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With a foundation in advocacy for cannabis legalization built through involvement on University of Washington's campus and with the Washington State Liquor and Cannabis Board, Daniel has positioned himself as a fearless advocate for the cannabis industry.

Cannabis attorneysMarijuana is a valuable asset and insurance can be a necessary tool in protecting that investment. We have written about how marijuana inventory can be covered under a general liability insurance policy. However, not all courts are willing to hold that an insurance policy covers cannabis.

In USAA v. Tracy (D. Haw. Mar. 16, 2012), a US District court in Hawaii ruled that a homeowner’s insurance policy does not cover medical marijuana. On May 18, 2010, USAA Casualty Insurance Company issued Barbara Tracy a homeowners’ insurance policy. Tracy was a medical marijuana patient who was permitted under Hawaiian state law to possess and grow marijuana. A thief stole 12 of Ms. Tracy’s marijuana plants, valued at $45,600, from Tracy’s property and she submitted a claim to USAA. USAA made an initial payment on the claim but Tracy argued that the amount was insufficient. USAA informed Tracy it would not make any further payment on the policy. Tracy sued USAA for breach of contract, seeking additional funds for the stolen cannabis plants. USAA moved for summary judgment to have Tracy’s claim dismissed, arguing that her marijuana was not covered under her policy.

USAA’s policy covered theft of “trees, shrubs, and other plants” and Tracy argued that this should include her marijuana plants. USAA first contended that Tracy did not have an insurable interest in medical marijuana. Hawaiian Law defines an insurable interest to be any “lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage.” USAA argued that an interest in medical marijuana is not “lawful” because Hawaii’s medical marijuana law “does not legalize the medical use of marijuana, but provides an affirmative defense to marijuana-related state law crimes for the medical use of marijuana.” USAA also pointed to the fact that Hawaii’s medical marijuana law states that “this part shall not be construed to require insurance coverage for the medical use of marijuana.” The court rejected both arguments by determining that Hawaii does permit the use of medical marijuana, making it lawful, and that although Hawaii’s medical marijuana law did not require insurance coverage, it does not prohibit insurance coverage. The court determined that Tracy did have an insurable interest in marijuana as legally compliant medical marijuana user.

However, the court was persuaded by USAA’s second argument that it could not purchase medical marijuana using insurance proceeds as that would violate federal law. The court cited to cases that established that Hawaiian courts can refuse to enforce contracts that violate federal law. The court ruled Tracy’s possession and use of marijuana violated federal law because it directly conflicted with the federal Controlled Substances Act, even though she was compliant with state law.  The court concluded that the insurance policy purportedly covering her marijuana plants was an illegal contract that could not be enforced and that USAA had no obligation to provide her insurance proceeds for the plants. As a result, it granted USAA summary judgment, holding that it did not owe Ms. Tracy anything more.

For more on insurance and marijuana, please see the following:

Cannabis attorneysCommercial leases for cannabis businesses are a major concern for many of our clients largely because cannabis businesses operate in an industry prohibited under federal law. Generally, contracts that are illegal are unenforceable and there is an argument to be made that any and all cannabis contracts are illegal, at least at the federal level. But a recent Arizona state court shows that state courts are not always receptive to that argument and that a contract that violates federal law is not necessarily unenforceable.

Green Cross Medical, Inc. v. Gally (April 18, 2017) addressed whether a commercial lease with a medical marijuana grow operation in Arizona was enforceable. John Gally owned commercial property in Winslow, Arizona that he leased to Green Cross Medical to operate a medical marijuana dispensary. Two weeks later, Gally sent a letter to Green Cross revoking the lease. At the time Gally terminated the lease, Green Cross had not received the necessary license to operate a dispensary. However, the lease permitted Green Cross to sublease the property and nothing in the lease stated the lease would be terminated if Green Cross did not receive a license to run a dispensary.

Green Cross sued Gally for breach of contract and attempted to obtain a temporary restraining order to prevent Gally from revoking the lease. Gally argued that the lease was illegal and therefore unenforceable because it involved cannabis distribution. The trial court was persuaded by Gally’s argument and ruled that the lease agreement was indeed unenforceable because violated both federal and state law. Based on this, the trial court did not grant Green Cross the restraining order and it denied Green Cross damages for Gally’s having revoked the lease.

