Marijuana Companies Teaming Up To Sue Federal Government With All-Star Legal Firm, Multi-State Operator CEO Says

Several leading marijuana businesses and stakeholders are banding together to sue the federal government over what they believe to be unconstitutional policies impeding their operations, according to the CEO of one of the companies. And, he says, they’ve retained a prominent law firm led by an attorney who has been involved in numerous high-profile federal cases.

There have been various attempts to upend federal prohibition through the court system, but what makes this emerging effort especially notable is that the coalition of multi-state operators (MSOs) in the cannabis industry will apparently be represented by the firm Boies Schiller Flexner LLP.

David Boies, the chairman of the firm, has a long list of prior clients that includes the Justice Department, former Vice President Al Gore and the plaintiffs in a case that led to the invalidation of California’s ban on same-sex marriage, among others. The prominent firm’s willingness to take on the case from the marijuana industry would be a firm indicator that they see merit to the issue at hand.

Abner Kurtin, founder and CEO of Ascend Wellness Holdings, told Marijuana Moment in a phone interview on Friday that this is an “industry-wide effort,” with at least six major cannabis operators “favorably disposed” to joining the suits—one of which would focus on stopping the federal government from impeding intrastate cannabis commerce and another challenging a tax provision known as 280E that blocks the industry from taking tax deductions that are available to any other company.

Among the prospective supporters are Curaleaf and TerrAscend, which are “working with me very closely,” Kurtin said. The American Trade Association of Cannabis and Hemp (ATACH) is also apparently involved in these conversations.

Curaleaf and TerrAscend did not immediately respond to requests for comment from Marijuana Moment. (Disclosure: TerrAscend supports Marijuana Moment’s work through a monthly pledge on Patreon.)

Michael Bronstein, president of ATACH, told Marijuana Moment that the organization “firmly believes that the Controlled Substances Act and 280E provision of the Internal Revenue Code are being misapplied to legal businesses and merits constitutional protections.”

“ATACH continues to evaluate and explore potential legal options,” he said, without directly commenting on the organization’s potential involvement in the current litigation effort described by Kurtin.

The plan is to file the two lawsuits in federal district court “in the next couple of months.” There are still legal documents that need to be signed to formally involve the other companies, but he said it’s effectively a formality at this point.

The pro states rights @USSupremeCourt can help where @SenSchumer seems unable to. Defending the rights of state legal cannabis companies https://t.co/NOkb7I9oNq

— Abner Kurtin (@AbnerKurtin) May 27, 2022

One lawsuit will take aim at the federal ban on intrastate marijuana commerce and contest the constitutionality of the Controlled Substances Act (CSA) under a unique interpretation of the Commerce Clause of the Constitution. In part, the plaintiffs will make the case that prior court rulings on the federal government’s authority over intrastate commerce, particularly concerning fungibility, should not apply to marijuana companies in highly regulated state-legal markets.

The federal government’s position on its influence over intrastate commerce has been largely based in market fungibility, or the fact that just because a given item is grown in one state it can still affect pricing in other states, and therefore the feds still have jurisdiction over intrastate industries under the Commerce Clause.

That was effectively what the Supreme Court determined in a 2005 case in which California medical cannabis patients argued that the 10th Amendment protected their right to access marijuana that was authorized to be grown and used within the state. The Court at the time ruled against the patients, saying that even though the cannabis plants in question stayed within California, it could have had an impact on the national illicit market for marijuana.

But that’s no longer the case for state-legal marijuana, Kurtin said, especially as markets have matured in an isolated and highly regulated way within state borders that undermines the notion that cannabis grown in one state could impact pricing elsewhere.

They will also be bringing up the federal inconsistency on cannabis enforcement, which was criticized by the conservative U.S. Supreme Court Justice Clarence Thomas last year, as a clear example of why the courts should provide the marijuana industry with the relief they’re seeking. Thomas, for what it is worth, ruled on the side of the cannabis patients in the earlier 2005 case.

If the challenge to marijuana’s status under the CSA is successful, Kurtin said that it would ultimately give cannabis businesses access to both the banking system and major stock exchanges.

