Extending the Dormant Commerce Clause to Federally-Prohibited Markets:
A Commentary on Variscite NY Four, LLC v. New York State Cannabis Control Board (2d Cir. 2025)

1. Introduction

Variscite NY Four, LLC v. New York State Cannabis Control Board is the first federal appellate decision to hold squarely that the Dormant Commerce Clause (“DCC”) restricts state protectionism in a market even when Congress has criminalised that market under federal law—in this case, adult-use cannabis. The Second Circuit vacated a Northern District of New York order denying preliminary relief and ruled that New York’s “Extra Priority” licensing scheme, which advantages applicants (or their relatives) who sustained New York-specific marijuana convictions, facially discriminates against out-of-state economic interests.

The controversy pits two Californian-owned LLCs—Variscite NY Four and Variscite NY Five—against New York’s Office of Cannabis Management (“OCM”) and the Cannabis Control Board (“CCB”). Variscite contends that New York’s allocation rules violate the DCC; the State counters that the Clause is inapplicable because Congress has kept marijuana on Schedule I of the Controlled Substances Act (“CSA”).

2. Summary of the Judgment

  • Standing & Justiciability. Variscite has standing to challenge (i) the “Extra Priority” rule within the December pool and (ii) the decision to process the November pool before the December pool, but not to challenge the earlier CAURD licensing programme.
  • DCC Applicability. The court rejects the argument that federal criminalisation insulates New York from DCC scrutiny, finding no “unmistakably clear” congressional authorisation for protectionist state marijuana laws.
  • Merits. The Extra-Priority rule is facially discriminatory because New York convictions act as a residency proxy. Under the DCC’s “strictest scrutiny,” New York failed to show the measure is the only way to advance restorative-justice goals. Conversely, Variscite did not show a likelihood of success on its challenge to the creation of a separate November pool, which the court deemed facially neutral and at most subject to Pike balancing.
  • Relief. The district court’s denial of a preliminary injunction is vacated; the case is remanded for proceedings consistent with the opinion.
  • Dissent. Chief Judge Livingston would hold that federal criminalisation implicitly authorises complementary state restrictions—including protectionist ones—making the DCC inapplicable.

3. Analysis

3.1 Precedents Cited and Their Influence

  • Tennessee Wine & Spirits Retailers Ass’n v. Thomas, 588 U.S. 504 (2019)
    Reaffirmed the core anti-discrimination principle of the DCC. The panel drew directly on its language that state laws “driven by economic protectionism” are per se invalid.
  • Gonzales v. Raich, 545 U.S. 1 (2005)
    Invoked by New York and the dissent to argue that the federal prohibition aims to “eradicate” interstate cannabis markets. The majority distinguished Raich, stressing that criminalisation of a product does not equal authorisation for state protectionism.
  • South-Central Timber Dev. v. Wunnicke, 467 U.S. 82 (1984) & New England Power v. New Hampshire, 455 U.S. 331 (1982)
    Supply the “unmistakably clear” congressional-authorisation test the majority applies, finding the CSA wanting.
  • Bacchus Imports v. Dias, 468 U.S. 263 (1984)
    Demonstrates that favouring a subset of in-state interests remains discriminatory even if not all locals benefit—critical to striking down the New York-conviction preference.
  • Pike v. Bruce Church, 397 U.S. 137 (1970)
    Supplies the balancing test used for the facially neutral November-pool rule.
  • Northeast Patients Group v. United Cannabis Patients & Caregivers of Maine, 45 F.4th 542 (1st Cir. 2022)
    The only other circuit case addressing cannabis & the DCC; the Second Circuit aligns with its majority and rejects the First Circuit dissent’s contrary view.

3.2 The Court’s Legal Reasoning

  1. No “market exception” to the DCC. The panel rejects a categorical rule that federally illicit markets lie beyond the DCC, reasoning that such an exception would allow states to entrench home-grown advantages in anticipation of later federal legalisation.
  2. Congress must clearly approve protectionism. The CSA criminalises marijuana but says nothing about favouring state residents; under South-Central Timber, silence does not suffice.
  3. Proxy discrimination. Because only New York had authority to convict individuals under New York’s former prohibition, the “in-state conviction” requirement works as a near-perfect residency screen—triggering strict scrutiny.
  4. Lack of narrow tailoring. Restorative-justice goals could be met through neutral criteria (e.g., any cannabis conviction, or economic need) without favouring New Yorkers.
  5. Severability of challenges. The opinion carefully slices standing and merits: Variscite may attack discrete elements (December queue order) but cannot bootstrap a CAURD challenge where it never applied.

3.3 Potential Impact

  • Immediate. New York must redesign its prioritisation system or risk injunctions halting future license rounds. Hundreds of licenses already issued under preferential rules are exposed to litigation.
  • Regional. Connecticut, New Jersey, Maryland and other states using “justice-involved” or residency-based cannabis preferences will need to revisit their statutes.
  • National. The ruling accelerates a circuit split with Chief Judge Livingston’s dissent forecasting Supreme Court review. If affirmed nationwide, the case constitutionalises an “open borders” principle for cannabis commerce pending federal legalisation.
  • Beyond Cannabis. The logic could reach other federally regulated contraband (e-cigarettes, sports betting, psychedelics) once states partially legalise them.

4. Complex Concepts Simplified

  • Dormant Commerce Clause. A judge-made inference that, even when Congress is silent, states may not enact protectionist measures that burden interstate commerce.
  • “Unmistakably Clear” Standard. Courts presume the DCC applies unless Congress unmistakably allows states to discriminate—mere criminalisation is not enough.
  • Standing vs. Ripeness vs. Mootness. “Standing” asks whether the plaintiff is harmed; “ripeness” (or, as the dissent argues, mootness) asks whether the dispute is live and fit for review.
  • Extra Priority. New York tripled an applicant’s position in the review queue if it (or an immediate relative) held a New York marijuana conviction, dramatically upping its odds of licensure.
  • Strict Scrutiny in DCC cases. When a law is facially discriminatory, the state must prove (i) a legitimate local purpose and (ii) that no reasonable, nondiscriminatory alternative exists.

5. Conclusion

Variscite establishes a powerful new precedent: the Dormant Commerce Clause restrains state protectionism even in markets Congress currently bans. By striking down New York’s conviction-based preference, the Second Circuit warns states that social-equity or restorative-justice objectives cannot be pursued through residency proxies. The divided panel—echoing an emerging circuit split—sets the stage for eventual Supreme Court clarification. Until then, states venturing into partial cannabis legalisation must design licensing programmes that welcome out-of-state participants on equal terms or face swift constitutional challenge.