Green Cross appealed the trial court’s decision.  First, the appeals court determined that Green Cross could seek damages against Gally even though Green Cross did not receive a license to operate a dispensary on the leased property because the right to sublease was a valuable property right. As a result, Green Cross was permitted to seek damages for the loss of the lease.

The appeals court also held that the lease was not illegal on under Arizona law. The court stated that the Arizona Medical Marijuana Act (AMMA) protects rights of dispensaries to enter into commercial leases and that dispensaries have a contractual right to enter into lease agreements with landlords. The appeals court concluded that “[g]iven the language of the AMMA, a court may not void or refuse to enforce a dispensary’s lease with a landlord simply because the dispensary would be supplying marijuana in compliance with the AMMA.”

The appeals court also rejected Gally’s arguments that he as the landlord could face criminal liability under state law because he was facilitating marijuana distribution by leasing property to a cannabis dispensary. The appeals court pointed to the fact that Gally agreed to execute the lease understanding that Green Cross intended to operate in Arizona’s medical market:

We emphasize that nothing in the AMMA requires a landlord to rent a property to a proposed dispensary. Gally was free not to enter into the lease if he was uncomfortable with the proposed use of the Property. But once he chose to do so, he was not free to rescind his contractual commitments without facing potential monetary liability. Accordingly, leasing property to a medical marijuana dispensary that is in compliance with the AMMA is not illegal under Arizona law. Thus, the superior court erred when it found the lease was void and dismissed the complaint seeking damages for the breach.

The appeals court then acknowledged that federal law prohibits distribution of marijuana under the Controlled Substances Act (CSA) and that it is, therefore, illegal under federal law for an Arizona landlord to lease property to a marijuana business. However, the appeals court went on to state this federal illegality “does not render the contract in this case unenforceable under all circumstances.” The court cited to several cases where contracts involving medical marijuana businesses were upheld by courts despite being prohibited under federal law, showing that courts balance the federal government’s interest in enforcing the CSA with states’ interest in permitting the medical use of marijuana.

The appeals court weighed the interests of the federal government and the state of Arizona and held that the lease was not unenforceable simply because it violated the federal CSA. The appeals court explained that federal government enforcement of the CSA against state-compliant marijuana operators had been in flux for years and that the Department of Justice (DOJ) had instructed US Attorneys not to prosecute individuals acting in compliance with the Cole Memo. The court also noted that Congress has prohibited the DOJ from using funds to prosecute people distributing marijuana in compliance with state law. As a side note, that spending provision was recently extended.

The Arizona Appeals Court sent the case back to the trial court to reconsider the facts of the case in light of the appeals court having held that the lease was not unenforceable and that Green Cross may recover damages for Gally’s terminating the lease.

You can find more on cannabis leases here:

 

 

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Several states have legalized recreational use of cannabis but no state has yet created a state-sanctioned place for adults to legally consume cannabis. This leaves many consumers with no place to enjoy legal cannabis as no state permits public consumption. A bill in Nevada could make it the first state to allow for cannabis clubs.

Senate Bill 236 would grant cities and counties authority to issue licenses to businesses wishing to allow cannabis use at their premises or to hold special events where cannabis use is permitted. Cities and counties would have the ability to establish an application process and create rules for these businesses. These businesses could not be located within 1,000 feet of a school or community facility, defined as a daycare, playground, public swimming pool, recreation center, place of worship, or drug or alcohol rehabilitation facility. Businesses could not allow consumption of marijuana in public view and could not allow individuals under 21 to enter the business or special event where marijuana is consumed. These licensed businesses could be the cannabis clubs that recreational states have been missing.

SB 236 passed the Nevada Senate by a 12-9 vote and now heads to the Assembly where it must pass in the same form it passed the Senate. If it does, it will then go to the Governor’s desk for signature and it would become law with his signature.

Legalization initiatives in California and Maine may allow for cannabis clubs, but those states have not drafted regulations addressing cannabis clubs. Alaska experimented with the idea of cannabis clubs but ultimately has not permitted such clubs.  Oregon and Washington explicitly prohibit consumption of marijuana at a place of business. Some towns and counties in Colorado allow private clubs where individuals can consume cannabis but they are subject to local rules and regulations. For example, the City of Denver passed Initiative 300 last November to allow businesses to permit cannabis consumption, but the program has yet to be fully implemented.

