State regulation and the necessary and proper clause.

• Author: Baude, William
• Position: Western Reserve University School of Law Interdisciplinary Conference on Marijuana, Federal Power & the States

CONTENTS INTRODUCTION I. THE NEW MARIJUANA FEDERALISM A. The Legal Landsape B. The Costs of the Status Quo II. A CONSTITUTIONAL ROLE FOR STATE LAW A. The Affirmative Case B. Some Counterarguments III. OPERATIONALIZING THE DOCTRINE A. In the Judiciary B. In the Executive Branch CONCLUSION INTRODUCTION

The new marijuana federalism is here, but is it here to stay? In this Article, I address that question by way of two related points, a practical one and a technical one, and I ultimately argue that state regulation should have a bigger role in fixing the limits of federal constitutional power.

The practical point is that the current regime of state marijuana legalization is unstable, and it is a miracle that it is working as well as it is. Because marijuana remains contraband at the federal level, businesses and lawmakers who invest in responsible legalization at the state level have no guarantee their investments are safe from the whims of federal law enforcement. Moreover, even if the federal drug laws are not actively enforced in those states, the laws create serious problems for banks, lawyers, and others who might otherwise want to work with the in-state marijuana industry.

The technical point is that this instability can be traced to an importantly erroneous footnote in the Supreme Court's decision in Gonzales v. Raich. (1) Footnote 38 claims that state law can never be relevant to the scope of Congress's power under the Commerce Clause or the Necessary and Proper Clause. That conclusion is wrong, is not required by the rest of the Court's enumerated powers jurisprudence, and should be cast aside.

The Necessary and Proper Clause (2) should be interpreted to give states a bigger role in determining when the federal drug laws are constitutional. Congress's power to reach purely in-state conduct is premised on the possibility of interstate spillovers. If a state legalizes and regulates a drug in a way that minimizes the risk of spillovers into the interstate black market, the federal drug laws should be forbidden to apply within that state. This both creates a more stable set of incentives for states to responsibly manage local behavior and provides a more satisfactory formal grounding for the executive nonenforcement policy.

1. THE NEW MARIJUANA FEDERALISM

   1. The Legal Landscape

      Federal law bans the distribution or possession of marijuana. That has been true since the Controlled Substances Act (3) was enacted in 1970 and remains unchanged today. The major blip was a constitutional challenge to the scope of the federal ban, which was ultimately rejected by the Supreme Court in Gonzales v. Raich. (4)

      State marijuana law, however, has changed dramatically. Twenty years ago, marijuana was illegal in every state. In 2005, when the Court decided Raich, there were up to eleven states that authorized the use of marijuana for medical purposes. (5) The Raich Court upheld the federal ban in broad terms, which might have suggested that there was no point in further state legalization. Nonetheless, in the past nine years, the state legalizations have more than doubled. There are now twenty-three states in which medical marijuana is legal. (6)

      More dramatically, four of those states--first Colorado and Washington, and more recently Alaska and Oregon--have also recently legalized marijuana for recreational purposes as well. The change came from popular initiatives and is now implemented by the state government in both Colorado and Washington. (7) In those two states, adults can now purchase marijuana without any need to show a medical purpose. (8)

      All of this might remain largely symbolic if federal laws were aggressively enforced against illegal marijuana in every state. But of course they are not. Indeed, the federal government has announced an evolving policy of nonenforcement in states with legal marijuana. (9) In 2009, Deputy Attorney General David Ogden issued one memo to U.S. Attorneys suggesting that prosecuting seriously ill people who used state-legal medical marijuana was "unlikely to be an efficient use of limited federal resources." (10) In 2011, Deputy Attorney General James Cole issued another memorandum purporting to clarify that "[t]he Ogden Memorandum was never intended to shield" profitable or "large-scale" cultivation of marijuana even where permitted under a state's medical marijuana laws. (11) In 2013, Cole issued a memo regarding the Colorado and Washington initiatives, stressing that "prosecutors should not consider the size or commercial nature of a marijuana operation alone" but rather should also consider "the existence of a strong and effective state regulatory system, and an operation's compliance with such a system." (12)

      As a practical matter, states have been given some room to make decisions about whether marijuana should be legal and how its use should be managed. For those who accept the standard policy arguments for decentralization--diversity of preferences, localizing externalities, and policy innovation (13)--this should be welcome news. Yet marijuana's continued categorical illegality at the federal level renders this a costly and poor way to accomplish decentralization.

