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Observations On Utah’s Proposed State Distribution System

Posted by on Friday, October 12, 2018 in News, Updates.

[Updated 10/15 to address the possibility of suits in state court.]

Just as Utah residents are about to vote on a medical marijuana initiative (Proposition 2), proponents and opponents of the initiative (including Governor Herbert) have announced plans to adopt a compromise medical marijuana law in the state legislature. See the full text of the Utah Compromise. The Salt Lake Tribune and Deseret News have good coverage of the compromise here and here.

Voters will still get to vote on Proposition 2, which is a fairly typical medical marijuana law. But the compromise law would change Proposition 2 in several ways, as catalogued by the Deseret News here. Most notably (for my purposes), the compromise calls for the state to directly participate in supplying medical marijuana to qualified patients.

Below I describe the role the state would play in the supply chain under this compromise proposal. I then offer eight observations concerning the rationale behind and special legal concerns raised by the Utah compromise.

Like many other medical marijuana programs, the Utah compromise would license a limited number of private companies to cultivate, process, and distribute marijuana to qualified patients. These companies would be called Medical Cannabis Cultivation Facilities, Processing Facilities, and Pharmacies. However, in addition to authorizing five private Pharmacies to distribute medical marijuana to patients, the compromise also requires the state itself to distribute the drug.

In particular, the compromise declares that the state Department of Health “shall establish a state central fill medical cannabis pharmacy.” Section 26-61b-601(a). Although the details of its structure are a bit opaque, “central fill” would appear to be a state-owned and -operated entity. Qualified patients would have the option of placing their orders with central fill rather than going to one of the five state-licensed (but private) Medical Cannabis Pharmacies. To fill patients orders, central fill would buy medical marijuana from a licensed Processing Facility, the same way that one of those private Pharmacies would. Central fill would then transport the drug to a local health department (another state actor), which would then hand it over to the patient. See id. at section 26-61b-601(2)(a) & (c) (detailing central fill’s role); id. at section 26-61b-607 (detailing the role of local health departments).

Now, for those observations about the compromise.

1. Distributing marijuana directly to consumers could help the state to control the supply of marijuana. . .

Controlling privately owned and operated marijuana suppliers poses a big challenge for state regulators. Private suppliers may try to flout state regulations in order to boost their sales and profits (see, e.g., this post on Sweet Leaf in Colorado). Or they may challenge state regulations in court. For example, many states limit advertising by private marijuana suppliers. Indeed, the Utah compromise would go a step further and ban all advertising by private Medical Cannabis Pharmacies. See section 26-61b-405(1) (“a medical cannabis pharmacy may not advertise in any medium. . . “). But these advertising restrictions raise serious First Amendment concerns (see book pages 501-504) and might thus prove unenforceable if challenged in court.

However, a state that takes direct control over the distribution of marijuana would not face these same challenges. The idea is that a state-owned enterprise should be less inclined to flout state regulations than would be a privately-owned firm. And if it owns the shops, the government can simply refuse to advertise; there would be no need for it to muffle the commercial speech of private actors.

2. . . . however, the government probably needs to monopolize distribution to obtain these benefits. 

Many of the advantages of government distribution depend upon the government having a monopoly over distribution.  After all, as long as those private suppliers exist, the state will continue to face the challenges posed by them (noted above).

As described above, however, the Utah compromise would not eliminate private suppliers. The state distribution system created by the compromise would simply compete with those suppliers to distribute medical marijuana to qualified patients.

To be sure, Utah’s mixed government/private supply model may have some unique benefits. For example, some patients may prefer to get their medical marijuana from local health departments, rather than from Medical Cannabis Pharmacies (and vice versa). But I’m skeptical Utah’s model will help the state control the distribution of marijuana more effectively, because it continues to authorize private companies to distribute the drug.

3. State officials who work for central fill and local health departments would commit several federal crimes in performing their duties . . . .