Colorado considered legislation that would have allowed for social consumption clubs state-wide but the bill ultimately failed to make it through the legislature. According to the Cannabist, Colorado Governor John Hickenlooper would have vetoed the bill had it made it to his desk:

Given the uncertainty in Washington [DC], this is not the time to be … trying to carve off new turf and expand markets and make dramatic statements about marijuana. The federal government can yield a pretty heavy hand on this and I think we should be doing everything we can to demonstrate … we are being responsible in how we implement the will of our voters.

The fear of federal crackdown was too much for lawmakers in Colorado and it remains to be seen whether Nevada will ultimately go forward with licensing businesses to permit cannabis consumption. Nevada is a logical choice for these clubs given that it is a hub for tourism and it already permits legal gambling and prostitution which are outlawed in most other states. One can imagine a few social use clubs fitting in on the Las Vegas strip. Las Vegas could become the US-version of Amsterdam or Barcelona, where cannabis consumers can enjoy their product at a cafe or bar.

 

Washington State cannabis lawyers

The Washington State Legislature recently passed SB 5131, which contains many tweaks to Washington’s cannabis laws. The measure now awaits signature by Washington Governor Jay Inslee. Here are ten ways SB 5131 could change Washington’s marijuana market if Governor Inslee signs it into law:

  1. Homegrown Marijuana. SB 5131 would allow licensed marijuana producers to sell immature cannabis plants, clones, and seeds to qualifying patients who enter the state’s medical marijuana database. Patients who choose not to enter the database may grow up to four plants in their homes under current Washington law and it’s not clear how those patients would legally acquire immature plants, clones, or seeds in light of SB 5131. Additionally, the Washington State Liquor and Cannabis Board (“LCB”) must examine the viability of allowing recreational users to grow their own marijuana in a way that complies with the enforcement priorities outlined in the Cole Memo.
  2. Retail License Ownership. Under this bill, a retailer or individual “with a financial or other ownership interest in” a retail license can own up to five retail licenses. Current Washington State law limits an individual from having an ownership interest in more than three licensed retailers.
  3. Forfeiting applications. The bill would require the LCB forfeit retail licenses that have been issued but are not operational and open to the public after two years unless the delay in opening and getting operational is due to circumstances beyond the licensee’s control. However, the LCB may not require forfeiture if the licensee has been unable to open because of a town or county’s moratorium prohibiting a retail cannabis store or because zoning, licensing or other regulatory measures prevent the retail store from opening.
  4. Processing Hemp. The LCB must study the viability of allowing licensed processors to process industrial hemp grown in Washington. This could eventually lead to legislation that would allow processors to purchase cannabis plant material from farmers licensed to grow industrial hemp. Currently, processors may only purchase products from licensed cannabis producers or other processors.
  5. Advertising. SB 5131 would make the following substantial changes to cannabis advertising laws in Washington.
    1. Advertising to Kids. The bill would prohibit marijuana licensees from taking “any action directly or indirectly to target youth in the advertising, promotion, or marketing of marijuana and marijuana products, or take any action the primary purpose of which is to initiate, maintain, or increase the incidence of youth use of marijuana or marijuana products.” This includes prohibiting using toys, movie or cartoon characters, or other images that would cause youth to be interested in marijuana. It also prohibits using a “commercial mascot” which is defined as “a live human being, animal, or mechanical device used for attracting the attention of motorists and passersby so as to make them aware of marijuana products or the presence of a marijuana business.” This includes inflatable tube displays, persons in costumes, and sign spinners. Cities and counties would be free to further restrict marijuana advertising.
    2. Outdoor Advertising. Billboards visible from any street, road, highway, right-of-way, or public parking area cannot be used to advertise cannabis, except that a marijuana retailer may use a billboard solely to identify the name or nature of  its business and directions to its retail store. Outdoor signs could not contain depictions of marijuana plants, products, or images that appeal to children. Outdoor advertising would be prohibited in “arenas, stadiums, shopping malls, fairs that receive state allocations, farmers markets, and video game arcades.” A limited exception would allow outdoor advertising at events where only adults are permitted.
  6. Gifting Marijuana. Adults twenty-one and over would be allowed to deliver marijuana to other adults so long as the marijuana is offered as a gift without financial remuneration and so long as the amount of marijuana gifted is no more than the amount an adult can legally possess in Washington — one ounce of useable marijuana flower.
  7. Licensing. This bill would allow a licensed marijuana business to enter into licensing agreements or consulting contracts “with any individual, partnership, employee cooperative, association, nonprofit corporation, or corporation” for goods or services, trademarks, and trade secrets or proprietary information. Licensees would be required to disclose these agreements to the LCB.
  8. Public Disclosure. SB 5131 would exempt trade secrets and other proprietary information of a licensed marijuana business from disclosure under Washington’s Public Disclosure Act.
  9. “Organic” Weed. The bill instructs the LCB to adopt regulations for marijuana similar to products certified as organic under federal regulations. The organic standard is granted pursuant to federal regulations and because marijuana is illegal under federal law, it cannot qualify under those federal standards. The LCB would adopt regulations so that marijuana could be grown in a way that mimics organic products. The products then could be labeled as compliant with the state’s standards.
  10. Tribal Oversight. SB 5131 would require the LCB receive approval from a federally recognized Indian Tribe before granting a license on tribal land.

