Cannabis gets its day in court

Plus, push back against New York’s Governor

Thursday, May 23, 2024

Good morning.

Yesterday, we had a fantastic conversation with Park Strategies’ Joe Rossi on the New York cannabis rollout. Nearly 1,000 of you listened in, so we’ll certainly do more. 

And in other news, cannabis had its day in federal court, and much, much more. 

Let’s get it. 

-JB & JR

This newsletter is 1,230 words or about a 9-minute read.

💡What’s the big deal?

A federal judge heard argument for lawsuit over federal prohibition

Lady Justice background.

Driving the news: Last year, a group of cannabis companies hired powerhouse law firm Boies Schiller Flexner to sue the federal government over prohibition.

The firm’s namesake, David Boies, represented Al Gore in Bush v Gore, among other notable cases. This is about as high profile as it gets. 

More specifically, the suit seeks to declare the Controlled Substances Act (CSA) unconstitutional as it pertains to state-legal cannabis businesses within the context of how the CSA applies to intrastate commerce (that is, within the borders of states that have chosen to legalize). 

In simple English, that means cannabis companies want the federal government to treat them like any other business, allowing regular access to the banking system, tax deductions, and for employees to have no trouble getting mortgages or credit cards. 

What happened today? A judge in a Massachusetts federal court heard oral arguments for the case yesterday. Stick with me. It’s wonky stuff. 

The discussion rested on three key issues:

  • Intrastate versus interstate commerce (and the Commerce Clause).

  • Whether cannabis companies have been reasonably “injured” by the federal government’s prohibition.

  • How rescheduling cannabis to Schedule III of the Controlled Substances Act would affect these issues. 

On injury: The plaintiffs (the cannabis companies), say they’ve been “injured” by the federal government’s stance as they’ve been unable to access banks and have been forced to pay absurd tax rates because of 280E, a rule that stipulates companies that sell Schedule I and II substances can’t deduct regular business expenses

Lawyers for the Department of Justice, on the other hand, argued that the federal government hasn’t prosecuted, and doesn’t plan to prosecute cannabis businesses so the case should be thrown out. 

On regulating intrastate commerce: The plaintiffs say that the Controlled Substances Act shouldn’t apply to intrastate commerce, though they admit — and the DOJ asserts — the CSA does have jurisdiction over interstate commerce. 

On rescheduling: Both sides discussed how President Joe Biden’s push to reclassify cannabis as a Schedule III drug would affect all this. 

Jeremy Newman, the DOJ’s lawyer, said Schedule III is consistent with the federal government’s stance on state-legal cannabis, and that it would make the risk of enforcement less credible.

Boies, for the plaintiffs, agreed that rescheduling may lessen the immediate risk of enforcement, but still doesn’t legalize the business his clients are conducting so the case is still relevant. 

What they’re saying: “I think that this development underscores the rationality of the measured approach that the government has taken, which is to allow these programs to go into effect to avoid friction between the federal government and the states,” Newman, the DOJ lawyer, said in court regarding Schedule III. 

“And it allows a body of evidence to develop, which is currently informing the federal government’s decision making regarding marijuana.” 

And: “There was no suggestion that they’re going to permit our clients who are here to continue their operations legally,” Boies, the plaintiff’s attorney, said regarding Schedule III. 

Why it matters: This case is a rehashing of a 2005 case, Gonzalez v Raich, tried at the Supreme Court and brought on behalf of medical cannabis firms. The Supreme Court affirmed the Controlled Substances Act’s precedence over state-legal medical cannabis. 

But the plaintiffs say the facts on the ground are different today, given 26 states have legalized cannabis for adult use, and now, the President is pushing for reform

What happens next: Things don’t happen quickly in federal court. The DOJ asked for the case to be dismissed, a process that could take months or years. And whatever happens, expect the judge’s ruling to be appealed. 

Some legal experts say they don’t expect a district court judge to break from the precedent set by the Supreme Court in 2005. But with such a powerhouse law firm involved, there’s a first time for everything. 


💬 Quote of the day

“It’s a media strategy, not a legal argument,” Jesse Alderman, an attorney at the law firm Foley Hoag, said on a US Cannabis Council webinar today breaking down the implications of rescheduling for cannabis companies. 

Alderman was discussing the much-discussed point that Drug Enforcement Agency head Anne Milgram didn’t sign the proposed rule to reclassify cannabis as Schedule III, even though her boss, Attorney General Merrick Garland, did. In his view, it’s more of a narrative the media is running with to create conflict, rather than a real impediment to rescheduling. 

If you want to learn more about why this issue perhaps doesn’t matter, read yesterday’s Cultivated Daily

And as to whether Schedule III would open up interstate commerce? Alderman’s answer: “No!”

Quick hits

New York State’s Black, Puerto Rican, Hispanic & Asian Legislative Caucus is reportedly not happy with Governor Kathy Hochul’s decision to fire Office of Cannabis Management head Chris Alexander. A document sent to the caucus over the weekend found “nearly two dozen” problems with a report released earlier this month into the OCM’s operations, and asserted that Alexander is a scapegoat for broader bureaucratic problems. 

And in other New York news, the state has stopped issuing new loans through the controversial $200 million social equity fund run by the Dormitory Authority (DASNY), which bombshell reporting from THE CITY found benefited Chicago Atlantic, the firm providing the loans, at the expense of social equity-linked entrepreneurs — and would leave taxpayers on the hook if the entrepreneurs defaulted. 

The House Agriculture Committee is holding a markup on the 2024 Farm Bill today. The cannabis and hemp industries are watching — some want to close the ‘loophole’ that allows hemp companies to sell intoxicating Delta-8 THC products, while the hemp companies themselves are fighting to keep it open. Read more about the looming hemp versus cannabis battle over the Farm Bill here

A new study found a “lack” of notable next-day impairment from people who treated their insomnia with cannabis edibles containing 10 milligrams of THC and 200 milligrams of CBD. Here’s the full study.

📊 Chart of the day

Legalization is becoming a question of how, not when. 

A new survey from the nonprofit think tank Parabola Center and conducted in conjunction with RTI International found that most people want cannabis legalization to benefit medical patients, workers in the industry, and recreational cannabis consumers.

The study was unique in that it asked what people want out of cannabis legalization, not whether or not to do it. You can read the full report here.

📰 What we’re reading

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