Legal opinion finds PA state run stores conflict with Controlled Substances Act

Pennsylvania‘s medical marijuana industry is pretty nervous about potentially losing all the industry and jobs it has built to state-run stores. The Pennsylvania Cannabis Coalition commissioned a legal firm to review the proposal and that report was made public last week.

The proposal would have the regulation of adult-use cannabis fall under the Pennsylvania Liquor Control Board with the creation of state-run stores. It is a similar structure to the sale of wine and liquor. Beer is the exception and can be sold at beer distributors or grocery and convenience stores.

Prepared by Kleinbard LLC, the report described the plan for state-run stores as “fundamentally defective.”

The new memorandum states that because cannabis is still federally illegal under the Controlled Substances Act (CSA), it would create a conflict between federal and state law.  It cites other court cases that have supported this argument.

Watching is ok

The memorandum determined that if the state doesn’t run the stores and instead just regulates them, then it doesn’t run afoul of the CSA.

The opinion stated, “Courts have almost universally held that statutes generally regulating the possession, use, or sale of cannabis – including those establishing licensing schemes, identification programs, and zoning restrictions – are not pre- empted by Federal law because they do not mandate a direct violation of the CSA.”

Indeed, the report suggests that if the state does create these stores, it would cause state employees to violate the CSA and expose them to criminal federal liability. It read,

 In particular, it would require the LCB and its employees to directly “distribute, or dispense, or possess with intent to . . . distribute, or dispense” cannabis in violation of the CSA.

The report specifically points out that proposed legislation in Maine that would’ve directly involved the state in the distribution of cannabis “was abandoned out of concern that the program was preempted by federal law; state officials also feared the state might lose $19 million in federal grants and that its employees could be held criminally liable for violating federal law.”

Tainted money

The opinion also suggests that if the state runs these stores, then the money received from them would get co-mingled with the state’s General Fund. That could hurt the retirement and disability accounts of enforcement officers and other LCB employees. The report also posits that the issue of combining cannabis with liquor could negatively affect the real estate of liquor businesses.

The report wrote about an unintended consequence where an alcohol business leased part of its warehouse to a cannabis cultivator and was unable to employ bankruptcy protection because of its association with the tenant.

Pennsylvania has established a robust medical marijuana industry with sales of over a billion dollars. Recently, Governor Josh Shapiro expressed his desire to legalize adult-use cannabis in the state, as many residents cross the border to buy such products in neighboring states. However, the legislators can’t seem to agree on the best way to accomplish this. The Democrats have a slim majority in the House, but the Republicans control the Senate and so far, most proposals have hit a brick wall.