Business
Opinion: Don’t count on federal courts to rule on cannabis lawsuits
New York state has approved more than 30 licenses to operate recreational cannabis stores this year.
But a good number of those new stores are tied up in litigation.
There are still no licensed adult-use retailers outside of Manhattan because of an ongoing suit filed by an out-of-state company claiming discrimination against operators based outside New York.
Based on recent case law, out-of-state companies looking to take advantage of New York’s new adult-use laws are unlikely to have much luck suing for protection under federal statute.
In Peridot Tree v. City of Sacramento, a federal court in California refused to hear a federal discrimination claim brought by a Michigan resident who was denied a retail marijuana permit in the state capital because he did not meet the municipality’s residency requirement.
Given that Congress declared marijuana distribution unlawful under the Controlled Substances Act, the court did not identify any federal interest in the case.
Citing Supreme Court authority, the court invoked an “extraordinary and narrow exception” – the federal abstention doctrine – to avoid injecting itself into a federally illegal enterprise.
The ruling, currently on appeal before the 9th Circuit, has enormous implications for any marijuana dispute that a party might bring to federal court.
Broader implications
Although some federal courts were willing to rule on cannabis-related disputes pre-Peridot Tree, federal courts in California and Washington state have begun to follow this court’s lead – even for breach of contract and tort-based claims.
For instance, a federal court granted a motion to “stay,” or suspend proceedings, in Wildflower Brands v. Camacho – where an out-of-state resident brought a breach-of-contract suit in federal court seeking to recover millions of dollars from a failed marijuana-related business transaction – pending a decision in the Peridot Tree appeal.
In another action, Stirling Hort v. Industrial Ventilation, a federal court similarly chose to abstain from ruling where an out-of-state resident brought tort claims for the alleged contamination of their marijuana plants seized by the Washington State Liquor and Cannabis Board.
So, what does this mean for cannabis operators in New York and beyond?
Parties to a cannabis dispute – whether litigating private disputes or challenging licensing laws – should not rush back into federal court, which has made clear that marijuana cases are not welcome.
Peridot Tree was hardly the first case where a federal court refused to hear a cannabis-related dispute.
The Supreme Court itself held in 2001 that “federal district courts cannot employ their equitable powers if doing so would effectively revisit decisions Congress had already made when it passed the Controlled Substances Act.”
Since then, federal courts have consistently dismissed marijuana cases on the rationale that federal policy made clear there were no federal interests at stake.
Best alternative?
Cannabis growers, sellers and pretty much any player in the space should recognize that federal courts are simply not prepared to hear their cases.
Aggrieved parties are permitted – and encouraged – only to seek relief in state court until a time when the federal courts might award relief consistent with federal law (if and when that happens).
After all, the marijuana industry is a creature of state law.
Without regulatory or judicial interference at the federal level, states can continue to innovate policies according to their respective goals with the insight of local growers, sellers and community members.
We’ll keep an eye on the Peridot Tree appeal.
But, until then, cannabis businesses – in their operations, sales agreements and supply arrangements – should plan to take disputes to state courts, where judges are best equipped to address marijuana-related ventures.
Source: https://mjbizdaily.com/federal-courts-unlikely-to-rule-on-cannabis-lawsuits/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “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.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“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.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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