Could Interstate Cannabis Commerce Become a Reality?

A New Jersey bill could open the door to interstate cannabis trade.

The possibility of legal cannabis companies shipping goods across state lines to other markets within the United States has been an industry talking point for years. Oregon activists even got a law approved in 2019 to prime the state for just such a development.

The concept seemed just a dream for small craft growers desperate for an outlet for the massive oversupply of cannabis, particularly since there was never a recipient state to which Oregon might have shipped its excess cannabis.

Plus, Congress has been achingly slow to move on anything marijuana-related.

Enter New Jersey state Senate President Nicholas Scutari.

The powerful Democratic lawmaker introduced a bill in late September that could make the Garden State the first-ever recipient of legally sanctioned interstate shipping of cannabis goods within the U.S.

Most industry observers didn’t – and largely still don’t – expect that to happen until Congress legalizes marijuana federally or courts overturn prohibition. But the New Jersey bill could provide a new opening, if the political stars align.

The New Jersey measure follows a parallel bill just signed into law by California Gov. Gavin Newsom. The California bill sets up a theoretical way to launch interstate cannabis shipping through direct state-by-state trade agreements prior to federal legalization, a provision missing from the 2019 Oregon law.

Though the possibility has piqued a lot of interest in many cannabis industry circles, the concept is months if not years from becoming a reality, and it is dependent on a number of wild cards, any one of which could derail or delay the entire effort, backers conceded.

The lay of the land

At the moment, the industry is waiting on new federal guidance from the U.S. Department of Justice, since former DOJ guidance memos – including the well-known Cole Memos – were rescinded under the Trump administration.

That could still be months – or even longer – away, though some observers think the process may now be sped up, given President Biden’s announcement on Thursday that he’s requested the DOJ and Health and Human Services Department to look into whether cannabis should be rescheduled.

Still, what that new federal guidance will entail also is still a mystery. If Biden chooses to issue an executive order removing cannabis from the list of controlled substances, then interstate commerce would happen automatically as a result. But anything short of that and the question may still remain as to what the new DOJ guidance may allow.

A new policy may simply rehash the Cole Memo released in 2013, which laid out specific steps as to how states could avoid intervention by the DOJ but still allow regulated cannabis industries to operate, despite remaining federally illegal. Notably, one of that memo’s provisions was that any state with a functioning marijuana market had to prevent diversion of cannabis “to other states.”

Or the new guidance could be broader and incorporate federal court rulings, such as the First Circuit Court’s finding that threw out a residency requirement in Maine for cannabis business ownership. (That ruling is the basis for a legal theory that the right lawsuit could force the courts to overturn any state or federal law standing in the way of interstate cannabis commerce.)

“Ultimately, in order to move cannabis between, say, Oregon or California and New Jersey, we are going to need guidance from the DOJ,” said Adam Smith, the president of Oregon-based Alliance for Sensible Markets, a leading proponent of interstate cannabis trade.

Smith, who worked on both the Oregon and California interstate cannabis commerce bills, said the strategy for making interstate trade a reality for the industry is very much a political one, not a legal one per se. He said it’s progressing steadily and predicted it will become a reality within the next two years.

What the interstate commerce movement needs is at least two governors and two attorneys general willing to stand up to the feds on cannabis trade, Smith said.

Newsom is the first governor positioned to do so after signing SB 1326 into law last month, which allows him to “enter into agreements” with other states that want to import or export cannabis products.

New Jersey Gov. Phil Murphy, who also has been an outspoken proponent of legalizing cannabis, could become the second. Just last year, he signed into law the bill legalizing recreational marijuana in that state.

The catch is that the California bill will only kick in if:

  • Congress changes federal marijuana law, either to legalize it or specifically allow for interstate trade.
  • The DOJ issues a memo allowing for interstate cannabis commerce.
  • Or the California attorney general issues a formal opinion advising that engaging in interstate cannabis commerce “will not result in significant legal risk” to the state under the Controlled Substances Act.

The New Jersey bill, as introduced, has the same provisions for sidestepping Congress by relying on a state attorney general opinion, which means that if the political stars align – with both the governors of the two states and their attorneys general all teaming up to send cannabis products cross-country – it could happen, Smith argued.

As Smith noted, the entire U.S. cannabis industry is technically in violation of the U.S. Controlled Substances Act. By extension, that means there’s no solid legal reason for the California or New Jersey attorneys general to object to an interstate trade deal, because the states are technically in all the legal jeopardy they can be in with the DOJ already.

“It’s really on the governors. The governors are the ones who can instruct their regulatory agencies to start putting together a framework,” Smith said.

“Our whole point is to avoid Congress entirely. Waiting for Congress to fix cannabis policy has never been a winning strategy. This is about, every single advance we have made … has been the states moving forward.”

What’s next

California Attorney General Rob Bonta’s office confirmed in an email to Green Market Report that an opinion on the bill has not yet been requested.

Newsom’s office did not respond to a request for comment.

