Leech Tishman Fuscaldo & Lampl: Pork, Cannabis, State Law & the Dormant Commerce Clause

Author: Michael H. Sampson, Esq. The U.S. Constitution’s dormant Commerce Clause has been the basis for a number of – mostly successful – challenges to state-imposed requirements that an applicant for cannabis-related licensure be a resident of the state in which it seeks to operate.  Therefore, the U.S. Supreme Court’s recent decision in National Pork Producers Council v. Ross, No. 21-468, 2023 WL 3356528, 598 U.S. —- (May 11, 2023) (slip op.) – which appears to limit the scope and application of the dormant Commerce Clause – is likely to raise at least some concern across the cannabis industry.   While such apprehension is understandable, National Pork Producers actually is unlikely to have much, if any, immediate effect on the cannabis industry and/or on on-going challenges to state residency requirements.  Rather, any, if any, negative effects of the opinion are more likely to be felt if and when marijuana is federally legalized and states then seek to regulate cannabis in a manner that arguably burdens interstate commerce.  Even then, though, this recent opinion may not insurmountably harm the cannabis industry. The Dormant Commerce Clause Article I, Section VIII of the U.S. Constitution, i.e., the Commerce Clause, provides that “Congress shall have power … [t]o regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”  U.S. Const., Art. I, § 8. “‘Although the Clause is framed as a positive grant of power to Congress,’” Supreme Court Justice Samuel Alito, Jr. explained in 2019, the Supreme Court has “long held that this Clause also prohibits state laws that unduly restrict interstate commerce.”  Tennessee Wine & Spirits Retailers Ass’n v. Thomas, 139 S. Ct. 2449, 2459 (2019) (citations omitted). Writing for the Court in Tennessee Wine & Spirits Retailers Association v. Thomas, 139 S. Ct. at 2459, Justice Alito continued, “This ‘negative’ aspect of the Commerce Clause prevents the States from adopting protectionist measures and thus preserves a national market for goods and services.”  It is “[t]his interpretation,” he wrote, that is “generally known as ‘the dormant Commerce Clause[.]’”  Id. “Modern Supreme Court opinions elaborating upon the dormant Commerce Clause,” the U.S. District Court for the Eastern District of New York observed, generally have addressed ”two broad types of state-imposed barriers to trade: non-discriminatory state statutes which burden interstate commerce only incidentally, and state statutes which affirmatively discriminate against interstate commerce, either on their face or in ‘practical effect.’”  Atlantic Prince, Ltd. v. Jorling, 710 F. Supp. 893, 895 (E.D.N.Y. 1989)  More recently, in a case involving the Illinois cannabis industry, the U.S. District Court for the Northern District of Illinois articulated the relevant analysis as follows: In order to “preserv[e] a national market for goods and services,” the dormant Commerce Clause prohibits states from enacting “protectionist measures” or “laws that unduly restrict interstate commerce.”  The [U.S. Court of Appeals for the] Seventh Circuit employs a three-tiered approach to determine whether a state law runs afoul of the dormant Commerce Clause:  (1) A law that facially discriminates against interstate commerce is “almost per se unconstitutional,” and passes muster only “if it serves a legitimate governmental interest and there is no reasonable non-discriminatory means of furthering that interest”; (2) a seemingly neutral law that “effectively operates as an embargo on interstate commerce” is treated like a facially discriminatory law; and (3) a law that “only incidentally burdens interstate commerce” is analyzed under the balancing test from Pike v. Bruce Church, Inc.  Finch v. Treto, 606 F. Supp.3d 811, 830 (N.D. Ill. 2022) (emphasis added) (citations omitted), appeal filed, No. 22-2050 (7th Cir. June 14, 2022). The Court’s Opinion In National Pork Producers As Justice Neil Gorsuch – who “announced the judgment of the Court and delivered the opinion of the Court, except as to Parts IV-B, IV-C, and IV-D” – stated, National Pork Producers involved a dormant Commerce Clause “challenge to a California law known as Proposition 12.”  National Pork Producers, 2023 WL 3356528, at *4, *5.  He explained:  “California adopted a ballot initiative that revised the State’s existing standards for the in-state sale of eggs and announced new standards for the in-state sale of pork and veal products.  As relevant here, Proposition 12 forbids the in-state sale of whole pork meat that comes from breeding pigs (or their immediate offspring) that are ‘confined in a cruel manner.’”  Id. at *5. Two organizations challenged Proposition 12:  “Petitioners alleged that Proposition 12 violates the U.S. Constitution by impermissibly burdening interstate commerce.”  Id. at *6.  They essentially argued that California’s new law operated extraterritorially, forcing out-of-state actors to comply with California law.    The federal district court and the federal appellate court ruled against Petitioners, and the Supreme Court affirmed, holding that there was no violation of the dormant Commerce Clause. At the outset, the Supreme Court rejected any suggestion that there was an “‘almost per se’ rule forbidding enforcement of state laws that have the ‘practical effect of controlling commerce outside the State,’ even when those laws do not purposely discriminate against out-of-state economic interests.”  Id. at *8.   Justice Gorsuch, however, went further, elevating the anti-discrimination prong of the dormant Commerce Clause analysis over the unduly-burdening-interstate-commerce prong.  “Today,” he wrote, the “antidiscrimination principles lie at the ‘very core’ of out dormant Commerce Clause jurisprudence.”  Id. at *7. To that end, Justice Gorsuch attempted to recast Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970), which held that “[w]here [a] statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.”  In other words, as Pike established, even state statutes that do not discriminate against out-of-state residents may still be unconstitutional if the statute excessively burdens interstate commerce. In National Pork Producers, Justice Gorsuch, however, opined that anti-discrimination was really also at the heart of Pike:

