‘The Clash Between State and Federal Law in the Cannabis Industry’: 4 Key Takeaways on Federal Policy Reform Efforts
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‘The Clash Between State and Federal Law in the Cannabis Industry’: 4 Key Takeaways on Federal Policy Reform Efforts

Cozen O’Connor attorneys share insight on where cannabis policy reform might be headed to address the disconnect between federal prohibition and state-legal programs.

June 24, 2022

Will federal law ever catch up to state policy reform that has allowed the cannabis industry to flourish in state-legal medical and adult-use programs across the country?

Law firm Cozen O’Connor hosted a June 16 webinar, “The Clash Between State & Federal Law in the Cannabis Industry - Where We are, Where We are Going, and What Lies Ahead” to offer some answers to this question.

Jeremy Garvey, co-chair of Cozen O’Connor’s Capital Markets & Securities team, moderated a panel with Joseph Bedwick, chair of the firm’s Cannabis Industry team, and Patrick Martin, managing director of the firm’s public strategies team, who both stressed that the disconnect between federal prohibition and state-legal programs has led to incongruities and difficulties that are not seen in any other industry.

While they said that federal lawmakers tend to follow public opinion at a slow pace, Bedwick and Martin noted that policymakers also typically shy away from overly complicated issues.

What does that mean for the future of federal cannabis policy reform?

Here, Bedwick and Martin share four key takeaways on the topic.

1. The Supreme Court could ultimately decide the fate of federal cannabis policy—or push Congress to do so.

Supreme Court Justice Clarence Thomas has called the current federal policy on cannabis “a half-in, half-out regime that simultaneously tolerates and forbids the local use of marijuana,” but Bedwick told Cannabis Business Times that, at the same time, the U.S. Supreme Court seems hesitant to take up cannabis-related cases or issue a significant ruling that could, for example, reschedule or deschedule cannabis at the federal level.

Earlier this year, the Minnesota Supreme Court ruled that, due to cannabis’s federally illegal status, a worker’s compensation insurer does not have to cover the cost of medical cannabis. The U.S. Supreme Court has been petitioned to take up the case because states have been divided on how to handle worker’s compensation disputes involving cannabis; Bedwick noted that courts in Minnesota and Maine have ruled against reimbursement, while those in New Jersey and New Hampshire have ruled in favor.

The Department of Justice (DOJ) then filed an amicus brief with the U.S. Supreme Court, urging them not to take the case out of Minnesota, but Bedwick said this is just one example of how the Supreme Court could take a cannabis-related case and rule in a way that would disrupt the current status quo.

“I suspect it would be very difficult to envision that they would rule in a way that would sound the alarm that cannabis is now legalized in the United States or descheduled,” he said. “What they may do, if they take a case like this, … is it would be the piecemeal chipping away at it to give Congress a kick in the pants and say, ‘Hey, Congress, you need to act.’”

The justices have indicated in the past that they do not believe the Supreme Court is the proper institution to address federal cannabis policy, Bedwick added, which they largely believe to be a legislative task.

“Institutionally, the Supreme Court is not equipped to pass law,” he said. “What they may do, … in setting concurring opinions, [is] they may make it clearer and clearer that, hey, Congress, this is where we’re going, but you need to get your act together so that we don’t have to do something. … It’s very hard to imagine the Supreme Court actually issuing a landmark ruling, but they could. Would it be out of the realm of possibility that they agree to take a case like this Minnesota case or a case similar to it? No, it’s not out of the realm. And then maybe over the course of a number of decisions, you’ll see some precedential impact on or precedential rulings on how the court is viewing cannabis in the federal landscape.”

2. Compromise legislation may be more feasible than sweeping bills like the CAOA or MORE Act.

While comprehensive legislation to federally legalize cannabis has gained momentum in recent years—the Marijuana Opportunity Reinvestment and Expungement (MORE) Act has passed the House twice and U.S. Sens. Chuck Schumer, D-N.Y., Ron Wyden, D-Ore., and Cory Booker, D-N.J, are expected to formally introduce the Cannabis Administration and Opportunity Act (CAOA) sometime this summer—Martin said that Schumer is beginning to have conversations with Republican lawmakers on Capitol Hill about compromise legislation that could gain the support needed to clear Congress this year.

Martin said a compromise bill would likely have four components: the SAFE Banking Act; Rep. Dave Joyce’s, R-OH, Harnessing Opportunities By Pursuing Expungement (HOPE) Act, which incentivizes state and local governments to expunge cannabis-related records; a proposal to provide veterans access to medical cannabis; and provisions to expand federal cannabis research.

“If Leader Schumer and the Democratic leadership want to go beyond SAFE Banking and want to see if they can get a few pieces of cannabis legislation passed together, I think those four proposals represent noncontroversial bipartisan proposals that could potentially get 60 votes in the Senate and pass,” Martin said. “I think that’s what the leadership is trying to assess right now, is: Is there a deal that goes a little bit beyond SAFE Banking but also doesn’t risk alienating Republicans who have been supportive of modest reforms?”

3. Congress may have to jumpstart FDA regulation.

Just as the Supreme Court may be looking to Congress to initiate federal cannabis policy reform, the U.S. Food and Drug Administration (FDA) may also need lawmakers to jumpstart the agency’s regulation of the industry.

“The FDA has been looking into regulations and CBD for years,” Bedwick said. “Just last month, the head of the FDA appeared before Congress and basically acknowledged that he’s no further along from a regulations side than they were, but they’ve learned more.”

The FDA’s regulation of the industry will remain slow-going, he said, and may require broader regulatory power from Congress in order to proceed.

“The disconnect between state and federal law is really hampering this agency, which regulates every type of food, beverage or topical ointment,” Bedwick said. “You’re seeing how this disconnect has completely hamstrung an entire agency from rolling out regulations. … In an odd twist, but a refreshing twist, companies are actually asking for the regulations. They want the regulations out there so that they can go and properly manufacture, produce [and] market their products, and the FDA has to date been very slow in providing those regulations.”

A bipartisan bill, H.R. 841 is among the cannabis-related legislation pending this year; the bill would direct the FDA to use its authority and resources to set a regulatory framework for hemp and hemp-derived products.

“Without some sort of legislation, I think it’s unlikely that the FDA gets any more aggressive on their timeline,” Martin said.

Congress could address the FDA’s regulation of hemp and hemp-derived products through next year’s Farm Bill, he added.

4. Cannabis policy reform could become more unlikely after the Midterms.

However the federal government chooses to address—or not address—cannabis policy reform, Bedwick and Martin said time is running out for meaningful change.

“If it’s a good Republican year [in the Midterm elections], which it seems like it will be for a number of historical, social, and economic factors, [and] if Republicans are in charge of one or both houses of Congress, I think it makes the prospects of federal cannabis policy moving through the Congress highly unlikely,” Martin said. “I think that is why lawmakers are feeling pressure to get something done this Congress, be it before the November elections or in the lame duck session. … They know as well as anyone that their leadership is not going to be interested in working on this issue.”

Overall, Martin said more work is needed to educate lawmakers on cannabis policy issues, but now is the best time to pass even modest reforms.

“There is a real sense of urgency,” he said. “In order to get some modest reforms done, it needs to be before the elections or before the new Congress is gaveled into session next January because the combination of a Republican-led Congress and a Biden administration that has shown a real aversion to doing anything around the issue of cannabis—that’s just really a difficult situation for the industry that I think will last anywhere from two to four years and will put a lot of pressure on states to continue to try and make these marketplaces work as best they can in the foreseeable future."