Interstate Commerce After Rescheduling

Why the Debate Has Changed.

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Authored by Hirsh Jain, Consultant to LEEF Brands

Introduction

Ever since Colorado and Washington became the first states to legalize adult-use cannabis in November 2012, interstate commerce has been prohibited. Every state that legalized cannabis was effectively required to create its own self-contained market, complete with cultivation, manufacturing, distribution, and retail infrastructure located entirely within state borders.

This state-siloed model became so familiar that many industry participants practically treated it as an inherent, permanent feature of the American cannabis industry. Yet these state-level barriers to commerce were not inevitable. Nor were they formally imposed by Congress. Rather, they emerged as a practical response to a particular federal legal environment that existed in the first days of state legalization.

The federal government’s decision to move cannabis from Schedule I to Schedule III fundamentally alters that legal environment. Rescheduling does not automatically create interstate commerce. It does not instantly invalidate the numerous state laws that prohibit importation and exportation. It does not eliminate the many legal, political, and practical obstacles that remain.

But rescheduling changes the conversation in a profound way. For the first time since modern legalization began, there are multiple credible pathways through which interstate cannabis commerce could emerge.

The precise mechanism remains uncertain. The timeline also remains uncertain. Yet it is increasingly difficult to argue that interstate commerce is a purely theoretical possibility. The more relevant question is not whether interstate commerce can occur, but rather which legal pathway ultimately proves most successful and how quickly that pathway develops.

The Cole Memo

To understand why rescheduling has reopened this debate, it is useful to begin with the origins of the state-siloed market itself.

The modern cannabis industry was largely shaped by the 2013 Cole Memorandum. Issued shortly after Colorado and Washington became the first states to legalize adult-use cannabis, the Cole Memo sought to provide guidance regarding federal enforcement priorities in states that had chosen to depart from federal prohibition.

The Cole Memo identified eight federal enforcement priorities that could trigger federal intervention. Among those priorities was “preventing the diversion of marijuana from states where it is legal under state law to other states.” Although the Cole Memo never explicitly prohibited interstate commerce, states reasonably understood that the movement of cannabis across state lines would directly implicate federal concerns regarding diversion.

The result was predictable. Legislators and regulators designed cannabis programs that strictly and explicitly demonstrated their commitment to preventing interstate movement. States enacted laws requiring cannabis to be cultivated, processed, distributed, and sold entirely within their borders. Importation was prohibited. Exportation was prohibited.

In other words, the state-siloed market emerged not because Congress mandated it, but because states believed that such restrictions were necessary to coexist with the unique permission structure created by the Cole Memo.

Even after Attorney General Jeff Sessions formally rescinded the Cole Memo in 2018, the underlying structure remained intact. State laws continued to prohibit interstate commerce, and regulators continued to administer markets that were designed around geographic isolation. In many respects, the industry continued operating according to a “shadow Cole Memo” long after the memorandum itself had disappeared.

For years, this arrangement appeared legally secure. Numerous litigants attempted to challenge aspects of these state systems under the Dormant Commerce Clause, a constitutional doctrine that generally prevents states from protecting in-state economic interests by discriminating against or unduly burdening interstate commerce. Courts consistently rejected those challenges. Their reasoning was straightforward. Because cannabis remained federally illegal under Schedule I of the Controlled Substances Act, federal courts concluded that the Dormant Commerce Clause did not apply. A state could not be required to facilitate commerce in a product that federal law itself prohibited.

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The Impact of Rescheduling

Rescheduling potentially changes that analysis. Respected lawyers often disagree regarding the precise legal consequences of moving cannabis to Schedule III and whether cannabis would thus be “federally legal.” After all, cannabis remains regulated under the Controlled Substances Act. It remains a controlled substance. Numerous federal restrictions would continue to apply.

Yet there is a meaningful difference between a substance placed in Schedule I, where Congress has determined that it has no accepted medical use and cannot be lawfully prescribed, and a substance placed in Schedule III, where federal law expressly contemplates lawful medical use under regulated circumstances.

That distinction matters because many of the legal arguments that have historically been used to defend state-siloed cannabis markets depend upon the proposition that cannabis is categorically federally illegal. Federal courts considering Dormant Commerce Clause challenges to state residency requirements, import restrictions, and other barriers to interstate commerce have consistently relied on this reasoning, concluding that the Constitution’s protections for interstate commerce cannot be used to compel states to facilitate commerce in a product that Congress has deemed unlawful under federal law.

Rescheduling weakens that premise considerably. And the establishment of a formal DEA registration process strengthens the argument further. If businesses are able to obtain federal authorization to participate in regulated cannabis activity, it becomes increasingly difficult to characterize cannabis as existing wholly outside lawful interstate commerce.

