Lawsuit Seeks Equal Treatment for Cannabis Businesses

Federal criminalization of safe, regulated intrastate cannabis legal in 38 states is unconstitutional—and unfair to small businesses

Cannabis businesses are unconstitutionally prevented from getting small business loans, investments; unable to have normal banking relations; and subject to discriminatory taxes

SPRINGFIELD, Mass., Oct. 26, 2023 /PRNewswire/ -- A coalition of U.S. cannabis operators and investors working in state-legal medical and adult-use cannabis markets today filed a lawsuit against U.S. Attorney General Merrick Garland. The coalition, represented by the law firm Boies Schiller Flexner, seeks to enjoin the federal government from enforcing the Controlled Substances Act in a manner that interferes with the intrastate cultivation, manufacture, possession, and distribution of cannabis, pursuant to state law. The lawsuit asserts that the federal government has no basis for enforcing the Controlled Substances Act against intrastate, state-regulated cannabis operations.

Boies Schiller Flexner and Lesser, Newman, Aleo & Nasser LLP filed the lawsuit in the United States District Court for the District of Massachusetts, Western Division, and will represent plaintiffs Gyasi Sellers (CEO and Founder of Treevit), Canna Provisions, and Wiseacre Farm, all of which are local independent operators in Massachusetts who have suffered significant harm and business challenges due to federal prohibition. Verano Holdings (OTCQX: VRNOF) is also named as a plaintiff, while foundational supporters of the suit include Ascend Wellness Holdings (OTCQX: AAWH), TerrAscend (TSX: TSND) and Green Thumb Industries (OTCQX: GTBIF), as well as Eminence Capital and Poseidon Investment Management.

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.  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 marijuana, 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.

In 2005, the Supreme Court rejected a challenge to the Controlled Substance Act's cannabis prohibitions, but the facts today compel a different result.  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 including 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.

The result is that many cannabis businesses are suffering, people are losing their jobs and individual wealth is being destroyed. In addition, social equity licensees harmed by the War on Drugs and who were supposed to have equal access to the industry do not have the same benefits as otherwise situated business owners to start a business and build their wealth.

"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. "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," said Mr. Boies. "Americans believe that cannabis should be legal and available subject to reasonable regulation by the states. 38 states have legalized some form of cannabis. The federal government lacks authority to prohibit intrastate cannabis commerce. Outdated precedents from decades ago no longer apply – the Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce; moreover, the facts on which those precedents are based are no longer true," said Mr. Boies.

"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.  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," said Darren Weiss, President of Verano.  "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."

"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, with two retail dispensaries in Western Massachusetts.

Plaintiffs are represented by David Boies, Jonathan D. Schiller, Matthew L. Schwartz, Joshua I. Schiller, and David Barillari of Boies Schiller Flexner LLP and Thomas Lesser and Michael Aleo of Lesser, Newman, Aleo & Nasser LLP.

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SOURCE Boies Schiller Flexner LLP