Here We Go! The Latest Lawsuits to End Federal Prohibition

High profile lawsuits to end cannabis prohibition are nothing new. We’ve covered efforts going back several years, though none of these has succeeded. A recently announced attempt, though, may be the best chance yet– especially given the changing environment with cannabis legalization in so many states; and especially given Constitutional jurisprudence relevant to those changes.

So what is happening? Well, various influential marijuana companies and stakeholders are joining to sue the federal government over alleged unconstitutional policies which affect their operations. This is according to the CEO of one of the companies joining the suit. This effort is especially interesting because of who represent this coalition of multi-state operators (MSOs). Allegedly taking on the case is the renowned constitutional law firm Boies Schiller Flexner LLP. And David Boies — who many regard as the greatest living Constitutional law litigator — is said to be leading the charge.

Boies Schiller has represented clients in constitutional issues ranging from government agencies, politicians, and groups of plaintiffs in high-stakes constitutional rights cases. By taking on the case, the firm would be validating that the coalition’s claims have some merit.

In reality, the coalition plans on filing two separate federal district court, according to Abner Kurtin, founder and CEO of Ascend Wellness Holdings. Kurtin mentioned that these lawsuits will likely be filed “in the next couple of months,” and that potential supporters of the “industry-wide effort” include Curaleaf and TerrAscend, as well as the American Trade Association of Cannabis and Hemp (ATACH).

The first lawsuit to end cannabis prohibition centers around the federal prohibition on interstate commerce in a cannabis context, as well as challenge the constitutionality of the Controlled Substances Act (CSA) with a specific interpretation of the US Constitution’s Commerce Clause. One point the coalition will argue is that the federal government’s interstate commerce authority, particularly regarding fungibility, should not apply to cannabis companies in state-legal markets, which are highly regulated. On the other hand, the federal government will argue that market fungibility is the base of its interstate commerce authority. In other words, a good produced in one state can affect pricing of the good in other states, which gives the federal government jurisdiction to regulate it.

In 2005 the Supreme Court ruled along these lines in Gonzales v. Raich, a Supreme Court cannabis ruling that expands the federal government’ authority. In that case, the plaintiffs were medical cannabis patients who invoked the 10th Amendment to protect their right to access marijuana that was legally grown and used in California. The Supreme Court majority thought differently, however, ruling that cultivating cannabis plants for medical use could impact marijuana pricing on the national illicit market. Kurtin argues that this is no longer the case, as state markets are now sophisticated and unique as to render national cannabis markets unaffected by cannabis cultivation in a particular state.

The coalition will also likely make the same argument as that raised by Supreme Court Justice Clarence Thomas, who criticized the federal inconsistency of cannabis enforcement last year. This inconsistency, argues Thomas, is an example of why courts should end federal cannabis prohibition. Also worth noting is that Thomas ruled in favor of the cannabis patients in Gonzales.

The second lawsuit shines a light on the US tax code, specifically Section 280E. This is another fraught area, which clients of ours have also challenged in high-profile federal litigation. The Section states:

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business . . . of trafficking in controlled substances . . . which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

This essentially means that cannabis companies cannot claim tax deductions because they are trafficking a controlled substance under the CSA. A resolution in favor of the plaintiffs could be retroactive as well, allowing cannabis companies to recover tax deductions that they could have applied in years past. The recovery of these deductions could actually help to fund the litigation, in theory.

The lawsuits come at an opportune time, as many federal bills to legalize cannabis use at the federal level are stuck in either the House of Representatives or the Senate (see our recent summaries here and here). In addition, Kurtin mentioned that the lawsuits will be argued from a perspective of states’ rights, which will likely garner support from both political parties and appeal to the Supreme Court’s conservative majority.

Ultimately, the lawsuits to end cannabis prohibition represent another angle—which avoids the various hurdles of legislative approval—for federal prohibitions on cannabis to be overturned. Even if the litigation fails, it should exert even more pressure on Congress to Act. But the potential agreement of a highly regarded constitutional law firm to represent a coalition of major players in the cannabis world signals the potential merits of their claims. We will track the these cases in the coming months closely.