The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
One case in which the Supreme Court denied certiorari was Standing Akimbo v. United States, in which the petitioners sought review of a lower court decision upholding IRS summonses seeking information concerning business expense deductions for a medical marijuana dispensary. Although medical marijuana is legal and regulated in many states, medical marijuana business owners may not take federal tax deductions for their business expenses, as their business "consists of trafficking in controlled substances" under federal law.
While not urging the Court to take this specific case, Justice Thomas issued an opinion respecting the denial of certiorari highlighting the "contradictory and unstable state" of federal law concerning marijuana and raising questions about the continuing vitality of the Supreme Court's decision in Gonzales v. Raich.
Sixteen years ago, this Court held that Congress' power to regulate interstate commerce authorized it "to prohibit the local cultivation and use of marijuana." Gonzales v. Raich, 545 U. S. 1, 5 (2005). The reason, the Court explained, was that Congress had "enacted comprehensive legislation to regulate the interstate market in a fungible commodity" and that "exemption[s]" for local use could undermine this "comprehensive" regime. Id., at 22–29. The Court stressed that Congress had decided "to prohibit entirely the possession or use of [marijuana]" and had "designate[d] marijuana as contraband for any purpose." Id., at 24–27 (first emphasis added). Prohibiting any intrastate use was thus, according to the Court, "'necessary and proper'" to avoid a "gaping hole" in Congress' "closed regulatory system." Id., at 13, 22 (citing U. S. Const., Art. I, §8).
Whatever the merits of Raich 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. This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.
This case is a prime example. Petitioners operate a medical-marijuana dispensary in Colorado, as state law permits. And, though federal law still flatly forbids the intrastate possession, cultivation, or distribution of marijuana, Controlled Substances Act, 84 Stat. 1242, 1247, 1260, 1264, 21 U. S. C. §§802(22), 812(c), 841(a), 844(a), the Government, post-Raich, has sent mixed signals on its views. In 2009 and 2013, the Department of Justice issued memorandums outlining a policy against intruding on state legalization schemes or prosecuting certain individuals who comply with state law. In 2009, Congress enabled Washington D. C.'s government to decriminalize medical marijuana under local ordinance. Moreover, in every fiscal year since 2015, Congress has prohibited the Department of Justice from "spending funds to prevent states' implementation of their own medical marijuana laws." United States v. McIntosh, 833 F. 3d 1163, 1168, 1175–1177 (CA9 2016) (interpreting the rider to prevent expenditures on the prosecution of individuals who comply with state law). That policy has broad ramifications given that 36 States allow medicinal marijuana use and 18 of those States also allow recreational use.5
Given all these developments, one can certainly understand why an ordinary person might think that the Federal Government has retreated from its once-absolute ban on marijuana. . . . One can also perhaps understand why business owners in Colorado, like petitioners, may think that their intrastate marijuana operations will be treated like any other enterprise that is legal under state law.
Yet, as petitioners recently discovered, legality under state law and the absence of federal criminal enforcement do not ensure equal treatment. At issue here is a provision of the Tax Code that allows most businesses to calculate their taxable income by subtracting from their gross revenue the cost of goods sold and other ordinary and necessary business expenses, such as rent and employee salaries. See 26 U. S. C. §162(a); 26 CFR. 1.61–3(a) (2020). But because of a public-policy provision in the Tax Code, companies that deal in controlled substances prohibited by federal law may subtract only the cost of goods sold, not the other ordinary and necessary business expenses. See 26 U. S. C. §280E. Under this rule, a business that is still in the red after it pays its workers and keeps the lights on might nonetheless owe substantial federal income tax.
As things currently stand, the Internal Revenue Service is investigating whether petitioners deducted business expenses in violation of §280E, and petitioners are trying to prevent disclosure of relevant records held by the State.6 In other words, petitioners have found that the Government's willingness to often look the other way on marijuana is more episodic than coherent.
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. 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. . . . 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." 18 U. S. C. §924(c)(1)(A). A marijuana user similarly can find himself a federal felon if he just possesses a firearm. §922(g)(3). Or petitioners and similar businesses may find themselves on the wrong side of a civil suit under the Racketeer Influenced and Corrupt Organizations Act. See, e.g., Safe Streets Alliance v. Hickenlooper, 859 F. 3d 865, 876–877 (CA10 2017) (permitting such a suit to proceed).
I could go on. 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. If the Government is now content to allow States to act "as laboratories" "'and try novel social and economic experiments,'" Raich, 545 U. S., at 42 (O'Connor, J., dissenting), 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." Ibid. A prohibition on intrastate use or cultivation of marijuana may no longer be necessary or proper to support the Federal Government's piecemeal approach.
Justice Thomas' opinion highlights one of the many ways in which federal law continues to distort and obstruct state-level marijuana reforms. For more on these conflicts may be resolved, I shamelessly recommend my book, Marijuana Federalism: Uncle Sam and Mary Jane. Among other things, the book includes a chapter by Julie Hill on how the disconnect between federal and state law affects banking regulation, and a chapter by my co-blogger Will Baude on why the the federal prohibition on intrastate possession and distribution of marijuana might not be "Necessary & Proper" where authorized by state law.
As for whether Raich was properly decided at the time of the decision. I have thoughts on that too.