Marijuana rescheduling highlighted in motion to dismiss lawsuit against USAG by cannabis companies
In October of 2023, a coalition of U.S. cannabis operators and investors working in state-legal cannabis markets filed a lawsuit against U.S. Attorney General Merrick Garland which seeks to challenge the federal government’s stance on intrastate cannabis commerce related to state legal businesses.
In a hearing on Wednesday regarding the Attorney General’s motion to dismiss, David Boies, chairman of Boies Schiller Flexner LLP argued against the federal enforcement of the Controlled Substances Act (CSA) on state-regulated marijuana operations.
The Argument for State Sovereignty
David Boies, chairman of Boies Schiller Flexner LLP, argued that the federal government’s criminalization of regulated intrastate marijuana commerce unfairly burdens legal operations and hinders state efforts to provide safe access to cannabis. He emphasized that the federal prohibition prevents cannabis businesses from accessing small business loans, banking services, and equitable taxation, creating a significant disadvantage compared to other industries.
“Federal criminalization also denies small, legal marijuana businesses access to SBA loans, investors, benefits for their employees, and normal banking regulations,” Boies stated in October. He highlighted that 38 states, including Washington D.C., have implemented medical or adult-use cannabis programs with stringent regulatory oversight.
Government’s Motion to Dismiss
The hearing began with U.S. District Judge Mark G. Mastroianni addressing the government’s motion to dismiss the case. The attorney for the US Attorney General’s office argued that the plaintiffs lack standing because there is no credible threat of federal enforcement against them, citing the Department of Justice’s policy not to prosecute those complying with state cannabis laws.
“The plaintiffs fail to establish a credible threat of enforcement,” he said. “Their standing theory is inconsistent with their merits theory. They claim federal marijuana law is irrational because it is not enforced, yet argue they might still be prosecuted.”
In the hearing, Boies contended that the federal government’s inconsistent policies on marijuana create a credible threat of prosecution, even if enforcement is currently limited.
“We have alleged, and we can prove, that the net effect of legalizing intrastate marijuana reduces interstate marijuana commerce,” Boies stated. “The reclassification doesn’t stop the injury to my clients. It may help in terms of further permitting the de facto use of marijuana, but it doesn’t help the illegality issue that my clients are facing.”
Boies emphasized the significant harm caused to cannabis businesses by the current federal stance. “Banks are told that they can’t take deposits from or provide certain banking services to people who are engaged in illegal activity, which includes, obviously our clients. Credit card companies won’t do business with us.”
Judge Questions Both Sides
Judge Mastroianni engaged both sides on several key issues, including the potential impact of reclassifying marijuana to Schedule 3. He asked how this reclassification might influence the arguments, particularly regarding the constitutionality of the CSA’s application to state-legal cannabis businesses.
Boies contended that reclassification does not resolve the fundamental issue of illegality under federal law, “The reclassification doesn’t stop the injury to my clients. It may help in terms of further permitting the de facto use of marijuana, but it doesn’t help the illegality issue that my clients are facing.”
“Even classifying something to Schedule 3 doesn’t legalize it, but it recognizes that the drug has a currently accepted medical use and it opens the door for further research,” the attorney from the Department of Justice explained.
“The CSA [Controlled Substances Act] sets forth a fairly complex and elaborate process for rescheduling drugs. The Attorney General has the authority to reschedule drugs, but first, there needs to be a scientific and medical recommendation from the Secretary of Health and Human Services (HHS),” he continued. “Last year, HHS sent to the Department of Justice a recommendation to reschedule marijuana from Schedule I to Schedule III. And just last week, the Attorney General issued a proposed rule that similarly would reschedule marijuana from Schedule I to Schedule III.”
“It’s important to emphasize that there hasn’t been any rescheduling at this point. It’s a proposed rule, and there’s going to be a formal rule-making proceeding.”
Reclassifying marijuana to Schedule III recognizes that the drug has a currently accepted medical use and opens the door for further research and potential FDA approval of treatments involving the drug. However, it does not legalize the recreational use or production of marijuana. A point of contention produced by DOJ.
“The fact that we’re dealing primarily with recreational businesses makes it even clearer that this is within Congress’s authority because they’re really depending on the argument that Congress just has no authority whatsoever even to regulate marijuana, to control marijuana under the Controlled Substances Act. And that’s really quite an extreme argument that is in tension with Supreme Court precedent.”
A Complex Legal Landscape
The case invokes the 2005 Supreme Court decision in Gonzales v. Raich, which upheld the CSA’s application to intrastate cannabis activities based on the federal goal of eradicating marijuana commerce. Boies argued that the circumstances have significantly changed since that ruling, with the federal government no longer aiming to eradicate cannabis and numerous states developing robust regulatory frameworks that distinguish legal cannabis from illicit products.
The government’s attorney maintained that Raich remains binding precedent and that any changes to its application are within the purview of the Supreme Court alone.
“I think the way to look at it is that Gonzales’ case, as a number of commentators, as Justice Thomas continues to say, was based on a comprehensive, statutory approach of totally eradicating, any commerce in, marijuana. So it was based on this very comprehensive scheme,” Boies contended. “Now, what’s happened is that comprehensive scheme has broken down, so that you’ve got, still declarations of illegality, still situations where they’re seizing the proceeds of marijuana businesses, still situations where they’re warning pharmacists, that they should not be participating in cannabis sales in states where it’s legal.”
As the hearing concluded, Judge Mastroianni took the motion to dismiss under advisement, acknowledging the substantial burden on the plaintiffs to demonstrate that the factual and legal landscape has shifted sufficiently to warrant a different outcome than Raich.
The outcome of this case could have far-reaching implications for the cannabis industry and the interplay between state and federal law regarding marijuana regulation. Both sides have expressed readiness to escalate the matter to higher courts if necessary, underscoring the significant stakes involved.
For now, the cannabis industry and legal observers await the judge’s ruling, which will determine whether the lawsuit proceeds to trial or is dismissed at this preliminary stage.