, this case will likely garner attention as it moves through the judicial process, and if it ultimately fails to bring about any change to the cannabis industry at a national level, then expect that others will pick up the mantle and try again.