Marijuana Companies Sue Attorney General To Block Enforcement Of ‘Unconstitutional’ Federal Prohibition

October 26, 2023 · marijuanamoment.net

A coalition of marijuana businesses represented by an influential law firm has filed a much-anticipated lawsuit against the U.S. attorney general, seeking to block the federal government from enforcing cannabis prohibition against their state-legal activity.

They claim perpetuating prohibition in state markets is unconstitutional, creating undue public safety risks while precluding licensed marijuana businesses from accessing critical financial services and tax deductions that are available to other industries.

The lawsuit was filed in the U.S. District Court for the District of Massachusetts, Western Division, by multi-state operator Verano Holdings Corp. and the Massachusetts-based cannabis businesses Canna Provisions and Wiseacre Farm, along with Treevit CEO Gyasi Sellers.

A press release says that Ascend Wellness Holdings, TerrAscend, Green Thumb Industries, Eminence Capital and Poseidon Investment Management are “foundational supporters” of the suit.

The law firms Boies Schiller Flexner and Lesser, Newman, Aleo & Nasser LLP are representing the plaintiffs. David Boies, chairman of the former firm, has a long list of prior clients that includes the Justice Department, former Vice President Al Gore and the plaintiffs in a case that led to the invalidation of California’s ban on same-sex marriage, among others.

The lawsuit alleges that while Congress originally banned marijuana through the Controlled Substances Act (CSA) in an attempt to eradicate interstate commerce, ostensibly giving the government a basis to enforce prohibition at the state level, lawmakers and the executive branch have since “abandoned” that mission as more states have enacted legalization.

“Despite these changes, the federal criminal prohibition on intrastate marijuana remains in place, an unjustified vestige of a long-abandoned policy,” the complaint, filed on Thursday, states. “This unjustified intrusion of federal power harms Plaintiffs, threatens the communities they serve, and lacks any rational purpose.”

There are repeated mentions of the fact that, while the federal government has taken a largely hands-off approach to cannabis in recent decades, state-licensed marijuana businesses continue to suffer unique financial burdens, including a lack of access to banking services, credit cards and federal tax deductions under an Internal Revenue Service (IRS) code known as 280E.

Without access to credit cards or online payment, state-regulated marijuana businesses must rely heavily on cash, creating serious public safety risks. State-regulated marijuana dispensaries have become targets of robberies,” the lawsuit says. “These collateral harms increase the costs of state-regulated marijuana businesses and reduce participation in state-regulated marijuana markets. As a result, there is less innovation and less consumer choice.”

The existing ban on cannabis under the CSA results in an “unconstitutional imposition on state sovereignty,” attorneys said. “While Congress has authority to ban marijuana from interstate commerce, it has no general police power over marijuana grown, transported, and distributed in intrastate commerce. Neither the Commerce Clause nor the Necessary and Proper Clause of the Constitution permit this overreach by Congress.”

The lawsuit takes a look at the history of cannabis laws in the country, pointing out that prohibition is a relatively recent policy position that followed more than 100 years of permitted use and cultivation to some extent. It then returns to the federal government’s justification for banning marijuana under the CSA, which was to prevent interstate commerce as was argued in the 2005 U.S. Supreme Court case Gonzales v. Raich concerning medical cannabis access for California patients.

That justification no longer rationally applies, the companies argue. Not only has Congress annually renewed an appropriations rider barring the Justice Department from using federal funds to intervene in state medical cannabis programs, but attorneys general over the course of multiple administrations have spoken to their lack of interest in criminalizing people over marijuana-related activity that’s sanctioned by the states.

“What was once a single-minded federal crusade against the cannabis plant has been replaced with an ambivalent set of inconsistent policies, some aimed at reducing federal interference with state efforts to regulate marijuana,” the suit says.

“In short, the federal government has long ago abandoned the goal of eliminating marijuana from commerce. Nor does Congress have any comprehensive—or even consistent and rational—approach to marijuana regulation,” it continues. “This inconsistent, patchwork approach to marijuana regulation provides no basis for Congress to regulate intrastate marijuana.”

That point echoes what conservative Supreme Court Justice Clarence Thomas said in 2021, criticizing the “contradictory and unstable” state-federal marijuana policy conflicts that have compounded as the federal government continues to take a “half-in, half-out” approach to the issue.

