Michael Cooper, Author at Green Market Report

Michael CooperOctober 8, 2018
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10min17020

On September 28, the United States Attorney for the District of Colorado, Bob Troyer, issued a warning for the state-legal cannabis industry:  the “crosshairs” of federal enforcement may shift to “the public harms caused by licensed businesses and their investors, particularly those who are not complying with state law or trying to use purported state compliance as a shield.”  In an interview with the Denver Post the same day, the U.S. Attorney warned that his office would soon bring an enforcement action against a licensed chain of marijuana dispensaries that he alleged was actually an illegal drug-trafficking organization.

Should the law-abiding cannabis industry panic?  Could this be the moment some feared when Attorney General Jeff Sessions revoked the Cole Memo in January 2018, granting more discretion to U.S. Attorneys around the nation—including U.S. Attorney Troyer—to pursue cases against state-legal marijuana businesses?

And would such a “crackdown” spread across the nation since U.S. Attorney Troyer noted that he is “the U.S. attorney leading other U.S. attorneys on marijuana issues?”

Though these are reasonable questions—and we have not been surprised to field them as compliance consultants who help businesses that want to make sure that they are following the letter and spirit of the rules governing these state cannabis markets—the simple answer is “no.”  There are multiple reasons to believe that federal prosecutors are unlikely to target businesses in compliance with the letter and spirit of state marijuana law.

First, it is important to pay attention to what the U.S. Attorney stated he is currently tackling:  a chain that is engaged in illegal drug trafficking.

U.S. Attorney Troyer argued that drug syndicates view the state’s legal marijuana industry as perfect cover for their illegal activities.  According to the U.S. Attorney, the same pound of marijuana is worth more than 5 times as much on the East Coast as in Colorado.  That creates an incentive for criminal syndicates to grow in Colorado and sell in other states.

But, of course, licensed Colorado marijuana businesses are not permitted to sell their cannabis in Maryland or Massachusetts.  If a licensed Colorado cannabis business were growing cannabis for interstate sale, that would be a serious violation of Colorado law.

Thus, if these are the types of licensed businesses federal prosecutors will target, it is a misnomer to call it a crackdown on licensed cannabis businesses.  That would be akin to a crackdown on “licensed banks” that simply kept all of the money that the banks’ “customers” deposited.  The beginning of the business model mirrors the legal model (a licensed cultivator grows cannabis, a licensed bank takes deposits), but in both cases, the next steps are a clear violation of law that cannot be cured by a license.

Second, though the U.S. Attorney warned that “sometimes” compliance with state law would not be relevant to his decision to bring a prosecution, he made explicit that his focus would be on “safety.”

Having dealt with U.S. Attorney’s offices throughout my career, it would be very surprising for them to take a scattershot approach.  Those offices appreciate the very significant prosecutorial power they wield.  U.S. Attorney stated that his office has identified black-market drug trade and violent crime associated with licensed businesses.  If so, that is where their sweep will begin.  They will not defer those cases to use their finite resources to prosecute industry players trying to follow the letter and spirit of the Colorado rules.

Third, federal prosecutors do not operate with unguided discretion.  Indeed, there have long been limits on federal prosecutors’ ability to bring prosecutions against state-legal medical marijuana businesses that are in compliance with state law in the form of the Rohrabacher-Blumenauer Amendment.

To the extent that federal prosecutors begin aggressively targeting businesses in compliance with state law, they may find their discretion to bring such cases further curtailed.  The legislative actions in the wake of the revocation of the Cole Memo are particularly instructive.  At that time, Sen. Cory Gardner and others aggressively pushed back on the Department of Justice.  Those pro-industry legislators ultimately received a commitment from President that the revocation of the Cole Memo would “not impact Colorado’s legal marijuana industry.”

Thus, to the extent that U.S. Attorney Troyer launches prosecutions of licensed businesses that are in full compliance with the letter and spirit of Colorado’s marijuana rules, one can expect a similar pushback.  And that pushback could result in far more significant limits being placed on U.S. attorneys’ discretion in marijuana cases.

For example, it could lead to a vote on the McClintock-Polis Amendment, which is reported to have significant support and that would place the same limits on prosecutions of state-legal adult-use marijuana businesses as the Rohrabacher-Blumenauer Amendment places on medical marijuana.  Coupled with the Rohrabacher-Blumenauer Amendment, this would functionally preclude federal prosecutors from expending resources to bring prosecutions against state-compliant marijuana businesses.

Alternatively, aggressive prosecutions could also lead to sufficient pressure on the White House to uphold its commitment to Sen. Gardner that a new “Cole Memo” could be implemented to restrict U.S. Attorneys’ discretion to bring such actions.  Of course, this new memo could go potentially beyond the protections in the Cole Memo if aggressive prosecutions lead to a sufficient political backlash.

Last, aggressive prosecutions of state law-compliant businesses could lead to further legislative momentum for a more comprehensive fix.  For instance, it could provide more urgency for backers of the STATES Act that would permanently immunize businesses acting in compliance with state law.  That, of course, would foreclose such prosecutions in the future, and President Trump has indicated his probable support for the bill.

