The U.S. Court of Appeals for the Ninth Circuit ruled that state and local governments can impose residency requirements on cannabis dispensary operators without violating the Constitution's Commerce Clause, affirming district court decisions that dismissed constitutional challenges by cannabis companies.
In consolidated appeals decided Jan. 2, the three-judge panel affirmed judgments from two district courts that rejected claims by Peridot Tree WA, Inc. and Peridot Tree, Inc. The companies had challenged cannabis licensing schemes in Washington state and Sacramento, California, that require applicants to be residents of the jurisdiction for specified periods before qualifying for dispensary licenses.
Judge Daniel A. Bress wrote for the panel, which included Judges Johnnie B. Rawlinson and Patrick J. Bumatay. The court declined to extend Dormant Commerce Clause protections to interstate commerce in marijuana, which remains federally illegal under the Controlled Substances Act.
The Dormant Commerce Clause typically prevents states from discriminating against out-of-state businesses or creating barriers to interstate commerce. However, the Ninth Circuit found this constitutional protection does not apply when the underlying commercial activity violates federal law.
"Both district courts held that the dormant Commerce Clause does not apply to residency requirements for cannabis dispensaries because marijuana is illegal under federal law," the court wrote in its summary.
The consolidated cases originated from separate challenges. Peridot Tree WA, Inc. sued the Washington State Liquor and Cannabis Control Board and William Lukela in the Western District of Washington, challenging the state's residency requirements for cannabis licenses. District Judge Tiffany M. Cartwright presided over that case.
Simultaneously, Peridot Tree, Inc. and Kenneth Gay filed suit against the City of Sacramento and Davina Smith in the Eastern District of California, targeting Sacramento's local cannabis licensing scheme. District Judge Kimberly J. Mueller handled that matter.
Both district courts dismissed the challenges, ruling that the Dormant Commerce Clause does not protect interstate commerce in federally illegal substances. The cannabis companies appealed both decisions to the Ninth Circuit, which consolidated the appeals for efficiency.
The appeals court noted that "extreme caution is warranted" before extending constitutional commerce protections to markets that Congress has explicitly prohibited. This reflects the Supreme Court's guidance on handling conflicts between state-legal cannabis operations and federal prohibition.
The ruling reinforces the complex legal landscape surrounding cannabis regulation, where states have legalized marijuana for medical and recreational use while the federal government maintains prohibition. This creates ongoing tensions over which constitutional protections apply to state-legal cannabis businesses.
For cannabis companies, the decision limits their ability to challenge local residency requirements and similar restrictions using traditional commerce clause arguments. Many jurisdictions impose residency requirements as part of social equity programs designed to benefit local communities or individuals previously harmed by cannabis prohibition.
The Ninth Circuit's decision affects cannabis regulation across Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington—states within the court's jurisdiction. Several of these states have established legal cannabis markets with varying residency and licensing requirements.
The ruling also impacts ongoing debates about cannabis federalism, where state and federal laws conflict. While states increasingly legalize marijuana, federal prohibition creates legal uncertainties that the courts continue to navigate on a case-by-case basis.
For Sacramento and Washington state, the decision validates their authority to impose residency requirements on cannabis operators. Local officials can continue using such requirements to ensure cannabis licenses benefit established community members rather than out-of-state investors.
The consolidated appeals were argued and submitted June 3, 2025, in Seattle before the three-judge panel issued its written opinion Jan. 2, 2026.
The decision adds to growing federal circuit court jurisprudence addressing cannabis law conflicts. As more states legalize marijuana while federal prohibition remains, courts face increasing requests to apply traditional constitutional protections to state-legal cannabis commerce.
Legal experts expect cannabis companies to continue challenging various state and local regulations, though this ruling suggests federal courts remain reluctant to extend constitutional commerce protections to federally illegal activities. The decision may influence how other circuits handle similar challenges to residency requirements and other local cannabis regulations.
The ruling demonstrates the ongoing legal complexities facing the cannabis industry as it operates in a framework of state legalization amid continued federal prohibition. Cannabis businesses must navigate not only varying state regulations but also limited constitutional protections compared to other industries engaged in legal interstate commerce.