A U.S. federal appeals court ruled on Monday that New Jersey's gambling regulator cannot prevent Kalshi from allowing state residents to use its prediction markets to place financial bets on the outcomes of sporting events.

A three-judge panel of the Philadelphia-based 3rd U.S. Circuit Court of Appeals ruled 2-1 in favor of Kalshi, finding that the Commodity Exchange Act preempts state law and governs the sports-related contracts offered on its platform.

The ruling marks a significant victory for Kalshi, which, along with other prediction market operators, has become a central figure in an escalating conflict over whether state gambling regulators have the authority to oversee activities on their platforms.

States have argued that companies like Kalshi are operating without licenses in their jurisdictions, violating state gambling laws, including prohibitions on betting by individuals under the age of 21.

Last year, New Jersey issued a cease-and-desist letter to Kalshi, stating that the company's listing of contracts related to sporting events on its platform violated state gambling laws that prohibit wagering on college sports.

Kalshi filed a lawsuit, arguing that it is registered with the U.S. Commodity Futures Trading Commission as a designated contract market and that its event contracts fall under the category of "swaps" governed by the Commodity Exchange Act.