• “In the first place, petitioners overstate the extent to which Pike and its progeny depart from the antidiscrimination rule that lies at the core of our dormant Commerce Clause jurisprudence.  As this Court has previously explained, ‘no clear line’ separates the Pike line of cases from our core antidiscrimination precedents.”  National Pork Producers, 2023 WL 3356258, at *11.

 

• “While Pike has traditionally served as another way to test for purposeful discrimination against out-of-state economic interests, and while some our cases associated with that line have expressed special concern with certain state regulation of the instrumentalities of interstate transportation, petitioners would have us retool Pike for a much more ambitious project.”  Id. at *12 (citation omitted).

 

• “When it comes to Pike, a majority agrees that heartland Pike cases seek to smoke out purposeful discrimination in state laws (as illuminated by those laws’ practical effects) or seek to protect the instrumentalities of interstate commerce.”  Id. at *15 n.4.

These statements could be read to suggest that the dormant Commerce Clause’s application to non-discriminatory state laws that unduly burden interstate commerce is to be limited. Justice Gorsuch’s analysis of Pike is not controlling, however.  Justice Brett Kavanaugh, concurring in part and dissenting in part in National Pork Producers, explained: In today’s fractured decision, six Justices of this Court affirmatively retain the longstanding Pike balancing test for analyzing dormant Commerce Clause challenges to state economic regulations.  Although Parts IV-B and IV-D of Justice GORSUCH’s opinion would essentially overrule the Pike balancing test, those subsections are not controlling precedent, as I understand it.   Id. at *22 (Kavanaugh, J. concurring in part & dissenting in part) (citations omitted) (emphasis added).  Justice Kavanaugh also wrote:  “[O]n the question of whether to retain the Pike balancing test in cases like this one, THE CHIEF JUSTICE’s opinion reflects the majority view because six Justices agree to retain the Pike balancing test: THE CHIEF JUSTICE and Justices ALITO, SOTOMAYOR, KAGAN, KAVANAUGH, and JACKSON.  On that legal issue, Justice GORSUCH’s opinion advances a minority view.”  Id. at *24 n.3 (Kavanaugh, J. concurring in part & dissenting in part) (emphasis added).  State Residency Requirements  Regardless, National Pork Producers is likely to have little to no impact on-going challenges to state residency requirements.  Those dormant Commerce Clause challenges are largely, if not exclusively, predicated on the argument that such requirements impermissibly favor in-state actors over out-of-state ones.  As the U.S. District Court for the Eastern District of Michigan explained in Attitude Wellness, LLC v. Village of Pinckney, 606 F. Supp.3d 624, 630-31 (E.D. Mich. 2022), “[c]ourts in this judicial district and elsewhere have found cannabis residency provisions to fall under the first tier of dormant Commerce Clause challenges[,]” which that court explained means that it must “discern whether the challenged law facially discriminates against interstate commerce.” In Attitude Wellness, that federal district court ultimately held that the dormant Commerce Clause challenge was “likely to succeed.”   Id. at 632. Similarly, the U.S. District Court for the Western District of Missouri concluded in Toigo v. Department of Health & Senior Services, 549 F. Supp.3d 985, 991(W.D. Mo. 2021): It is not necessary to look beyond the face of the State’s durational residency requirement to determine whether it is discriminatory.  A law that prevents persons from becoming majority shareholders in Missouri businesses that engage in the cultivation, manufacture, and dispensation of medical marijuana products unless they have lived in Missouri for one year and do not reside in any other state is facially discriminatory against out-of-state economic interests.  A law that prevents out-of-state persons from applying for medical marijuana licenses or purchasing them from others is also facially discriminatory against out-of-state economic interests.  [The state agency] in its briefing does not dispute the facially discriminatory nature of the durational residency requirement, which categorically forecloses non-Missouri residents from owning a majority interest in any medical marijuana facility in Missouri. Outcomes in cases like Attitude Wellness and Toigo are unlikely to change due to National Pork Producers.  Even Justice Gorsuch agrees that “[a]ssuredly, under this Court’s dormant Commerce Clause decisions, no State may use its law to discriminate purposefully against out-of-state economic interests.”  National Pork Producers, 2023 WL 3356258, at *5. State Regulation Of Cannabis After Federal Legalization The effects of National Pork Producers, if any, are more likely to be felt by the cannabis industry if and when marijuana is legalized federally.  At that time, presumably, there will be a national market for cannabis.  State regulations – concerning matters such as amounts of THC, packaging, and labeling – however, could impede a national market.  For example, if State A were to require that, for a cannabis-related product to be sold in that state, the product must contain no more than X percent THC (even if all other states permit the sale of products with a higher percentage of THC), then a cannabis-related business, who wants to be able to sell in State A, may need to alter its entire product line to meet State A’s requirements (assuming at least that it is not capable of varying its product line by state).  Arguably, therefore, State A’s law would impermissibly burden interstate commerce. Even after National Pork Producers, viable avenues exist for affected businesses to challenge such state laws.  Most notably, as Justice Kavanaugh highlighted, the Court’s recent decision did not overrule Pike.  As he also noted, it is Chief Justice John Roberts’ “opinion [that] reflects the majority view” of the Court.   In relevant part, Justice Roberts, concurring in part and dissenting in part in National Pork Producers, wrote: The [U.S. Court of Appeals for the] Ninth Circuit stated that “[w]hile the dormant Commerce Clause is not yet a dead letter, it is moving in that direction.  Today’s majority does not pull the plug.  For good reason:  Although Pike is susceptible to misapplication as a freewheeling judicial weighing of benefits and burdens, it also reflects the basic concern of our Commerce Clause jurisprudence that there be “free private trade in the national marketplace.”  … The majority’s discussion of our Pike jurisprudence highlights two types of cases: those involving discriminatory state laws and those implicating the “instrumentalities of interstate transportation.”  But Pike has not been so narrowly typecast.  As a majority of the Court acknowledges, “we generally leave the courtroom door open to plaintiffs invoking the rule in Pike, that even nondiscriminatory burdens on commerce may be struck down on a showing that those burdens clearly outweigh the benefits of a state or local practice.”  Nor have our cases applied Pike only where a State regulates the instrumentalities of interstate transportation.  Pike itself addressed an Arizona law regulating cantaloupe packaging.  And, we have since applied Pike to invalidate nondiscriminatory laws that do not concern transportation.  As a majority of the Court agrees, Pike extends beyond laws either concerning discrimination or governing interest transportation.  Id. at *18-*19 (Roberts, C.J., concurring in part & dissenting in part) (citations omitted). At a high level at least, Kraft Foods North America, Inc. v. Rockland County Department of Weights and Measures, No. 01 Civ. 6980(WHP), 2003 WL 554796 (S.D.N.Y. Feb. 26, 2003), provides an example of the type of constitutional challenge that potentially could be mounted against out-of-line state laws regulating (or restricting) the cannabis industry.  In that case, which did not have to do with cannabis, Kraft Foods North America, Inc. (“Kraft”) argued that a New York county’s “net weight label enforcement practices create ‘substantial burdens [on interstate commerce] that are not outweighed by any local interest sufficient to justify the burden on Kraft.’”  Id. at *8. The county’s “inspectors conduct[ed] net weight inspections of food products at individual retail stores within [the county], where they select[ed] one or two packages of a product from a retail shelf and weigh[ed] them.  