On February 23, 2026, the U.S. Supreme Court declined to resolve a growing disagreement among federal appeals courts; that is, whether states may afford preferences to in-state residents under their cannabis laws and regulations. The case, Jensen v. Maryland Cannabis Administration, involved a challenge to Maryland’s social equity applicant program for allegedly shutting out prospective operators from other states. By declining to hear the case, the Court left in place conflicting rulings that directly affects how cannabis operators can expand across state line.
At the heart of the dispute is the Dormant Commerce Clause (“DCC”), a constitutional principle that generally prohibits states from passing laws that their favor their own residents to the detriment of out-of-state competitors. What several courts have struggled with is whether the prohibitions of the DCC apply when the product being sold (i.e. cannabis) is illegal under federal law. Courts are split on this issue, and where a cannabis business is located determines the answer.
Courts That Have Applied DCC to Cannabis
The First Circuit was the first to weigh in on this issue. In a 2022 case, Northeast Patients Group v. United Cannabis Patients & Caregivers of Maine, an out-of-state applicant challenged a provision in Maine’s cannabis law requiring owners of dispensaries to be state residents. The First Circuit ruled that the DCC applied to cannabis just like any other product and struck down Maine’s residency requirement.
In 2025, the Second Circuit agreed with the First Circuit. In that case, Variscite NY Four, LLC v. New York State Cannabis Control Board, an out-of-state operator challenged a provision in New York’s adult use cannabis program which afforded applicants who were convicted of a cannabis-related offense under New York law with “Extra Priority” in the application process. The plaintiffs, who were residents of California and had convictions for cannabis-related offenses under California law, argued that the provision violated the DCC by discriminating against out-of-state individuals. The Second Circuit agreed and struck down the provision.
The Ninth Circuit’s Disagreement
In January 2026, the Ninth Circuit broke from the pack and ruled that the DCC did not apply to a market that Congress declared illegal. In two consolidated cases, Peridot Tree WA, Inc. v. Washington State Liquor & Cannabis Board and Peridot Tree, Inc. v. City of Sacramento, out-of-state applicants challenged the cannabis licensing schemes in the City of Sacramento and the State of Washington, which required a person to have been a resident for a specified period of time to be eligible for a dispensary license. The Ninth Circuit affirmed the dismissal of both cases, holding that the DCC did not apply to those residency requirements because cannabis is illegal under federal law.
The Case the Supreme Court Declined
In Jensen, the Fourth Circuit opted to sidestep the big constitutional question altogether. That case involved Maryland’s social equity applicant program. To qualify as a social equity applicant, an individual needed to meet one of several criteria, which included attending for at least two years a Maryland institution of higher education where at least 40% of students are Pell Grant eligible. The plaintiff, who was a resident of California, claimed eligibility as social equity applicant based on her attendance at a college in California meeting the Pell Grant requirements. Maryland found her ineligible during the licensing process. The Fourth Circuit ruled that the social equity applicant program did not violate the DCC because it did not discriminate against non-Maryland residents. The court explained that the program did not have a residency requirement and was available to out-of-state applicants who attended qualifying Maryland institutions.
Why the Supreme Court Passed
While it is reasonable to believe that a circuit split on a constitutional question would warrant resolution by the Supreme Court, there may be practical reasons why the Court declined to intervene. One reason could be based on President Trump’s December 2025 Executive Order directing the rescheduling of cannabis from Schedule I to Schedule III. If rescheduling goes through, it would fundamentally change the legal landscape concerning cannabis and likely moot any debate over whether DCC applies to cannabis.
Another reason could be the narrowness of the issue. Cannabis is the only area of law where the federal government has declared it illegal but a majority of states have legalized it. The Court may see this as a nuanced question without general applicability, thereby not warranting intervention.
Whatever the Court’s reasons for not hearing this issue, for now, the rules depend on where a cannabis business operates. In the Ninth Circuit (which includes California, Washington, Oregon, and other western states), residency requirements and local-preference licensing are permitted. In the First Circuit (covering Maine and other New England states) and the Second Circuit (covering New York and neighboring states), those same residency preferences are constitutionally suspect and may be struck down.
Looking forward, this issue should hopefully be resolved once rescheduling is completed or the Court finds it necessary to intervene.