Rescheduling thus substantially strengthens the arguments advanced by plaintiffs seeking to challenge state-imposed barriers to interstate commerce. The very rationale relied upon by federal courts becomes more difficult to sustain once cannabis is no longer categorized as a substance with no accepted medical use and no lawful commercial channel.

Indeed, oral arguments held in June before the United States Court of Appeals for the Ninth Circuit in Lamar Central Outdoor, LLC v. City of Perris illustrate how rescheduling may be reshaping judicial perceptions of cannabis. In questioning the constitutionality of a local ordinance restricting cannabis advertising, members of the panel expressed skepticism toward arguments premised on cannabis being categorically illegal under federal law. The exchange arguably reflects a broader shift in judicial thinking that could have important implications for future Dormant Commerce Clause challenges to state restrictions on interstate cannabis commerce.

Today, state laws created under the shadow of the Cole Memo remain in place. Those laws continue to prohibit imports and exports in many jurisdictions. Yet rescheduling creates several pathways through which those restrictions could eventually be dismantled.

Path #1 - State Legislative Reform

The first pathway is state legislative reform. State legislatures created the existing barriers, and state legislatures possess the authority to remove them. Many of the laws prohibiting interstate commerce were enacted during a period when interstate commerce appeared certain to invite federal enforcement. State legislatures may reach different conclusions in a post-rescheduling environment.

For example, states establishing new medical programs may find imported product preferable to waiting years for domestic cultivation infrastructure to develop. Existing states may conclude that consumers benefit from greater product access and lower prices. Other states may view interstate commerce as an opportunity to reduce illicit market activity by allowing legal supply chains to operate more efficiently.

Yet legislative reform is unlikely to occur simultaneously across the country. States operate according to different political calendars, different economic interests, and different industry constituencies. Some jurisdictions may embrace interstate commerce. Others may resist it for years. The result could be a highly uneven transition rather than a single national moment of interstate commerce.

Path # 2 - Dormant Commerce Clause Challenges

The second pathway involves constitutional litigation. As described at length above, Dormant Commerce Clause challenges that previously failed may fare considerably better in a world where cannabis is no longer viewed as categorically prohibited by federal law. If courts conclude that Schedule III cannabis constitutes a lawful article of commerce under at least some circumstances, state laws discriminating against out-of-state cannabis may become far more vulnerable to legal challenge.

Such litigation would not be simple. Some states will undoubtedly raise public health and safety justifications for maintaining restrictions. They will point to differences in testing standards, pesticide regulations, labeling requirements, and enforcement mechanisms. They may argue that allowing products from other jurisdictions undermines consumer protection objectives. Courts will need to determine whether such justifications are sufficient to survive constitutional scrutiny.

And even if the legal arguments favoring interstate commerce are ultimately persuasive, litigation remains a drawn-out process. Cases move through district courts, appellate courts, and sometimes the Supreme Court. A strong legal theory does not necessarily produce a rapid result. Interstate commerce may eventually prevail through constitutional litigation, but the timeline could extend over years.

Path # 3 - Interstate Compacts

A third pathway exists through interstate compacts. California’s SB 1326, passed in 2022, provides perhaps the most important example, though similar laws exist in Oregon, Vermont and Washington. SB 1326 authorizes California to enter into interstate cannabis agreements if certain “triggering” conditions occur.

SB 1326 was drafted with remarkable flexibility. The statute does not require Congressional action and can be “triggered” by administrative guidance from the Department of Justice permitting interstate commerce, favorable court rulings that challenge the legality of state-siloed markets or even a determination by California’s Attorney General that interstate commerce presents no significant legal risk to the state.

In other words, California lawmakers explicitly anticipated a future in which interstate commerce might emerge through multiple legal pathways rather than a single transformative federal act.

The compact model does not require the immediate creation of a nationwide market. Instead, it allows interstate commerce to emerge incrementally among willing participants. California need not convince every state in the nation. It merely needs to identify another jurisdiction willing to enter into an agreement.

Under this path, interstate commerce would thus likely emerge among a small number of participating jurisdictions. Additional states might join later. Product categories may expand gradually. Regulatory harmonization may occur over time rather than all at once. The compact model therefore suggests an evolutionary path rather than a revolutionary one.

History suggests that regulated industries need not transition from prohibition to a fully integrated national market overnight. Following the repeal of Prohibition, alcohol interstate commerce developed gradually within a state-based regulatory framework rather than through a single sweeping federal mandate. Cannabis may ultimately follow a similar path, with interstate commerce emerging in stages as states, regulators, and courts gradually reshape the legal landscape.

