Even in cannabis-friendly states, health plan members may find it challenging to pursue coverage for medical marijuana in court. Per a recent decision handed down in the district court of New Mexico, state coverage requirements may be preempted by federal law so long as cannabis remains classified as a Schedule I controlled substance.
After nearly three years of legal contention, a federal judge dismissed with prejudice a putative class action lawsuit that sought to compel a large insurer to cover the cost of cannabis-related care and medication for plan members in New Mexico. The plaintiff class – a dispensary and several health plan members – alleged that state laws and precedent require commercial and Medicaid health plans to cover medical cannabis distributed pursuant to New Mexico’s medical cannabis program. In addition to requesting punitive and compensatory damages from the insurer, the class requested a judicial declaration that health insurers in New Mexico are required to fully cover the cost of medical cannabis when prescribed to treat behavioral health conditions.
The judge, however, declined on all fronts. Affirming arguments presented by the defense, the judge noted that while New Mexico state laws permit medical cannabis coverage, they do not require health plans to provide it – and even if a mandate existed, it would be preempted by federal law and rendered unenforceable. "By providing coverage for medical cannabis, Defendants would be aiding and abetting illegal drug procurement. The likelihood of whether Defendants would be prosecuted for that crime is irrelevant," she wrote. "The criminalization of cannabis at the federal level remains intact, and therefore would conflict with a state law mandating coverage of medical cannabis.”
By confirming federal preemption, this decision effectively limits the influence of state-level medical cannabis laws. Despite ongoing rescheduling efforts, cannabis is currently categorized as a Schedule I drug under the Controlled Substances Act; it is deemed to have a high potential for abuse and no accepted medical use even under clinical supervision. As a drug with no accepted medical purpose, cannabis has not been approved by the Federal Drug Administration and thus cannot legally be covered by health insurers. Advocates have made inroads at the state level to expand medical access; in New Mexico, the Lynn and Erin Compassionate Use Act (LECUA) allows the use of medical cannabis to treat certain medical conditions.
However, this decision clarifies that even if New Mexico allows use or imposes coverage requirements, as the state legislature has recently proposed, those laws cannot be enforced in court because managed care organizations (MCOs) would be forced to choose between abiding by state cannabis statutes or breaking federal laws against aiding and abetting illegal drug procurement (18 U.S.C. section 2(a) and 21 U.S.C. section 841(a)(1)). While MCOs may choose to offer coverage for cannabis in states that permit medical use, states cannot compel coverage (nor can plan members seek to enforce coverage requirements in court) unless cannabis is rescheduled and FDA-approved. And, as the district court held, offering coverage for cannabis still poses risks and conflicts with existing federal law.
Notably, this district court decision disagrees with determinations delivered in the New Mexico Court of Appeals (e.g., Sacred Garden, Inc. v. New Mexico Tax & Revenue Dep’t and Vialpando v. Ben's Auto), which did not find preemption by federal law. In Sacred Garden, the court determined that cannabis dispensed pursuant to LECUA with a medical certification form satisfied federal requirements under the federal Food, Drug, and Cosmetics Act and constituted a prescription. Similarly, the judge in Vialpando found medical cannabis to be reasonably necessary as a treatment and concluded that coverage was required under the Workers Compensation Act. The judge there did not find any conflict with federal law, noting that the government’s public policy position was unclear and that the defendant had not defined the allegedly violated federal law.
The district judge, however, found discussions of cannabis’ medical necessity to be largely irrelevant. Because the federal government classifies cannabis as a Schedule I controlled substance, MCOs cannot be compelled to cover it as a medical treatment. Moreover, ongoing federal progress toward rescheduling cannot be used as proof that cannabis will be rescheduled. Federal criminalization of cannabis will continue – and will continue to preempt state decriminalization reforms – until the drug is no longer classified as a Schedule I substance.
While medical cannabis advocates may hope that rescheduling will occur soon, change is not guaranteed. Rescheduling efforts have largely ground to halt in 2025; hearings on the subject were scheduled to begin in late January but cancelled after two pro-rescheduling groups filed a lawsuit alleging improper communication between the Drug Enforcement Agency (DEA) and an anti-legalization group. In April, the plaintiffs withdrew their lawsuit – which was dismissed without prejudice – in the hopes of restarting the stalled review process.
Whether those hopes come to fruition remains to be seen, especially as the Trump administration’s nominee to lead the DEA, Terrance Cole, approaches confirmation. Cole has previously espoused anti-legalization sentiment with public statements that echo slogans from the “Just Say No” campaign spearheaded by Nancy Reagan in the 1980s. He appeared to take a more receptive position during his confirmation hearing in April, asserting that reviewing the matter would be “one of [his] first priorities” upon confirmation and expressing openness to forming a DEA working group to address marijuana policy in states and tribal jurisdictions where cannabis is legal. This flexibility does not necessarily reflect a favorable view of cannabis legalization overall, as Cole notably refused to commit to following through with the rescheduling process when pressed, stating that he needed to study the matter further.
For now, cannabis remains a Schedule I controlled substance. MCOs should be aware that any state regulations mandating or otherwise governing the coverage of medical cannabis may be preempted by federal law. Until and unless cannabis is rescheduled pursuant to the Controlled Substances Act, plan members will likely find enforcing state coverage requirements in court to be challenging.
Client Alert 2025-125
