Colorado Real Estate Journal - February 4, 2015
If you are a college football fan, you know there is not much Oklahoma and Nebraska agree on when it comes to the gridiron. However, on the topic of Colorado’s retail marijuana laws, these two neighbors have banded together and sued Colorado in the U.S. Supreme Court, claiming they have been damaged by Colorado’s marijuana laws and the federal government’s failure to enforce its own laws. The state of Kansas has indicated through its attorney general that it is considering joining in the action. In what is termed as “original jurisdiction,” conflicts between states are heard by the Supreme Court, as opposed to most other matters that begin at the federal District Court level and then proceed to the Supreme Court (if at all) through the appellate process. The original jurisdiction of the Supreme Court is described in Article III, Section 2, of the U.S. Constitution and applies to certain topics affecting, among others, ambassadors, admiralty and maritime claims. Included and invoked in this instance are “controversies between two or more states.” As an aside, Colorado has experience in this venue, having been torched a few years ago by Kansas and then Nebraska over depletion of ground and surface waters of the Arkansas River basin and the Platte and Republican river basins, respectively, as each entered the adjacent state. Lawsuits between states seeking redress before the Supreme Court are quite rare. According to the Federal Judicial Center, since 1960, the court has received less than 140 motions for leave to file stateversus-state actions and nearly half of those applications were denied. The pending marijuana case will not be an easy victory for the neighboring states. The essence of the complaint is that each of the plaintiff states alleges it has been unduly burdened by Colorado’s laws and the resulting effect of marijuana making its way back across state borders, which has resulted in increased law enforcement responsibility and activity. Colorado has two key a r g u m e n t s in response to the complaint: first that each state had its own share of marijuana and other drug activity prior to Amendment 64, and as a result, Colorado cannot be blamed for an incremental increase in that activity now. Second, and equally important, for years, individuals have taken advantage of their state’s laws relative to neighboring states’ laws and set up businesses to address product demand in the neighboring state knowing commerce (i.e., sales) would extend beyond their state’s borders. Fireworks, firearms, liquor and tobacco products are just a few items that come to mind.
The difference in the present case is that these other products are legal in some or most respects at the federal level, while marijuana is not. In the same manner in which it has dealt with other issues, the current administration has either, through executive order, memo or declared policy, announced how it intends to enforce or not enforce certain federal laws. In the case of retail marijuana and federal law, as most readers are aware, under the broad definition of conspiracy, anyone who “aids, abets, counsels, commands, induces” the production, sales, cultivation, transportation, financing, banking, etc., of a prohibited substance is subject to federal prosecution. Only the current administration’s publicly announced detente gives any solace to the many Colorado businesses either directly or indirectly associated with retail marijuana. Now comes the specter of a Supreme Court decision on the same issue, and the prospect of a decision that focuses on the 10th Amendment and, perhaps, recognizing greater state rights. Add to that the prospect of regime change in the 2016 election such that the Republicans hold one or both houses of Congress and the White House. It is not inconceivable that there could be a crackdown on retail marijuana. Both of these scenarios (judicial or executive change) are antithetical to the fundamentals upon which decisions are made relative to real estate and business investments. Rarely are long-term investments made with the knowledge that the underlying business may, in the short term, be deemed illegal. In this example, both the political and legal challenges are not likely, but possible and affect the economics of a particular deal and the industry in general. Industry proponents remain optimistic that the longer the retail business is conducted and adapts to public safety and health concerns, it is less likely there will be a return to prohibition. And in the contest of Nebraska v. Colorado and Oklahoma v. Colorado, the Centennial state may get a win.