Coalition of Massachusetts and Multistate Cannabis Operators Sue Attorney General Over CSA

A coalition of U.S. cannabis operators and investors working in state-legal medical and adult-use cannabis markets filed a lawsuit Oct. 26 against U.S. Attorney General Merrick Garland, according to a press release.

The lawsuit asserts that the federal government has no basis for enforcing the Controlled Substances Act (CSA) against intrastate, state-regulated cannabis operations. Under the CSA, cannabis is designated a Schedule I substance, which includes those that have “no accepted medical use and a high potential for abuse.” Currently, cannabis sits on that list alongside drugs like heroin and LSD. In the eyes of the federal government, cannabis is considered more dangerous than the highly addictive fentanyl and methamphetamine. It is also considered to have no medical purpose, all while patients are using cannabis to treat dozens of qualifying conditions under state-legal programs, and 23 states have legalized adult-use consumption. 

The coalition is urging the federal government to stop enforcing the Controlled Substances Act, as it interferes with the intrastate cultivation, manufacture, possession, and distribution of cannabis, pursuant to state law.

"Federal criminalization of safe, regulated intrastate cannabis legal in 38 states is unconstitutional—and unfair to small businesses," the press release states. "Cannabis businesses are unconstitutionally prevented from getting small business loans, investments, unable to have normal banking relations, and [are] subject to discriminatory taxes."

Plaintiffs include Gyasi Sellers (CEO and Founder of Treevit), Canna Provisions, and Wiseacre Farm, all local independent operators in Massachusetts that have suffered significant harm and business challenges due to federal prohibition. Multistate operator Verano Holdings is also named as a plaintiff, while foundational supporters of the suit include Ascend Wellness Holdings , TerrAscend and Green Thumb Industries, as well as Eminence Capital and Poseidon Investment Management.

"We want to be treated equally, on an even playing field with any other small business in Massachusetts," said Meg Sanders, CEO and co-founder of Canna Provisions, an award-winning independent craft cultivation company, with two retail dispensaries in Western Massachusetts.

The lawsuit comes on the heels of the U.S. Health and Human Services (HHS) recommendation to the Drug Enforcement Administration (DEA) that cannabis be rescheduled to Schedule III, which would eliminate the IRC Section 280E burden and ease banking restrictions. DEA has the final say on whether the agency would reschedule the plant. 

Schedule III drugs, which include Tylenol with codeine, ketamine and testosterone, also are considered to have a potential for abuse, but substances on this list are believed to be less dangerous than those listed on Schedule I and II. They are deemed to have accepted medical uses in the U.S. and are generally prescribed and sold through licensed pharmacies and not available over the counter. If cannabis were within this schedule, it could be subject to more federal oversight, FDA approval and be sold through licensed pharmacies. 280E would no longer apply. 

RELATED: Opinion from Darren Weiss, president, Verano: HHS Rescheduling Recommendation is 'About Damn Time'

The lawsuit seeks to confirm the rights of Massachusetts and other states to regulate cannabis within their borders, and to confirm the corresponding limits on the federal government's power to regulate commerce, according to the press release.  The federal government's power to regulate commerce is based on the Interstate Commerce Clause of the Constitution. The law at issue in this suit, the Controlled Substances Act, exceeds that limited authority: it bars the production, distribution, and possession of cannabis, regardless of whether those activities cross state lines or, as in the case of Plaintiffs' cannabis businesses, are intrastate.

"This unjustified and unconstitutional prohibition on intrastate cannabis harms Plaintiffs and hinders the efforts of states to provide patients and adults with access to strictly-regulated and tested cannabis," the press release notes.

In 2005, the Supreme Court rejected a challenge to the Controlled Substance Act's cannabis prohibitions, but the facts today compel a different result, according to the press release.  A critical factor in that decision, Gonzales v. Raich, was that the federal government intended to "eradicate" the market for cannabis nationwide. The Court concluded that the federal goal of eliminating commerce in cannabis, combined with the assumption in 2005 that intrastate marijuana could not be differentiated from interstate cannabis, justified the Controlled Substances Act's prohibitions on intrastate cannabis. Neither of those facts, however, are true today. In the eighteen years since Gonzales, Congress and the Executive Branch have abandoned any intent to "eradicate" cannabis, and numerous states have developed regulatory programs for legal marijuana that is not fungible with, and is readily distinguished from, illicit cannabis. 

Today, 38 states and Washington D.C. have medical or adult-use cannabis programs with significant regulatory oversight. They require compliance with a multitude of stringent regulations aimed to protect patients, customers, and the public at large, including video surveillance and seed-to-sale tracking. The cannabis that is cultivated, processed, and distributed under these regulations is not fungible with, and is readily distinguishable from, illicit interstate cannabis. The regulated cannabis products in these states can be traced back all the way to the original batch of seeds from which they grew.  

These changed facts compel a different result than was reached eighteen years ago in Gonzales. Absent the relief sought in this lawsuit, Plaintiffs and other state-regulated cannabis operators will continue to suffer severe harms. State-regulated cannabis businesses are deemed illegal under the CSA; their everyday activities are considered federal crimes. As a result, they are cut off from numerous federal programs and protections (including small business loans), they are subject to discriminatory tax penalties, and many organizations—including banks and credit card processors—refuse to do business with them, rather than risk being deemed conspirators, aiders and abettors, or money launderers.

RELATED: 280E: How The Cannabis Industry Got Here

"The federal criminalization of safe, regulated marijuana commerce in states where it is legal unfairly burdens legal operations and expands the production and sale of illegal marijuana that is unregulated, can be unsafe, and is likely to find its way to other states," said David Boies, Chairman, Boies Schiller Flexner LLP, in the press release. "Federal criminalization also denies small, legal marijuana businesses of access to SBA loans, investors, benefits for their employees, and normal banking regulations (which among other things, forces them to rely on cash transactions with all of the dangers to them, and to the community, that result) – as well as burdening them with discriminatory taxes."

"While reforms such as the SAFER Banking Act and rescheduling cannabis under the Controlled Substances Act would improve certain aspects of this broken and antiquated system, they will not solve the fundamental issue," said Darren Weiss, President of Verano, in the press release. "The application of the CSA to lawful, state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions. We are prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years. We believe that the Supreme Court will adhere to the core value on which our country was founded and which is central to guaranteeing freedom: that the federal government's powers are limited."

RELATED: Inside the Cannabis Market in Massachusetts, Operators Find (Cautious) Optimism