So you want to sell marijuana across state lines

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0:13Just a quick heads up, this episode contains details about buying and selling marijuana. This is Planet Money from NPR.

0:28Do you want to put your pack in the back? Yeah. A few weeks ago, Matt Ochoa and I were driving around rural southern Oregon. Matt's in his 40s, kind of a burly guy, salt and pepper beard. We're pulling into the farm right now. And we're driving because he wants to show me something. We'll have to go check in because you have to sign in and make sure you have ID and all that. I get through, check in. Then we drive up a grassy hill and park right beside some giant marijuana plants. These are not even big, big plants in Oregon's scope. I've seen plants 12, 17 feet tall. How tall is this? How tall would you say that is?

1:05Probably seven, eight feet. It's kind of like being at one of those giant corn mazes, but instead of corn, it's all weed. Where are we right now in the harvest? We're at the tail end of harvest. We're at the end of what is known as crop-tober. It's kind of a giddy, hectic season. I think Thanksgiving, but for weed. Except this year, and for a few years actually, there has been so much weed that it's not even worth harvesting all of it. They just leave perfectly good weed in the field to rot. They're going to leave some of it, you think, in the field to rot? Well, you know, all of these, like all of these little things, they're just, they're not worth messing with.

1:43But if we're in 1996 and a high school kid came through here, he'd think he died and went to heaven. Because there's still a lot of weed here. There's tons. I mean, there'd be enough to where him and all his friends would have the best time ever. Yeah, there's literally tons. There's literally tons of usable weed just being left in marijuana fields all over the state of Oregon because, Matt says, there aren't enough buyers. There's just over 4 million people in the state. And so far this year, farmers have grown 8.8 million pounds of weed, which means that there is nearly a pound of dried, smokable weed for every single person in the state of Oregon.

2:27Which is good if every man, woman, person and child wants a pound of weed. But bad if you're trying to sell it. The sale price in the last couple of years has plummeted. The nature of longtime Oregon growers was like every gram was worth 5, 10 bucks. And now it's like a gram of finished flowers like a dollar. So yeah, it's been a tough few years for marijuana farmers. Some farms have had to drastically reduce how much weed they grow or just stop growing it altogether. And for what they do grow, they have to make a calculation. Is it worth it to pay to harvest and process and store all of this marijuana if not enough people are going to buy it?

3:09And so you're always playing with these ratios of like, do we really have to watch 20 % of our flower rot just because we totally crushed it growing? Like, it's brutal. It's hard. In the state of Oregon, there is a glut of grass, a wealth of weed. It's a chronic crisis. Hello and welcome to Planet Money. I'm Amanda Aronchik. And I'm Sarah Gonzalez. Economics has some straightforward solutions for Oregon's overabundance problem. Trade. Too much supply. Find somewhere with demand. But Oregon's marijuana can only be sold in Oregon. No one in any state can legally sell weed across state lines. Because even though it is legal in many states, it is still illegal according to federal law.

3:56Today on the show, how a product being simultaneously legal and illegal creates some unique business problems. And how one weed entrepreneur and his lawyer are trying to fight these problems with the U.S. Constitution.

4:16This message comes from Vanguard. Capturing value in the bond market is not easy. That's why Vanguard offers a suite of over 80 institutional quality bond funds, actively managed by a 200-person global team of sector specialists, analysts, and traders. They're designed for financial advisors looking to give their clients consistent results year in and year out. See the record at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing is subject to risk. Vanguard Marketing Corporation distributor. Matt Ochoa thinks the solution to Oregon's glut of marijuana is pretty straightforward.

4:58Just sell it to people who want it outside of the state. He thinks this because he used to sell marijuana outside of the state. A lot of marijuana. Little backstory on Matt. He grew up in rural Oregon. His neighbors were weed growers and weed smokers. Weed was always like the we're not really doing drugs, we're just smoking weed kind of scene. Matt told me about this one neighbor in particular. This guy named Butch. Butch, Butch, okay. What was Butch like? He was cool. We'd go over there and be like, huh, why do they have an underground bunker that they live in? And why does everybody go in it when the airplanes fly over?

