Cannabis reform is complicated because the current state of cannabis from a federal perspective impacts a broad range of legal interests. Criminal justice, social equity, taxation, and banking law are just a few that come to mind. The Controlled Substances Act implicates these interests and others, including the United States Constitution, specifically, the “dormant Commerce Clause.” Under the Constitution, Congress has the power to regulate commerce “among the several States.” U.S. Const. Art. I § 8, cl. 3 (hereinafter, the “Commerce Clause”).

The Supreme Court has interpreted the Commerce Clause to be an affirmative grant of authority for Congress to regulate interstate commerce and a “self-executing limitation on the power of the States to enact laws imposing substantial burdens on such commerce.” South-Central Timber Devel., Inc. v. Wunnicke, 467 U.S. 82, 87 (1984). This “self-executing limitation” on a state’s ability to regulate interstate commerce is otherwise known as the dormant Commerce Clause.

Advocates for federal cannabis reform must be mindful of the possibility of the Supreme Court being called upon to interpret the dormant Commerce Clause in the context of cannabis prohibition. If the Supreme Court takes up the issue, its ultimate decision will either allow state cannabis programs to continue operating as-is or require substantial reform of the criteria various states use to issue licenses. The Court will inevitably be required to revisit its ruling in the seminal cannabis prohibition case, Gonzalez v. Raich, 545 U.S. 1 (2005).

The Current State of Affairs

States with medical and/or recreational cannabis programs often offer preferences to cannabis license applicants depending on a variety of factors that connect the applicant to the state (or location in the state) in which the cannabis license is sought. So far, these programs have evaded constitutional attack in various states, including California, New York, Maryland, and Washington, because, in the eyes of Congress, the Constitution, and a handful of federal courts, there is no interstate cannabis market that Congress seeks to protect from state economic isolationism. See Variscite NY Four, LLC v. New York State Cannabis Control Board, 2024 WL 406490 (N.D.N.Y. Feb. 2, 2024); Jensen v. Maryland Cannabis Admin, 719 F. Supp. 3d 466 (D. Md. 2024); Brinkmeyer v. Wash. State Liquor and Cannabis Board, 2023 WL 1798173 (W.D. Wa. Feb. 7, 2023); Peridot Tree, Inc. v. City of Sacramento, 2024 WL 4857648 (E.D. Cal. Nov. 21, 2024); Variscite, Inc. v. City of Los Angeles, 2025 WL 433448 (C.D. Cal. Feb. 4, 2025).

In other words, the dormant Commerce Clause does not apply to state cannabis programs that favor in-state applicants at the expense of out-of-state applicants because there is no federal interest in protecting a prohibited interstate market. It is somewhat ironic that state cannabis programs have evaded constitutional attack only because the underlying conduct—cannabis sales and everything that comes with it—is federally illegal.

There are four active appeals challenging trial court decisions holding that the dormant Commerce Clause does not apply to state cannabis license preferences: (1) Variscite NY Four, LLC v. New York State Cannabis Control Board, 24-384 (Second Circuit); (2) Jensen v. Maryland Cannabis Admin., 24-1216 (Fourth Circuit); (3) Peridot Tree, Inc. v. City of Sacramento, 24-7196 (Ninth Circuit); and (4) Variscite, Inc. v. City of Los Angeles, 25-773 (Ninth Circuit).

The Second, Fourth, and Ninth Circuit courts will grapple with the fact that one of their sister circuit courts (the First Circuit Court of Appeals) is the first and only circuit court to have spoken on the interaction of the dormant Commerce Clause and interstate cannabis markets and has done so in a way that contradicts each decision now on appeal. The Second and Fourth circuits are likely to be the first to issue decisions, having heard oral arguments already in mid-December 2024 and late January 2025, respectively.

The First Circuit previously provided an interpretation of the dormant Commerce Clause that cuts against those offered by the trial court decisions mentioned above. In Northeast Patients Grp. v. United Cannabis Patients and Caregivers of Maine, 45 F.4th 542 (1st Cir. 2022), a Delaware corporation sought to acquire a Maine entity that was wholly owned by three Maine residents. The two entities took issue with Maine’s medical cannabis laws, which required all officers and directors of dispensaries to be Maine residents. If the Delaware entity acquired the Maine entity, the Delaware entity would be unable to function as a Maine cannabis dispensary under the existing laws—this served as the basis for a challenge to Maine’s cannabis laws under the dormant Commerce Clause.

The court in Northeast Patients Grp. found that an interstate market for cannabis does in fact exist notwithstanding federal prohibition. On that basis, the Northeast Patients Grp. court found the dormant Commerce Clause applicable and affirmed judgment for plaintiffs because Maine’s cannabis law was a facially state-protectionist regulation of an interstate market in medical cannabis. The Northeast Patients Grp. court relied in part on the Supreme Court’s decision in Gonzalez v. Raich, 545 U.S. 1 (2005).

