Everybody in the marijuana industry was acutely aware when U.S. Attorney General Jeff Sessions issued a memorandum on Jan. 4, 2018 — we’ll call this the “Sessions Memo” — that rescinded the Obama administration enforcement guidance memo, the Cole Memo.
Now that some time has passed, the dust has settled and nerves have calmed, it is a good time to take a look at the practical impacts and potential consequences of the Sessions Memo.
Photo by Gage Skidmore.
The Cole Memo
The Cole Memo did not legalize marijuana or marijuana businesses operating in various states. Rather, it provided guidance to U.S. district attorneys that their enforcement resources would be better allocated to other types of activities, instead of marijuana activities operating under effective state regulatory control. It also deprioritized marijuana prosecution.
The Cole Memo notwithstanding, marijuana was always illegal under both federal and state laws and individual U.S. district attorneys were always free to make the determination, on their own, to enforce the federal Controlled Substances Act and prosecute state-licensed marijuana businesses. The fact is they didn’t and that was the success of the Cole Memo; a whole new industry took off.
The Sessions Memo
The Sessions Memo rescinded the guidance to U.S. district attorneys that they should deprioritize the enforcement of the federal Controlled Substances Act against state-licensed marijuana businesses.
However, this does not necessarily mean that such enforcement was made mandatory or even a higher priority. Individual U.S. district attorneys will still exercise their enforcement discretion, but now they have other factors that should weigh heavily in making that decision, such as the expressed will of the state to decriminalize and the existence of a state regulatory structure that successfully regulates its marijuana industry.
The Sessions Memo also specifically addresses recreational marijuana and not medical marijuana because in 2014 Congress passed legislation (now called the Rohrabacher-Blumenauer Amendment) that forbids the Department of Justice from expending funds to prohibit a state from implementing medical marijuana laws that authorize the legal use, distribution, possession or cultivation of medical marijuana. This protection of medical marijuana has already been extended several times; if Congress continues to extend these protections — or make them permanent — the Department of Justice will continue to be prohibited from expending to prosecuting state-legal medical marijuana activity.
The Sessions Memo has no immediate impact on the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) enforcement guidance in 2014 that laid out a process for how banks can open accounts for marijuana businesses and avoid triggering federal enforcement actions. At the time of this writing, it is not certain that the FinCEN enforcement guidance will not also be rescinded. The Treasury Department stated in January 2018 that banking institutions should continue to follow its guidance issued in 2014. However, that 2014 guidance was prompted by the Cole Memo and the agency is now reviewing its guidance in light of the Sessions Memo.
Moving Forward
Back in 2012, when Washington and Colorado took the first steps allowing recreational marijuana, it was the pot people versus the Feds. Now the state governments are in the game, with a strong interest, both in protecting their residents who have relied on the state’s regulatory and licensing structure and also to protect the tax revenue generated by the new industry. Colorado has pulled in more than half a billion dollars in state tax revenue since 2015. Washington expects to collect $730 million in state tax revenue in the 2017-2019 stage budget cycle. California alone is projected to collect $1 billion a year. These states and others are big players with a lot of skin in the game.
Multiple state attorneys general have already announced their intent to protect state-legal industries.
“Last year in Oregon, we collected $60 million in state taxes as a result of our now legal marijuana industry,” Oregon Attorney General Ellen Rosenblum said. “At Oregon’s Department of Justice we will continue to make sure Oregon’s marijuana industry thrives under our carefully considered state regulatory requirements. … This is an industry that Oregonians have chosen and one I will do everything within my legal authority to protect.”
Additionally, public perception of and attitudes toward the legalization of marijuana have changed. According to Pew Research polling on marijuana, public support for legalized marijuana increased from 45% in 2011 to 57% by 2016. In 2018, 61% of Americans say the use of marijuana should be legalized.
The frequent question asked by those operating in the marijuana industry is, “How do I protect myself and my business?” The answer is that you look for refuge in the only place you have ever had it in this industry: operating within and adhering to strict compliance with your state regulatory structure.
This of course means the marijuana regulatory structure adopted and enacted by your state, but I would suggest it also means the entire state regulatory structure, including those that are not specific to cannabis. Your state has minimum wage requirements? Be in compliance. Your state has work and lunch break requirements? Follow them. Your state requires paid sick leave? It’s the law. Pay all federal, state and local taxes. Workers’ comp? Pay it. Don’t get caught calling your employees independent contractors by issuing them a 1099 or not giving employees required paid leave.
You want to be perceived as a “good actor” on all levels. Regulatory compliance is not a burden; it is your protection.
Right now, things proceed as they always have in this nascent industry. Licensed marijuana businesses are not being raided and shut down. The banking industry, while not always welcoming, has not completely retreated. Landlords have not started pulling lease agreements. Things proceed.
But if things do turn for the worse, and right now there are no signs that they have or will, make sure you are on the “good actor” list.
David Kerr is of counsel with the Fifth Avenue Law Group in Seattle (www.fifthavenue-law.com). He is a leader in the complex area of marijuana business law, including buying or selling a marijuana business; navigating compliance and regulatory issues; facilitating business transactions; and state licensing. He has more than 20 years of experience working as in-house counsel, directing government affairs and working with state and local governments, and can be reached at dkerr@fifthavenue-law.com.