Is Interstate Commerce Coming For The Cannabis Industry?

• Published date: 29 December 2022
• Subject Matter: Cannabis & Hemp
• Law Firm: Harris Beach
• Author: Douglas Gerhardt and William Wolfe

On December 29, 2022, over 18 months after cannabis became legal to sell in New York State, the first retail dispensary is scheduled to open. This begs the question - should it have taken this long? Recent federal court precedent call into question the constitutionality of state residency requirements for licensees, and at least one pending case could open the cannabis industry to interstate commerce, despite it still being illegal federally.

Many states that legalized marijuana established residency requirements. This is done for a few reasons. One is to ensure state residents receive the financial benefits of legalization in their own state. Another is to curtail outside entities from coming into a newly legalized state and dominating the market from afar. With cannabis still illegal under federal law, state policymakers believe states have the right to establish state laws regulating the industry. But do they?

In New York, the Cannabis Control Board and Office of Cannabis Management require the first round of cannabis retail dispensary licenses be awarded to persons with ties to New York, including a marijuana-related conviction in New York. But, out-of-state operators have cried foul. Hoping to benefit from legalization, out-of-state grower have filed lawsuits. Suits are predicated on the U.S. Constitution's Commerce Clause¹. Article 1 of the US Constitution contains the Commerce Clause. The Commerce Clause charges Congress with regulating interstate commerce. The Dormant Commerce Clause is derived from this and stands for the legal proposition that since Congress regulates interstate commerce, states are restricted from enacting legislation which discriminates against or unduly burdens interstate commerce. The focus of the lawsuits is to say state laws and regulations discriminate or excessively burden interstate commerce when it comes to cannabis regulation.

Marijuana Operators Find Agreement on Dormant Commerce Clause

Out-of-state operators are finding some success, Certain judges are agreeing that the illegality of marijuana at the federal level bars it from regulation under the Dormant Commerce Clause:

• In August, the First Circuit Court² ruled that a residency requirement in Maine violated the dormant commerce clause because it "explicitly discriminates against residents of other states and Maine cannot show a legitimate local purpose for the requirement." In the Maine case, a Delaware corporation wanted to buy a Maine corporation that operated...