Are Interstate Commerce Restrictions on Cannabis Unconstitutional?
Vanderbilt Law Professor Robert Mikos Thinks So
The Dormant Commerce Clause, or Negative Commerce Clause, in American constitutional law, is a legal doctrine that courts in the United States have inferred from the Commerce Clause in Article I of the US Constitution. The primary focus of the doctrine is barring state protectionism. (Wikipedia) https://en.wikipedia.org/wiki/Dormant_Commerce_Clause
Imagine if Massachusetts suddenly decided that Virginia tobacco was no longer allowed to be sold in Massachusetts. That would never happen obviously, because this would be a clear violation of the constitution under what is known as the Dormant Commerce Clause. But here is the crazy thing, that is exactly what is happening right now in the cannabis industry.
States have used the federally illegal status of cannabis to protect local cannabis companies from any competition and prohibit the import or export of cannabis. This creates bizarre dynamics where you can have a massive oversupply of cannabis in Oregon, but a shortage in Massachusetts. Prices can also wildly differ. Cannabis in California can cost a little over $1000 a pound, but in Maine can be upwards of $5000 a pound.
Making it even stranger is that every state has different laws on who can grow and sell cannabis such as Florida requiring every dispensary to only sell the cannabis that the dispensary grows, basically requiring vertical integration.
This creates distortions in pricing, capital allocation, and incentives that has helped shape the cannabis industry into something kind of like the wild west.
However, what if the interstate restrictions on cannabis are unconstitutional? Vanderbilt Law Professor Robert Mikos actually thinks they are and has written a very interesting white paper on the very subject.
Here is the abstract:
A growing number of states have authorized firms to produce and sell cannabis within their borders, but not across state lines. Moreover, many of these legalization states have barred nonresidents from owning local cannabis firms. Thus, while cannabis commerce is booming, it remains almost entirely intrastate. This Essay provides the first analysis of the constitutionality of state restrictions on interstate commerce in cannabis. It challenges the conventional wisdom that the federal ban on marijuana gives legalization states free rein to discriminate against outsiders in their local cannabis markets. It also debunks the justifications states have proffered to defend such discrimination, including the notion that barring interstate commerce is necessary to forestall a federal crackdown on state-licensed cannabis industries. The Essay concludes that the restrictions legalization states now impose on interstate commerce in cannabis likely violate the Dormant Commerce Clause (DCC). The Essay also examines the ramifications of this legal conclusion for the future of the cannabis market in the United States. It suggests that without the barriers that states have erected to protect local firms, a new breed of large, national cannabis firms concentrated in a handful of cannabis-friendly states is likely to dominate the cannabis market. This development could dampen the incentive for new states to legalize cannabis and further diminish minority participation in the cannabis industry. To address these concerns, congressional legislation may be necessary, because individual states have only limited capacity to shape the national market and the firms that compete therein.
Interstate Commerce in Cannabis White Paper
This would obviously have broad and important implications for an industry that is already $100 billion in size, albeit most of it being illegal sales. The sheer size of the industry is why interstate restrictions are so important. One of the reasons I have expressed such bullishness about the Mercer Park/Glass House transaction is that if interstate barriers come down, there are few that could compete with Glass House’s size, scale and cost of production advantages. In fact, fellow California cannabis company, The Parent Company, just announced it was investing $50 million in Glass House and securing a long-term supply of Glass House’s premium cannabis.
So are cannabis interstate commerce restrictions unconstitutional? I have no idea, but I’m excited to announce that I’m about to interview Professor Mikos and will post the interview next week.