| Stopping the harm caused by cannabis prohibition and ensuring those affected by prohibition get included in the legal cannabis industry are two key pillars of social equity. At least that’s been a popular opinion among reformists hoping to right the wrongs of the drug war.
But how the industry accomplishes that latter pillar—inclusion—remains complex in the state-by-state patchwork of adult-use legalization, where interstate commerce is impeded by federal law. State-legal programs require cannabis sold in their jurisdictions also be grown and processed in their jurisdictions. Importation is prohibited, as tax revenue remains a driver of legalization for many lawmakers.
For multistate operators, that often means reinventing the wheel. For example, rather than having a universal cultivation facility in a preferable growing region that serves as a distribution hub, larger companies often find themselves vertically integrated in each state they operate.
As states like Michigan and Illinois have come onboard with adult-use legislation, their policymakers have rolled the dice on the collision between state and federal law remaining intact—many indoor grow facilities in those states likely wouldn’t exist if cannabis grown in warmer, sunnier and more sustainable outdoor environments could be imported. If and when cannabis is legalized at the federal level, the dormant commerce clause will take supremacy and force many states to change their ways.
In the U.S. Constitution, the dormant commerce clause prohibits states from enacting economic protectionist laws that give priority to in-state products, services or residents over out-of-state interests, or unduly burdens the free flow of commerce among states.
So, how does the dormant commerce clause currently apply to that second social equity pillar regarding an inclusive industry?
In Illinois, where 185 new cannabis dispensary licenses are scheduled to be awarded in multiple lotteries later this month and August, 55 licenses are reserved for social equity applicants who are majority-owned by people from communities deemed disproportionately impacted from the drug war. That deviates from the state’s initial licensing regulations that allowed applicants to commit to hiring a certain number of employees from those impacted communities, Cannabis Business Times Senior Digital Editor Melissa Schiller reported this week.
Sozo Illinois Inc., whose parent company has a vertically integrated operation in Michigan, is now suing Illinois over the state’s revised licensing regulations, alleging that the changes are discriminatory against out-of-state owners under the commerce clause. Seeking a temporary restraining order, the company argues the change has made it impossible for Sozo to qualify for one of the 55 licenses.
Meanwhile, Michigan is facing similar challenges. Detroit recently amended an ordinance to reserve at least 50% of its adult-use cannabis licenses for companies that are majority-owned by long-time city residents, according to the Michigan Bar Journal. Ripe for challenge under the dormant commerce clause, a U.S. District Court issued a temporary restraining order against Detroit for the ordinance.
Last month in Missouri, U.S. District Judge Nanette K. Laughrey ruled against the state’s residency rules, removing a requirement that medical cannabis businesses must be majority-owned by individuals who have lived in the state for a minimum of one year, referring to the dormant commerce clause in her decision, CBT Assistant Editor Andriana Ruscitto reported.
As state lawmakers and public policy experts continue to explore avenues to fulfill that inclusion pillar of social equity, navigating the dormant commerce clause remains a challenge. While providing equity on a scale that actually delivers justice to people who deserve it has never been done effectively in American history to the extent cannabis reform is aiming, that should not deter the efforts.
-Tony Lange, Associate Editor | 