Governor Inslee is likely to sign SB 5131 into law, though he may veto certain parts of the bill. Stakeholders in Washington’s cannabis market should keep an eye on this legislation and prepare to make changes necessary to comply with SB 5131 if and when it gets signed.

UPDATE: On May 16, 2017, Governor Inslee signed SB 5131 without vetoing any sections of the bill.

Donald Trump is expected to announce Representative Tom Marino (R-Pa.) as our country’s next director of the Office of National Drug Control Policy, colloquially known as the US drug czar. As drug czar, Marino would evaluate and coordinate domestic and international our country’s anti-drug efforts and advise the President on U.S. anti-drug efforts. The whole drug czar “thing” is bad news and Marino himself is even worse. He is “just another anti-marijuana, pro-pharma” extremist.

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Marino began his professional career as a prosecutor who sought to do his part on in the “war on drugs” by prosecuting drug offenders. Since 2010, Marino has served in the U.S. House of Representatives and consistently opposed measures to reform federal cannabis law.

Marino voted against the Rohrabacher-Farr amendment which prohibits the Department of Justice from using federal funds to prevent states from implementing medical marijuana laws. He also voted against a measure allowing Veterans Affairs doctors to recommend medical cannabis to their patients and he opposed measures to ease federal restrictions on hemp and CBD. When asked about marijuana legalization, Marino stated he would consider legalizing cannabis only “if we had a really in depth-medical scientific study,” and if medical cannabis were available only in “pill form.” In other words, if it has anything to do with liberalizing our cannabis laws, Marino is against it.

 

According to the “Office of National Drug Control Policy Reauthorization Act of 1998” the drug czar “shall ensure that no Federal funds … shall be expended for any study or contract relating to the legalization (for a medical use or any other use) of a substance listed in schedule I” of the Controlled Substances Act and “take such actions as necessary to oppose any attempt to legalize the use of a substance” listed in Schedule I. Cannabis is still a Schedule I substance and therefore subject to this blanket prohibition on legalization and research.

Marino is no friend of cannabis legalization and Trump’s having has tapped someone with such outdated views is concerning. But even more concerning is the mandate that any drug czar must oppose all marijuana legalization efforts. More than half the states  have legalized medical marijuana and eight states have legalized recreational cannabis, with more to come. With legalization, the evidence that it works better than prohibition is piling up. This country’s director of drug policy should have the discretion to consider this evidence and draw his her own conclusions on cannabis prohibition. As things now stand, the role of our drug czar is not so much to craft policies based on changing realities, but to ensure that our drug policies remain stuck in another era. This is bad policy and it makes no sense and it needs to change.

Earlier this year, the Trump administration considered cutting the Office of National Drug Control Policy entirely. Unfortunately, the President’s tapping Marino as the next drug czar indicates he is now heading in a very different direction. Who needs a drug czar anyway? Trump had it right initially. This office should be eliminated and fast.

Cannabis credit cards

Because of federal prohibition, marijuana businesses have limited access to financial services. Distributing cannabis is a federal crime and proceeds from cannabis sales trigger anti-money laundering laws. The Bank Secrecy Act requires banks combat fraud and money laundering and protect against criminal activity. This Act mandates banks investigate their customers for criminal activity and it prohibits banks from doing business with bad actors. Additional banking laws also require national banks file Suspicious Activity Reports (SARs) with the federal government when they know or suspect an account holder is engaged in or trying to cover up illegal activity.

