Devilish details: Looking at the cannabis industry from a federal standpoint

By Sean Badgley

If you are researching an I-502 venture, it’s not very hard these days to go online and find a litany of attorneys reminding you that your activity remains illegal at the federal level. The reason is simple. This is a straightforward piece of advice, and it happens to be true.

However, as far as information goes for someone who’s already committed to the process, or already decided that the risk of federal intervention is low, this bit of information has two distinct problems.

First, it’s entirely unhelpful. Most, if not all, the actors in the I-502 process are well aware that the federal government has an ongoing prohibition against cannabis.

Secondly, while it’s true the DEA could raid I-502 entities and charge the participants criminally, that statement manages to give the reader the impression that the federal government is simply a monolithic and antagonistic force. The truth of the matter is exceptionally more complex and nuanced, because the federal government is not merely one monolithic entity, but rather a vast network of interlocking bureaucracies, each with individual goals, guidelines and views about cannabis commerce.

To give the reader an idea of the range of federal viewpoints within I-502, we’ve decided to discuss three examples of federal agencies that have a direct effect on I-502 implementation, and describe how their posture is affecting the industry.


Security and Exchange Commission (SEC)

The SEC is the regulatory authority tasked with policing America’s capital markets. If you are thinking of raising money or investing money related to an I-502 venture, it may be wise to consider this regulatory component. While one would reasonably assume the SEC would not support cannabis legalization, this assumption turns out to be somewhat incorrect.

The SEC’s position is somewhat similar to the IRS; the agency does not care about the nature of the activity, provided you are following the agency’s rules. In the case of the IRS, that means paying your taxes. In the case of the SEC, it gets much more complicated and dependent on your venture, but what is clear is that if you take care to follow the SEC’s rules, it is generally apathetic to the nature of the business.


Bureau of Land Reclamation (BLR)

This agency was essentially set up to manage the scarce supply of water throughout the country and it operates throughout Eastern Washington. When one wishes to access water in this area, he or she will typically want to use irrigation canals provided by this agency.

Unfortunately, the BLR has made it clear that none of its irrigation canals will be available for I-502 operations, meaning one has to drill a well.

Well drilling is a time-consuming endeavor, and may require the approval of multiple state agencies and local authorities, so being aware of this expense is a critical factor in planning your operation.


Bonneville Power Administration (BPA)

Haven’t heard of the BPA? Neither had we. Here’s a short description from our friends at Wikipedia:

“The Bonneville Power Administration (BPA) is an American federal agency based in the Pacific Northwest. BPA was created by an act of Congress in 1937 to market electric power from the Bonneville Dam located on the Columbia River and to construct facilities necessary to transmit that power. Congress has since designated Bonneville to be the marketing agent for power from all of the federally owned hydroelectric projects in the Pacific Northwest. Bonneville, whose headquarters are located in Portland, Oregon, is one of four regional Federal power marketing agencies within the U.S. Department of Energy (DOE).”

Interestingly, various Washington state public utility districts have been sending out notices to customers involved in I-502 informing them that they may face a rate increase, because the BPA does not want federally managed power to go to I-502 operations. Much like the BLR, the agency is basically unsure what it should do, and has told the local utilities to be prepared for rate increases as a result.

So, are the various federal issues too difficult to manage?

Of course not. However, before engaging in an I-502 endeavor, you should consider the finer details of your plan (electrical needs, water supply and regulatory compliance) and attempt to determine whether there is a federal agency that might have some stake in that component of your plan. If so, it’s important to determine where that particular agency stands on I-502, and whether a workaround is necessary or desirable. As with most things in this industry, careful planning is essential for long-term success.

Sean Badgley is an associate attorney for DK Law Group. He has been working with the firm since 2013. His previous experience focused on commercial finance, a sector in which he worked for five years before attending and graduating from Seattle University’s School of Law. He attended law school with the aim of practicing in the field of cannabis commerce and currently advises the firm’s clients on compliance and securities.



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