In Gonzalez, the Supreme Court explained that the Controlled Substances Act was a proper vehicle for Congress to exercise its power under the Commerce Clause to prohibit the cultivation and use of cannabis, even when such cultivation and use complies with state law. Cannabis, according to the Supreme Court, is a “fungible commodity for which there is an established, albeit illegal, interstate market.” Gonzalez, 545 U.S. at 19. The Northeast Patients Grp. court cited this language and noted that, while Maine’s licensing laws restricted out-of-state applicants from operating dispensaries in Maine, Maine’s cannabis laws encouraged out-of-state individuals to contribute to Maine’s cannabis market as customers by extending its medical cannabis market to qualifying patients from other jurisdictions. It remains to be seen whether the Second, Fourth, and Ninth Circuit courts will follow the First Circuit’s reasoning, or whether they will affirm decisions from their respective trial courts effectively refusing to disrupt state-level programs that offer certain preferences to in-state applicants.

Looking Ahead

What happens if these circuit courts affirm and find the dormant Commerce Clause inapplicable to the interstate cannabis market? This would directly conflict with the First Circuit’s decision in Northeast Patients Grp., which could prompt the losing parties to seek relief before the Supreme Court to resolve the circuit split. If it accepted one of these appeals, the Supreme Court could be prompted to revisit its description in Gonzalez of an “established, albeit illegal interstate cannabis market” to determine whether such a market is subject to the dormant Commerce Clause. The Court granted certiorari in Gonzalez due to the “obvious importance of the case,” and it is hard to imagine how a circuit split over the propriety of widespread issuance of state cannabis licenses in alleged violation of the Constitution would be any less important.

In the absence of true cannabis reform at the federal level, the Supreme Court will have a choice. It could reiterate its precedent that Congress recognizes an established yet illegal interstate cannabis market and further hold that states may not infringe on commerce in that market through in-state licensing preferences. If this is the direction taken by the Court, state cannabis authorities will need to employ a strategy different than that of the defendants in Northeast Patients Grp., who, according to the First Circuit, did not dispute that, if an interstate cannabis market existed, Maine’s residency requirement was not narrowly tailored to advance a legitimate purpose, but was instead a basic protectionist measure that would unduly burden interstate commerce.45 F.4th at 546.

Alternatively, the Court could hold that, consistent with Gonzales,the Commerce Clause permits Congress to prohibit unlawful interstate markets, but the prohibition of a particular market does not evidence congressional intent to protect it from economic isolationism among states. This would seem to be the most practical result that allows Gonzalez to remain good law, stays true to Congress’ official stance on cannabis policy, and, in effect, would permit state licensing programs to remain operating as-is. The United States District Court for the Eastern District of California discussed this stance at length in Peridot Tree. 2024 WL 4857648.

The issue is that this rationale, while pragmatic, is in subtle tension with Gonzalez. Gonzalez, at its core, was a dispute about enforcement of the Controlled Substances Act against California residents using locally grown cannabis for their personal medical use. The Supreme Court relied heavily on its decision in Wickard v. Filburn, 317 U.S. 111 (1942), in which the Court permitted Congress, pursuant to the Commerce Clause, to regulate the production of wheat that was used purely intrastate if a failure to regulate that production would ultimately undercut interstate regulation. The Court analogized the wheat market to the cannabis market and refused to make a distinction based on cannabis’s illegality. Instead, the Court in Gonzalez treated the commodities as largely similar for commercial purposes and held that Congress may control both respective markets. Congress thus had a rational basis to conclude that locally grown and consumed cannabis would affect price and market conditions in the unlawful interstate cannabis market.

If the Court was willing to conclude that intrastate cultivation of cannabis threatened “price and market conditions” in the unlawful interstate cannabis market, it appears likely that the Court will similarly conclude that, even if the interstate cannabis market is unlawful, Congress possesses an affirmative grant of authority under the Commerce Clause to regulate supply and demand in that unlawful market consistent with Gonzalez,and the negative implication of that congressional authority prohibits states from passing laws to protect intrastate cannabis markets that may impact the nationwide market in the aggregate.

In other words, the promotion of intrastate markets via state law may be seen as undercutting the congressional prohibition of cannabis altogether. Consistent with Gonzalez and Wickard, local conduct, regardless of its legality and regardless of whether it is even regarded as commerce, is within Congress’ power to regulate if there is an apparent effect on the price and market conditions of a larger interstate market.

It is important to remember the Court’s standard of review applied in Gonzalez: whether a “rational basis” existed to conclude that intrastate cultivation substantially affected interstate commerce such that the cultivation activities fell within Congress’ Commerce Clause authority. On the other hand, for alleged violations of the dormant Commerce Clause when its applicability is undisputed, the question is whether a state law that discriminates against nonresident economic actors is “narrowly tailored to advance a legitimate local purpose.” Tenn. Wine and Spirits Retail. Assocs. v. Thomas, 588 U.S. 504, 518 (2019). This distinction means that the Court must first tackle the question of whether the unlawful interstate cannabis market recognized in Gonzalez is subject to the dormant Commerce Clause. Whether such isolationism measures are narrowly tailored to advance a legitimate purpose is a separate, subsequent issue.

Thus, even if the Supreme Court decides that the dormant Commerce Clause applies to the unlawful interstate cannabis market, state cannabis programs may survive if their implementation is narrowly tailored and justified by a legitimate local purpose. We will have to take a wait-and-see approach at this stage of the game.

Joshua Horn is the Co-Chair of the Cannabis Law Practice at Fox Rothschild LLP.

Michael Brewer is an associate of the Litigation Department at Fox Rothschild LLP.