Opinion: Industry Shouldn't Relax Yet Over Federal Fix

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.

Michael Cooper

Michael Cooper is the co-founder and managing member of Madison Jay Solutions LLC, a leading regulatory advisor to the adult-use cannabis industry that helps businesses understand the latest rules and build effective compliance infrastructure to address risk. He is the Vice Chair of the NCIA’s State Regulations Committee and publishes and speaks frequently on state-legal marijuana regulation. He is a graduate of Harvard College and Harvard Law School, and previously served as General Counsel of MHW, Ltd. and in the litigation department of Cravath, Swaine & Moore LLP. Mr. Cooper began his legal career as a law clerk on the U.S. Court of Appeals for the Fifth Circuit. Mr. Cooper can be reached at mcooper@madisonjaysolutions.com.

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