Judge Dismisses Lawsuit Challenging CSA’s Constitutionality, but Says Cannabis’s Regulation Under CSA Should Be Reexamined

A U.S. district judge granted on July 1 a motion to dismiss a high-profile case brought against U.S. Attorney General Merrick Garland by a group of state-licensed cannabis operators. The dismissal squelched many cannabis industry constituents’ hopes that the federal government would be found to have no basis for enforcing the Controlled Substances Act (CSA) against intrastate, state-legal cannabis operators (who are not conducting interstate commerce) under the Commerce Clause of the U.S. Constitution and that section 280E of the Internal Revenue Code would not apply to cannabis businesses.

In his memorandum and order dismissing the case, Judge Mark G. Mastroianni for the U.S. District Court, District of Massachusetts, wrote that the plaintiffs in Canna Provisions Inc. et al v. Garland—including Canna Provisions, Gyasi Sellers (CEO and founder of Treevit), Wiseacre Farm, and multistate operator Verano Holdings—“do not provide a basis for this court to disregard the broad reading of the Commerce Clause first announced in Wickard v. Filburn, 317 U.S. 111 (1942), and reaffirmed in [Gonzalez v.] Raich.”

In the cases referenced, the U.S. Supreme Court had “declined to find that the reach of the [CSA] … exceeded the bounds of federal authority when applied to noncommercial, wholly-intrastate activities involving small-scale cultivation and possession of marijuana for personal medical use,” Mastroianni wrote.

The ruling followed a May 22 hearing to determine whether the suit had “standing” (merits to be disputed) or the Department of Justice’s motion to dismiss the case should be granted. Arguing for the plaintiffs was David Boies, chairman of Boies Schiller Flexner LLP. The Department of Justice was represented by Jeremy S. B. Newman.  

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Boies argued during the hearing that it needs to be questioned whether Gonzales v. Raich’s ruling is applicable in light of factual changes, and that the ruling was made when the federal government saw a need to criminalize intrastate marijuana commerce to eradicate interstate marijuana commerce, as Cannabis Business Times previously reported. State legalization and regulation of marijuana supports federal policy, he said.

In his defense, Newman said the ruling of Gonzales v. Raich remains binding, even if facts surrounding the ruling have changed, as the plaintiffs allege—i.e., marijuana is now legal for medical use in 38 states and for recreational use in half the country)—that overturning Gonzales v. Raich would need to be done by the U.S. Supreme Court, not federal district nor circuit courts. And, he said, all lower courts are obligated to follow Supreme Court precedent even when facts challenging a ruling’s relevancy have changed.

Regarding claims that the federal government no longer has the goal of eradicating intrastate commerce of marijuana, Newman said there is a distinction between eradication and control of controlled substances, and that controlling those drugs is extremely important. It would be “extremely dangerous” to question that control, he said.

Despite stating that the suit “alleged persuasive reasons for a reexamination of the way the … CSA regulates marijuana,” the judge wrote in his order to dismiss the case, “the relief sought is inconsistent with binding Supreme Court precedent and, therefore, beyond the authority of this court to grant.”

“Since only the Supreme Court can overrule Raich, this court concludes that Congress has authority under the Commerce Clause to regulate Plaintiffs’ wholly-intrastate, state-sanctioned marijuana activities and dismisses their as-applied challenge to the CSA,” he wrote. “Plaintiffs’ argument, that the factual differences between their allegations and those considered in Raich simply permit this court to avoid application of Raich and substitute its own Commerce Clause analysis, has no realistic persuasive force.”

Foundational supporters of the suit include Ascend Wellness Holdings, TerrAscend and Green Thumb Industries, as well as Eminence Capital and Poseidon Investment Management.

Challenging the federal government’s authority under the CSA to regulate state-legal cannabis businesses that only conduct intrastate commerce is believed by some in the industry to also be the legal strategy behind multistate operator Trulieve’s amended tax return filings, which resulted in the IRS issuing the company a multimillion-dollar tax refund.

That same strategy was behind Ascend Wellness’ filing of amended tax returns; the company stated that the amended returns were based on a legal interpretation that 280E doesn’t apply to intrastate commerce, as CBT reported. The company claimed refunds for 2020 and 2021 “and a refund and/or reduction of tax for 2022 which had been incurred as a result of the application of Section 280E based on a legal interpretation that Section 280E does not apply to solely intrastate cannabis-related business activities,” according to the company’s 2023 annual report. “The company intends to continue to take this position for the 2023 filing year. There is no guarantee that the IRS will not challenge our refund request and prevail in such challenge.”