A Win for Multistate Cannabis Operators: Second Circuit Holds Dormant Commerce Clause Applies to the Cannabis Industry

On August 12, 2025, the U.S. Second Circuit Court of Appeals (the “Court”) held that the New York Office of Cannabis Management and New York Cannabis Control Board violated the Dormant Commerce Clause of the U.S. Constitution by prioritizing the review and award of cannabis-related licenses to in-state applicants. New York’s cannabis licensing program currently gives priority to applicants that were convicted of (or are related to someone who was convicted of) certain marijuana-related offenses in New York state.

This decision’s direct impact on New York’s cannabis licensing scheme is still to be determined; however, the impact of the Court’s ruling is likely to affect the national cannabis industry—and could make its way to the U.S. Supreme Court. While this is the second time that a federal court has held that a state cannot unconstitutionally favor in-state cannabis license applicants over those from outside their state, this is the first time a federal court has ruled on this issue with respect to adult-use cannabis. Similar lawsuits are currently pending in several states, and this decision could start a trend of courts imposing restrictions on a state’s ability to limit out-of-state applicants from participating in their cannabis licensing programs.

The Court’s ruling could end up being the first in a line of favorable precedent for out-of-state cannabis operators and, if such trend continues, multistate cannabis operators would have more opportunities to expand their operations into states that currently restrict out-of-state businesses from applying for cannabis-related licenses.