Food, Drug, and Cosmetic Act

Despite the viability of these pathways to interstate commerce, one important uncertainty involves the Food, Drug, and Cosmetic Act. While much of the industry’s attention has focused on the Controlled Substances Act, the FD&C Act presents a separate potential constraint. The law generally prohibits interstate commerce in Schedule III drugs that have not received FDA approval, raising questions about how existing state cannabis programs would fit within a federally regulated marketplace. Depending on how federal agencies approach this issue, the FD&C Act could emerge as one of the principal legal constraints on interstate cannabis commerce, even after rescheduling.

At the same time, this concern may be overstated. To date, the FDA has largely refrained from enforcing the FD&C Act against state-legal cannabis businesses, and it may continue to exercise enforcement discretion while Congress or federal agencies develop a more tailored regulatory framework. How the FDA ultimately approaches state-regulated cannabis remains uncertain.

In the meantime, prudent operators will begin preparing for a more federally regulated environment without assuming that significant FDA enforcement is imminent. Companies may strengthen quality systems, manufacturing controls, documentation practices, product testing, labeling procedures, and other compliance programs that more closely resemble federally regulated industries. Businesses that invest early in robust compliance infrastructure may be better positioned if FDA oversight expands or interstate commerce ultimately becomes subject to federal product standards.

Harmonizing State Programs

It is also worth emphasizing again that the cannabis industry has spent more than a decade developing state-specific regulatory systems. States differ substantially with respect to testing requirements, pesticide tolerances, packaging rules, labeling requirements, track-and-trace systems, and recall procedures. As a result, even willing participants may require time to harmonize regulatory standards and operational practices before interstate commerce can occur at scale. Legal authorization alone does not guarantee operational simplicity.

And as mentioned previously, other states may attempt to defend restrictions on interstate commerce by pointing to these differences. California, for example, has some of the nation’s strictest pesticide standards. One can easily imagine a state arguing that limitations on imported cannabis are necessary to protect public health and safety.

Whether such arguments would survive constitutional scrutiny remains uncertain. Dormant Commerce Clause jurisprudence has long recognized that states may pursue legitimate health and safety objectives, but it also subjects discriminatory restrictions to rigorous review. Future courts will likely be asked to determine where cannabis-specific regulations fall along that spectrum.

Political Resistance

Political resistance also remains likely. Many incumbent operators benefit from protected state markets. Some policymakers may fear economic disruption if lower-cost producers gain access to their states. Interstate commerce will create winners and losers, and those who perceive themselves as potential losers can be expected to resist change.

However, not every state is likely to view interstate commerce as a threat. Some jurisdictions may see significant advantages in allowing imports, particularly states that are in the early stages of establishing medical cannabis programs. For these states, permitting products from established cannabis markets could provide patients with immediate access to medicine without requiring them to wait years for local cultivation and manufacturing infrastructure to develop.

Conclusion

Rescheduling should not be understood as an immediate guarantee of interstate commerce. But what rescheduling does provide is multiple credible legal pathways through which interstate commerce may emerge. Whether through state legislative reform, constitutional litigation, interstate compacts, or some combination of the three, the barriers that once appeared immovable increasingly look contingent.

The pathway remains uncertain, as does the timeline. But the legal foundations of the state-siloed cannabis market are no longer as secure as they once appeared. For the first time in the modern era of cannabis policy, interstate commerce is not merely imaginable. It is increasingly plausible.

Perhaps most importantly, interstate commerce need not arrive all at once. The most likely future may not be a single court decision or federal statute that instantly creates a national cannabis market. Rather, interstate commerce may emerge incrementally: first through a compact between a small number of states, then through successful litigation against particularly restrictive laws, then through legislative reforms in jurisdictions that perceive economic or public-health advantages in broader market access. Over time, these developments could reinforce one another, gradually transforming cannabis from a collection of isolated state markets into a genuinely national industry.

The precise sequence of events remains impossible to predict. But the legal landscape created by rescheduling is materially different from the one that existed before it. For that reason alone, interstate commerce should no longer be viewed as a distant or speculative concept. It should be viewed as a realistic medium-term possibility whose timing is uncertain, but whose prospects are stronger today than at any point since the beginning of modern cannabis legalization.

This is Third-Party content and does not reflect (or not not reflect) the views of Cannabis Confidential or CB1 Capital.

Hirsh Jain is the CEO of Ananda Strategy, a cannabis-focused business advisory firm that works with cannabis brands, retailers, distributors, technology platforms and other businesses on matters ranging from competitive licensing, legislative strategy, regulatory intelligence, market expansion, business litigation, internal & external communication and other varied corporate initiatives. He currently serves as a consultant to LEEF Brands