Madison Jay Archives - Green Market Report

Michael CooperOctober 8, 2018


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.

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