Among other statutes, those employees would violate:

  • 21 U.S.C. section 841 (distribution and possession with the intent to distribute marijuana)
  • 18 U.S.C. section 1961 (the RICO statute) (conducting a business through a pattern of racketeering activity)
  • 18 U.S.C. section 1957 (using the proceeds of unlawful activity), and
  • 21 U.S.C. section 856 (managing a place for the purpose of distributing unlawful drugs)

These crimes are discussed in Chapter 7.

To be sure, there is an obscure provision of the federal Controlled Substances Act that immunizes state officials for enforcing state drug laws. 21 U.S.C. section 885(d). However, for reasons explored in the book (see pages 698-703) and in On the Limits of Supremacy  (page 1457-1459), section 885(d) wouldn’t immunize state officials for distributing marijuana. In other words, the immunity conferred by section 885(d) is rather limited. So Utah state employees who implement the compromise legislation would be violating sundry federal statutes in the process.

4. . . . but the probability those employees would actually be prosecuted by the federal government is currently zero (0).

Congress has forbidden the federal Department of Justice from enforcing the CSA against anyone acting in compliance with state medical marijuana laws (see book pages 353-358 and here). So even assuming the DOJ wanted to do so (a big assumption in a red state like Utah), the agency couldn’t prosecute state employees (or anyone else) for distributing medical marijuana pursuant to state law. This makes concerns about the criminal liability of state employees largely academic.

5. The state distribution program is plainly preempted by the CSA. . . .

It would be impossible for the employees of the central fill pharmacy and of local health departments to perform their duties under state law without also violating federal law (see point 3 above). Thus, to the extent it requires state employees to distribute marijuana, the Utah compromise would be preempted by the CSA. (I explain why state distribution of marijuana is preempted in greater detail in On the Limits (pages 1457-1459)).

Importantly, barring a state from distributing marijuana does not violate the anti-commandeering rule. For one thing, the ban is generally applicable–i.e., it applies to private citizens and state officials alike), so the anti-commandeering rule probably doesn’t even apply. But in any event, barring the state from distributing marijuana is not the same as requiring the state to bar distribution. For example, the state could still allow private parties to distribute marijuana; it just couldn’t distribute the drug itself (see On the Limits, pages 1453-1455).

6. . . . but it’s possible no one could challenge it in federal court.

Just because the state distribution system plainly conflicts with federal law doesn’t mean someone could necessarily challenge it in federal court. Let me explain by looking at the different types of plaintiffs who might attempt to wage a challenge to Utah’s state distribution system:

Private citizens. The ordinary private citizen (say, an opponent of the compromise) would face two obstacles trying to mount a preemption challenge to the state distribution system in federal court. First, the citizen would probably lack standing to sue. As I explain in A Critical Appraisal:

“Every citizen has an interest in ensuring that her state government obeys the law. Yet that interest, standing alone, is not particularized enough to enable a citizen to claim that a state law is preempted by federal law, at least not in federal court. In most situations, the federal courts reject citizen standing. A suit brought by a citizen on no more grounds than her status as such . . . would be dismissed.” (pp. 661-662)

Even if a citizen had standing, however, she would still run into a second problem: she likely has no cause of action to sue. In Safe Streets Alliance v. Hickenlooper (see here), for example, the Tenth Circuit held that neither the Supremacy Clause nor the CSA creates a cause of action for private citizens (or even local officials) to challenge state law as preempted.

Local governments. A local government would face the same obstacles to challenging the Utah compromise in federal court. Indeed, federal courts are particularly leery of hearing challenges to state law brought by local governments. For example, in Josephine County v. Oregon, the district court recently dismissed a preemption challenge brought by a local government against Oregon’s recreational marijuana law, holding that “a political subdivision of a state lacks standing to challenge a state law in federal court on supremacy grounds.”