   2. The Costs of the Status Quo

      The new marijuana federalism--a federalism accomplished through state legalization and federal nonenforcement--is problematic for those who support decentralization. First, the status quo imposes human costs on producers and consumers in the marijuana business. It might be good for those who opposed decentralization in the first place, but that is not the premise from which the relevant states or the executive branch appear to be proceeding. Second, the status quo gives states little incentive to behave well in setting up their own legal regime. As we will see, there are ways states might act to minimize interstate spillovers or otherwise legalize more responsibly, yet they are given little incentive to do so. It is therefore impressive that things are going as well as they are.

      Despite the nonenforcement policy, the mere existence of the federal ban threatens the kinds of services that help regulated commercial enterprises thrive. For instance, federal law likely does not allow banks to serve the industry, though recent enforcement guidance indicates that these rules will not be enforced against banks that comply with certain additional requirements. (14) It is not clear whether lawyers can advise in-state dispensaries without being guilty of criminal conspiracy or accomplice liability. (15) And in the Western states, water is also critical: a recent policy issued by the Federal Bureau of Reclamation declared that "Reclamation will not approve use of Reclamation facilities or water in the cultivation of marijuana." (16)

      Dispensaries themselves are burdened by the unenforced federal law as well. For instance, they might be held civilly liable under the federal racketeering statute, which is outside executive control. (17) Some reports also suggest that the federal ban makes it "hard to form any contractual relationship" relating to marijuana at all. (18)

      In addition to these costs from the unenforced federal ban, there is an additional cloud over any state marijuana regime: federal enforcement policy can change. The memoranda themselves illustrate this, as each takes a different position from the previous one on how to assess marijuana producers who comply with state law. If these policy changes can take place within a few years and in a single political administration, it is hard to see how there will be a secure space for state policy going forward.

      In light of all this, it is striking that the states have done as well as they have. Legalized marijuana has not led to widespread anarchy. At least one study hints at positive effects from state medical marijuana laws. (19) A report by John Hudak of the Brookings Institution concludes that the "initial implementation" of Colorado's recreational marijuana law has been "largely successful," attributing this "strong rollout" to leadership by state officials and sustained effort from various institutions in the state. (20)

      Colorado's implementation in particular also includes some steps that may reduce the illegal diversion of marijuana to other states. Though Colorado does not prevent out-of-state visitors from purchasing marijuana, it has limited purchases to a modest amount. (21) There are arguments that such limits are an effective way to prevent black market diversions, (22) and the state also has a variety of regulations to protect the integrity of the production and distribution process. (23) The official task force also recommended "additional actions... to limit diversion out of Colorado, such as point-of-sale information to out-of-state consumers, signage at airports and near borders, coordination with neighboring states regarding drug interdiction, and restricting retail licenses near the borders." (24)

      Early reports, however, suggest that there may nonetheless be substantial diversion of marijuana out of Colorado. The quantity limits are easily evaded because purchases are not tracked and visitors can purchase the limit from multiple stores, even in a single day. (25) Moreover, interactions between the state's growing limits and the state's possession limits may be leading to leakage into the black market. (26) Officials in some neighboring states claim that Colorado marijuana has led to large increases in marijuana trafficking in their state, (27) and two states have even filed suit against Colorado in the Supreme Court's original jurisdiction. (28) A report by an enforcement group claims that diversion to other states is extensive. (29)

      Similarly, Washington's recreational marijuana regime imposes quantity limits (30) and gives the state liquor control board extensive control over dispensaries. (31) But fewer than half of the licensed stores have even begun selling recreational marijuana, (32) so it is too soon to...