Will a Lawsuit Challenging CSA’s Constitutionality Move Forward?

Oral arguments unfolded May 22 in a motion hearing for the high profile lawsuit Canna Provisions Inc. et al v. Garland, brought against U.S. Attorney General Merrick Garland by a group of state-licensed cannabis operators. The suit asserts that the federal government has no basis for enforcing the Controlled Substances Act against intrastate, state-regulated cannabis operations.

Plaintiffs in the suit are Canna Provisions, Gyasi Sellers (CEO and founder of Treevit), Wiseacre Farm, and multistate operator Verano Holdings, and foundational supporters of the suit include Ascend Wellness Holdings, TerrAscend and Green Thumb Industries, as well as Eminence Capital and Poseidon Investment Management.

The hearing, addressing the Department of Justice’s motion to dismiss (whether the case has “standing”), was led by Judge Mark G. Mastroianni in the U.S. District Court, District of Massachusetts. Arguing for the plaintiffs was David Boies, chairman of Boise Schiller Flexner LLP. The Department of Justice was represented by Jeremy S. B. Newman.  

Determining “standing” enables the federal government to decide a case’s merits to be disputed. “At the federal level, legal actions cannot be brought simply on the ground that an individual or group is displeased with a government action or law. Federal courts only have constitutional authority to resolve actual disputes,” according to Cornell Law School’s definition.

In order to determine whether a party has standing to sue, according to Cornell:

• The plaintiff must have suffered an "injury in fact," meaning that the injury is of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent
• There must be a causal connection between the injury and the conduct brought before the court
• It must be likely, rather than speculative, that a favorable decision by the court will “redress the injury”

Key issues debated included:

• Whether the plaintiffs face a credible or rational threat of enforcement of federal marijuana law by the federal government
• Whether the plaintiffs have been harmed by lack of banking services due to federal illegality
• The constitutionality of the Controlled Substances Act (CSA)
• The federal government’s ability to regulate intrastate commerce
• The Gonzales v. Raich ruling: whether facts having changed, and if so, whether that is relevant to the case

Threat of Enforcement
From the Defense: Newman argued that the plaintiffs “are hinging standing on future enforcement of the CSA controlled substances act against them,” but said that they have “alleged” that they are operating legally under Massachusetts state law and that the DOJ does not currently pursue prosecution of those in compliance with state marijuana programs. He said the federal government has not threatened enforcement against any state-legal marijuana business, and in fact has done the opposite—by stating it would not proactively pursue enforcement. Therefore, Newman said he doesn’t believe there is a plausible or rational risk of enforcement against them.

From the Plaintiffs: Boies argued that if an activity is illegal, there is a credible threat of prosecution, and because marijuana is still illegal under federal law, a credible threat of prosecution remains. He cited precedent that he said supported that.

(Some debate of what constitutes “credible” followed.)

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

Determining Harm
From the Defense: Newman outlined several ways in which the plaintiffs allege they are being harmed, noting particularly alleged harms incurred by Internal Revenue Code Section 280E and the inability to secure banking services. But challenging whether the prohibition of marijuana under the CSA is constitutional, and then claiming to be harmed by other laws or parties, “doesn’t give you a standing to challenge that law,” he said, noting instances of precedent. He cited the plaintiffs’ alleged harms suffered by banks deciding not to work with cannabis businesses. Plus, he noted that some banks do service cannabis businesses. He said the “factual allegations” do not have a “plausible basis” for standing.

From the Plaintiffs: Boies argued, among other points, that because banks refuse to service people or businesses engaging in illegal activity, which includes his clients, that is sufficient for standing. He said that cannabis businesses in Canada have no issue securing banking or credit card services because cannabis is federally legal there.

Gonzales v. Raich
A case often referenced in cannabis-related lawsuits, Gonzale v. Raich, was raised in the hearing, as key to determining the federal government’s ability to regulate intrastate commerce (commerce within a state’s borders). “The primary ruling of Gonzales v. Raich … was that even in states where medical cannabis is permitted, Congress maintains the authority to prohibit the use and cultivation of cannabis under the Commerce Clause,” Cannabis Business Times reported. The ruling established the federal government’s ability to regulate intrastate commerce that is within a “class of activities” (including marijuana commerce) that have an effect on interstate commerce.

From the Defense: The ruling of Gonzales v. Raich remains binding, said Newman. 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), 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 interstate 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.

From the Plaintiffs: Boies said 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. State legalization and regulation of marijuana supports federal policy, he said.

RELATED: Does Trulieve’s Tax Strategy Tie Into a Bigger Cannabis Industry Battle?

Rescheduling and the Suit
Judge Mastroianni raised the question several times about whether rescheduling cannabis to Schedule III drug would impact the facts and analysis in the case. Newman said the reclassification is in the proposed rulemaking stage, but if it moved to final rulemaking, it still wouldn’t make marijuana, nor state-legal businesses, federally legal; it would remove the 280E tax, and it may, however, weaken the plaintiff’s position that it faces a credible threat of prosecution. He said the government’s position with policies outlined in, for example, the Rohrabacher-Farr Amendment, indicated the government had no intention to intervene in state-legal marijuana programs, and rescheduling would be a step even further away from that credible threat.

The industry now awaits Mastroianni’s decision. One industry attorney told CBT he thinks the court may decide the suit can move forward. “Seems the court was inclined to find that there was standing,” said Nick Richard, tax attorney, partner, and co-chair of the Cannabis Law practice group at Greenspoon Marder LLP, who recently spoke with CBT about the relevance of the Gonzales v. Raich ruling and others to current cannabis lawsuits and amended tax filings. “I thought this comment from the court to the [DOJ] lawyer was telling: ‘But don’t you agree that general allegations are sufficient for standing at least in the early stages of litigation?’”

Editor’s note: Recording of the hearing was not permitted, so this report is based on comprehensive notes taken by CBT during the hearing. The legal strategies of both the plaintiffs and defense referenced many preceding cases, which CBT was not able to cite, and not all context of the entire hearing is represented here.