Yesterday, I participated on an educational panel entitled, “The Marijuana Industry & Financial Services: What’s Happening? What’s in Store?” at the American Bar Associations’ Business Law Section Meeting in New Orleans. This panel was co-sponsored by the ABA’s Credit Card Committee, highlighting how important the banking and financial services issues are to both the cannabis industry and to the financial services industry. Federal cannabis prohibition has been hugely costly to the cannabis industry and its customers and to the financial services industry as well, not to mention the massive public safety issues engendered by having to work in an all-cash business.

Federal banking laws kept most banks and credit unions from knowingly working with marijuana businesses until February 2014, when the Financial Crimes Enforcement Network (FinCEN) and the Department of Treasury issued guidelines for financial institutions that want to bank cannabis businesses. These guidelines require banks and credit unions vet their marijuana business customers and regularly report their marijuana customers’ activities to the federal government to ensure compliance with the 2013 Cole Memo.

Though the FinCEN guidelines address getting a bank account (and thoughseveral U.S. Senators have asked for increased guidance from FinCEN regarding banking marijuana ancillary businesses), there are no federal guidelines regarding credit card usage in the cannabis industry, and so none of the big credit card networks (Visa, MasterCard, American Express, Discover) allow their cards to be used for buying or selling of cannabis. This means that even if a marijuana retailer manages to open and maintain a bank account, it likely has no way to accept credit card payments and cannabis customers still typically pay in cash to purchase marijuana products. Even the FinCEN guidelines don’t completely alleviate the cash issue as a result.

These cash payment issues have forced marijuana retailers to employ alternative payment processing methods, such as cashless ATMs, third party payment programs, and bitcoin. These non-bank financial services address many of the problems that arise from running a cash-only business, but they also come with their own set of challenges. Just by way of one example, my law firm’s cannabis business lawyers have handled many cases where banks stopped paying third party payment processors,  resulting in our clients (the cannabis businesses, themselves) not getting paid. No alternative payment service matches traditional credit cards on safety, costs or ease of use. Unless and until cannabis becomes federally legal, cannabis businesses and their customers will still need to employ credit card workarounds (for better or worse).

For more on cannabis and the banking industry, check out our following posts on this topic:

 

Though 29 states have some form of cannabis legalization, the federal government still lists marijuana as a Schedule I controlled substance in the Federal Controlled Substance Act (CSA). According to the CSA, cannabis has no recognized medical benefit, has a high risk for abuse, and is too dangerous to research even under medical supervision.

A series of bills introduced in both the House of Representatives and the Senate could change all this. Senator Ron Wyden (D-Ore) and Representative Earl Blumenauer (D-Ore) introduced the legislative package on March 30 as the “Path to Marijuana Reform.” The package is made up of the three following bills:

  • The Small Business Tax Equity Act. This would create an exception to 280E that would allow a marijuana business that complies with state law to claim deductions and credits associated with state-legal selling of marijuana. This would allow marijuana businesses to deduct common business expenses like rent, most utilities, and payroll. Marijuana businesses could also claim tax credits, like those intended to incentivize energy efficiency, research and development, or hiring veterans. In other words, cannabis businesses would start being treated by the tax code as legal businesses, not criminals.
  • The Responsibly Addressing The Marijuana Policy Gap Act. This would address the gap between federal and state law by amending the CSA to exempt persons acting in compliance with state marijuana law from criminal penalties under the CSA. This Act would also reduce barriers for state-legal marijuana businesses by allowing them easier access to banking, bankruptcy protection, marijuana research, and removing prohibitions against advertising marijuana. It would also establish an expungement process for certain marijuana violations which would allow access to public housing and federal financial aid for higher education and would ensure that a person cannot be deported or denied entry to the U.S. solely for consuming marijuana in compliance with state law. Finally, it would ensure veterans have access to state-legal medical marijuana and protect Native American tribes from punishment under federal marijuana laws.
  • The Marijuana Revenue and Regulation Act would remove marijuana from the CSA which would allow marijuana to be regulated at the federal level. It would impose additional taxes on marijuana products, including an excise tax similar to the one currently imposed on cigarettes, and it would establish an occupational tax on marijuana producers and on marijuana products. It would establish federal permitting for marijuana business under a system operated by the Department of Treasury. It would also allow for regulations to control marijuana advertising and packaging.

In a statement, Rep. Blumenauer used his home state to highlight the problems with conflicting state and federal laws on cannabis:

As more states follow Oregon’s leadership in legalizing and regulating marijuana, too many people are trapped between federal and state laws. It’s not right, and it’s not fair.

