The Supreme Court’s recent ruling in the alcohol-regulation case Tennessee Wine & Spirits Retailers Association v. Thomas corrects an 80-year-old jurisprudential error that raised the price of alcohol for generations. A misunderstanding of the 21st Amendment, which repealed Prohibition while granting states power to regulate the “transportation or importation” of alcohol, had allowed protectionist state laws to interfere with interstate commerce. In striking down Tennessee’s in-state-residency requirements for retail liquor licenses, the Court held that the Volunteer State can’t discriminate against outsiders willing to set up shop within its borders.
Business licenses have nothing to do with whether a state imports liquor, which is why, as the Supreme Court clarified, protectionist regulations are no more valid in the alcohol market than they would be for any other market. Now that the justices have fixed that derogation of constitutional structure, it's time for Congress to learn from its misreading of regulatory power over alcohol to ensure that state protectionism doesn't replace federal prohibition of another drug, cannabis.
Cannabis is a Schroedinger's weed: simultaneously legal in many states and illegal to transport across state lines under federal law. As a result of this federalism quandary, it is unlike any other commodity in the United States: Businesses must vertically integrate all cannabis commerce within balkanized state marketplaces.
In Gonzales v. Raich (2005), the Supreme Court ruled that Congress's regulatory authority over cannabis is virtually limitless. We don't agree with that ruling, but when you combine it with Tennessee Wine, you find that Congress has significant power to manage the growing cannabis industry, without interference from insiders who would prefer to maintain their state-specific fiefdoms.
Interest groups have coalesced around two competing policy proposals on ending federal cannabis prohibition. One has the potential to repeat and entrench the errors of Prohibition, taking state protectionism outside the reach of commerce-clause challenges. The other would treat cannabis like alcohol, breaking up the status quo of balkanized state markets. Cannabis-legalization proposals thus bifurcate into intrastate-only policies and interstate ones.
Intrastate measures, like the Compassionate Access, Research Expansion, and Respect States (CARERS) Act and the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, would legalize cannabis within states but leave cannabis as a Schedule I substance at the federal level, with any interstate commerce treated as if it were cartel-style drug trafficking.
Interstate measures, like the Marijuana Revenue and Regulation Act, instead would legalize the cannabis trade between states where the drug is legal while allowing other states to maintain bans if they so choose. Their principal idea is that having 34 medical-marijuana and eleven recreational-use markets makes little sense from an economic perspective, particularly for patients and consumers.
Proponents of intrastate-only policies have, of late, attempted to breathe life into a little-known constitutional provision, the Article I compacts clause, to answer the criticisms of “faux federalism” and rent-seeking that accompany state-level protectionist measures. Indeed, Oregon is the first state to pass a law authorizing its governor to engage in such compacts. The idea is that states themselves should enter into interstate compacts for cannabis trade.
But interstate compacts require congressional approval when they directly affect Congress’s exclusive regulatory power, which, as we’ve just seen, extends to interstate commerce. So cannabis compacters would ask Congress’s blessing while depriving it of the power to regulate interstate commerce, whether to ensure that cannabis isn’t diverted to the black market or to achieve other federal goals.
Moreover, it’s unclear how many states would actually want to enter into such compacts. Without the trade-shielding commerce clause, states immediately began chipping away at the union the Constitution created after the protectionism-enabling Articles of Confederation failed. As Justice William Johnson noted in Gibbons v. Ogden (1824), “guided by inexperience and jealousy,” the new states enacted “iniquitous laws and impolitic measures from which grew up a conflict of commercial regulations destructive to the harmony of the States and fatal to their commercial interests abroad.”
In short, when Congress gets around to modernizing federal cannabis law in light of the wave of state-level reforms we've seen in the last decade, it needs to focus on interstate commerce. Tennessee Wine showed that even state laws regulating alcohol — with its commodity-specific constitutional amendment — can't favor in-state interests. Congress should make sure that, for residents of those states that legalize cannabis, too, trade is free, fair, and regular.