On August 16, 2016, the 9th Circuit delivered a big victory to state-legal marijuana growers and suppliers when it ruled that the U.S. Department of Justice is restricted by Congress from spending funds to prosecute medical marijuana businesses that are compliant with state law. The case, United States v. McIntosh, consolidated 10 district court appeals by medical marijuana growers and dispensary operators in California and Washington who were facing federal indictments for violating the Controlled Substances Act. The indictments stemmed from the individuals’ involvement with state-legal medical marijuana operations, including the popular Hollywood Compassionate Care dispensary in California.
Following their indictments, the medical marijuana growers and suppliers filed interlocutory appeals and writs of mandamus seeking dismissal or to enjoin their prosecutions on the basis of Section 542 of the Consolidated Appropriations Act. The businesses argued that Section 542, which prohibits the DOJ from using the congressionally allocated funds “to prevent any of (the states) from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana,” bars the DOJ from prosecuting private individuals involved with state-law compliant medical marijuana operations.
The DOJ defended the indictments based on its interpretation of Section 542 as merely prohibiting the agency from pursuing legal action against a state itself for violations of the Controlled Substances Act, and did not divest the agency of its authority to prosecute private individuals involved with state-legal medical marijuana businesses. The agency argued that its prosecution of private individuals does not interfere with the states’ ability to implement their laws; therefore, enforcement of the Controlled Substances Act against private individuals is not protected by Section 542.
While the 9th Circuit found that Section 542 was “not a model of clarity,” the three-judge panel found in favor of the appellants’ interpretation. The court agreed with the appellants’ argument, but it refused to dismiss the indictments, clarifying that Section 542 did not apply to the DOJ’s authority to prosecute individuals who were not in strict compliance with state medical marijuana laws. As a result, the court held that the individuals in the McIntosh case are entitled to an evidentiary hearing to prove that they “strictly complied with all relevant conditions imposed by state law on the use, distribution, possession, and cultivation of medical marijuana.” If the appellants are unable to show strict compliance with state law, the DOJ may move forward with the prosecution. Although far from divesting the DOJ of its authority to enforce violations of the Controlled Substances Act, the McIntosh decision dealt a blow to the DOJ’s interpretation of Section 542 and pending enforcement actions.
History Repeats Itself
The McIntosh court refused to consider the legislative history of Section 542 and focused only on the text of the rider. However, the history of the spending restriction sheds light on the complicated relationship between the federal government and those involved with state-legal medical marijuana.
The congressional spending restriction on the DOJ’s prosecution of state law compliant medical marijuana growers and suppliers began in 2012 as the Rohrabacher Amendment, which failed to pass the House by a 262-163 vote. By May 2014, the then-called Hinchey-Rohrabacher Amendment passed the House with a strong bipartisan showing of 49 Republicans joining 170 Democrats in support of the amendment. Likely signifying the shift in political attitude toward medical marijuana, it was the first time either chamber of Congress voted in favor of a measure to relax federal marijuana laws or enforcement.
The Hinchey-Rohrabacher Amendment became Section 538 of the Consolidated Appropriations Act of 2015. But, despite the passage of the spending restriction, bipartisan support and the existence of the Cole memo, the DOJ continued pursuing state-legal medical marijuana ventures. In a guidance memo sent to federal prosecutors in February 2015, DOJ Appellate Section Chief Patty Merkamp Stemler summarized the DOJ’s stance that the appropriations law did not “bar the use of funds to enforce the CSA’s criminal prohibitions or to take civil enforcement and forfeiture actions against private individuals or entities.”
In fact, the McIntosh case was not the first time the DOJ challenged the congressional spending restriction to enforcement actions against private individuals operating medical marijuana businesses. In United States v. Marin Alliance for Medical Marijuana, the Northern California District Court addressed the spending restriction’s applicability to DOJ’s enforcement of a permanent injunction against the Marin Alliance, a medical marijuana dispensary, and Lynette Shaw, a dispensary operator. The 2002 injunction ordered the Marin Alliance to cease distribution of cannabis and included a lifetime ban on Ms. Shaw from operating another dispensary. Despite the injunction, the Marin Alliance continued operations without interference until 2011, when the DOJ issued cease and desist letters and initiated forfeiture proceedings. The DOJ eventually settled with the dispensary’s landlord and the Marin Alliance ceased operations. But, due to the passage of the original Hinchey-Rohrabacher Amendment, the legal battle was far from over. Ms. Shaw and the Marin Alliance filed a motion with the Northern California District Court to dissolve the injunction. Similar to the 9th Circuit’s finding in the McIntosh case, the court held that the 2015 congressional spending restriction precluded the DOJ from expending funds to enforce the injunction without the dispensaries being in violation of state laws. Like in the consolidated McIntosh cases, the DOJ argued that the congressional spending restriction was not designed to protect individuals and businesses, only states. The Northern California District Court admonished the DOJ’s interpretation of the congressional spending restriction. Unlike the 9th Circuit, the district court considered the legislative history of Section 538, finding it “points in only one direction: away from the counterintuitive and opportunistic meaning that the DOJ seeks to ascribe to it now” and that “it defies language and logic for the Government to argue that it does not ‘prevent’ California from ‘implementing’ its medical marijuana laws by shutting down these same heavily-regulated medical marijuana dispensaries.”[pullquote]The McIntosh decision dealt a blow to the DOJ’s interpretation of Section[/pullquote]
Despite the scathing decision in the Marin Alliance case, the permanent injunction against the Marin Alliance survived. The court modified the injunction to allow activities that are legal under state law, but it did not go so far as to dissolve the injunction due to medical marijuana’s status under the Controlled Substances Act. The DOJ initially appealed the Marin Alliance decision to the 9th Circuit; however, the DOJ abandoned the appeal earlier this year.
