On August 12, 2025, the U.S. Court of Appeals for the Second Circuit ruled in Variscite NY Four, LLC v. New York State Cannabis Control Board that New York’s “Extra Priority” licensing preference, which gave an advantage to applicants with prior New York marijuana convictions, violates the Dormant Commerce Clause (DCC).
On August 17, 2022, a decision was made by the First Circuit Court of Appeals in Northeast Patients Group v. Maine, which struck down Maine’s residency requirement for medical marijuana dispensary owners and directors. In that case, the court held that the DCC still applies despite federal cannabis prohibition, rejecting Maine’s argument that federal illegality allowed it to favor in-state participants.
And on June 21, 2021, a Missouri federal district court in Toigo v. Department of Health and Senior Services invalidated the state’s requirement that medical marijuana businesses be at least 51% owned by Missouri residents. The court found the rule to be facially discriminatory and therefore unconstitutional under the DCC, further reinforcing the principle that states cannot give locals a competitive advantage simply for being residents.
These decisions form a growing body of court precedent curbing state-level protectionism in cannabis markets, begging the question of whether or not they are creating a legal environment that could accelerate the path toward interstate trade and, ultimately, national legalization. But first.
What is the Dormant Commerce Clause?
I recently spoke with Andrew Deweese, a well-known Oregon cannabis attorney. He explained to me that the DCC is not actually written into the Constitution but inferred from the Commerce Clause, which grants Congress the power to regulate interstate commerce. A reader of the Commerce Clause can conclude that if only Congress has the power to regulate interstate commerce, then states do not have the power to regulate interstate commerce, aka the Dormant (unstated) Commerce Clause.
Courts have historically used the DCC to strike down state laws that discriminate against out-of-state economic actors, including ferry monopolies, bans on dumping out-of-state waste, and discriminatory wine shipping laws.
In cannabis, so far, the DCC means that states that legalize cannot give locals a licensing advantage to protect their own markets, which is likely leaving the door open to potentially liberating cannabis from state-siloed markets.
However, even with these encouraging rulings, advancing a case that would force the opening of interstate cannabis commerce remains difficult. For example, Andrew explains, to challenge a state’s prohibition on exporting cannabis, a plaintiff must have “standing.” To have standing, the plaintiff must have suffered an actual injury that the court can then remedy. In cases like Variscite, Northeast Patients Group, and Toigo, standing was clear; the businesses were denied licenses under a discriminatory rule. But a company suing simply because it wants to ship cannabis across state lines is much more difficult. Because cannabis remains federally illegal, a court could decide that the plaintiff has no “standing” if no legally recognized harm has occurred, since the business has no federally protected right to sell cannabis at all.
Again, the reason Variscite, Northeast Patients Group, and Toigo succeeded is that their injuries were clear, and the courts could strike down discriminatory state rules without conflicting with federal law. Forcing interstate trade, however, would require courts to authorize conduct still prohibited under the Controlled Substances Act.
Instead, Andrew suggests that standing could be established more broadly; he said, “Citizens have the right to live in a state that does not violate the Constitution.” This argument reframes the harm as systemic rather than purely economic. The injury is that the state continuously enforces a law that violates the Dormant Commerce Clause, thereby subjecting its residents to an unconstitutional regulatory environment. Apparently, courts have recognized similar claims in other contexts, such as Bond v. United States, in which the Supreme Court held that individuals can challenge laws that exceed constitutional authority, even in the absence of a direct financial injury.
Andrew explained that although it would likely be an uphill battle, if successful, this approach could provide plaintiffs with a pathway into federal court without requiring them to prove a specific loss, potentially opening the door to cases that challenge state barriers to interstate commerce.
The Low-Hanging Fruit
While forcing open interstate cannabis commerce is a heavy lift, Andrew sees a more immediate and potentially winnable opportunity: challenging Oregon’s “total THC” rule and its effect on the hemp industry. Under the 2018 Farm Bill, hemp is legal nationwide so long as its delta-9 THC concentration does not exceed 0.3% on a dry-weight basis. The law does not explicitly address THCA, the non-psychoactive precursor to THC, which means hemp flower high in THCA remains federally legal so long as its delta-9 content stays under the limit. When combusted, THCA converts to THC, making THCA flower functionally identical to marijuana flower sold in state-legal markets.
This loophole has created a booming national market for intoxicating hemp. THCA flower, vapes, and edibles are sold online and in retail shops in dozens of states, including prohibition states where marijuana remains illegal. In some places, such as North Carolina and Texas, entire “hemp dispensaries” and even consumption lounges have emerged, operating in plain sight under the protection of federal hemp law.
Oregon, however, has taken a more conservative, albeit logical, approach. The state’s “total THC” testing rule measures not just delta-9 THC but also THCA, effectively classifying otherwise “hemp” products as marijuana. That has shut Oregon producers out of the lucrative THCA market and prevented licensed marijuana growers from pivoting into hemp production or participating in the national hemp economy.
He suggests that Oregon’s framework is violating the Dormant Commerce Clause by blocking its farmers from engaging in federally lawful commerce. Oregon has effectively isolated its growers from a market that companies from other states have been exploiting for years. Because the Farm Bill expressly legalized hemp under federal law and does not disallow THCA, it could be a cleaner case for the federal court. Unlike interstate cannabis commerce, there is no conflict with the Controlled Substances Act here.
However, this legal argument may remain in limbo as a federal debate rages on. Earlier this year, an amendment was proposed in Congress to ban hemp products containing any THC, effectively shutting down the THCA market nationwide. But lawmakers are divided: Just a few weeks ago, Oregon Senators Ron Wyden and Jeff Merkley sent a letter warning that such a ban would “deal a fatal blow” to the hemp industry, urging instead for sensible regulation such as age restrictions, potency testing, and labeling requirements. This split in Congress underscores that “intoxicating hemp” is still federally protected, at least for now, making a Dormant Commerce Clause challenge to state restrictions more likely to succeed.
At the end of the day, it’s hard to ignore that we are playing games here. Cannabis should not be siloed within state borders; federal agencies themselves have acknowledged that cannabis is not a dangerous drug, and yet the Controlled Substances Act still keeps the industry in a legal cage. Instead of allowing cannabis to be traded freely across the country, the industry is forced to exploit loopholes and call things by names other than what they are, “intoxicating hemp” vs. marijuana.
Until Congress becomes more sensible and creates a rational framework for national cannabis commerce, these games will continue. And in the meantime, people like Andrew will continue to do everything they can to seek justice for cannabis businesses and move the industry closer to the free market it has the right to have.
Justin Botillier is a cofounder and CEO of Calyx CPA, a firm specializing in tax preparation, accounting, and business consulting for the cannabis and psychedelic industries. With two decades of experience in taxation and over a decade serving the cannabis industry, Justin and his team have helped clients save millions of dollars by leveraging aggressive and defensible strategies to mitigate the impact of 280E.