Cannabis Industry Finds An Ally in Justice Clarence Thomas

Justice Clarence Thomas is the latest to voice concerns about the continued federal criminalization of marijuana…

Justice Clarence Thomas is the latest to voice concerns about the continued federal criminalization of marijuana. “A prohibition on interstate use or cultivation of marijuana may no longer be necessary or proper to support the federal government’s piecemeal approach,” Justice Thomas wrote in Standing Akimbo, LLC et al v. United States.

Justice Thomas Questions Federal Stance on Marijuana

In Standing Akimbo, LLC, a Colorado state-legal cannabis dispensary challenged the federal ban on tax deductions for state-licensed cannabis businesses. As we have discussed in prior articles, Section 280E of the Internal Revenue Code prohibits businesses from deducting otherwise valid business expenses where the business “consists of” dealing in controlled substances set forth in Schedules I or II of the Controlled Substance Act (CSA).  Justice Thomas wrote his statement in response to the Supreme Court’s decision to deny certiorari in the case. 

The dispute began when the Internal Revenue Service (IRS) issued summonses to obtain information about Standing Akimbo from the Colorado Department of Revenue, Marijuana Enforcement Division (MED). Specifically, the IRS requested reports from the state’s seed-to-sale inventory tracking system about the marijuana possessed by the dispensary, and how and when the marijuana was transferred to other third parties – including the identity of these other third parties. 

While the IRS maintains that it needs the confidential information to determine the proper tax under §280E, it reserves all rights to share any incriminating information with federal law enforcement. Accordingly, Standing Akimbo sought to quash the subpoenas, citing the threat of criminal prosecution for drug trafficking. Among the arguments raised before the U.S. Supreme Court, the dispensary argued that the CSA should not preempt Colorado’s expressly state-legal sales of cannabis and that §280E violates the Sixteenth Amendment by taxing more than constitutional income.

The Supreme Court declined to hear the case. While Justice Thomas agreed with the Court’s decision not to delve into the questions raised on appeal, citing the “still-developing nature of the dispute,” he did raise a number of concerns about the federal government’s stance on marijuana in light of widespread legalization at the state level. 

In his statement, Justice Thomas specifically questioned the ongoing validity of the Court’s decision in Gonzales v. Raich, 545 U.S. 1 (2005), which held that Congress’ power to regulate interstate commerce authorized it “to prohibit the local cultivation and use of marijuana.” 

According to Thomas, while Raich may have made sense when it was decided, federal policies of the past 16 years have greatly undermined its reasoning.  “Once comprehensive, the Federal Government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana,” Justice Thomas wrote. “This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.”

Justice Thomas Highlights Unequal Treatment of Cannabis Businesses

In his statement, Justice Thomas specifically addressed the plight of state-legal cannabis businesses like Standing Akimbo. He emphasized that legality under state law and lax federal criminal enforcement do not ensure equal treatment for cannabis businesses. 

“This disjuncture between the Government’s recent laissez-faire policies on marijuana and the actual operation of specific laws is not limited to the tax context,” Thomas wrote. “Many marijuana-related businesses operate entirely in cash because federal law prohibits certain financial institutions from knowingly accepting deposits from or providing other bank services to businesses that violate federal law.”

Justice Thomas noted several other legal risks that cannabis businesses suffer due to the dichotomy of federal and state law. “Cash-based operations are understandably enticing to burglars and robbers. But, if marijuana-related businesses, in recognition of this, hire armed guards for protection, the owners and the guards might run afoul of a federal law that imposes harsh penalties for using a firearm in furtherance of a ‘drug trafficking crime,’” he wrote.  Justice Thomas added that cannabis businesses may also find themselves on the wrong side of a civil suit under the Racketeer Influenced and Corrupt Organizations Act (RICO). 

“Suffice it to say, the Federal Government’s current approach to marijuana bears little resemblance to the watertight nationwide prohibition that a closely divided Court found necessary to justify the Government’s blanket prohibition in Raich,” Justice Thomas concluded. “If the Government is now content to allow States to act ‘as laboratories’ and ‘try novel social and economic experiments,’ then it might no longer have authority to intrude on ‘[t]he States’ core police powers . . . to define criminal law and to protect the health, safety, and welfare of their citizens.’” 

Key Takeaway

In issuing his statement, Justice Thomas did not create any binding law. However, he did add credibility to arguments to decriminalize marijuana at the federal level. As several cannabis bills work their way through Congress, Justice Thomas’ statement will certainly be used to help convince conservative members of Congress to embrace reform, although the success of those efforts is still uncertain. 

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Candy Brands Filing Trademark Suits Over Cannabis Copycats
• New York’s Off-Duty Conduct Law Now Includes Cannabis Use
• Appellate Division Relies on Hager to Uphold Reimbursement of Medical Cannabis

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.