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If the United States Supreme Court overturns the longstanding Chevron deference, which is not unlikely considering the mien of certain justices during recent oral arguments as well as a general antipathy to the doctrine that has developed over the years, the impact is anticipated to be felt far and wide, though some court watchers think it would be a long overdue rebalancing act.
As explained by Politico in the run-up to the orals held last Wednesday, “Named after the 1984 Supreme Court case in which it was articulated, the doctrine says that when a law Congress has passed is ambiguous, judges should defer to an agency’s interpretation if it’s reasonable. The idea was to prevent judges from second-guessing often-technical decisions by agencies with expertise.”
Chevron has been cited frequently by federal and state courts for decades, but now it is being reconsidered by a SCOTUS that ironically may have less deference to the administrative state than any high court in recent memory. Now, with Chevron on the menu, per Politico, “The court appears to be headed toward making it much easier for judges to strike down policies crafted by federal bureaucrats when the congressional authorization for those policies isn’t crystal clear.”
The cases under consideration by SCOTUS involve the commercial fisheries industry, but if the ruling goes the way most people expect it to, the courts may be forced to have a much more hands-on role with regulatory decisions in all industries than they had previously. For the cannabis industry, for which there exist no crystal-clear federal policies outside of its status as a Schedule I drug, the fallout from such a decision is murky at best. To try and find some clarity on what this case could mean for this industry, Cannabis Business Executive spoke today with Leah Heise, an experienced executive, regulatory attorney, and founder/CEO of Gemini Twin Consulting.
“This is essentially a judicial deference case,” explained Heise. “What happened was, Chevron said the court should give judicial deference to administrative agencies’ interpretation of their own regulations, especially because we were in a time of very new statutes being brought forth and promulgated statutes like the Oil Pollution Act, like Clear Clean Water, like the creation of the EPA. These are statutes that are so technical, and the regulations that go in underneath them – with particulates and measuring what goes into a Superfund site – that are so technical that the courts were really having a difficult time making determinations about those specific cases.
“This is how we’ve been working at the federal level for the last 40 years,” she continued, “but the states have dramatically swung back the other way. There’s a belief and an argument that this violates the separation of powers because it is the judiciary’s responsibility to interpret laws, it is not the executive branch’s responsibility. So, what we’re seeing here is a shift back the other way, where we’re putting more power in the courts, which is only going to increase.”
The shift away from Chevron began about 20 years ago. “The lower courts inside of the federal practice have been using it, but states are not using it,” said Heise. “Before, they incorporated Chevron into the way that they interpreted state-issued legislation and state-issued regulations, but that shifted and now some states don’t allow any deference.”
When Chevron was decided in 1984, the decision opined that judges are not “experts in the field.” Have they become experts in the field in the intervening years? Regulatory overreach obviously exists, so is the wrangling about how to find the right balance in government oversight? “Personally, I think we need to find a balance, but I think we’re starting to see a switch to the other way,” said Heise. “We’re starting to see an increase in [the number of] people not trusting government power as much, and a lot more challenges to whether or not certain branches of government have the authority to do the type of governance they’re doing.
“From an industry standpoint, our primary concern is not so much how we operate on a state-by-state basis, or how we operate under a state-mandated system,” she continued. “The larger concern is for the hemp industry, which operates under a loophole that currently exists in the ambiguity of the Farm Bill. That is a wide-open area for interpretation, and as a hemp industry we are currently relying on such things as an interpretation letter from the DEA that says cannabis seeds and genetics can be sold on the open market because they are not subject to the Controlled Substances Act because of the Farm Bill. Is that true? Can we rely on that? Can we rely on a DOJ memo, like the Cole memorandum, which no longer exists, but if there were, say, a Garland memo, could we rely on that as an industry? This case puts that at risk.”
Would undoing Chevron potentially impact not just the hemp industry, but the THC industry as well? “Sure,” said Heise. “What happens if we move forward, they reschedule cannabis, and they just put out some opinion letters on how this is going to work? The deference right now would be to the DEA and Health and Human Services, and then I guess to the Department of Agriculture for hemp in some circumstances. But what does it mean if they write an opinion letter that the industry relies on and we no longer can trust that that opinion letter will be upheld in court because the justices have repudiated Chevron?”
In that case, what would a court rely upon as an alternative? If it doesn’t have the facts at hand or the industry expertise, what does it do? “My guess is that the Supreme Court will create another standard of deference,” ventured Heise. “It might not happen in this case – they might just strike down Chevron, and then not put in another standard of deference, which would be dangerous – but there are different levels of deference in the state courts that they may follow. They may say you have to give reasonable deference to an agency. We just don’t know.”
Was Heise advocating for a specific outcome? “If I’m going to advocate,” she offered, “I’m going to advocate for balance. I do think we need a regulated industry on some level, but I agree that we’re overregulated at this point in many, many states, and I think the overregulation is causing a lot of the market conditions that we’re currently seeing. The tax structures are onerous, and some of the rules on who can participate in some of these markets are egregious. In Maryland, for example, a social equity licensee has to maintain 65 percent ownership. Good luck getting capitalized in a 65 percent ownership stake. So, I would like to see some rationality go back into some of these regulations, and perhaps reduce scrutiny.”