Passage of all three bills would drastically change an industry that has matured and grown despite federal opposition. It is too early to know whether these bills stand a chance of becoming law, but if these trio of cannabis bills does pass, they would leapfrog the U.S. into one of the (if not the) most progressive countries on cannabis. Even if these bills do not pass this legislative session, they will almost certainly serve as guidelines for eventual legalization. Many are skeptical of these bills passing in light of our current presidential administration, and yet, this may be exactly why their chances may be so good right now. Write your senator and your congressperson to let them know that full legalization is important to you.

Cannabis usageTwo years ago we did a post, Top Ten Dubious Claims About Marijuana, listing “legalization will lead to more marijuana in the hands of children and unfettered access for all” as the first dubious claim. A new survey from the Washington Department of Health shows we were right to doubt the legitimacy of that claim as teen marijuana use has not increased after legalization.

The survey collected data from roughly 230,000 Washington students and showed 26% of 12th graders, 17% of 10th graders, and 6% of 8th graders reported using marijuana in the last 30 days. The graph below from Vox shows that marijuana use among Washington State teens has not increased since cannabis became legal in 2012.

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The teen numbers in Washington are consistent with what has happened in Colorado as well, where a study showed teen use in that state remained steady after Colorado legalized marijuana, also in 2012.

Prohibitionists love claiming that legalizing cannabis will increase adolescent use, but really, why should it? States that have legalized recreational marijuana track the plant from seed to sale. Sales require the purchaser show ID and a retail store that sells to minors can lose its license. A well-functioning legal market should and does reduce unlawful diversions to kids. We predict that as legalization spreads, it will become increasingly difficult for adolescents to get access to cannabis. We also predict that as cannabis becomes normalized, its “coolness” factor will decrease and that too will lead to a decline in teen usage.

When Washington legalization advocates argued for Initiative 502 to legalize marijuana they touted a regulatory regime that would lead to responsible cannabis use. This study on teen use supports the notion that Washington is achieving its goal of providing a forum where adults can enjoy cannabis recreationally without giving increased access to teens. A well-regulated cannabis market does not harm society the way legalization opponents would have you believe. If you care about facts and if you want your state’s policies to be based on facts and not politics or myth, you should take heart from the above statistics.

 

 

Remember when the DEA adopted a “Final Rule” criminalizing “marihuana extract,” presumably including all extracts from the cannabis plant? Well, the DEA recently clarified that Final Rule, and based on the DEA’s own explanation and interpretation, marijuana extracts derived from mature stalks of the cannabis plant or industrial hemp not illegal under the federal Controlled Substances Act (CSA).

The DEA’s highlights of its clarification are that:

  • The “marihuana extract” definition does not include materials or products excluded from the definition of marijuana set forth in the CSA.
  • The rule includes only those extracts that fall within the CSA definition of marijuana.
  • If a product consists solely of parts of the cannabis plant excluded from the CSA definition of marijuana, such product is not considered “marihuana” or a “marihuana extract.”

This is a significant departure from a plain reading of the Final Rule, which creates a new “Controlled Substances Code Number” for marijuana extracts “containing one or more cannabinoids from any plant of the genus Cannabis.” When the DEA adopted this Final Rule in December of last year, our opinion was that it formally outlawed all CBD products, including those derived from hemp, because CBD is a cannabinoid and hemp is a plant of the genus Cannabis.

Marijuana is prohibited by the CSA and any CBD product derived from marijuana is therefore prohibited. However, the CSA exempts from the definition of “marijuana” the plant’s “mature stalks.” The logical conclusion is that CBD products derived from mature stalks containing no THC were not illegal (though the FDA would disagree). Another arguably legal route existed for CBD products derived from industrial hemp (part of the cannabis plant with less than 0.3 percent THC on a dry weight basis) lawfully grown in a State that has enacted hemp laws in compliance with section 7606 of the 2014 US Farm Bill. Because congress sanctioned industrial hemp, there was an argument allowing the sale of industrial hemp extracts in states with compliant programs. This meant that prior to adoption of the Final Rule, CBD products derived from mature stalks that did not contain THC or industrial hemp existed in a legal “gray” area.

