Jim Ickes Examines Growing Federal Conflict Over State Cannabis Markets

Despite the rapid expansion of state-legal cannabis markets, the constitutional limits on how states may regulate those markets remain unsettled. One of the most significant unresolved questions is whether the Dormant Commerce Clause restricts states from favoring in-state participants through residency requirements or other local-preference licensing rules.

On Friday, January 2, 2026, the U.S. Court of Appeals for the Ninth Circuit addressed that question directly in Peridot Tree WA, Inc. v. Washington State Liquor & Cannabis Control Board. The Court held that the Dormant Commerce Clause does not apply to state cannabis licensing regimes because marijuana remains illegal under federal law. That conclusion squarely conflicts with prior decisions from the First and Second Circuits and highlights a growing divide over the role of constitutional commerce protections in the cannabis industry.

The Dormant Commerce Clause Generally

The Commerce Clause of the U.S. Constitution grants Congress the power to regulate commerce among the states. From that affirmative grant, courts have inferred a negative or Dormant Commerce Clause, which limits the ability of states to enact laws that discriminate against or unduly burden interstate commerce.

Under traditional Dormant Commerce Clause analysis, state laws that favor in-state economic interests over out-of-state competitors are presumptively invalid unless they advance a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives. The doctrine is intended to preserve a national market free from economic protectionism.

Cannabis regulation presents a unique challenge to that framework in that:

• Many states have legalized marijuana for medical or adult use, but
• Marijuana nevertheless remains a federally prohibited controlled substance under the Controlled Substances Act.

That tension between state legalization and federal prohibition has produced sharply divergent judicial approaches.

The Supreme Court’s Guidance in National Pork Producers Council v. Ross

The Ninth Circuit’s analysis in Peridot Tree is closely tied to the Supreme Court’s 2023 decision in National Pork Producers Council v. Ross. In that case, the Supreme Court declined to expand Dormant Commerce Clause doctrine to invalidate a California law regulating pork products sold within the state, despite the law’s substantial extraterritorial effects.

The Court emphasized that:

• The Dormant Commerce Clause is a judge-made doctrine, not an express constitutional command, and
• Courts must exercise restraint before using it to override democratically enacted state laws.

The Court described such intervention as a matter of “extreme delicacy” and rejected efforts to transform the Dormant Commerce Clause into a broad mechanism for policing state economic regulation. That emphasis on judicial restraint, rather than market uniformity, frames the Ninth Circuit’s approach to cannabis regulation.

The Peridot Tree Litigation

Peridot Tree involved consolidated challenges to cannabis licensing programs in Washington State and the City of Sacramento. Both jurisdictions imposed residency requirements or residency-based preferences as part of their cannabis licensing and social equity frameworks.

The plaintiffs, entities owned by a Michigan resident, applied for cannabis retail licenses but were denied solely because they failed to meet the residency requirements.

They filed suit under 42 U.S.C. § 1983, alleging that the residency rules violated the Dormant Commerce Clause by discriminating against out-of-state applicants.

Both District Courts dismissed the claims, concluding that the Dormant Commerce Clause does not apply to cannabis because interstate commerce in marijuana is illegal under federal law. The Ninth Circuit consolidated the appeals and affirmed.

The Ninth Circuit’s Holding

The Ninth Circuit held that the Dormant Commerce Clause does not apply to state cannabis licensing regimes because Congress has made marijuana illegal nationwide under the Controlled Substances Act. Central to the Court’s reasoning was the view that the Dormant Commerce Clause exists to protect lawful interstate markets, not to create constitutional protections for commerce Congress has chosen to prohibit.

Relying on National Pork Producers, the Court further emphasized that “extreme caution” is warranted before courts deploy their implied authority under the Dormant Commerce Clause because courts would:

• Be required to invalidate democratically enacted state and local laws.

• Simultaneously countermand Congress’s judgment regarding marijuana’s illegality.

The Court rejected arguments that federal non-enforcement, appropriations riders, or potential future rescheduling could substitute for congressional authorization of interstate commerce in marijuana. Constitutional analysis, the Court explained, must be grounded in existing federal law, not anticipated political developments.

