by Anthony Cruz*
Numerous states have legalized marijuana both for recreational and medicinal use. Many of those same states have also taken the step of legalizing gambling. In this Contribution, Anthony Cruz (’22) examines the legal issues that result when two heavily regulated industries like the cannabis and gaming industries overlap. State-based prohibitions on gaming licensees participating in the cannabis market, both by statute and by regulation, present issues of statutory construction in light of conflict-ing legislative signals; issues of administrative due process against a backdrop of perpetually evolving state and federal guidelines on controlled substances; and issues of intrastate federalism.
For many gaming commissions across the United States, marijuana remains off-limits despite local and state laws that have allowed for legal marijuana. In many of those same states, gambling operators are licensed with the requirement that they comply with state, local, and federal law.1 There are often relevant conflicts between state and federal law. The Controlled Substances Act2 is a federal law that partitions controlled substances and other narcotics into schedules and provides for means of enforcement and regulation. All state laws legalizing marijuana are preempted by the Controlled Substances Act.3 To date, sixteen states have legalized marijuana for adults over 21 and 36 states have legalized marijuana for medical reasons.4 The question remains whether state gaming boards and commissions, as creatures of the state legislature, can promulgate rules that mandate compliance with a federal law that conflicts with the laws of the legislature that created the gaming boards and commissions in the first place.
In May 2014, as marijuana dispensaries were beginning to receive licenses, the Nevada Gaming Commission circulated notice #2014-39.5 That memorandum establishes an unequivocal demarcation between the gaming and cannabis industries, prohibiting anyone with a gaming license from participating in Nevada’s marijuana industry unless federal law changed.6 Similarly, in Colorado, the Limited Gaming Control Commission added regulations on September 20, 2018 to preclude anyone involved in the marijuana industry from obtaining a Colorado gaming license.7 Colorado’s Resolution specifically prohibits
hold[ing] or obtain[ing] a marijuana license; . . . contract[ing] with or maintain[ing] business relationships with . . . individuals, entities, or establishments involved in the sale, cultivation, or distribution of marijuana; . . . and receiv[ing] financing from or provid[ing] financing to individuals, entities, or establishments that sell, cultivate, or distribute marijuana.8
What’s more, the Resolution puts the onus on gaming licensees to do the necessary due diligence to ensure they are in compliance with federal law.9
Given the precedent set by states like Nevada and Colorado, other states with legalized marijuana and gambling hubs will likely follow suit. While it may be too early to tell what the amalgam of gaming and cannabis use will look like, industry experts and public officials suspect an adherence to the Nevada rule—the logic being that marijuana’s illegality under federal law presents “significant challenges to banking laws, anti-money laundering provisions and employee protections.”10 Because casinos and banks are considered financial institutions by the Financial Crimes Enforcement Network arm of the United States Treasury, cannabis-related streams of revenue cannot flow through, or finance, traditional banking and casino operations.11 However, the House of Representatives recently passed the SAFE Banking Act, which would immunize dispositions of cannabis related funds by financial institutions.12 Until the SAFE Banking Act and similar legislation is enacted, casino executives and regulators in states like New Jersey remain concerned that one’s cannabis related activities in one jurisdiction would impact their gaming qualifications in other jurisdictions where marijuana is not legal.13 The SAFE Banking Act would surgically address the hurdles affecting cannabis companies’ access to financing without legalizing cannabis at the federal level.14
The immediate implications of the problem go beyond the legal ones—the economic and political ramifications of states’ continued asceticism will have wide-reaching consequences for smokers, casino executives, tourists, and casino patrons. While the Biden Administration has relaxed federal prosecution of marijuana consumption, nationwide legalization remains elusive.15 Given the expansion of marijuana legalization (most recently in four states as a result of the 2020 election) the futures of cannabis and gaming are likely to be very much intertwined.16 Metropolitan centers with gaming like Las Vegas are seeing increased tourist attraction because of legal marijuana.17 State gaming regulators and other stakeholders remain keen on preserving their autonomy in the sphere and their discretionary powers regarding gaming. Ultimately, this Contribution argues that states should avoid enforcing or promulgating regulations that lead to overly stringent restrictions on casino licensees concerning their private marijuana usage, especially if they are otherwise in accordance with state and local laws and protocols.
The issue of intra-state federalism is paramount to unraveling the Controlled Substances Act’s stronghold over local gaming commissions in the face of contravening mandates from state legislatures. Courts will have to adjudicate the legality of a state-created entity’s decision to favor federal law over the conflicting law of the state in which the entity sits.
