• Cultivated
  • Posts
  • Getting wonky with SCOTUS and cannabis

Getting wonky with SCOTUS and cannabis

Plus, a new chapter in hemp versus weed

Wednesday, July 3, 2024

Good morning. 

There’s been a lot of back-and-forth about what the recent Supreme Court Chevron Deference ruling means for cannabis reform. We do our best to rely on experts to give you what you need to know below. 

And just a friendly reminder that there will be no newsletter tomorrow or Friday. We’ll resume our regularly scheduled programming next week! 

-JB & CB 

This newsletter is 1050-words or about a seven-minute read.

💡What’s the big deal?

What does the new SCOTUS ruling mean for cannabis?

What happened: If you haven’t been living in a cave, you’re likely aware that the Supreme Court overturned a decades-old, landmark ruling known as the Chevron Deference.

In short, the new Supreme Court ruling undermines the authority of federal agencies to set rules and regulations in areas of their specific expertise. That means it’s now up to the courts to interpret the law in the absence of Congressional action or clarity. 

I am a humble MBA student, so please read the linked SCOTUSBlog above for more clarity about the ins and outs of Chevron. It’s wonky stuff, so bear with us. 

Back up:  There has been a lot written — and a lot of opinions spewed on social media — as to what this all means for the cannabis industry. 

The ruling has all sorts of implications that go well beyond cannabis. But the ruling also happens to come at a contentious time for cannabis reform, as the Biden Administration is pushing to move cannabis to Schedule III — perhaps the biggest change in federal drug policy in half-a-century.

The Administration’s push relies on new interpretations of both the health impact and medical efficacy of cannabis from the Department of Health and Human Services (HHS), and the Department of Justice (under the auspices of the Drug Enforcement Administration). 

Now, it’s likely that the push for Schedule III will be challenged in court, if it goes through. 

And it’s possible that anti-cannabis groups could find sympathetic judges in conservative federal courts in places like Louisiana that could undermine these agency’s efforts toward rescheduling. 

What they’re saying: We’re not going to get into the social media back-and-forth on this. 

And a quick caveat: this is all unprecedented. We’re going to defer to the experts, but the short answer is, like many things in cannabis, we don’t know what we don’t know.

On the one hand, without the Chevron Deference, groups that want to challenge Schedule III may have an easier time doing so, Josh Schiller, an attorney at the firm Boies Schiller Flexner told me in an interview. 

On the other hand, it’s also true that without Chevron Deference the DEA may not be the be-all-end-all arbiter of drug scheduling. It cuts both directions. 

Litigation is a likely outcome of the Schedule III rulemaking process, Schiller says. And with litigation comes uncertainty. 

But Shane Pennington, an attorney at Porter Wright, told MJ Biz Daily that he still feels “really good” about the prospects for rescheduling. 

“If you really scrutinized (Chief Justice John) Roberts’ opinion, there’s really a lot of good stuff,” he said. That whole story is worth a read

Boris Jordan, the chairman of publicly traded cannabis firm Curaleaf, also put a positive spin on analyst Pablo Zuanic’s podcast.

“We are in very, very good territory,” Jordan said. “Chevron puts pressure on the regulators like the DEA not to make decisions like they made in the past that were not based on science.”

On the other hand, Leah Heise, an attorney and industry consultant at Wolf Meyer, told Green Market Report that she is concerned Schedule III will be “reversed.”

“I’m concerned that not only will it be reversed, but that it may not happen because the agency is going to have to be far slower and more meditative about how they’re doing this rulemaking,” she said. 

And Matt Zorn, an attorney at Yetter Coleman and the writer of the On Drugs newsletter, doesn’t believe that Chevron’s demise is a death knell for rescheduling, but will rather, um, complicate things.  Read his piece here, it’s worth your time(Note: Zorn will join Cultivated Live this morning at 10 am. Follow us to tune in.)

The final word: So what we know is that without Chevron, a move to Schedule III will likely be litigated. But we don’t know the end result of the litigation, if it even gets to that point. 

It’s possible that the Administration simply abandons the push due to all the uncertainty. Expect a mess, and a long road, and no simple solutions.