Under the DEA’s Final Rule clarification, CBD products derived solely from mature stalks or industrial hemp containing little-to-no THC are not prohibited under the “marihuana extract” rule. However, this clarification is not an official ruling by the DEA as it does not have the same authority as a formal rule. Instead, this clarification provides guidance as to how the DEA will enforce the “marihuana extract” Final Rule. In addition, the marihuana extract Final Rule is currently subject to a lawsuit filed in the Ninth Circuit Court of Appeals by members of the hemp industry, and this clarification may cause that court to rule that the clarification limits the Final Rule.

The bottom line is that this clarification should be taken with a grain of salt as the Final Rule itself carries more legal authority and this clarification is not an official ruling by the DEA — it’s just the agency’s interpretation of its own rule, which can change as the DEA so desires. So, if you’re selling hemp-based CBD products with little to no THC, keep your head on a swivel as the DEA develops and implements this Final Rule.

 

Cannabis lawyersJust about whenever Attorney General Jeff Sessions speaks, the cannabis industry panics. Stop it people.

This week Jeff Sessions gave an interview where he was asked about possibly using the federal Racketeer Influenced and Corrupt Organizations (RICO) Act to tackle legal marijuana. The media (the cannabis media in particular) have covered that interview as though it sets forth a roadmap for federal cannabis policy. And since that interview, probably every single cannabis lawyer at my law firm (in California, Washington and Oregon) has received at least one client call seeking an opinion on it.

Stop it everyone. Just stop it. Really. Sessions didn’t do anything in this interview but muse about a seldom used federal statute.

In this interview, Sessions hinted that he might be open to using RICO to pursue cannabis businesses in cannabis legal states:

INTERVIEWER: One RICO prosecution against one marijuana retailer in one state that has so-called legalization ends this façade and this flaunting of the Supremacy Clause. Will you be bringing such a case?

SESSIONS: We will, marijuana is against federal law, and that applies in states where they may have repealed their own anti-marijuana laws. So yes, we will enforce law in an appropriate way nationwide. It’s not possible for the federal government, of course, to take over everything the local police used to do in a state that’s legalized it. And I’m not in favor of legalization of marijuana. I think it’s a more dangerous drug than a lot of people realize. I don’t think we’re going to be a better community if marijuana is sold in every corner grocery store.

Of course he might be open to using RICO to pursue federal criminal law violations by cannabis businesses. I actually do not believe Attorney Generals Holder and Lynch, who were the Attorney Generals during the Obama Administration) would have answered this question substantively much differently. You are not going to get an Attorney General to say, “yes, we have this really important law on the books, but nobody worry because we will never enforce it. Just go ahead and violate it.” Really?

And if you listen to the entire interview here, you will hear Sessions poo-poo the benefits of bringing a RICO action against state-legal cannabis businesses:

INTERVIEWER: [I]t would literally take one racketeering influence corrupt organization prosecution to take all the money from one retailer, and the message would be sent. I mean, if you want to send that message, you can send it. Do you think you’re going to send it?

SESSIONS: Well, we’ll be evaluating how we want to handle that. I think it’s a little more complicated than one RICO case, I’ve got to tell you. This — places like Colorado — it’s just sprung up a lot of different independent entities that are moving marijuana. And it’s also being moved interstate, not just in the home state.

RICO was designed to pursue the mafia and other organized crime groups. RICO provides powerful criminal and civil penalties against people who engage in a “pattern of racketeering activity” and have a relationship to an “enterprise.” “Racketeering activity” includes roughly a hundred different offenses, including violations of the Controlled Substances Act. A “pattern” is established when an offense occurs more than one time in a given statutorily defined time period. An “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any group of individuals associated together even if they are not in a formal business relationship.

The broad interpretation of “enterprise” means that on a technical legal basis, RICO could pose a significant risk to cannabis businesses. The production and sale of cannabis is prohibited by the CSA and, therefore, regular sales of cannabis could serve as the predicate offense for a RICO charge and all those involved with legal cannabis sales, including vendors, contractors, landlords, lawyers, accountants, and even state officials could arguably be in an enterprise engaging in illegal activity.

But nobody should panic about this, not even close. RICO is a powerful but seldom used tool and that is because both prosecutors and judges view it as a very powerful weapon that should only be used in limited circumstances. The RICO statute has been around since 1970 and I cannot recall a single cannabis case having been brought under it. I am not saying there has never been such a case, but I am saying that it has been used sparingly in dealing with cannabis, if at all, including during Nixon’s “War on Drugs” and Reagan’s “Just Say No” administrations. In this same interview Sessions noted that the federal government has limited resources and it cannot simply commandeer local police forces to pursue RICO charges against cannabis users. RICO cases take a massive amount of effort to prosecute criminally and apparently not even Jeff (“good people don’t smoke cannabis“) Sessions deems this would be money and time well spent.

