Federalism, Regulation & Cannabis, Part 1

Understanding Federalism: A Foundation for Cannabis & Alcohol Regulation, A Three-Part Blog Series

The word federal comes from the Latin word foedus, meaning covenant, pact, or treaty. Federalism is both a principle and a form of government. In this post, we focus on how federalism functions as a structure for lawmaking and governance, especially in highly regulated industries like cannabis and alcohol.

Why This Matters for Cannabis & Alcohol Regulation

Understanding federalism is essential when working in highly regulated industries, like

• Cannabis, where state legalization clashes with federal prohibition
  
• Alcohol, where the Twenty-First Amendment gives states broad control, but federal law still plays a role
  

These overlapping systems create complex compliance requirements, jurisdictional challenges, and policy inconsistencies that impact how businesses, regulators, and attorneys operate.

Key Features of Federalism

Federalism combines self-rule and shared rule, creating a durable but limited union that balances common goals with local autonomy. The goal is to provide for the pursuit of common ends while sustaining the integrity of each partner, thereby fostering unity but also diversity, while checking forces of centralized control or lawlessness. The federal principle aims at establishing justice among the consenting partners and ensuring liberty. Federalism promotes:

• Unity with diversity
  
• Checks on centralized power
  
• Shared authority between national and state governments
  
• Justice and liberty among consenting partners

Federalism as a Government Structure

A federal system is formed through voluntary agreement, which some describe as a covenant rather than a contract, between co-equal political communities (e.g., states).

These communities:

• Unite for shared purposes like defense and welfare
  
• Retain distinct integrity and governance authority
  
• Participate in joint decision-making while preserving autonomy
  
• Appeal to higher moral or constitutional ideals (e.g., the Declaration of Independence)
  

As a form of government, a federal arrangement is ideally a partnership, established and regulated by a voluntary agreement (i.e. covenant), between co-equals who agree to come together and form a lasting union for certain purposes such as the common defense and general welfare. 

In contrast to a social contract, the “covenant” suggests a moral dimension and appeal to a higher moral source. (e.g. U.S. Declaration of Independence). The internal relationships of a federal system reflect a special kind of sharing that must prevail among the partners based on a mutual recognition of the integrity of each partner and the attempt to foster a special unity among them.

As a political principle, federalism diffuses power so that members in a federal arrangement share in the process of common policy-making and administration, while the activities of the general government are conducted in ways that maintain the integrity of the constituent members. 

Federal systems do this by constitutionally distributing power among general and constituent governing bodies to protect the existence and authority of all. Policies are made and implemented through negotiation based on mutual consent among the members so that all share in the system’s decision-making and execution processes. As such, federalism is both a structure and a process.

Put another way, federalism is a voluntary form of government and mode of governance that establishes unity while preserving diversity by constitutionally uniting separate political communities (e.g., the 13 original U.S. states) into a limited, but encompassing, political community (e.g., the United States). More locally, it may also be used to establish and organize nongovernmental organizations such as interest groups and political parties.

Diffusion of Power in Practice

Federalism diffuses power across national and state systems, ensuring no single entity has complete control. Power is distributed across:

• The general (federal) government, which manages national interests
  
• Constituent (state) governments, which manage regional/local matters
  
• Local governments, operating within state-defined limits
  

Each level of government may:

• Regulate behavior
  
• Levy taxes
  
• Make final decisions over constitutionally assigned responsibilities

Types of Constitutional Authority

There are three categories of constitutional powers:

• Exclusive to the federal government
  
• Exclusive to state governments
  
• Concurrent powers, shared by both
  

This framework allows states to operate as “laboratories of democracy,” piloting policies that may later inform national programs.¹

Intergovernmental Relations in Federalism

The U.S. federal system requires ongoing interaction and negotiation among:

• Federal and state governments
  
• State and local governments
  
• Interstate and interlocal entities
  

Ideally, these relationships are:

• Cooperative
  
• Collaborative
  
• Competitive with mutual respect for each entity’s authority
  

In a perfect world, intergovernmental relations are coupled with give-and-take. However, as everyone knows, partisan differences, commercial advantage, personal ambition, and many other factors can make intergovernmental relations less than ideal and, in some cases, simply unworkable.

When drafting the US Constitution, by allocating power among state and federal governments, the Framers sought to establish a unified national government of limited powers while maintaining a distinct sphere of autonomy in which state governments could exercise general police power.²

Although the text of the Constitution does not clearly delineate many of the boundaries between the powers of the federal and state governments, the Supreme Court has frequently invoked certain constitutional provisions when determining that Congress has exceeded its constitutional powers and infringed upon state sovereignty.³

One well-known provision, regarded by the Court as both a shield and sword to thwart federal encroachment, is the Tenth Amendment, which provides that the 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.

Here it is

Federalism is an academic concept and a living structure that shapes how laws are made, enforced, and challenged, especially in the cannabis and alcohol sectors. A strong grasp of federalism provides the foundation needed to navigate these evolving landscapes.

This is the backbone of how cannabis and alcohol laws are made, enforced, and interpreted. To see how these principles play out in regulation, read Part 2: Federal Preemption and the Regulation of Alcohol in the United States. It builds on this foundation and explores how state and federal powers collide. Part 3: Cannabis Legalization and the Clash Between State and Federal Law, to understand cannabis legalization and the clash between state and federal law.

And if you’re navigating these legal landscapes yourself, don’t do it alone. Explore Cousin’s Services to get compliance, legal, and strategy support built for regulated industries.

Talk to a Cousin

1. See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting) (It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.).
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2. The Federalist No. 45 (James Madison) (The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite.). See also United States v. Morrison, 529 U.S. 598, 618 (2000) (Indeed, we can think of no better example of the police power, which the Founders denied the National Government and reposed in the States, than the ethical and responsible suppression of violent crime and vindication of its victims.).
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3. See generally Erwin Chemerinsky, Constitutional Law: Principles and Policies 127 at 115 (4th ed. 2011) (A basic principle of American government is that Congress may act only if there is express or implied authority in the Constitution, whereas states may act unless the Constitution prohibits the action.). ↩︎