Attorneys for the plaintiffs said that “without court intervention, the CSA will continue to undermine state efforts to create safe and regulated intrastate markets for marijuana. As long as the CSA continues to prohibit intrastate cultivation, manufacture, possession, and distribution of marijuana, Plaintiffs and the communities they serve will suffer irreparable harm.”

There’s also a mention in the lawsuit of the impact of the current policy of criminalization on low-income communities, noting that the ban on intrastate marijuana commerce means that cannabis products cannot be delivered to public housing facilities in Massachusetts.

“This prohibition is to the detriment of the states, their citizens, and Plaintiffs,” the complaint states. “Not only do Plaintiffs face the potential risk of enforcement, their businesses also face numerous hurdles that result directly from the CSA’s treatment of intrastate marijuana.”

The consequences of this prohibition are devastating for the industry, particularly for small businesses that cannot rely on diversification or economies of scale,” it continues.

Josh Schiller, partner at the Boies Schiller Flexner law firm that is representing the plaintiffs, said during an X Spaces session on Thursday that “our clients have finally decided we can still look around the corner and hope that there is a legislative solution—but let’s decide whether or not we can create a permanent change by going to the courts,” adding that Supreme Court ideological dynamics have shifted toward a “federalist” point of view in a way that could bolster their case.

The court is “looking to enforce the constitutional protections for states to regulate commerce within the state, which is called intrastate commerce,” he said. “There is no right of the federal government under the Constitution to regulate intrastate commerce.”

“But we’ve built a lawsuit that we hope to get back to the Supreme Court as quickly as possible,” Schiller added. “The factual evidence that we offer in our complaint—which will be supported by testimony on a summary judgment motion which we hope to get to, probably not this year, but hopefully early next year—will be the basis for going to the Supreme Court and demonstrating this evidence that negates any legitimacy that the federal government has in continuing to treat cannabis as a federal crime.”

He also briefly previewed plans to pursue future litigation as a “second step” to help marijuana businesses recoup losses they’ve incurred due to the “inequality that they’ve suffered for years” if they’re successful in the current case.

“But this case is meant to create a new precedent that allows the states—and only the states—to let these businesses flourish under their regulations,” he said.

The lawsuit comes as the Drug Enforcement Administration (DEA) carries out a review into marijuana scheduling after the U.S. Department of Health and Human Services (HHS) recommended moving it from Schedule I to Schedule III under the CSA. Such rescheduling could resolve certain tax-related issues for the industry under 280E, but it would not legalize the plant or permit intrastate commerce.

“The federal criminalization of safe, regulated marijuana commerce in states where it is legal 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 to other states,” Boies said in a press release on Thursday. “Federal criminalization also denies small, legal marijuana businesses of access to SBA loans, investors, benefits for their employees, and normal banking regulations (which among other things, forces them to rely on cash transactions with all of the dangers to them, and to the community, that result)—as well as burdening them with discriminatory taxes.”

“Americans believe that cannabis should be legal and available subject to reasonable regulation by the states. 38 states have legalized some form of cannabis,” he said. “The federal government lacks authority to prohibit intrastate cannabis commerce. Outdated precedents from decades ago no longer apply—the Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce; moreover, the facts on which those precedents are based are no longer true.”

Cannabis business executives first described plans to file the lawsuit challenging the constitutionality of enforcing criminalization of intrastate marijuana activity under the CSA last year.

“I think the fact that one of the leading constitutional law firms in the United States is willing and eager to take this case speaks volumes to the seriousness of the action and the potential likelihood of success,” the then-CEO of Ascend Wellness Holdings told Marijuana Moment at the time, saying that he hoped the legal challenge would prompt Congress to pass cannabis banking legislation of other reforms.

“Hopefully, this will be another factor [so] that the Senate says, ‘you know, we’ve gotta get off our ass or we’re gonna lose this issue to the courts,’” he said.

Meanwhile, the federal government has also found itself in multiple federal courts over the past year as various parties challenge the ban preventing people who use marijuana from buying or possessing firearms, with some judges and one appeals court ruling that the policy is unconstitutional. (Full Story)

In categories:Federal Policy Legal
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