Ultimately, California needs a recipient for its cannabis before there’s a reason to get an opinion from Bonta, which is where New Jersey comes in. The bill by Scutari was introduced on Sept. 22, and so far has not been scheduled for a committee hearing.

Scutari’s office also declined to comment for this report.

The New Jersey governor’s press secretary said he doesn’t comment on pending legislation.

But multiple stakeholders pointed to Scutari’s long record as a cannabis reformist, and said if he’s throwing his considerable political weight behind the bill, it shouldn’t be counted out.

“Nick Scutari is a very serious guy. He’s good on this topic. He’s gutsy beyond belief,” said Hugh O’Beirne, a consultant and co-founder of the New Jersey Cannabis Advisory Group. “If he thinks it makes sense, he’s going to talk about it and push for it. He’s not a guy to dismiss.”

Smith’s calculus is if Newsom and Murphy were to stand together and tell the DOJ that they want to have an interstate cannabis trade agreement, that the Biden administration wouldn’t stand in the way.

“The key to making this happen practically was to get multiple governors to say to DOJ, ‘Hey, we’re going to do this, this is our next step,’ and I would expect you’d get a tolerant response,” Smith said, adding that it would be “politically insane for them to get into a pissing match with Democratic governors.”

Still, the New Jersey bill has a long way to go, and there’s almost certain to be heavy political opposition from within the existing industry – and perhaps even from other stakeholders who could stand to lose out, O’Beirne and others said.

“I don’t think there has been a big desire for interstate commerce out there,” O’Beirne said of the New Jersey cannabis business community.

“Mostly, people desiring interstate commerce tend to be from the West Coast and places that have too much supply. A lot of voices in New Jersey and other places in the industry … wouldn’t like it,” he said. “Why would a state willingly give up the development of its own market to the existing markets of other states? That would be the question.”

O’Beirne wasn’t the only skeptical one.

Randal Meyer, the executive director of the Global Alliance for Cannabis Commerce, said he doesn’t think interstate trade is doable without Congress. Meyer is an expert on Constitutional law, and co-wrote an article on the topic in 2019 for the National Review online.

“Interstate compacts and agreements, when they touch on an area of interstate commercial regulation, must be approved by Congress. It’s been the law of the land forever,” Meyer said. “You cannot move cannabis products across state lines without without touching the (Controlled Substances Act). Period.”

Meyer said he would expect that if such an interstate trade agreement were to come before Congress in the current political climate, it would be introduced in the same manner as a bill, and then it would be up to Congress to either approve or ignore.

New Jersey retail license winner Tahir Johnson, who plans to open an adult-use cannabis store in Trenton in coming months, said he’s “torn” over Scutari’s bill and thinks many of his industry colleagues are in the same boat.

“Your average person in New Jersey isn’t thinking about this at all,” Johnson said, but added he expects serious division on the topic, given that the state has already awarded scores of new business permits. “I wouldn’t want to do it at the expense of not having other people being able to stand up their businesses.”

If the New Jersey bill fails, however, Smith said he’s still in talks with advocates to push similar bills in other states that have functioning medical or recreational cannabis markets, so not all his eggs are in one political basket.

“Our plan is to have legislation ready … in four to five, maybe six states, by January,” Smith said, reiterating that the strategy is politically dependent on the states’ leaders.

“If we have the governors willing to stand up and do this, this is the way it gets done.”

The court option

There’s also the possibility that a new lawsuit of some sort could build upon residency requirement cases, such as the Maine ruling, in order to force the allowance of interstate cannabis commerce under a constitutional argument, said Jason Horst, president of the National Cannabis Bar Association.

The ruling was predicated on the Constitution’s dormant Commerce Clause, as Politico reported recently, and it’s the third such ruling so far in the federal court system against residency requirements for cannabis businesses.

That, Horst said, opens the door for a bigger policy question about interstate trade, under the same constitutional provisions.

“It’s entirely possible that at some point within the next year there will be a federal court decision holding that it’s unconstitutional to keep cannabis products in or out of their states,” Horst said.

Horst said he’s not aware of any specific lawsuit that has yet been filed with this goal in mind, but added, “Without a doubt, it’s coming.”

The GACC’s Meyer disagreed, and said, “Any lawyer who has said that (cannabis) product can cross state lines under that First Circuit decision should go back to constitutional law class.”

“You can have interstate ownership, because that’s what the residency requirement is about, it’s about excluding out-of-state ownership,” Meyer said, adding that’s as far as the ruling goes.

The only real consensus among stakeholders at the moment is that interstate trade is inevitable, if only because it’s an immediate byproduct of federal legalization – which all observers say will happen at some point.

But interstate marijuana trade prior to Congress taking action?

“It certainly seems like a pipe dream for now, but so did a lot of things,” O’Beirne said. “I’m skeptical of it … but that’s never stopped Scutari before. When they told him he’d never get cannabis legalized, well, he did. So he’s not going to be stopped by that if he’s really serious.

“Way more stranger things have happened.”

John Schroyer


Agrify

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