If you’re not a fan of a Dormant Commerce Clause-ruled post-legalization world, take heart. The Supreme Court has recognized the ability of Congress to suspend the DCC, allowing states to continue operating their insular marketplaces by restricting interstate trade.

In order to suspend the DCC, Congress must use unmistakably clear language that leaves no doubt as to its intention to suspend the clause. Of the many recent reform proposals, only the CAOA imposes any sort of constraints on the DCC, and even that language is weak and limited in scope.

Unless Congress is intentional and explicit in how it addresses the DCC, we foresee a future in which only the best financed producers will be able to move and consolidate their operations in the select states where the environmental and regulatory conditions are most favorable. And although some benefits and efficiencies will be created, they will be overshadowed by the overall devastation to the industry, which currently provides hundreds of thousands of jobs across the country.

Smaller operators more in-tune with the needs of their local communities and historically disadvantaged groups likely will be priced out of participating in this new national marketplace. The efforts to right the wrongs of the War on Drugs, the focus on increasing equitable access for everyone, and the contributions of mom-and-pop, craft operators will be for naught if Congress allows the DCC to drastically alter the industry marketplace overnight.

Is the Dormant Commerce Clause All Bad?

To be fair, we can’t throw the baby out with the bath water. There would be some legitimate benefits to interstate commerce governed by the DCC…eventually.

Firstly, the competition and market consolidation would create efficiencies and cost savings within the industry, saving operators time and money. We do believe that in order for the best ideas to win out, all current and future operators are equipped with the proper experience, support, and financial access to compete nationally.

Secondly, there is a fear that allowing states to continue their protectionist policies would lead to a quid pro quo or tit-for-tat environment that would come at the expense of operators. To some extent, the DCC is effectively an economic peacemaker because it provides a foundation that prevents resentment and retaliation due to exclusionary, protectionist practices at the state level.

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Thirdly, interstate trade could be a boon for artisanal operations. Once cannabis can freely travel across state lines, die-hard cannabis enthusiasts nationwide will seek rare strains and will be willing to pay premium prices, which in turn will increase profits for craft operators who are currently hampered by the lower demand of only selling within one state.

Our Ideal Solution to the DCC

Our solution involves explicit suspension of the Dormant Commerce Clause coupled with a 7-10 year phasing-in period to more smoothly transition to a national marketplace. A sunset clause would allow the industry time to make adjustments while ensuring there is a deadline to complete the transition.

We also propose transition relief of some sort because investments in licenses and facilities were mandated in order to be state-legal and were made in good faith. This will also help social equity participants and independent operators gain the much needed access to financial services so they can get off the ground and prepare themselves to be competitive in a national marketplace.

We think it is important that, during this grace period, states would be able to choose to make interstate trade agreements. Another benefit of this option is that federal lawmakers and policy experts could see which interstate models provide the greatest benefits and apply those lessons to the new national standards that would be implemented at the end of the transition period.

Models from Other Industries

Just as cannabis is not the first major industry to experience prohibition, it is also not the first industry to be possibly up-ended by the Dormant Commerce Clause.

For example, the Supreme Court ruled in 1944 that insurance was commerce and therefore subject to the DCC. This decision threatened many decades of state-specific insurance codes, so the following year the McCarran-Ferguson Act (MFA) was passed to suspend the DCC in favor of state-enacted insurance regulations. The MFA states “ silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of [the business of insurance] by the several States.”

Examples from other industries that at one time faced a similar predicament include:

  • Cigarette industry: This industry employs a nationwide tracking and reporting system that ensures all applicable taxes are paid by vendors for bulk quantities of cigarettes that cross state lines while also still allowing states to maintain their own regulations on the sale of cigarettes within state borders.
  • Banking industry: Prior to the 1950s, interstate banking was prohibited. When enterprising bankers circumvented this by forming holding companies, the practice was eventually addressed with legislation that allowed interstate banking as long as the statutes of the state in which the acquired bank was located specifically approved of the acquisition.

Conclusion

Could Congress attempt to head off complete cannabis market disruption on its own by quickly devising a set of national minimums and standards that addressed the myriad areas covered by current state regulations, such as labor, social equity, taxation, pesticides, labeling, and tracking? Conceivably yes. However, even if such hastily formed regulations could be created, they would be unlikely to pass due to competing regional interests and a strong desire for states to maintain their current authority over their marketplaces.

Rather than obliterating the diverse marketplace of ideas and the significant financial investments created by our current federalist approach with dozens of distinct, insular state markets, Congress should allow for a lengthy phasing-in period where the Dormant Commerce Clause is suspended. This will allow industry experts and lawmakers to collaborate on a timeline and path forward that applies the lessons learned and best practices of our current system while also setting expectations with a concrete deadline. This will also allow businesses the time they need to adjust to the new expectations and to prepare to compete nationally.

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