Gambling and Cannabis: States' Rights vs. Federal Law

The U.S. Supreme Court recently ruled 6-3 that states can legalize gambling. Why should Colorado care and what does this have to do with the real estate market?

New Jersey had passed a state law legalizing gambling that was blocked by the federal government. The ruling affirmed New Jersey and other states' abilities to allow legalized sport betting. Why is this ruling precedent-setting? 

ABOUT THE CASE

The court upheld the legality of a 2014 New Jersey law permitting sports betting at casinos and racetracks in the state and voiding the federal Professional and Amateur Sports Protection Act. Some states see sports betting, like lotteries, as a potentially important source of tax revenue.

The Supreme Court struck down the entire federal law, with Justices Ruth Bader Ginsburg, Sonia Sotomayor and Stephen Breyer dissenting.

STATES' RIGHTS AFFIRMED

The Supreme Court not only decided a case on gambling, but also the powers that states have. The same ruling could easily be applied to other decisions states have made including cannabis, immigration, gun laws and more. 

"The legislative powers granted to Congress are sizable, but they are not unlimited," Justice Samuel Alito wrote for the court. "Conspicuously absent from the list of  powers given to Congress is the power to issue direct orders to the governments of the states."

OTHER STATES' RIGHTS

Several parallels between the Supreme Court gambling case and cannabis can be made. The recent ruling affirms states abilities to regulate activities within their borders, one of which is the usage of cannabis.

The proof is in the reasoning.

The justices ruled that under the 10th Amendment, the federal government cannot tell states such as New Jersey what to do with their own laws.

The same justification can be applied to many current and future battles between the federal and state governments.

"The reason this case was so closely watched is because of its implications on so many areas of policy that have revealed federal-state tensions of late," says Ilya Shapiro, a constitutional studies scholar at the Cato Institute, a libertarian think tank. "From environmental regulation to sanctuary cities, marijuana to guns, states are flexing their sovereign muscles in a way that strengthens our body politic."

"It's going to stop the federal government from being more aggressive on things that they might like to be more aggressive on," says Lisa Soronen, executive director of the State Local Legal Center, which represents state and local governments before the Supreme Court."

COLORADO CANNABIS REAL ESTATE IMPACTS

I wouldn't go out on a limb saying that this ruling eliminated all uncertainty regarding the federal government trying to shut down the marijuana industry, but it did provide more certainty. 

The ruling in New Jersey is an important solidification of states' rights on issues, such as marijuana. Furthermore, as the industry continues to grow with multiple states offering recreational marijuana it will become even harder for the federal government to try to infringe on states' rights. 

WHY THIS IS IMPORTANT FOR REAL ESTATE

Real estate is a long-term asset that is not liquid. The more certainty in the market, the less "risky" a marijuana asset is.

Don't get me wrong: There is still risk in the cannabis industry, but the biggest risk is not necessarily the federal government, but a changing market – supply and demand. Market risk is much easier to predict than political and federal risk. This ruling helped eliminate considerable risk to the marijuana industry.