Through its inspection practices, [the county] require[d] packaged food products sold in the county to equal or exceed the net weight stated on the package label.”  Id. at *2 (citation omitted).  Assessing the dormant Commerce Clause portion of Kraft’s legal challenge in that case, the U.S. District Court for the Southern District of New York first found that the county’s “nondiscriminatory enforcement practices have a disparate impact on interstate commerce, as such practices impose burdens on interstate commerce exceeding the burdens on intrastate commerce.”  Id. at *9.  Citing Pike, the federal district court then stated:  “Accordingly, in order to demonstrate that its regulations do not offend the Commerce Clause [the county] must establish that its inspection practices promote a ‘legitimate public interest.’”  Id. Ultimately, that court concluded that the county’s requirements could not survive analysis pursuant to Pike: Even if [the] [c]ounty could show a legitimate state purpose in imposing such an impermissibly different standard, [the] [c]ounty’s regulations unduly burden interstate commerce in relation to the putative local benefit.  As noted, for Kraft to comply with [the] [c]ounty’s minimum weight rule it would have to “segregate and label differently those products being distributed in [this one] [c]ounty from those products being distributed in the rest of the country.”  Such a process, if possible, would be time consuming and costly to a national manufacturer whose packaging and labeling systems are designed to comply with federal laws.  There is no doubt that [the] [c]ounty’s inspection practices place a heavy burden on interstate commerce without equally weighty local benefits.  Id. at *10 (citations omitted). Although there were federal laws in play in Kraft Foods, that case still is instructive.  Compliance with state laws that impose different standards for packaging or labeling cannabis, for example, likely would be costly and time-consuming for a multi-state operator seeking to employ a uniform approach to packaging and labeling. In fact, even Justice Gorsuch, who opined that “this Court ‘has only rarely held that the Commerce Clause itself pre-empts an entire field from state regulation,’” acknowledged that such preemption occurs “when the lack of national uniformity would impede the flow of interstate goods.”  National Pork Producers, 2023 WL 3356258, at *11 n.2 (emphasis in original) Other potential avenues for a challenge exist, at least according to Justice Kavanaugh.  Concurring in part and dissenting in part in National Pork Producers, he wrote that “state laws like Proposition 12 implicate not only the Commerce Clause, but also potentially several other constitutional provisions, including the Import-Export Clause, the Privileges and Immunities Clause, and the Full Faith and Credit Clause.”  Id. at *25 (Kavanaugh, J., concurring in part & dissenting in part) Finally, Congress potentially could moot much, if not all, of this concern   In National Pork Producers, Justice Gorsuch, citing the Commerce Clause, wrote that “[e]veryone agrees that Congress may seek to exercise this power to regulate the interstate trade of pork, much as it has done with various other products.”  Id. at *6.  Congress may do the same with cannabis.  “Everyone agrees, too,” Justice Gorsuch continued, “that congressional enactments may preempt conflicting state laws.”  Id.  Thus, if, after first legalizing marijuana, Congress were to mandate national standards for cannabis, Congress could potentially “displace” state laws regulating cannabis.  Id.  In any event, the cannabis industry should continue to pay careful attention to the development of dormant Commerce Clause jurisprudence in the Supreme Court as well as in lower federal courts.  Future court decisions – including ones interpreting and applying National Pork Producers – may also affect the industry.  

(Michael H. Sampson co-leads the Leech Tishman Fuscaldo & Lampl Cannabis Industry Group.  Mike routinely advises plant-touching, non-plant-touching, and ancillary businesses across the cannabis industry.  He can be reached at msampson@leechtishman.com or at 412-261-1600.)