What is the worst-case scenario? “I think the worst case is deference goes away completely,” said Heise. “This limits the ability of all federal regulatory bodies to do what they have to do to effectuate their empowerment. They’re enabling legislation for hemp in particular. That’s concerning because we already know there’s a lot of ambiguity in the Farm Bill, and there are many, many companies that are capitalizing on that ambiguity. Nothing wrong with that. Then, as we move forward with HHS and DEA rescheduling, we know that it is virtually impossible to write clear regulations and legislation because it’s all part of the deal, and things that should have been put in were not put in, which then creates big holes. So, I’m concerned about the cost to the industry in terms of constantly having to run to court to get clarification on whatever the regulation is.”
Does this not put immediate pressure on Congress to define its regulatory intent? “I would think so,” said Heise, “but Congress has so many other things on their books. Getting something so the government can stay open would be good. I know they passed a band aid, but how about an actual plan. At this point, Congress is so dysfunctional I’m not sure that they could act.”
I wondered if repudiating Chevron would throw the cannabis industry into an immediate state of chaos precisely because there is no direction from the federal government. “I think we are already in a dramatically chaotic industry,” replied Heise. “It’s completely segmented, and we’re operating state to state when we should be allowed interstate commerce. We’re selling stuff out the back door, the illegal market is far larger than the legal market, and that’s all because of overregulation. We live in this insidious kind of gray world where we’re operating in state-legal markets that are federally illegal.”
It turns out Heise worked previously as a fisheries regulator, making her the perfect person to explain how a regulator would react to the overturning of Chevron. “It’s going to put a lot more handcuffs on regulatory bodies and their ability to regulate any of their markets,” she stated. “Commercial fisheries is an incredibly regulated industry, because as a government we’re trying to continue to support the industry but we’re also trying to minimize the environmental impacts that we we’ve had with overfishing and highly commercialized fishing. If NMFS, the National Marine Fisheries Service, can’t rely on the very regulations they’re putting forth, it’s going to make it very, very difficult for them to operate.
“From a regulatory standpoint,” she continued, “it is very common for Congress to pass a bunch of legislation, and then give very little money to the agencies to implement this legislation, so the agencies then have to get creative in order to get what they need done to study the industry or do the enforcement of it, and that’s what we’re seeing here. What NMFS and the commercial fishery groups are at-heads about is not about whether there should be observers on their boats. It’s about whether or not the industry should pay to support them. Why it wasn’t redefined in some kind of penalty fund, where you could use the fund to support the creation of the fisheries industry is beyond me. There’s lots of money sitting in funds all over multiple different agencies that take asset forfeitures and penalties and put them into these funds. But they are narrowly defined to where you can use it for office furniture for conferences, but you can use it to enforce the very regulations they’re promulgating. It’s a problem that requires a legislative fix.”
Though not obvious at first glance, Heise said there are some similarities between the highly regulated fisheries industry and the highly regulated cannabis industry? “Because they’re highly regulated,” she explained, “the legislation is often drafted by people who don’t understand the industry. Now, in my mind, NOAA Fisheries and NMFS are far more educated on the fisheries that they are managing than any of our cannabis bodies are, but we’re still new in the cannabis arena. At some point within the next 10 years or so, cannabis regulators on a day-to-day basis will really understand market impact and be better dialed into what it looks like when they’re developing a cannabis regulatory scheme. We’re just not there yet.”
It sounded as though they may throw out the baby with the bathwater, which begs the question, why have a regulatory body at all if it is given no deference? “As a regulator, I completely agree,” said Heise. “There are certain powers that are granted to the executive branch in order for the executive branch to be able to regulate and provide clarity on the legislation that is handed to it, and without that we’re going to have problems. But the other argument is maybe we won’t have as much overreach. My guess is they’ll either outright ban Chevron deference completely because they’re trying to reserve more power to the court and really clean up the separation of powers, or they will go with a lower level of deference.”
And what if SCOTUS does overturn Chevron? “I believe and hope and pray that there will be another level of deference that will be provided, some level of deference,” she insisted, “or else the administrative bodies are on very shaky legs. If there is a lower standard of deference, that’s okay. We’ll see more challenges to certain regulations, and a lot of time spent in courts trying to get some clarity even with a slightly lower level of deference, but that’s okay. Eventually, we’ll get clarity, and perhaps a response from industry attorneys and people working very closely with the federal government, on an HHS/DEA rollout of rescheduling, I think it’s always important, but even more important in this situation.”
It is a pickle, I observed. How are businesses expected to plan for the future when the industry is right now waiting to hear about rescheduling, and yet deference to the agency making that very decision could be thrown out by SCOTUS? What happens to 280E then?!
“This is a question that the industry needs to look at, but I think you’ve got to focus on the state markets,” responded Heise. “Focus on growing the state markets, getting operational efficiency, and being lean regardless of whether or not 280E goes away. We don’t know if it’ll go away, so get operationally efficient now, and then when we do get rid of 280E, you’re going to have an upside that’s going to allow you to put more capital back into your expansion plans or distribute to investors to provide some liquidity. But my advice to the industry is to continue getting lean.”
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