5:36So he was just like happy and like just a little paranoid. Butch had a bunker. Yeah, totally. As Matt gets older, he wants to make some extra money. He starts to learn how to take a bunch of weed, bag it up, and sell it to the other kids at his high school. I remember being so nervous going to the Safeway and buying sandwich baggies because I was like, oh, God, they're going to know what I'm doing. Making a lot of sandwiches? Yeah, yeah. By the time Matt is in his 20s, he learns a lesson that shapes his career going forward. He can make a lot more money if he takes the local Oregon weed and drives it to faraway places that don't have it but want it.

6:14Matt is learning about supply and demand and the value of interstate commerce. So trafficking marijuana across the U.S. becomes his full-time job, like hundreds of pounds at a time. And this was at a time when if you got caught trafficking marijuana, you were facing a lot of jail time. Did you ever run into any actual trouble with all this transporting? Just once. It was December 2004. Matt was in Michigan driving a van with about 500 pounds of weed packed into cardboard boxes. I get on the freeway, and as soon as I hit the on-ramp, there's a cop car four lanes over, and it goes do-do-do-do-do-do to behind me.

6:56Police officer pulls Matt over. He has me stand in front of my van and he opens the sliding door of the van and he grabs one of the boxes and he flips the lid back and he looks up at me and I go, I ran. You ran? I busted. For one miraculous moment, there is no traffic. Matt sprints across the freeway. Officer follows him. Matt makes it to a fence, jumps over, finds himself in a neighborhood, ends up hiding behind some garbage cans tucked between a couple of houses. And then I hear sirens everywhere. I was like, how could there possibly be this many cops? He takes off his jacket, puts it in his hand, and tries to walk as nonchalantly as possible onto the residential street.

7:42Then he sees another police car. They go by me. I wave. You wave? They go by, then they slam on the brakes. They throw it in reverse. I'm like, bleep. He tries running again, but he is surrounded. This is pretty freaking gutty. I'm just going to say not everyone would come out okay in this situation. Yeah, and he does get arrested. Matt ends up spending 37 months in federal prison, three years away from his family and missing his girls growing up. Now, OK, Matt never actually thought that selling marijuana was wrong or bad, but he does start to see things a little bit differently once he's in prison.

8:25I had the realization there's just rules. There's just rules to society, just like there's rules to games. You can't use your hands in soccer because you can't use your hands in soccer. You can't sell weed to your friends because it's illegal. You know, like it's just that's all there is to it. He does his time. Then in 2007, Matt gets out of prison and he's determined to never go back. He decides to become a legal, non-marijuana, just normal businessman. For Matt, back home in Oregon, that means building, selling and renting out geodesic domes, of all things. I don't even know what a geodesic dome is.

9:02It's not a weed thing. It's just this quirky structure. Anyway, in 2015, Oregon legalizes marijuana for recreational use. And Matt is thrilled. Oregon will be able to do what it does and people will be able to like, you know, be out and open about what we've been doing forever. Like it was like awesome. He gives up the geodesic dome business and now he can go back to doing what he knows and what he loves. Working in cannabis. This time, legally. Sets up a company called Jefferson Packinghouse and he's not going to grow the weed himself. Instead, his company offers marijuana farms a bunch of services, like organizing crews to help with planting and harvesting.

9:43Yeah, but the main service his company offers is warehouse space, where his team will take harvested marijuana and dry it, trim it, pack it. Basically, they turn fresh marijuana plants into something sellable. Matt's warehouse is in Medford, Oregon. It used to be for fancy pears. Now it is for weed. It's 20 ,000 square feet. It's three separate buildings. And then these are shipping containers. These are evergreen shipping containers. Yep, we brought those in. Each one has a freezer unit on the back. Growers that Matt works with are keeping their product in these shipping containers for cold storage.

10:18Now, federally, this is all still technically illegal. Marijuana is classified as an illegal substance under the Federal Controlled Substances Act. So the DEA, the Drug Enforcement Administration, could show up at any moment, kick down the door and arrest everyone. I mean, they don't, and they almost certainly won't, but legally they could.

10:42It smells a lot like weed in here. It smells like weed in here. We walk inside the warehouse, and there we meet one of Matt's workers, a woman named Cindy. Cindy is wearing a crown and some green ears. Nice to meet you. You're sort of Shrek, I guess. Shrek, oh, her. Princess Fiona. It's not her usual attire. It was Halloween. Now, Cindy preferred that we not use her last name. She knows marijuana is illegal federally. She doesn't want her name in some, you know, national public radio show. Anyways, she offers to show us some of the finished products being stored in the warehouse. We step into this little makeshift room, and it's filled with shelves of packaged, ready-for-market marijuana products.

