This past summer, a collection of hemp companies in Charm City Hemp, LLC asked a Maryland federal court for a preliminary injunction halting aspects of Maryland’s cannabis licensing scheme (the term cannabis encompassing both recreational marijuana and hemp). Specifically, plaintiffs alleged that Maryland is wrongly requiring hemp producers to acquire a “recreational cannabis license.” That request was denied, with the court ruling that the plaintiffs lacked standing to challenge the regulations for lack of a “concrete, imminent injury.”
Perhaps more interestingly though, the court made a point to reiterate its belief that the dormant commerce clause does not apply to “recreational marijuana generally,” quoting itself in part:
The [D]ormant Commerce Clause seeks to “preserve a national market for competition undisturbed by preferential advantages conferred by a State upon its residents or resident competitors” because such an unencumbered market is presumably in the public interest, but this goal is not served by encouraging such a market for a good that Congress has already expressly declared to be illegal and against the public interest… Put simply, it defies common sense to find that the [D]ormant Commerce Clause, drawn from Congress’ power to regulate interstate commerce, prevents the states from passing laws which inhibit a market which Congress has already declared prohibited.
That language would give states a license to discriminate against out-of-state cannabis companies because of the continued federal prohibition. However, since the court issued its ruling, the Second Circuit ruled the exact opposite – albeit in a case involving marijuana, not hemp – in Variscite NY Four, LLC v. New York State Cannabis Control Board, finding “that the [D]ormant Commerce Clause does not apply to the federally illegal recreational cannabis market.”
It is important to note that the 2018 Farm Bill federally legalized hemp but did nothing to prevent states from prohibiting the sale of hemp themselves. The only thing states are prohibited from doing is preventing the transportation of federally legal hemp across their state lines (7 U.S.C.A. § 1639o note).
However, considering Variscite, the plaintiffs in Charm City have appealed, believing their case is not only like Variscite, but that they “have an even stronger claim because they are not seeking any right to sell federally illegal products, but only the right to sell [f]ederally legal products.” This could set the stage for the Fourth Circuit to rule on whether the Dormant Commerce Clause applies to state cannabis markets.
For this to happen, the plaintiffs in Charm City would still have to meet the standing requirements they previously failed, which they claim they will correct in an amended complaint. While a lot is still uncertain, it appears as though this case could get the Fourth Circuit to weigh in on the Dormant Commerce Clause and recreational cannabis markets.
*Matthew Radford is a member of Bradley’s Litigation Practice Group and assisted in the authoring of this article. Matthew is a recent law school graduate and is not yet licensed to practice law.