States prepare for interstate commerce in cannabis 
Photo 97583954 © Svetlanaz |


States prepare for interstate commerce in cannabis 

Congress should act swiftly to implement an orderly interstate marijuana market through a vehicle such as the States Reform Act.

California became the latest state to authorize an interstate compact allowing for cross-border sales of regulated marijuana products. Last month, California Gov. Gavin Newsom signed Senate Bill 1326 into law to accomplish this feat, joining Oregon, where Gov. Kate Brown signed a similar measure in 2019. New Jersey State Senate President Nicholas Scutari also recently proposed similar legislation in the Garden State.  

The emerging coalition of states that have legalized marijuana seeking to allow for cross-border sales of regulated marijuana products represents a significant advancement in the development of a true interstate market. But there are caveats. The California and Oregon laws, and Sen. Scutari’s proposal, would require either Congressional authorization or a memorandum from the United States Department of Justice allowing for interstate transfers of marijuana products. 

At first blush, it may appear unlikely that the Justice Department would permit an interstate market in a federally illicit substance. However, this could be plausible for two reasons. First, the Justice Department is currently prohibited by riders to Congressional appropriations bills from using any resources to prosecute state-licensed marijuana businesses in good standing.  Although shipping regulated inventory out of state would violate existing state cannabis laws, these licensees would technically remain in good standing if the Justice Department allowed an interstate compact to take effect. As the First Circuit Court of Appeals recently pointed out, Congress has already recognized the existence of a national market in cannabis and decided not to criminalize it. 

Second, U.S. Supreme Court rulings have already held that Congress and the Justice Department can regulate or prosecute all marijuana transactions and that its jurisdiction does not begin when marijuana products cross state lines. Although this springs from a controversial interpretation of the Interstate Commerce Clause, the Supreme Court has applied it consistently since it ruled in 1942 that Congress could regulate a farmer’s ability to consume wheat grown on his own farm. In 2005, the Supreme Court applied this standard expressly to cannabis. Extending marijuana commerce beyond state borders implicates no more federal jurisdiction than currently exists within purely intrastate commerce.   

These provisions could lead the Justice Department to conclude it has no more authority to expend resources policing or prosecuting interstate commerce governed by an agreement between participating states than it does to police purely intrastate commerce. Based on Supreme Court precedent, it would imply no additional jurisdiction. 

However, it would be cleaner for Congress to expressly approve a plan to create an interstate market, whether by approving an interstate compact or by passing a more comprehensive approach, such as the States Reform Act (SRA). Indeed, regardless of what the Department of Justice thinks about an interstate compact, courts may soon conclude that interstate commerce must be permitted because state restrictions on the free movement of marijuana products violate the Dormant Commerce Clause.

The First Circuit Court just concluded, after all, that states cannot impede the free movement of persons and capital within the marijuana industry, and the same rationale might be applied to marijuana products

The systematic approach embedded in the States Rights Act would alleviate potential complications arising from an interstate compact or judicial decree, such as how regulated marijuana products could be transported between states, particularly when those states are not contiguous. It offers states the ability to set their own rules on cannabis but would facilitate trade among states that choose to offer a legal market through the federal Treasury Department, which would oversee the interstate transfers of products and ensure that these transfers cannot be stopped when moving across federally funded highways.  Provisions like this would ensure that the market is orderly and allow law enforcement to more readily identify illegal shipments of marijuana undertaken by criminal organizations and drug cartels. 

New Jersey’s consideration of an interstate market is particularly intriguing because, given geographic comparative advantages, it would almost certainly be a net importing state from lower-cost states with favorable climates like California and Oregon. According to data from New Leaf Data Services, those states offer the lowest wholesale cost of cannabis in the nation.  It should be expected, therefore, that they would become the leading exporters of cannabis products in the advent of an interstate market. 

Congress should act swiftly to implement an orderly interstate market through a vehicle such as the States Reform Act. Otherwise, a much less orderly approach may imminently emerge.