Cannabis Crossing State Lines: California Dept. of Cannabis Control Pushes for Interstate Commerce

In 2022 the California legislature passed Senate Bill 1326, now codified at Section 26301, et seq. of the California Business and Professions Code, authorizing California to enter into “agreement(s) with another state or states authorizing medicinal or adult-use commercial cannabis activity, or both, between entities licensed under the laws of the contracting state and entities operating with a state license….”  The Bill authorizes California to enter into agreements with neighboring states allowing for interstate transfers between cannabis licensees, so long as the cannabis products don’t pass through a non-legal state.

California’s legislation is not the first of its kind and follows on the heels of Oregon’s SB 582 way back in 2019. While the authorization for interstate agreements is generally focused on Federal legalization, implementing them now could be just the boost state-legal operators need at a time when losses are mounting.

SB 1326 provides that no cannabis interstate agreement can take effect unless at least one of four specified conditions is satisfied, the first being Federal legalization of cannabis, which sadly, remains elusive. In a January 27, 2023 memo, the California Department of Cannabis Control (DCC) pushed ahead with the fourth option, asking the California Attorney General to issue an opinion that “state-law authorization for medicinal or adult-use commercial cannabis activity, or both, between out-of-state licensees and California licensees, under an agreement pursuant to SB 1326,” will not result in significant legal risk to the State of California under the federal Controlled Substances Act. The DCC then makes its case, relying heavily on three bases:

  1. The Constitution’s inherent anti-commandeering principles, which prohibit Congress from interfering with a state’s right to pass its own laws where Congress has failed to directly do so;
  2. The Controlled Substances Act (CSA) does not distinguish between interstate and intrastate cannabis activity, so allowing for interstate commerce of an already federally illegal market would not substantially increase the likelihood of Federal enforcement; and
  3. With regards to medical marijuana, the fact that under the longstanding Rohrabacher-Farr-Blumenauer amendments, the Justice Department is not permitted to prosecute state-legal operators, further reducing the risk of Federal enforcement.

While anti-commandeering is not explicitly laid out in the Constitution, it has been supported by the Supreme Court, under the 10th Amendment, since 1992. The CSA specifically contemplates state law and provides that the CSA is not intended to occupy the field that would otherwise be within the authority of the State, unless there is a positive conflict between the State and the CSA, so that the two cannot consistently stand together. While interstate programs do not directly conflict with the CSA, interstate transfers would likely directly conflict with Congressional authority to regulate interstate commerce. Unfortunately for Federal enforcement, a lack of proper funding will make it difficult, if not impossible, to equitably enforce the Federal prohibition of cannabis.

In short, California is likely correct that entering into interstate agreements will not result in significant legal risk of Federal enforcement under the CSA to the state. This is all well and good, but what about the state-licensed operators that engage in interstate transfers?

As we have seen with state legal, but federally illegal, cannabis markets, the Federal Government does not appear to be inclined to enforce against state-legal, compliant operators working within the confines of their respective states. This has reduced the risk of Federal enforcement faced by state-legal operators, leaving some to wonder why states care about the Federal illegality of intrastate transfers. If state-legal operators are breaking Federal law, anyway, then why do they care if they continue to break it through interstate transfers?

One concern is the identification of interstate transfers as a Federal enforcement priority in the Obama-era “Cole Memorandum,” issued by then-U.S. Deputy Attorney General James Cole in the fairy tale days of 2013. While the Cole Memorandum was rescinded by Jeff Sessions in 2018, no defining Federal policy has replaced it. Current Justice Department leader Merrick Garland has repeatedly affirmed Cole Memorandum principles without explicitly addressing individual factors such as interstate commerce.

Adding to the legal intricacies of interstate transfers, 2023 finds the cannabis industry in a multi-year stalemate with Congress again failing to pass meaningful Federal reform last year despite widespread bi-partisan support of cannabis legalization. Legal cannabis states have long wagged the tail on Federal cannabis policies by adopting first medical, then adult use, regulatory frameworks that over time have led to shifts in Federal enforcement priorities and policies. Could interstate transfers be the next break in the wall of Federal prohibition?

The reality is that while states like California and Oregon may legalize interstate cannabis transfers and enable new markets to develop, once again it will be individual licensed operators who bear much of the risk. It’s also important to keep in mind that while California could open new frontiers for its state-legal operators, doing so pre-Federal legalization would raise a host of other operational and regulatory issues related to testing, product specifications/standardization, genetics transfers, and more. All that said, with state backing and Federal Government views on cannabis prohibition eroding, the excitement around interstate commerce is justified, particularly in agricultural export and cannabis culture-rich California.


Source JD Supra

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