California has recently proposed a set of bills to address issues arising from federal cannabis prohibition, with one measure appearing to be an explicit challenge to the U.S. government’s current stance of simultaneous toleration for state-legal cannabis regimes and refusal to legalize nationally. Two of the bills under consideration are: AB 2568, which would provide that it is not a crime for individuals and firms to provide insurance and related services to persons licensed to engage in commercial cannabis activity; while SB 1293 would allow a credit to cannabis licensees in the amount equal to the amount of business expenses the licensees could not deduct or claim credit for on federal taxes.
The most direct challenge to the U.S. government’s current stance on cannabis, however, is SB 1326, which would authorize the Governor to enter into interstate agreements authorizing medical and / or adult use commercial cannabis activity between entities licensed under the laws of other states. California’s Medical and Adult Use Cannabis Regulation and Safety Act (MAUCRSA), the enabling legislation providing the framework for legal commercial cannabis activity in the state, “specifies that its provisions shall not be construed to authorize or permit a licensee to transport or distribute … cannabis or cannabis products outside the state, unless authorized by federal law.” The bill would strike the phrase “federal law” and replace it with “state law” in the original MAUCRSA, thus opening the door for interstate trade.
To help clarify whether California is attempting to throw down a gauntlet that would force a reckoning over the contradiction of state legality and federal illegality, Cannabis Benchmarks spoke with California cannabis lawyer Dale Schafer. Schafer’s view of cannabis law is formed from his decades of work as an attorney in the industry and the work of his organization, Weed for Warriors, which seeks to ease veterans’ access to medical cannabis through the Veterans Administration. While Schafer acknowledged the inertia of the now-rescinded Cole Memo – which stated generally that the U.S. Department of Justice would not enforce federal cannabis prohibition against compliant state-licensed businesses – he cautioned “the federal government is lurking out there,” suggesting the current situation is a shaky foundation on which to build interstate trade.
Schafer said the package of bills seemingly in defiance of federal law are “a big stick for states to wield” and may “effectuate policy change,” though the multiple and varied interests in keeping the cannabis industry in legal limbo may well keep the bills from passing. He could envision other states – Washington, Oregon, Nevada, and Hawaii – joining in a class action suit against the federal government to force a resolution when and if California finds itself in the federal crosshairs, particularly on passage of SB 1326, the interstate trade bill.
Schafer’s 10,000 foot view of the California cannabis industry sees key players in government financed sectors, law enforcement especially, as blocking any attempt to put a federal imprimatur on the cannabis industry, as it would affect law enforcement funding. The federal prohibition / state legal dichotomy has forced the industry to “live under precedents” – like the Cole Memo – based on “foundations that can be blown up any day.” He thinks the interstate commerce bill, SB 1326, is especially likely “to start a battle with the federal government.” He notes 2021 remarks from Supreme Court Justice Clarence Thomas – “a prohibition on intrastate use or cultivation of marijuana may no longer be necessary or proper to support the Federal Government’s piecemeal approach” – were “a greenlight to attack” the federal government’s positions on most cannabis restrictions.
Schafer believes if the dissonance between state and federal law is presented in such a way as to support state law with “objective reasonableness,” the federal government will lose. He also noted that “California is the only state big enough to take on the federal government,” citing its place as the fifth-largest economy in the world. He continued that California may, if these strategic bills are passed, “have a position the federal government can’t ignore.”
As for the current state of the cannabis industry in California, Schafer sees licensed businesses “circling the drain” due to the cost of compliance with the state’s environmental laws, expensive licensing fees that lock out experienced cannabis farmers, and prohibitively high cultivation taxes. As well, Schafer sees the pervasive power of illicit cannabis underlying many of the issues in the legal market.
Regarding proposed bills to get rid of the cultivation tax or place a five year moratorium on the same, Schafer does not believe they will pass. He cited the influence of law enforcement in politics and says the bills aimed at the cultivation tax are also likely to be opposed by California labor unions whose leadership tend to be “conservative.” His clear sense is that unless law enforcement is directed and funded away from drug enforcement, they will continue to oppose efforts to fully support the state’s cannabis industry and oppose moves to reconcile state and federal cannabis law.
Schafer sees the road to full federal legalization as a series of incremental efforts to inch the country along the path, while changing the public’s perception of cannabis. He hopes the bill to eliminate the cultivation tax will pass and supports another bill that would fine landlords of illicit cannabis retailers $30,000 per day to help eradicate illegal storefronts. That said, he acknowledges stamping out illicit cannabis businesses is “a game of whack-a-mole” and believes the entire California cannabis industry is underpinned by the illicit market.
Schafer says California’s proposed bills could well be a strategic bid to force the federal government to reconcile its contradictory stance on legal cannabis. However, questions remain: First, as to whether the bills, particularly the interstate trade measure will pass. Subsequently, if SB 1326 is signed into law in California, will it garner a legal challenge from the U.S. government, or will the state be the first in the nation to sidestep federal regulation with state law?