11:21You have crumbles, so it's just crunchy. Oh, yeah. You have sugar wax, you have live resin, and then you have diamonds. Yeah, it's all the different ways that they can process it. Then you also have shatter. Shatter. What is that? It's another smokable, which is another way of processing. So many options. And here at Matt's Warehouse with all these different marijuana products, you can really see the tension between the federal laws that say marijuana is illegal and the Oregon laws that say no, no, no, it's legal. Like let's say I've got my amazing new crumble that I want to bring to market and I name it, wait, wait for it, Planet Funny.

12:06So I get a trademark for that brilliant name in Oregon, but I can't get one that works for the entire country. So someone in like Nevada, they could just copy my name. It's all their own Planet Funny crumble. Boo. Like you can't trademark marijuana products. It's a federal trademark and you can't apply a federal trademark to a federally illegal product. So currently you can't take somebody to court if they knock off your product. And it's not just trademarks. All of this federal stuff that usually exists to support businesses, they are not available to Matt. Like if Matt's company all of a sudden failed and he wanted to file for bankruptcy, he can't.

12:45Or if Matt wants to hire farm workers who come in on federally granted visas, that is not happening. And because like federal income taxes are paid to the federal government, it is also very hard for, say, growers storing their weed with Matt to write off many of their expenses. They generally cannot write off their payroll or their farm equipment. Then there's banking. Banks have to follow federal regulations. They are forbidden from serving companies that deal in illicit products. Matt has opened accounts in six different banks, but each and every time, eventually the bank just shuts them down.

13:21So he does almost all of his transactions in cash. Plus, it's nearly impossible for him to get a business loan. But the big rule in Matt's way, the big rule that Matt really cares about is this rule about not being able to sell all of this apparently great unsold weed across state lines. So this whole stack over here is all last year's product that's still waiting to be processed. OK, and these are big black bins with yellow lids. There's, you know, they're stacked six high. I don't know what that is. Probably hundreds of them. And now there are plenty of other states where weed is not so plentiful, right?

14:02And where it doesn't even actually make sense to grow weed outdoors at all. Like it's too cold or too hot or there isn't enough rain. And growing weed indoors is expensive. So if only Matt could get his weed to those places. But legally this time. For now, Matt is essentially running a skeleton of a company that he knows could be so much more. He's just waiting for the rules to change. There's a point where you're just like, there's nothing I can do right now except for bring it back down as much as we can, try and maintain the position and wait. And it's draining. But then someone brings Matt an idea for how to change the rules.

14:47using the Commerce Clause in the U.S. Constitution. I love the Commerce Clause. That's after the break.

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17:09It's actually not just federal law that is preventing Matt from selling marijuana to other states. Somewhat surprisingly, there is also an Oregon law that's preventing it. Yeah, when states started legalizing marijuana, the U.S. Department of Justice recognized that federally illegal, but legal in some states, created some weirdness. So they put out this policy memo saying that actually they were only going to prosecute really bad weed stuff, like selling weed to minors or starting weed gangs. And according to that memo, one of those really bad things was taking weed from one state that has legalized it and selling it to another state.

17:51So to play nice with the federal government, Oregon made it a crime to sell Oregon weed to even another state that also had legalized it. Actually, all states that legalize marijuana have laws like this on their books. Of course, if the federal government ended the prohibition of marijuana, this tension between federal laws and state laws would basically go away. But until that happens, there is potentially a legal way around this tension. A version of this workaround is being put forward in Oregon by a lawyer named Andrew DeWeese, who found a surprisingly receptive audience for this idea in Matt.

18:32So I called Matt up and I said, Matt, you know, I've got this idea. And he's like, I'm in. Before I even told him what it was. Andrew specializes in highly regulated industries like cannabis. And he asked Matt if he'll be a plaintiff in this lawsuit against the state of Oregon. And what does it mean to say, Matt, you're going to be a plaintiff? Like, what does that involve for him? Well, I guess it involves him suing the state of Oregon and alleging that he wants to ship marijuana out of state in federal court. Which is an odd position to put yourself in. You know, marijuana is still illegal under federal law.