During the Marin Alliance litigation, the U.S. House voted to reauthorize the congressional spending restriction, now titled the Rohrabacher-Farr Amendment, again with bipartisan support.
After its journey through Congress, the Rohrabacher-Farr Amendment ultimately became Section 542 of the Consolidated Appropriations Act of 2016 and central to the 9th Circuit’s decision in the McIntosh case. However, even following the reauthorization of the spending restriction, questions loomed as the DOJ continued medical marijuana prosecutions based on its insistence that Section 542 does not extend to enforcement actions against individuals or organizations.
The sponsors of the Rohrabacher-Farr Amendment, Reps. Dana Rohrabacher (R-Calif.) and Sam Farr (D-Calif.), urged the DOJ to cease its prosecution of state-compliant medical marijuana operations. As prosecutions continued, the sponsors openly criticized the DOJ’s restricted interpretation of the appropriations law in a letter to then-Attorney General Eric Holder in April 2015: “As the authors of the provision in question, we write to inform you that this interpretation of our amendment is emphatically wrong” — a conclusion with which the 9th Circuit in McIntosh agreed.[pullquote] The permanent injunction against the Marin Alliance survived [/pullquote]
The War Rages On
Despite the McIntosh decision, the federal government has not been stripped of its power under the Controlled Substances Act. In fact, the application of the 9th Circuit decision in the McIntosh case is substantially limited.
First, the 9th Circuit ruling does not bind courts outside of the jurisdiction of the 9th Circuit — a relevant consideration as a growing number of East Coast states have implemented, or are in the process of implementing, medical marijuana programs. For now, East Coast states, like Pennsylvania in the 3rd Circuit, cannot rely on the McIntosh ruling if the DOJ begins enforcement actions against state-legal entities.
Furthermore, the 9th Circuit’s ruling and the perceived protections afforded by Section 542 extend only to individuals and businesses in strict compliance with state medical marijuana laws. The 9th Circuit rejected any implication that Section 542 requires the federal government to step back and allow states exclusive control over medical marijuana suppliers who are not in compliance with state law. The DOJ retains the ability to prosecute any individuals that fail to comply “with all relevant conditions imposed by state law on the use, distribution, possession, and cultivation of medical marijuana.”
As illustrated in the McIntosh case, the DOJ may still initiate enforcement actions against medical marijuana organizations and affiliated individuals, with the caveat that they are entitled to an evidentiary hearing to prove they are in full compliance with state law. While the McIntosh ruling is not directly applicable to DOJ enforcement in East Coast states, prospective businesses and individuals involved with medical marijuana in those states should not take state law or the Department of Health’s regulations lightly. Strict state law compliance may be the deciding factor to avoid federal prosecution.
Finally, while the spending restriction has had bipartisan support in Congress, the Section 542 prohibition can be eliminated by Congress. As an appropriations law, the restriction faces yearly scrutiny. It remained in effect until Sept. 30, 2016. Medical marijuana growers, processors and dispensaries must remain aware of the possibility that Congress will restore the DOJ’s funding for criminal and civil enforcement actions against state-legal medical marijuana businesses. On the other hand, Congress may continue the trend toward easing enforcement of federal marijuana laws.
While the DEA maintains its refusal to reschedule marijuana, Congress may move marijuana from Schedule I to Schedule II as proposed by the bipartisan Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2015 introduced in the Senate. However, the looming possibility of future legislation provides little comfort to targets of past DOJ enforcement actions.
While medical marijuana advocates within the jurisdiction of the 9th Circuit won the McIntosh battle, the court’s decision comes with two important lessons as states on the East Coast implement their medical marijuana programs. One, it is essential for medical marijuana businesses and the individuals involved to remain in full compliance with state law. And two, the war to fully legalize medical marijuana rages on.
Melissa A. Chapaska helps businesses obtain and remain legally compliant as they plan, form, and operate their medical cannabis-related enterprises. She is an attorney at Cannabis Law PA (cannabislawpa.com), which helps clients navigate the medical marijuana licensing, permitting and regulatory compliance processes necessary to thrive.