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Interstate commerce and an update on Super Bowl sales
As promised, we’ll be talking about cannabis law and policy around here. In that vein, there’s no better place to start than the US Constitution! So let’s get right down to it with today’s topic — the Commerce Clause.
Article 1, Section 8, Clause 3, of the US Constitution grants Congress the power to “regulate commerce. . . among the several states.” Generally, this clause applies to goods bought and sold across state lines, or inter-state commerce. So, even though cannabis is federally illegal, states can still set up and run their own intra-state markets.
Indeed, federal guidance since 2013 — a year after Colorado and Washington legalized Adult Use — via the Cole Memo has been for prosecutors to focus on “preventing the diversion of marijuana from states where it is legal under state law in some form to other states.” Cannabis sales under legal state regimes has been allowed to continue with minimal federal interference.
However, there is a second, implicit part of the Commerce Clause that has also been applied to cannabis. Known as the Dormant Commerce Clause, it interprets the doctrine granting Congress the sole power to regulate interstate commerce by restricting the states from enacting policies that prevent the movement of capital, goods, or persons to another state. In other words, it aims to preserves a free, national market. This doctrine has been used to enable the federal government’s interference in intra-state commerce, such as in the 2005 ruling in Gonzales v. Raich that held the government could seize a cancer patient’s weed plants. The ruling relied on a similar 1942 case where the court ruled that a farmer growing wheat for consumption by the cattle on his farm was subject to federal production limits intended to stabilize national wheat prices.1 (It’s worth noting that the Dormant Commerce Clause is built upon dubious case law involving farm animals and cancer patients.)
Regardless of the legal precedent, there are extant state cannabis markets, and many are dealing with a problem that may not be intuitive for an industry outsider: oversupply. It turns out that plants grow pretty well, and many legal state markets are struggling with plummeting prices.2 There are two ways to deal with this problem. The first is — avert your eyes, sensitive stoners — to destroy excess inventory. The other is to find an outlet for that inventory: exports. And so California took a step toward that end a couple weeks ago:
California officials are seeking a formal opinion from the state attorney general’s office on whether allowing interstate marijuana commerce would put the state at “significant risk” of federal enforcement action.
DCC General Counsel Matthew Lee and DCC Director Nicole Elliott sent the letter to California Attorney General Rob Bonta’s (D) office on Friday, as Politico first reported. It contains an eight-page analysis in which the department lays out reasons it believes the state would likely avoid federal legal issues by clearing the way for cannabis commerce across state borders.
You can read the full letter here. There are two key arguments. The first is that the anti-commandeering doctrine “protects California from liability, under federal law, for choosing to legalize and regulate commercial cannabis activity as a matter of its own state laws.” The second is that states and state officials are explicitly protected under the Federal Controlled Substances Act for regulating controlled substances under their own rules.
The letter does touch on the dormant aspect of the Commerce Clause at the end of the letter, emphasizing that states cannot discriminate against interstate cannabis commerce in the absence of corresponding federal discrimination. But the argument cannot rely solely on the Commerce Clause, as it’s interpretation can lead to the conclusion that the federal government does have a vested interest in the state’s cannabis markets — primarily in the sense that, under federal law, they should not exist. And the Dormant Commerce Clause has also been invoked to allow federal decisions in the rules a state can set for their state cannabis market.3
If that all sounds contradictory and confusing, it’s because it is. At the end of the day, it all comes down to enforcement — and risk. Yesterday, Washington joined California, Oregon, and New Jersey in approving a bill for eventual cross-border cannabis sales. But all of these laws do not go into effect until there is a federal law enacted or an opinion from the Department of Justice that allows for the interstate cannabis trade. Essentially, the states don’t want to end up on the wrong side of a federal case.
And even though California is adamant that there is limited risk for state officials in sanctioning interstate trade, they are also clear that Congress has the power to directly legislate and prohibit cross-border sales by individuals. While this is an interesting academic debate, it’s imperative to remember that people’s lives and livelihoods are at stake with every decision.
Super Bowl Update
Cannabis spending declined this past Super Bowl Sunday, with the typical checkout basket size valued at $84.61, a -4% decline from same store sales year-over-year. Despite the dip, there were still some notable patterns when it came to consumer behavior.
According to data aggregated by cannabis marketing platform Fyllo, pre-rolls remained the most sought-after product on Super Bowl Sunday generating 37% of all sales that day. Chad Bronstein, founder of Fyllo, expressed little surprise about this finding, adding that pre-rolls are "the cheapest product in dispensaries." In an economically precarious climate, that can be a strong enticement for consumers.
"We see this sensitivity to pricing most significant among persons aged 25 to 75, where consumer spending this year around the Super Bowl decreased significantly," noted Bronstein, in an email.
Once you’re 76, you might as well spend a bit more on your weed.
The reasoning being that even though the farmer was not growing the wheat for sale, his production and consumption still affected the national supply and demand, and thus could be regulated in the same way as interstate wheat trade.
While this can obviously be good for the consumer, it is bad from the perspective of legal retailers that operate on razor thin margins, particularly small businesses that cannot survive a race to the bottom.