State officials. Even state officials who work for central fill or the local health departments likely would not satisfy federal standing requirements (nor would they have a cause of action). While these officials would be required to violate federal law under the compromise (see 3) above), the threat of prosecution by the DOJ is far too remote (see 4) above) to satisfy standing requirements. To satisfy standing requirements, any injury must be concrete and imminent, and not remote or speculative.

Nevertheless, it’s possible a state official could delay or even quash the state distribution program without filling a lawsuit. The official could simply refuse to implement the program on the grounds that it is preempted. This actually happened (for a time) in Delaware: state officials temporarily suspended implementation of the state’s medical marijuana licensing system because of (ill-founded) concerns the program was preempted by federal law.  There was no lawsuit, no court ruling, just an announcement by the agency responsible for implementing the law. See Preemption Under the Controlled Substances Act (page 6, n.13). I doubt this would happen in Utah, given the breadth of support for the compromise; but it remains a possibility, and I’m not sure what (if anything) state leaders could do to force an official to implement the program, should she/her refuse.

[Update 10/15: As Sam Kamin rightly notes, state officials and private parties might have better luck bringing their preemption challenges in state–rather than federal–court.  Indeed, as I point out in Critical Appraisal,

“Despite the roadblocks in federal court, there remains the possibility that plaintiffs could pursue their preemption causes of action in state courts instead. State courts are not bound by Article III or the Supreme Court’s rulings limiting access to the federal courts. In general, persons without an obvious, immediate stake in litigation have a much easier time challenging state laws in state court than in federal court. First, almost every state court allows taxpayers to challenge public expenditures ‘without any individual or particularized showing of injury in fact, and sometimes without even a showing that the expenditure will affect their tax burdens.’ . . . Second, ‘[a] number of states go further and provide, either by constitutional provision, court-made rule, or legislation, for broad, general citizen standing to raise issues of great importance and interest to the public.’ Third, many state courts grant state lawmakers standing to challenge state laws before they take effect. Federal courts, by contrast, reject the claim that lawmakers have any special stake in ensuring the legality of their handiwork; such lawmakers must satisfy the same onerous standing requirements as everyone else.” (pages 662-663) (citations omitted)

However,  I think a state (like Utah) could block such suits if it so chooses. For example, Utah could include a provision in its medical marijuana compromise limiting the ability of state officials / private parties to challenge its state distribution system in state court. Of course, it couldn’t bar those parties from litigating in federal court; but for the reasons stated above, I think it’s unlikely these parties could get a federal court to hear their preemption claims.]

The Department of Justice. The DOJ would have standing and a cause of action to challenge Utah’s state distribution system. However, the agency is currently barred from filing such a lawsuit, just as it is barred from prosecuting people acting in compliance with state medical marijuana laws (see 4) above).

In sum, although Utah’s proposed state distribution system is clearly preempted by federal law, there might not be anyone who could actually challenge it in federal court. Most potential challengers would lack standing and / or a cause of action; and while the DOJ would not face these same obstacles, Congress has barred the agency from filing a preemption challenge to state medical marijuana laws.

Two final observations on Utah’s state distribution system:

7. While this would be the first time a state participated directly in the supply of marijuana, at least one municipality has already done so.

As discussed in the book (page 478), the City of North Bonneville, Washington created what it claims is the country’s first municipally-owned marijuana shop back in 2013. The Cannabis Corner is still in operation (see here).

8. The Utah compromise would not be possible in most states.

Utah state leaders have promised to adopt the compromise no matter how the voter initiative (Proposition 2) fares at the ballot box. In many states, such a promise would not be feasible (at least if Proposition 2 passes), because state law limits the power of the state legislature to amend initiatives passed by the voters (and the compromise appears to amend Proposition 2). The book discusses these restrictions on pages 294-295, nn. 4-5. In particular, many states provide that their legislature can only amend an initiative by a super majority vote.  But because Utah does not appear to restrict the legislature’s power to amend an initiative (only a simple majority vote is required), state leaders will have an easier time fulfilling their promise should voters pass Proposition 2 this November.

That’s it for now.

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