Marijuana Moment: Marijuana Rescheduling Process ‘Supports The Rationality’ Of Federal Prohibition, DOJ Argues In Hearing On Cannabis Businesses’ Lawsuit

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The federal government’s move to reschedule marijuana “supports the rationality” of the overall law prohibiting cannabis, attorneys for the Justice Department argued in a court hearing on Wednesday. But both DOJ and major marijuana companies suing the government to try to block enforcement against their in-state activities generally agreed that rescheduling doesn’t largely impact the case at hand.

The U.S. District Court for the District of Massachusetts’s Western Division held the hearing to take oral arguments days after granting the marijuana firms’ request to make the hearing accessible to the public and press.

The suit against the federal government—Canna Provisions v. Garland—is being led by multi-state operator Verano Holdings Corp. and the Massachusetts-based cannabis businesses Canna Provisions and Wiseacre Farm, along with Treevit CEO Gyasi Sellers. Plaintiffs are represented by the law firms Boies Schiller and Flexner LLP and Lesser, Newman, Aleo and Nasser LLP.

Litigator David Boies—whose list of prior clients includes the Justice Department, former Vice President Al Gore and plaintiffs in the case that led to the invalidation of California’s ban on same-sex marriage—is leading the suit.

Both parties were given an opportunity to address the standing and merits of the case amid the Justice Department’s pending motion to dismiss the suit. A DOJ lawyer contended that the businesses have not been directly harmed by the policy of prohibition, while defending the rationality of the existing law under the Controlled Substances Act (CSA). Plaintiffs disputed that position, pointing out that the ongoing risk of prosecution—as well as banks’ reluctance to service marijuana businesses—underscores the injury they’ve incurred.

Boies himself presented the plaintiffs’ case. He cited “inconsistencies” in federal enforcement, with the government generally taking a hands-off approach to state programs but also noted situations such as the Drug Enforcement Administration’s (DEA) threats against Georgia officials if they seek to implement their own unique medical cannabis law allowing distribution through pharmacies.

Judge Mark G. Mastroianni, an Obama appointee, also seemed to tentatively accept part of the plaintiffs’ argument that they have standing in the case because prohibition adversely impacts marijuana businesses’ ability to access banking services, at least to some extent.

The judge made clear several times throughout the roughly 90-minute heating that he was interested in whether the Biden administration’s recent announcement that it is initiating rulemaking to move cannabis from Schedule I to Schedule III of the CSA affects the underlying arguments on either side.

The Justice Department attorney first emphasized that marijuana has not yet been rescheduled because it must still go through the process of public comment and a possible administrative hearing before the rule is potentially finalized. But he said the fact that the process is unfolding “supports the rationality of federal marijuana policy.”

However, “it doesn’t fundamentally change all of the arguments,” he said, “because here we’re dealing with plaintiffs who are engaged in recreational marijuana businesses and even reclassifying something to Schedule III doesn’t doesn’t legalize it.”

“I think that this development underscores the rationality of the measured approach that the government has taken, which is to to allow these programs to go into effect to avoid friction between the federal government and the states,” he said. “And it allows a body of evidence to develop, which is currently informing the federal government’s decision making regarding marijuana.”

Boies said earlier in the hearing that he agrees a possible Schedule III reclassification “doesn’t really affect the arguments” because the federal government would “continue to assert” that marijuana is illegal, subjecting the businesses to the same issues.

“There was no suggestion that they’re going to permit our clients who are here to continue their operations legally,” he said.

The government attorney did say, however, that rescheduling could make it more likely that banks would be willing to work with state-licensed cannabis businesses.

In general, the cannabis businesses have said in their lawsuit against the federal government that the prohibition of marijuana has “no rational basis,” pointing to officials’ largely hands-off approach to the recent groundswell of state-level legalization.

At issue in the case is the degree to which in-state cannabis activity affects interstate commerce, with the government arguing that cannabis legalization attracts out-of-state tourists.

DOJ argued in a filing last month that “it is rational to conclude that the regulated marijuana industry in Massachusetts fuels a different kind of marijuana-related interstate commerce: marijuana tourism.”

“As the Supreme Court held decades ago, Congress has the authority to regulate businesses that cater to tourists from out of state, even if the businesses’ transactions occur wholly in-state,” DOJ said in the brief.

Plaintiffs, meanwhile, contend the Constitution’s Commerce Clause should preclude DOJ from interfering in state-legal activity because it is regulated within a state’s borders.

Boies also said at Wednesday’s hearing that there’s an argument to be made that “the net effect of legalizing it is to reduce” illicit interstate cannabis commerce, in part because he argues that Massachusetts’s regulatory framework effectively mitigates that risk.

In the background of the lawsuit, President Joe Biden announced last week that his administration is formally moving to reschedule marijuana, with a proposal published in the Federal Register this Tuesday to place cannabis in Schedule III of the Controlled Substances Act (CSA).

Attorney General Merrick Garland, a chief defendant in the marijuana industry litigation, signed off on the proposed rule last Thursday. But reclassifying cannabis as Schedule III would not federally legalize it, so it seems unlikely that rulemaking will influence DOJ’s position in the federal court case at hand.

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