It also bears mentioning that a few years ago, some private citizens brought RICO claims against marijuana businesses and non-cannabis businesses alleged to have been operating in concert to sell cannabis. As we wrote here, the federal court dismissed those claims.

There is though one important thing cannabis businesses should take from this interview. Sessions is concerned about cannabis businesses that move marijuana from state to state. Note how he brings this up when he says: “it’s also being moved interstate, not just in the home state.” This IS important. The states are mostly in charge of prosecuting criminal activities that happen entirely within their own state borders. A robber in Portland or Seattle or San Francisco will almost certainly be prosecuted by state-city prosecutors; but a robber who brings stolen goods from Seattle to San Francisco could very well be prosecuted federally. The same has always been true of illegal drugs, including cannabis. If you are caught with weed in Newton, Iowa, you risk city or state prosecution. But if you are caught transporting cannabis from Iowa to Illinois, you risk federal prosecution.

So if you want to panic based on this Jeff Sessions interview, you should if you are planning to transport cannabis across state lines. The federal government has never liked interstate cannabis transport and it has always made this clear, as have we, in the following posts:

In Marijuana Law Myths. Not Everything Changes With Legalization, in Myth #2, we explain why it is so dangerous to fall for the myth that you can legally transport cannabis from one legal state to another and why this myth is so dangerous:

2. Now that marijuana is legal in Washington, Oregon, and Alaska, it is legal to sell Washington-grown marijuana in all three states. We hear this one ALL the time, mostly from marijuana businesses that intend to do this, believing it to be legal. It isn’t and please, please do not do this, unless you want to go to federal prison. The same holds true for Washington D.C., where marijuana was just legalized. You cannot just take your “legal” marijuana there and start selling it.

Taking legal pot across ANY state borders by boat or by car or by air is a big deal as it amounts to unlawful interstate drug trafficking.

More importantly, taking marijuana from one marijuana legal state to another is a federal crime. Marijuana is still a Schedule I Controlled Substance. The U.S. Constitution gives the federal government the authority to regulate interstate commerce. This means that it can (and does) prosecute people for transporting marijuana across state lines, even if the transport is from one marijuana legal state jurisdiction to another.

We are not saying that you should expect FBI agents to be sitting at the borders waiting to arrest people for going from one state to another with marijuana, but this is to say that traveling from state to state with marijuana is not advised, particularly by boat or by airplane. More importantly, a business plan that assumes this is legal is a business plan that will set you up to fail, especially if you publicly reveal that your business does this.

This is also a good time to remind you that if you are going to drive from state to state, clear out your cars, your boats, your airplanes, your clothes and your luggage before going from a cannabis legal state to one that is not. State troopers in states like Nebraska, Kansas, and Idaho (and even Nevada where cannabis is legal for medical us but not recreational) love making easy money by arresting and fining people entering with marijuana from Colorado and Washington.

Transporting a Schedule I Controlled Substance, including marijuana, across any state line is a federal felony. This is the case even if your medical marijuana patient card is honored in the next state over, and even if you are moving between jurisdictions that have legalized recreational marijuana. Keep and consume your cannabis in the state where you purchased it, or you run the risk of federal criminal charges for transporting a controlled substance.

So yeah, moving cannabis across state lines (yes, even from one cannabis legal state to another) is a really bad idea.

Oh, and one more thing, many (even some in the cannabis industry) are acting as though one RICO case would do what this interviewer says and “send the message” to all those in the cannabis industry to terminate all their employees and shut down their state-legal cannabis businesses. In other words, many are acting as though one RICO claim would be “lights out” for legalized cannabis all across the country.

This is absurd. The federal government has been trying to shut down cannabis for more than one hundred years, and for much of that time, it had overwhelming popular support for doing so. Today though, the majority of Americans favor legalization and those numbers keep getting better. Were the federal government to pursue “just one” RICO claim, it would likely be against a really large cannabis business that transported cannabis across state lines and I do not believe such a lawsuit would lead to a single state-legal cannabis business shutting down. If anything, it would be more likely to galvanize our country to legalize cannabis once and for all.

So please, nobody panic.