It is an open question whether state agencies are beholden to the Controlled Substances Act. There are Tenth Amendment issues implicated by any state agency’s claim that it must contravene state law to uphold federal law as “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”18 There may also be latent anti-commandeering issues with a state agency taking it upon itself to uphold a federal regulatory scheme.19 In the administrative law context outside of gaming, it has been a well-settled principle in several states that enforcement actions cannot depart from the priorities and policies underscoring the state statute.20 With these background norms in mind, one cannot without a modicum of difficulty square the aims of several states’ legislatures in legalizing marijuana—to promote economic vitality and to make up budget gaps caused by the COVID-19 virus21—with gaming commissions’ attempts to ban any type of marijuana usage near casinos.22
The uncertainty arising from the question is muddled even further if one considers that state marijuana laws may not be directly preempted despite the holding in Raich. Oklahoma’s Supreme Court recently upheld the state’s ability to democratically amend the Oklahoma Constitution in order to legalize, regulate, and tax marijuana.23 The Oklahoma Supreme Court posited that the federal government simply does not have the ability to force states to enforce the Controlled Substances Act or to criminalize it within their borders and therefore, states like Oklahoma are free to regulate cannabis as they see fit.24
Regardless of the merits of a particular decision by a gaming commission to grant or revoke a gaming license, it is clear that legislatures invariably grant their gaming commissions leeway in enforcement. For instance, according to the Nevada Revised Statutes, the Commission has “full and absolute power and authority to . . . limit, condition . . . restrict . . . revoke or suspend any license.”25 It is clear the Nevada legislature intended to give the Commission broad discretion in both granting and rescinding gaming licenses.
The common law in Nevada likewise supports the proposition that the Nevada Gaming Board and Commission have flexibility in interpreting and enforcing their statutes. The Supreme Court of Nevada in State v. Rosenthal held that the Nevada Gaming Commission had broad powers and there were only limited circumstances for appropriate judicial intrusion.26 In Rosenthal, the Nevada Gaming Commission did not cite to any criminal convictions in Nevada or to any alleged criminal behavior in Nevada when the Commission revoked Mr. Rosenthal’s gaming license. The Commission only had evidence that Mr. Rosenthal violated a law in North Carolina, and it was only alleged that Mr. Rosenthal violated a federal law and Florida state law.27
Drawing from a robust field of administrative law, gaming commissions are agents of the legislature that created them; ergo, they should be given due deference when interpreting state gambling statutes and rules they themselves promulgated. As the Supreme Court held in Mead: “Administrative implementation of a particular statutory provision qualifies for [the greatest level of deference accorded under Chevron] when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law . . . .”28 Of course, whether or not each individual state with legalized gaming has a state common law analogue of the Chevron doctrine is a state-dependent inquiry.
Nevada has further established by statute that the burden of proving one’s qualifications for a gaming license falls squarely on the licensee.29 The legislature of Nevada has also made their intentions clear that the Nevada Gaming Commission is free to strictly enforce its regulations so as to maintain public confidence and trust in gaming.30
However, even if the general purpose of the legislature was to empower the Gaming Commission and Board, these administrative bodies are still bound by the rules they set for themselves and for gaming licensees. The fact that the state legislatures went out of their way to enumerate specific triggers for violating federal law precludes gaming regulators from citing federal law generally as a reason to rule against a licensee. According to the applicable gaming regulations in Nevada, gaming licensees must not be in violation of state, local, and federal laws that pertain to the “operations of a licensed establishment including . . . payment of all license fees, withholding any payroll taxes, liquor and entertainment taxes and antitrust and monopoly statutes.”31 These enumerations seem to specify what the pertinent state, local, and federal laws are. The payment of payroll and liquor taxes as well as compliance with antitrust laws suggest that subsection 8 should be read to mandate submission to commercial federal administrative schemes that govern the conduct of businesses—not necessarily laws that govern private or individual behavior like private medical marijuana use. Thus, the Controlled Substances Act seems not to be implicated at first glance. The language in the Nevada gaming regulations may be further clarified by subsequently enacted legislation—specifically, state laws that protect employees from termination because of their medical marijuana use.32
Regardless of the text’s plain meaning, the Nevada Gaming Commission “in the exercise of its sound discretion can make its own determination of whether or not the licensee has failed to comply” with Nevada Gaming Regulation 5.011(8), but any such determination is bound by “established precedents” in interpreting the gaming regulations.33
