Congressional Research Service Says Federal Court Split Raises Odds U.S. Supreme Court Will Take Up Marijuana Residency Laws

A growing split among federal appeals courts over whether states can favor residents when issuing marijuana business licenses could eventually draw review from the U.S. Supreme Court, according to a new Congressional Research Service (CSR) analysis.

The Congressional Research Service, Congress’s nonpartisan public policy research arm, examined the issue in a Legal Sidebar published September 3. The report, authored by legislative attorney David H. Carpenter, focuses on how the Dormant Commerce Clause applies to state and local marijuana markets that remain partly prohibited under federal law.

The Dormant Commerce Clause is a legal doctrine derived from the Constitution’s Commerce Clause that generally prevents states from discriminating against or excessively burdening interstate commerce. That has created an unusual question for marijuana: Can states discriminate against out-of-state businesses in a market that federal law itself prohibits?

Federal appeals courts have now reached conflicting answers.

The U.S. Court of Appeals for the First Circuit ruled against a Maine requirement that officers and directors of medical marijuana dispensaries be state residents. The court found that marijuana’s federal illegality did not give Maine permission to impose protectionist restrictions and held that the residency requirement violated the Dormant Commerce Clause.

The Second Circuit reached a similar conclusion in a case involving New York’s marijuana licensing system. New York gave certain applicants increased chances of receiving a license if they or a close relative had been convicted of a marijuana offense under New York law. Applicants with otherwise qualifying convictions from other states did not receive the same preference.

In a 2-1 decision, the Second Circuit found that the challengers were likely to succeed in arguing that the preference violated the Dormant Commerce Clause, concluding that Congress’s continued prohibition of marijuana did not amount to clear authorization for states to discriminate against out-of-state economic interests.

The U.S. Court of Appeals for the Ninth Circuit took the opposite position in January.

In consolidated cases challenging marijuana licensing rules in Washington State and Sacramento, a unanimous Ninth Circuit panel held that the Dormant Commerce Clause does not protect interstate commerce in a marijuana market that Congress has prohibited.

The court said it would not use the judge-created doctrine to establish what it characterized as an implied constitutional right to participate in illegal interstate commerce. The ruling allowed the residency-related licensing provisions challenged in those cases to stand.

CRS says the conflicting rulings could eventually bring the issue before the nation’s highest court.

“Although the Supreme Court has yet to grant a writ of certiorari, the circuit split regarding the impact of the Dormant Commerce Clause on state licensure of marijuana dispensaries likely increases the odds that the Court will review this issue at some point,” the report states.

CRS notes, however, that the Supreme Court could choose to wait as lower courts consider how recent changes in federal marijuana policy affect the constitutional analysis.

Congress could also resolve the dispute without waiting for the Supreme Court. According to CRS, lawmakers could explicitly authorize states to favor residents in marijuana licensing, expressly prohibit such discrimination, or establish a federal marijuana regulatory framework that more clearly defines the relationship between state and interstate markets.

Until either Congress or the Supreme Court intervenes, the constitutionality of state marijuana residency preferences may depend significantly on where a challenge is brought.