In short, it is no time for industry panic.  There is a good reason to believe that any crackdown in Colorado or the other legal states is unlikely to reach cannabis businesses that are making robust efforts to comply with the letter and spirit of the law.  But as prosecutors zero in on conduct committed by licensed businesses, the industry and its supporters will be watching closely.


Michael CooperMay 10, 2018
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8min21890

In recent days, it seems the dam has broken and a string of positive developments have materialized for marijuana reformers—welcome news to the legal marijuana industry, the voters who supported it, and the local communities relying on it for new tax revenues.  But given the structure of anticipated reforms—and the history of the implementation of prior reforms—the path ahead is unlikely to be smooth.

On April 26, the most recent Quinnipiac poll showed that 74% of American voters now support a bill that would protect states’ legal medical and adult-use marijuana markets.  That exceeds even the 63% of voters who favor national legalization, a Quinnipiac polling record.

Needless to say, keeping the federal government out of state marijuana policy is a popular position.  And that 74% of the voting population appears to be on the cusp of getting its wish:  On April 13, Republican Sen. Cory Gardner reached a deal with President Donald Trump to secure the president’s support for a comprehensive “federalism-based legislative solution” to the interlocking federal prohibitions and penalties on cannabis activity.

Those prohibitions have long been the legal sword of Damocles hanging over the cannabis industry.  Indeed, it was only January 2018, when Attorney General Sessions withdrew the federal enforcement guidance under which the industry had flourished, injecting a fresh dose of uncertainty to an industry that had long warily eyed the nation’s chief law enforcement officer with a famous antipathy for marijuana.

But it is not merely the threat of federal prosecution for state-licensed conduct that hangs over the industry.  As industry members know well, the federal prohibitions on marijuana also result in the denial of a number of services and benefits that other small businesses take for granted, from banking access to tax deductions.

As a result, if the promised bill comes to fruition, life should become significantly easier for the small businesses at the vanguard of this industry.

But lurking in the background of the forming consensus around a “federalism-based” fix is a major question:  How would this actually work in practice?

In fact, history suggests that progress will be more fitful than supporters hope—leaving certain avenues of attack open to aggressive anti-marijuana prosecutors fighting a rearguard action.

At the core, the defining characteristic of any federalism-based solution for cannabis is likely to be a differential treatment for individuals who undertake certain marijuana-related activity (e.g., cultivation) in compliance with state law versus those in states that have not authorized that conduct.  Such an approach provides “hands-off” treatment to law-abiding participants in regulated state markets while retaining a role for the federal government in combating criminal interstate (and international) cartels involved in supplying the unregulated black market.

How marijuana businesses wind up classified in one bucket (“state-legal”) or the other (“illegal black market”) is where the rubber will meet the road.  Because while the concept that operating in conformance with a state-regulated marijuana program will immunize individuals from prosecution is simple enough, participants in the marijuana industry will not be in the clear yet.

An initial consideration is regulatory volume.  States have enacted hundreds of pages of regulations for marijuana businesses to follow covering everything from security to pesticide use.  And those regulations are not static.  States continue to revise and tweak their cannabis rules and what sufficed in January may not be enough come February.  As a result, it is very possible for operators to unwittingly, or temporarily, fall out of compliance with their state laws despite ongoing attempts to “get it right.”

In addition, some rules are inherently subjective.  For example, states have banned marketing that would appeal to minors, an essential regulatory goal.  But while some promotional content would clearly appeal to minors, there will always be marginal content about which reasonable people can disagree.  Here, that disagreement could open the door to federal prosecution.

To be sure, that federal law enforcement may take a narrow view of legislative cannabis protections is far from hypothetical.  Another piece of recent positive news for marijuana law reformers was Congress’s reauthorization in the March 2018 budget bill of an appropriations rider that prohibits the DOJ from spending funds to prevent states from implementing their medical marijuana programs.

When Congress first enacted the rider in 2014, federal medical marijuana defendants sought to force the DOJ to drop their prosecutions.  After all, they argued, Congress had expressed a desire to withhold funding for attacks on state medical marijuana programs.  In response, the DOJ contended that the prosecutions could continue because Congress had only protected the states, not the individuals who participated in those states’ programs.  In 2016, the US Court of Appeals for the Ninth Circuit ruled in favor of the defendants, rejecting that argument.

But the court only enjoined the prosecution of individuals who strictly complied with state programs.  That distinction is far from academic.  In fact, as recently as April 2018 in a follow-up case, the Ninth Circuit permitted a prosecution to proceed against medical marijuana cultivators who “inadvertent[ly]” violated California marijuana law.

So, what is to be gleaned?  First, legislative drafters should take account of the nature of regulations in this area and enact a standard of compliance that reflects it.  One solution would be federally immunizing conduct by individuals who reasonably attempted to comply with state law—leaving it to state regulators to address and correct “reasonable” shortcomings.  Second, everyone with an interest in cannabis reform should continue to expect speed bumps ahead, even as the pace of reform accelerates.  The sword of Damocles may have lifted, but it is not gone.


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