Even if the Nevada Gaming Commission is free to apply rules harshly, “established precedents” in Nevada and in Colorado seem to suggest a notable level of tolerance for those who use medical marijuana privately or are involved with the marijuana industry off casino premises. A relaxed construction of gaming regulations that seek to separate out marijuana from gaming would likely mean that gaming commissions should take on a holistic process in reviewing applications. An example of this holistic review process at work comes from a 2018 issue of Nevada Gaming Lawyer.34 According to Nevada Gaming Commissioner Terry Johnson, “[d]uring the application process [for a gaming licensee looking to expand their gaming operations], it was determined that an applicant had obtained a registry identification card for purposes of the medical use of marijuana.” After a hearing during which the applicant was asked about the validity of their medical prescription, the likelihood that the applicant was engaged in illicit criminal activity, and perhaps most importantly, whether or not the applicant had ever used, possessed, or been impaired by marijuana while at or running the casino, the Nevada Gaming Board unanimously recommended licensure and the Commission unanimously approved.35 In this case, the Nevada Gaming Commission was able to balance the voter-approbated public policy of marijuana legalization with the public policies concerning the strict regulations on gaming officials.
In Colorado, the coronavirus pandemic hit the gaming industry especially hard.36 To mitigate the deleterious effects of the casino closures, the Marijuana Enforcement Division adopted emergency rules to allow casino employees to move over into the cannabis industry since casino employees undergo background checks similar to workers in the marijuana dispensary business.37 This arrangement is the product of conversations between both the Marijuana Enforcement Division and Colorado gaming regulators.38
The aforementioned examples go to show that the opposition by gaming commissions to cannabis is grounded mostly in concerns regarding cross investments between the gambling and cannabis industries. Investment relationships and financing are called out explicitly by the Nevada Gaming Commission.39 In 2014, the Nevada Gaming Commission even ruled that a company that manufactured gaming devices could not transact with a restaurant owner to install slot machines on his business premises because the owner’s spouse had a minority share in a marijuana business, demonstrating the primacy of financial concerns.40
A final issue that deserves attention is whether or not the informal resolutions and ad-hoc notices disseminated by gaming commissions effectuate policy and carry the force of law. Issues of this nature are extremely state-dependent and most likely turn on whether or not each individual state has enacted something akin to the federal Administrative Procedure Act.41
Although people employed by casinos may have medical marijuana prescriptions, it is not necessarily the case that they automatically fall under the regulatory umbrella of the local gaming commission. This is especially true when the state has by statute created a cannabis compliance board to do just that—operationalize and manage the licensures of medical and recreational marijuana facilities.42 For instance, the Nevada Cannabis Compliance Board is charged with partnering with local and state officials on cannabis related matters.43 It would seem unreasonable to neglect these administrative bodies’ powers simply because there may be overlapping jurisdictions between the cannabis regulators and the gaming regulators.
As a policy matter, states should not seek to unravel a voter approved administrative scheme out of an abundance of caution when doing so does not help gaming regulators protect the public confidence or trust in gaming. Overreaching and expansive readings of state statutes granting gaming commissions power to discipline gaming licensees can actually serve to frustrate the development of a vibrant and robust cannabis market. State gaming commissions disciplining gaming licensees for private medical marijuana use is an exercise of regulatory oversight that was most likely meant for other agencies established by the state, not gaming commissions.44 Moreover, the cloud of uncertainty that state agencies work under when applying different standards of conflicting laws makes the argument for circumscribed enforcement stronger. In other words, the state agency when confronted with a state and federal law conflict with hazy preemption implications, should not act in a manner that is contrary to the state legislature’s intent. Finally, “established precedent,” vaguely promulgated notices, and subsequent state legislation creating cannabis compliance commissions with their own statutory powers may cumulatively give effect to a casino employee’s ultra vires claims if a gaming board cites a medical marijuana registration card as sufficient grounds to take away that employee’s livelihood.
*Anthony Cruz is a J.D. Candidate (2022) at New York University School of Law. This piece is a commentary on the 6th Annual Frank A. Schreck Gaming Law Moot Court Competition. The issue in the problem concerned whether the fictitious Boyd Gaming Control Board and Commission (modeled after those of Nevada) can revoke a gaming license for an individual’s private medical marijuana use.
