Flaws in Federal Cannabis Bills Threaten the Legal Market

Flaws in proposed federal marijuana legislation threaten the legal cannabis market, especially failure to pause the Dormant Commerce Clause, say Shaleen Title, the distinguished cannabis policy practitioner in residence at the Ohio State University Drug Enforcement and Policy Center, and Andrew Kline, who co-leads the cannabis practice at Perkins Coie. They suggest some changes.

Cannabis is gaining acceptance, with more than three dozen states and territories having legalized the plant in some form. Cannabis reform has widespread support nationally, with a recent Pew Research Center poll showing that 91% of Americans support legal recreational or medical marijuana use.

And in response to popular demand, states are passing increasingly robust social justice policies providing equitable ownership opportunities, with New York Gov. Kathy Hochul (D) recently announcing a new $200 million fund to promote diversity among licensees in her state’s emerging legal marijuana industry.

Given this trajectory, passing legislation that protects existing cannabis business, small and large, and promotes social equity is critical.

At the federal level, however, cannabis legislation has stalled. Even with a Democratic majority, Congress has been unable to muster the votes to bring any cannabis-related bill to the Senate floor. So, this winning political issue languishes.

Must Address Dormant Commerce Clause

While there are now multiple federal marijuana legalization models pending before Congress, they all contain a little-known but fundamental flaw that threatens the legal cannabis market as we know it. By failing to address the Dormant Commerce Clause (DCC), these bills would hurt cannabis businesses big and small, potentially endanger consumer safety, and jeopardize racial justice progress being made in the states.

What is the DCC? In short, it’s a legal doctrine that bars states from enacting policies that discriminate against interstate commerce. Because of the federal prohibition of cannabis, many states have ignored the doctrine and adopted regulatory programs that serve to benefit and promote the growth of local cannabis businesses. Without specific congressional action to pause the DCC after federal legalization, many critical state regulations and social equity programs that current businesses and licensees rely upon will become void overnight.

While the proposed Marijuana Opportunity Reinvestment and Expungement Act does not contain a regulatory plan, both the Democrat-led Cannabis Administration and Opportunity Act and Republican-led States Reform Act fail to address the disruption that will take place without a thoughtful approach to looming DCC issues.

If Congress intends to take meaningful steps to right the wrongs of the war on drugs and protect businesses small and large, it must explicitly pause the DCC and clearly define the regulatory roles and responsibilities of states. Senate logjams notwithstanding, now is the time to draft a bill that would serve as the best guidepost in the months ahead. And no bill should move forward without clearly centering on equity, justice, and community reinvestment.

Congress Must Act to Avoid Patchwork of State Laws

Federal legalization that immediately triggers the DCC would make protecting public health and safety extremely challenging given probable litigation during the inevitable regulatory gap prior to the promulgation of federal rules and absent a congressionally-mandated transition period prior to interstate commerce. Congress must clearly outline the balance of powers between state and federal regulators, or it risks years of litigation and headaches.

For a preview, look at the way Congress de-scheduled hemp and its derivatives, namely CBD, leaving a patchwork of state laws and regulatory chaos in its wake. Customers have no reliable information on purity or any guarantee of truth in labeling, while hemp-derived cannabinoids are sold at gas stations without proper product testing or age verification.

There is a clear path forward: Congress can take steps to get this right by retaining state laws and regulations until the federal government has promulgated federal rules, leaving some critical regulatory authority in the hands of state regulators, and investing in communities harmed by the war on drugs. The majority of tax dollars should be used to promote responsible regulatory compliance, ensure consumer and product safety, expunge convictions, support restorative justice measures, and fund key economic equity programs.

Congress needs to specifically authorize states to retain their popular state-level programs, namely those specifically targeting communities directly affected by the war on drugs. For example, entrepreneurship and jobs programs for in-state residents—and exclusive license access and set-asides for business owners—can prioritize individuals with prior drug convictions in the burgeoning cannabis industry.

Absent an approach to preserve these policies, federal legalization will perpetuate harm against the same communities that cannabis prohibition has targeted for decades.

Getting it Right

Congress must make crucial decisions to promote and protect American entrepreneurship. To prevent monopolization by corporate behemoths, states should not be permitted to limit the total number of marijuana business licenses available. Instead, federal and state laws should place reasonable limits on how much of the market anyone can own or control.

Adults should also be able to grow a limited amount of marijuana at home for personal use.

Finally, Congress needs to end licensure disqualifications based on individual drug offenses and instead focus on disqualifying people from holding licenses for committing corporate crimes like fraud, tax evasion, and money laundering.

Successful state programs can serve as a road map for federal policy, so Congress needs to be specific in its legislation about the retention of key state regulatory authorities and critical social equity programs. If Congress’s vision of the cannabis industry is to protect disadvantaged communities, small and large businesses alike, and consumers and patients, then we need to deliberately replicate and incentivize what has worked in the states as our laboratories of democracy.

We all have one goal in common: a safe, regulated, accessible, and equitable cannabis industry. We have one opportunity to get the market right. Let’s not squander it.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.