The First Circuit’s Contrary Approach

The First Circuit reached the opposite conclusion in Northeast Patients Group v. United Cannabis Patients & Caregivers of Maine, which involved a challenge to Maine’s residency requirement for medical marijuana business owners.

There, the First Circuit held that the Dormant Commerce Clause applied despite federal illegality. The Court reasoned that:

• An interstate marijuana market exists in fact, even if unlawful.
• Maine’s residency requirement reflected that economic reality by attempting to exclude out-of-state entrants.

The First Circuit placed significant weight on congressional appropriations riders, including the Rohrabacher-Farr Amendment, as evidence that Congress had acknowledged the continued operation of state-regulated medical marijuana markets. In the Court’s view, those signals undermined the argument that federal illegality foreclosed Dormant Commerce Clause scrutiny.

Judge Gelpí dissented, arguing that:

• Illegal markets are constitutionally different in kind, and
• The Dormant Commerce Clause should not be extended to protect commerce Congress has made unlawful.

The Ninth Circuit later adopted reasoning closely aligned with that dissent.

The Second Circuit’s Extension of Dormant Commerce Clause Doctrine

The Second Circuit followed a similar path in Variscite NY Four LLC v. New York State Cannabis Control Board, holding that New York’s residency-based cannabis licensing preferences violated the Dormant Commerce Clause.

The Second Circuit characterized the issue as one of economic protectionism:

• Congress’s decision to criminalize marijuana did not amount to permission for states to favor their own residents.
• Exempting illegal markets from Dormant Commerce Clause scrutiny would allow states to entrench local advantages that could distort competition if federal law later changed.

As in the First Circuit, the decision was divided. The dissent argued that:

• Applying the Dormant Commerce Clause to illegal markets undermines Congress’s objective in criminalizing marijuana.
• It forces states to facilitate interstate participation in a market Congress has sought to eradicate.

Why the Ninth Circuit Rejected the First and Second Circuits

The Ninth Circuit expressly disagreed with the premise that the Dormant Commerce Clause must apply unless Congress clearly authorizes protectionism.

Drawing directly from National Pork Producers, the Court emphasized that:

• The doctrine does not operate in isolation, and
• Must be applied with sensitivity to federal statutory schemes and democratic choice.

The Court also rejected the argument that potential future legalization justifies present judicial intervention. Speculation about congressional action, the Court reasoned, cannot support the judicial creation of constitutional protections for a market that federal law currently disallows.

Implications for State Cannabis Markets

The divergence among the circuits has immediate and practical consequences:

• Within the Ninth Circuit, states and local governments now have stronger constitutional footing to maintain residency requirements and local-preference licensing rules without Dormant Commerce Clause scrutiny.
• In the First and Second Circuits, similar rules remain vulnerable to constitutional challenge.

This geographic inconsistency increases regulatory uncertainty for cannabis businesses operating across multiple jurisdictions and heightens the likelihood of Supreme Court review. The question is no longer whether courts disagree, but whether constitutional commerce protections should extend to a market Congress has not authorized.

Conclusion

The Ninth Circuit’s decision in Peridot Tree reflects a restrained approach to the Dormant Commerce Clause rooted in Supreme Court guidance emphasizing judicial caution and respect for congressional judgment. By contrast, the First and Second Circuits have extended Dormant Commerce Clause doctrine into cannabis markets notwithstanding ongoing federal prohibition.

Until Congress or the Supreme Court resolves the conflict, state cannabis markets will continue to operate under divergent constitutional standards. Whether the Supreme Court will intervene remains uncertain, particularly given its historical reluctance to accept certiorari in cases involving cannabis regulation. For regulators and industry participants alike, the legality of residency-based cannabis licensing may depend as much on geography as on policy.

Should you have questions about the Ninth Circuit’s recent ruling and how it impacts your business’ cannabis operations, reach out to Jim Ickes or any member of Frantz Ward’s Cannabis Law and Policy team.