1. See, e.g., Nev. Gaming Reg. 5.011(8) (explaining that “[f]ailure to comply with or make provision for compliance with all federal, state and local laws and regulations” constitutes grounds for revoking a gaming license).
2. 21 U.S.C. § 801.
3. See Gonzalez v. Raich, 545 U.S. 1 (2005) (holding that the Controlled Substances Act preempts California’s statute legalizing marijuana under Congress’s Commerce Clause power).
4. Jeremy Berke, et. al., Marijuana Legalization Is Sweeping the U.S. See Every State Where Cannabis Is Legal, Bus. Insider (Apr. 14, 2021), https://www.businessinsider.com/legal-marijuana-states-2018-1#:~:text=Since%202012%2C%2016%20states%20and,marijuana%2C%20whether%20medically%20or%20recreationally.
5.Notice, State of Nev. Gaming Control Bd., Notice #2014-39, (May 6, 2014), https://gaming.nv.gov/modules/showdocument.aspx?documentid=8874.
7. Colo. Ltd. Gaming Control Comm’n, Resolution of the Colorado Limited Gaming Control Commission Regarding Marijuana and Gaming, (Sept. 20, 2018), https://www.colorado.gov/pacific/sites/default/files/Signed%20Resolution%20Gaming%20Licensees%20and%20Marijuana.pdf.
10. David Danzis, Don’t Bet on High Times in Atlantic City Casinos When Marijuana Is Legal, Atl. City Press (Dec. 13, 2020), https://pressofatlanticcity.com/news/local/dont-bet-on-high-times-in-atlantic-city-casinos-when-marijuana-is-legal/article_e0341079-d8c8-59e9-b063-cf6a1b639c3e.html.
11. See Secure and Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. § 1 (2019).
12. See Ciara Linnane, Cannabis Stocks Rally Premarket After House Passes SAFE Banking Act, Market Watch (Apr. 20, 2021), https://www.marketwatch.com/story/cannabis-stocks-rally-premarket-after-house-passes-safe-banking-act-2021-04-20.
13. See Danzis, supra note 10.
14. See Gustav Stickley V, The SAFE Banking Act: A Reasonable and Narrowly Tailored Approach to Addressing Public Safety Concerns and Lack of Financial Services in Today’s Cannabis Industry, JD Supra (Jul. 8, 2021), https://www.jdsupra.com/legalnews/the-safe-banking-act-a-reasonable-and-2393575/.
15. See German Lopez, Biden’s Blunt Opposition to Marijuana Legalization, Vox (Apr. 16, 2021, 12:50 PM), https://www.vox.com/22387746/biden-marijuana-weed-legalization-schumer-polls.
16. See Bruce Y. Lee, 4 States Vote to Legalize Recreational Marijuana Use: Arizona, Montana, NJ, South Dakota, Forbes (Nov. 4, 2020, 10:38 AM), https://www.forbes.com/sites/brucelee/2020/11/04/4-states-vote-to-legalize-recreational-marijuana-use-arizona-montana-nj-south-dakota/?sh=1cfcbbc0558f.
17. See Mark Lugris, Las Vegas is Betting on Pot Tourism as the New Trend in Travel, The Travel (Sept. 20, 2019), https://www.thetravel.com/las-vegas-is-betting-on-pot-tourism-as-the-new-trend-in-travel/.
18. U.S. Const. amend. X.
19. See Printz v. United States, 521 U.S. 898, 935 (1997) (holding that federal statutes cannot force states or state officials to enact or enforce a federal regulatory gun control measure); see also Va. Off. for Prot. & Advoc. v. Stewart, 563 U.S. 247, 257–58 (2011) (holding that a state cannot be said to have consented to suit by an in-state agency just because that state agency receives federal funds and carries out a federal statute that cares for the individual states’ disabled).
20. See, e.g., E & T Realty v. Strickland, 830 F.2d 1107, 1111 (11th Cir. 1987) (discussing principle under Alabama law); Malone v. Fender, 385 A.2d 929, 932 (N.J. Super. Ct. App. Div. 1978) (holding that a state agency’s ruling in contravention of state law will not be enforced).
21. See Nick Reisman, How Cuomo Wants to Spend Legal Marijuana Revenue, Spectrum News (Feb. 16, 2021 8:39 AM), https://www.ny1.com/nyc/all-boroughs/ny-state-of-politics/2021/02/16/how-cuomo-wants-to-spend-legal-marijuana-revenue.