The second lawsuit that’s in the works will make similar arguments but focus on an Internal Revenue Service (IRS) code known as 280E, which precludes cannabis businesses from claiming federal tax deductions because, under the CSA, they are trafficking in a controlled substance.

The implications of resolving that IRS issue could also be retroactive, too, Kurtin said, meaning that cannabis companies that have been deprived of federal tax relief could theoretically amend their past tax returns and receive deductions going back years—potentially making funding what could be an expensive lawsuit with a high-powered legal firm a good investment in the long run.

States’ rights will be the focal point of both of these challenges. There is plenty of precedent to draw on from that vantage point, and Kurtin said that the legal discussions that emerged around issues such as President Obama’s health care law that impacted state markets are “very comparable to what’s going on with cannabis.”

The CEO also observed that this lawsuit will be emerging “at a time when you have a very pro-states’ rights Supreme Court” that is actively contemplating to overturn a previous ruling on abortion rights that would leave the issue up to the states.

He also pointed out that, by the time that the issue of same-sex marriage reached the Supreme Court, public sentiment toward the issue had shifted in favor of a policy change. “We would make the same argument,” he said.

Taking a states’ right approach to these cannabis cases could attract supporters from across the political spectrum to join them in the future legal challenge, which is part of the plan. Conversations are already ongoing with state attorneys general, Kurtin said, and an ideal scenario would be to have a bipartisan push from the top state prosecutors to advance the issue.

For now, the well-funded MSOs are said to be getting the process started to provide the financial resources to take this case through the courts, with an expectation that it will eventually reach the Supreme Court if Congress doesn’t act to end prohibition first. But once the ball gets rolling, the hope is to have a roster of plaintiffs that also includes other stakeholders who have been impacted by the current federal policies, such as social equity business applicants who struggle to access traditional financial services.

It’s yet to be determined which federal district court the lawsuits will be filed in, but the intent is to pursue a jurisdiction where marijuana is not just legal but has a strong record of compliance and effective regulation, Kurtin said. That could be in a state like Illinois, or potentially an East Coast state that has had time to learn from the experiences of early adopters and implement comprehensive rules.

Kurtin said that they will be seeking to expedite the legal proceedings on the basis that the status quo constitutes an urgent public safety issue. Marijuana businesses that are currently operating on a largely cash-only basis are unique targets of violent crime, as state officials, congressional lawmakers and advocates have been emphasizing, particularly amid the amplified push to pass a bipartisan bill, the Secure and Fair Enforcement (SAFE) Banking Act.

The case could help galvanize congressional efforts to get that policy in place, underscoring not just the dangers it has posed in a growing number of states that have legalized, but also the alleged feebleness of the legal underpinnings that have prevented the market from engaging in intrastate commerce without impediment or claiming tax deductions under 280E

As noted, there have been various attempts to challenge the constitutionality of federal prohibition that have so far been unsuccessful. And the Justice Department recently requested that the Supreme Court reject a case concerning workers’ compensation for medical cannabis that could have implications for federal supremacy (though DOJ did say that part of its reasoning for the request was that it feels the executive or legislative branch is better suited to address the overarching issue).

But while the new industry-led lawsuits have not yet been filed, the firm that’s apparently involved in this case gives reason to believe it could achieve a different outcome.

“I think the fact that one of the leading constitutional law firms in the United States is willing and eager to take this case speaks volumes to the seriousness of the action and the potential likelihood of success,” Kurtin said.

For his part, Boies Schiller Flexner co-founder and managing partner Jonathan Schiller, told Marijuana Moment in a statement that the firm has “no comment” on the case.

Kurtin, for his part, said that the timing of this legal challenge is no coincidence. As Senate leadership resists the House-passed SAFE Banking Act while members push for a more comprehensive approach, certain advocates and stakeholders are losing patience.

“Hopefully, this will be another factor [so] that the Senate says, ‘you know, we’ve gotta get off our ass or we’re gonna lose this issue to the courts.’”

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