SCOTUS Scuttles Chevron

This January, the U.S. Supreme Court heard oral arguments in a case that challenged the deference given federal agencies by federal courts to interpret vaguely written laws. It was called the Chevron deference. It no longer exists. It took about seven months following those arguments for the Supreme Court to decide what to do with Chevron, but on June 28, 2024, Chief Justice Roberts finally delivered the opinion of the Court in Loper Bright Enterprises v. Raimondo, and it was a doozy. Per the syllabus, “The Court granted certiorari in these cases limited to the question whether Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, should be overruled or clarified. Under the Chevron doctrine, courts have sometimes been required to defer to ‘permissible’ agency interpretations of the statutes those agencies administer—even when a reviewing court reads the statute differently. In each case below, the reviewing courts applied Chevron’s framework to resolve in favor of the Government challenges by petitioners to a rule promulgated by the National Marine Fisheries Service pursuant to the Magnuson-Stevens Act, 16 U. S. C. §1801 et seq., which incorporates the Administrative Procedure Act (APA), 5 U. S. C. §551 et seq.

“Held: The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is overruled.”

Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined, with Thomas and Gorsuch filing concurring opinions. Justice Kagan filed a dissenting opinion, in which Sotomayor joined, and Jackson joined as it applies to No. 22–1219. Justice Jackson took no part in the consideration or decision of the case in No. 22–451.

While it will take time for the actual fallout from this opinion to be felt (or fully understood), the immediate consensus was that its impact will be extremely consequential and broad in scope, and that the end result will be weaker federal regulators and regulations and a severely diminished so-called administrative state, which was precisely the point. Rather than try to clarify certain boundaries or limitations for those seeking to use Chevron, this Court simply threw out the baby with the bathwater, perhaps hoping it can swim.

“Although the Chevron decision – which upheld the Reagan-era Environmental Protection Agency’s interpretation of the Clean Air Act that eased regulation of emissions – was generally hailed by conservatives at the time, the ruling eventually became a target for those seeking to curtail the administrative state, who argued that courts, rather than federal agencies, should say what the law means,” explained SCOTUSBlog in its analysis of the decision. “The justices had rebuffed earlier requests (including by one of the same lawyers who argued one of the cases here) to consider overruling Chevron before they agreed last year to take up a pair of challenges to a rule issued by the National Marine Fisheries Service. The agency had required the herring industry to pay for the costs, estimated at $710 per day, associated with carrying observers on board their vessels to collect data about their catches and monitor for overfishing.”

What Dies It Mean for Cannabis?

Anticipating which way the wind was blowing following oral arguments, Cannabis Business Executive in a January article titled What Overturning Chevron Could Mean for Cannabis, posed just that question to Leah Heise, CEO and founder of Gemini Twin Consulting, whose insights accurately anticipated what is at stake and how it could unfold. Now that we know that a brave new world awaits this industry like all others because of this opinion – including the possibility that rescheduling could be scrapped – and to round out the analysis of Chevron provided in the original story, CBE contacted Heise for any immediate reaction she might have about this major opinion. She kindly obliged.

“It is going to be a bumpy ride for a few years,” she said, echoing the opinion of many. On the substance of the matter, however, she was slightly conflicted. “I’m of a divided opinion on this issue,” she explained. “As a former enforcement attorney, this is a disaster for the Government and for any business relying on the Government’s interpretation of their own regulations. As a former cannabis executive, this is an opportunity to push the boundaries in many areas if the company is willing to take larger risks.”

We also ran a few additional questions by Heise on what the demise of Chevron will mean overall and for the cannabis and hemp industries specifically:

How does this ruling impact state regulators and regulations? State law and regulations often use federal thresholds as guidance in crafting state regulations? Will that guidance have to be reassessed?

Many states have already done away from Chevron deference, but there will be a trickle-down effect to the state level. States should be reassessing how this ruling (and the SEC case) affects their ability to interpret and enforce their own regulations. They should be looking at EPA rules, OSHA rules, Federal labor laws, etc., that they have incorporated into their own regulations to determine what may be at risk.

What sort of cannabis-related Chevron-based lawsuits do you expect to see?

There are so many potentials for cannabis-related lawsuits…challenges to 280(e), pesticide bans, Federal labor laws and definitions, Hemp definitions and DEA letters stating THCA, etc. is illegal. There is an endless opportunity for litigation here.

How will this impact the Farm Bill current and future? Will current definitions be litigated? Will the new Farm Bill be kicked down the road again because it now needs to avoid any ambiguities?

This is a major opportunity for the Hemp Industry. There will be decades of litigation regardless of the definition finalized in any upcoming Farm Bill. Congress is going to have to be very clear in the Farm Bill and given the political nature of how bills come to life, it is highly unlikely clear language will exist in any piece of legislation.

One of my first reactions was, if you think unsafe pesticide use is bad now, just wait. Am I being paranoid?

You are not being paranoid. Anything of a highly technical nature is at risk. SCOTUS just handed bad operators the ability to violate with impunity. It is a risk reward analysis at this point. There may be more reward to using a banned pesticide and getting product to market than facing an enforcement action.

What should cannabis businesses be thinking about or doing in reaction to this ruling?

Cannabis businesses should be rethinking their reliance on the interpretation of any Federal Agency of the regulations they implement. I keep thinking about banking. Will banks become even more fearful of entering the space? What about 280(e)?

They should also be looking at whether there is enough ambiguity in a statute to justify taking a larger push into an area they had previously been avoiding. I think about the hemp side of the house in particular. Lots of opportunity here and the runway for profitability just got longer because we know Congress won’t be able to define Hemp in an unambiguous way. There will be years if not decades of litigation around this issue and the executive branch just got constrained in its ability to enforce it.

We are focusing on Chevron here, but there was another Administrative Law case that SCOTUS ruled on last week that can deeply impact the industry as it trickles down to the States and that was the SEC case. Essentially, SCOTUS stated that civil penalty cases weren’t constitutional and require a jury trial. The Executive branch doesn’t have the budget to take these cases to court. There will be limited incentives for corporations to comply with any regulation that results in a civil penalty. Will a state agency be able to issue a civil penalty to an operator for violating a regulation? Maybe not. I’d certainly request a jury trial and cite the SEC case.