22. See, e.g., Nev. Cannabis Compliance Bd., Study on Nevada Cannabis Consumption Lounges, (Jan. 1, 2021), https://ccb.nv.gov/wp-content/uploads/2021/02/CCB-Cannabis-Consumption-Lounge-Study-FINAL.pdf (explaining that cannabis smoking lounges must be at least 1500 feet from any gaming establishment).
23. See Tay v. Kiesel (In re State Question No. 807, Initiative Petition No. 423), 468 P.3d 383, 389 (Okla. 2020) (holding that because the United States Supreme Court has not directly addressed the preemption issue, the state courts are able to make their independent determination free from Supremacy Clause obstacles).
24. Id. at 391.
25. See Nev. Rev. Stat. § 463.1405.
26. See State v. Rosenthal, 559 P. 2d 830, 836 (Nev. 1977) (“We view gaming as a matter reserved to the states within the meaning of the Tenth Amendment . . . . Within this context we find no room for federally protected constitutional rights. This distinctively state problem is to be governed, controlled and regulated by the state legislature and . . . the Nevada Constitution.”).
27. Id. at 833.
28. United States v. Mead Corp., 533 U.S. 218, 226–27 (2001).
29. See Nev. Gaming Reg. 5.030 (“It is the responsibility of the licensee to keep himself informed of the content of all such regulations, and ignorance thereof will not excuse violations.”).
30. See Nev. Rev. Stat. § 463.0129(c) (“Public confidence and trust can only be maintained by strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments . . . .”).
31. Nev. Gaming Reg. 5.011(8).
32. Assemb. B. 132, 2019 Leg., 80th Sess. (Nev. 2019).
33. Nev. Gaming Reg. 5.011(8).
34. See Terry Johnson, High States: Balancing Gaming Regulation and Marijuana, Nev. Gaming Law. (Sept. 2018), https://www.nvbar.org/wp-content/uploads/7-Gaming-Regulation-and-Marijuana.pdf.
36.See Christine Ricciardi, Colorado’s Furloughed Casino Employees Now Eligible for Fast-track Hire Into Marijuana Industry, Daily Camera (Apr. 6, 2021, 3:37 PM), https://www.dailycamera.com/2020/04/06/colorado-casinos-marijuana-coronvavirus/ (“Gov. Jared Polis closed all Colorado casinos by executive order on March 17 to mitigate the spread of the novel coronavirus, causing widespread furloughs throughout gambling towns Black Hawk, Central City and Cripple Creek.”).
39. Haley N. Lewis, Note, Unlikely Consequences: How Medical Marijuana Is Affecting Nevada’s Gaming Industry, 6 UNLV Gaming L.J. 299, 307 (2016) (“[T]he [NGCB] does not believe investment or any other involvement in a medical marijuana facility or establishment by a person who has received a gaming approval . . . is consistent with the effective regulation of gaming.”) (internal quotes omitted).
40. Harry Arnold, Comment, When Your Blackjack Dealer Takes a Hit: How Nevada Assembly Bill 132 Threatens Vegas Casinos in an Age of Legalized Marijuana, 28 Geo. Mason L. Rev. 449, 459 (2020).
41. See 5 U.S.C. § 553 (2006) (§ 553(b) and § 553(c) of which requires federal executive agencies to allow for notice and an opportunity for public comment prior to any official rulemaking can take effect).
42. See, e.g., N.J. Stat. § 24:6I-44(k) (2021) (“Any cannabis or cannabis item may be transported or delivered, consistent with the requirements set forth in this section and regulations promulgated by the commission, to any location in the State. . . . [I]n no case may a municipality restrict the transportation or deliveries of cannabis items to consumers within that municipality by adoption of a municipal ordinance or any other measure, and any restriction to the contrary shall be deemed void and unenforceable.”).
43. Nev. Cannabis Compliance Bd., FY 2022-2023 Biennium Budget Request, (Mar. 12, 2021), https://www.leg.state.nv.us/App/NELIS/REL/81st2021/ExhibitDocument/OpenExhibitDocument?exhibitId=48550&fileDownloadName=Nevada%20Cannabis%20Compliance%20Board_Presentation.pdf.
44. This comment should not be read to imply that individuals who are intoxicated by a controlled substance while working at a gaming establishment may escape disciplinary actions by the pertinent gaming boards.