19:17Could he get in trouble? I don't know. All right. The main point of their lawsuit is this. A state can pass whatever laws it wants, but those laws cannot contradict things like the U.S. Constitution. And the Constitution is pretty clear about who gets to make rules about interstate trade in this country. It's the federal government. The Commerce Clause is a clause in the Constitution which says Congress is the one who regulates interstate commerce. I have it in front of me. Do you mind reading it? Yeah. Article 1, Section 8, Clause 3 of the U.S. Constitution gives Congress the power to, quote, regulate commerce with foreign nations and among the several states and with the Indian tribes.

20:03And that's it? Yeah. That's pretty much it. It's pretty short. It's pretty short. Yeah. Yeah, the Commerce Clause says the federal government gets to regulate commerce among all the states. So it has enormous powers. Like, take trucking. The federal government makes the rules about the trucks that drive between states, about the highways those trucks drive on, about the people driving the trucks. But to Andrew, the important idea here is how the Commerce Clause has been interpreted by the courts. So the corollary to the Commerce Clause is something we call the Dormant Commerce Clause. The Dormant Commerce Clause.

20:45Fun. So, OK, the Commerce Clause is about giving Congress lots of power when it comes to interstate commerce. The Dormant Commerce Clause is about limiting states' power, so keeping states from interfering too much with federal powers. Right. Like New York can't pass a law that says supermarkets in New York can only sell apples grown in New York state. No apples from like Washington or from New Jersey. Yeah, that would be a state restricting interstate commerce, which states are not allowed to do. Amanda has the right to buy an apple from any state that can grow an apple and ship it to her supermarket.

21:24Oh, and I will. Right, of course. So Andrew thinks the same standards should apply to marijuana. And actually, this argument has already worked in a bunch of cases involving marijuana. There was this recent lawsuit filed in Maine. There was a law there that said only residents of Maine are allowed to get licenses to sell medical marijuana. This was challenged by a business in Delaware. They wanted to buy a company that ran a few dispensaries in Maine, but they were not allowed to. So they sued the state, arguing that the residency requirements limited interstate commerce, that companies should be allowed to operate in whatever state they want to.

22:08And the Delaware company won. Dormant commerce clause for the win. That's really what gave me the immediate impetus to think about bringing the lawsuit and to start talking to Matt and so forth. So Andrew and Matt filed their lawsuit last year. We spoke with some legal experts who said, yeah, this strategy could work. According to the Dormant Commerce Clause, Oregon isn't allowed to put restrictions on interstate trade. But this is a complicated case because let's say Andrew the lawyer and Matt the weed entrepreneur do win. Then what? According to Oregon law, Matt would be able to drive, say, 500 pounds of Oregon weed across the border into Nevada.

22:52But he still can't sell it there because Nevada has its own laws prohibiting the importation of out-of-state marijuana. So to make this all work, some, you know, lawyer and weed entrepreneur in Nevada, they would have to file a similar lawsuit against their state government. And on and on and on in any other state that Matt wants to export Oregon marijuana to. Which Andrew hopes will happen because he thinks that would be good for everyone. We grow the best marijuana and we have the best marijuana product, I would argue, in the world. Oh, wait, hold on. I just got a phone call from California.

23:31And they would like to dispute that with you? I'll dispute that all day. Would you really? Okay, okay. Come at us, Washington. Come at us, California. Exactly. For now, Andrew and Matt just have to wait to see what happens next with their lawsuit. But Matt, who has the warehouse, he is already thinking through how big this could all get. For him, first, it's Nevada. Then, who knows how far I could go. We'll take off to some global destination. Amsterdam, Germany, anywhere, anywhere really. I mean, yeah, the world will be open. So long as the federal government says it's okay to export all of that weed.

24:13The Commerce Clause gives Congress the power to regulate trade between the states and between the U.S. and foreign nations.

24:26This episode was produced by Dave Blanchard. It was engineered by Maggie Luthar. Fact-checked by Sierra Juarez and edited by Keith Romer. Alex Goldmark is our executive producer. Thanks to Anne-Marie Awad, Dorji Roberts, Michael Rosenblum, and Beau Whitney. Special thanks this week to Robert Mikos at Vanderbilt Law School, who has written extensively about marijuana and the dormant commerce clause. Coming up next on Planet Money. I do hope I reached you at a good time to hear some of your opinions on how the economy is working for your household. For decades, the University of Michigan has been running a survey to measure, it's not the economy exactly, but really the country's vibes about the economy.