That assumes, however, that Congress doesn’t settle the issue before it works through the courts. It’s obviously preferable that Congress create a legally binding rule around rescheduling or outright legalization — but I’m not holding my breath. 

Read a piece I worked on in 2022 with a number of legal experts for more about the tension between Congress and the courts in terms of cannabis policy for more. 

And more: Schiller also shed some insight into what’s next for the case he is working on on behalf of a group of cannabis companies that is suing the federal government over prohibition. 

That case was dismissed in a Massachusetts federal court on Monday, though he says they are readying an appeal that may work its way up to the Supreme Court, where a decision may not arrive until 2026.

Schiller said it is also possible that there’s a shorter time frame: The appeal gets heard by the First Circuit, a federal court in Boston, and receives a ruling before the end of the year. 

Time will tell.  


🗣️ Quote of the day

“There’s been a friction between the hemp market and the cannabis market and what were trying to do with this is bring those two together to work together with the federal government on fair equitable transparent regulation for the whole sector,” Curaleaf Chairman Boris Jordan said on industry analyst Pablo Zuanic’s podcast

The hemp industry and cannabis industry have been at odds lately, as regulated cannabis sellers say they are forced to pay onerous taxes and operate in a highly regulated framework, while hemp companies can sell similarly intoxicating products with impunity across state lines thanks to a loophole in the 2018 Farm Bill.

That divide came to a head recently in Florida, where Gov. Ron DeSantis vetoed a bill that would create more stringent regulations for the hemp market as a way to undercut an upcoming ballot measure that would legalize cannabis in the state. 

Quick hits

Medical cannabis in Kentucky schools 🏫
Students in Kentucky’s largest district may take medical cannabis on school property next year under a new policy approved by the Jefferson County Board of Education. The policy allows either a school nurse, staff member, or guardian to administer the drug. However, medical cannabis will not be available until at least 2025. Read more

The Taxman Cometh
The IRS reaffirmed on June 28 that the 280E rule — which prohibits companies or individuals selling Schedule I drugs from deducting business expenses — still applies to cannabis firms even if they operate in legal states. The memo comes after some companies, including Trulieve and others, sought to dodge the tax by filing amended returns. The tax pushes the rates cannabis companies pay above 70% in some cases. Read more.

Ja cannabis-clubs 🇩🇪 
German cannabis clubs may now apply to operate under the country’s legalization law, though members can’t obtain cannabis yet due to specific rules set by states for these cooperatives. Each club can have up to 500 members and sell up to 50 grams per person monthly, aiming to curb the black market. Read more

CANNRA let in unwanted guest 🥸
Jane Allen, a researcher at RTI International, criticized the Cannabis Regulators Association (CANNRA) for breaking its own rules by allowing a tobacco and alcohol industry representative to attend a stakeholder meeting. CANNRA defended its actions and emphasized their commitment to not accepting influence from these industries. Read more

South Dakota cracks down on hemp 💥 
A federal judge upheld South Dakota’s new law banning certain hemp-derived products. The judge said Hemp Quarters 605, who tried to block the law, failed to demonstrate the law’s unconstitutionality. South Dakota joins several other states in cracking down on hemp products that can get people high. Read more

East West Bank v. Irwin Naturals 🥊
East West Bank (EWB) accused Irwin Naturals and its founder, Klee Irwin, of defaulting on a $40 million loan and misusing company funds for personal expenses, such as property maintenance and car payments. The bank is seeking court intervention to appoint a receiver and remove Irwin completely from the company. Read more

📈 Deals, launches, partnerships

MariMed Inc. received approval to begin adult-use cannabis sales at its Quincy Panacea Wellness dispensary, making it the third such location in Massachusetts. The company also acquired the operating assets of Medleaf in Prince George’s County, Maryland and announced approval for recreational sales in both Maryland and Ohio

​​Timeless, a cannabis brand, announced its expansion into Illinois, marking their seventh market in the US. Starting July 3, Timeless products will be available at select retail locations statewide, with special promotions and events planned throughout July.

📊 Chart of the day

This chart comes from our friends at Greenwave Advisors, that shows the 280E tax as a percentage of revenue for the biggest cannabis companies:

📰 What we’re reading

What did you think of today's Cultivated Daily?

Login or Subscribe to participate in polls.