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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.

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.

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.

Tom_Marino_Official_Portrait,_112th_Congress

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.

Washington Cannabis LawyerThe Washington State Liquor and Cannabis Board (LCB) enforces a wide range of rules and laws on cannabis. Because of this, our cannabis attorneys constantly stress to our clients the need for them to set up and rigorously maintain comprehensive regulatory compliance protocols to avoid violations of LCB rules and regulations and to mitigate penalties should such violations occur.

When the LCB believes a licensed cannabis business has committed a rule violation, it will issue the licensee an Administrative Violation Notice (AVN), describing the alleged violation and a recommended penalty. The LCB has broad discretion in assessing penalties for cannabis rule violations, based on Washington Administrative Code instructions that it consider mitigating and aggravating factors in making that penalty assessment. Penalties generally increase if the cannabis licensee has had repeat offenses within a two-year window.

The Washington Administrative Code separates cannabis violations into five categories:

  • Group One—Public safety violations. These violations are considered the most serious and they have the harshest penalties. For example, a cannabis licensee caught buying or selling marijuana to or from an unauthorized source faces cancellation of its license with even a first offense.
  • Group Two—Regulatory violations. These violations include failing to keep proper records, failing to submit required monthly reports, and improper advertising.
  • Group Three—License violations. These violations include failing to abide by licensing requirements and license classifications. Some Group Three violations can result in cancellation of the cannabis license even on the first offense. For example, a licensee’s failure to disclose everyone who owns, operates, or loans money to a licensed cannabis business is a violation of Washington’s true party of interest rules and it can lead to a cancellation of the cannabis license. Other Group Three violations can result in monetary penalties and/or a suspension of license.
  • Group Four—Nonretail violations. These violations involve the manufacture, supply, processing, and/or distribution of marijuana by nonretail licensees and prohibited practices between nonretail licensees and retail licensees. Generally, a first offense of a Group Four violation will result in a fine, but the LCB may cancel a license after the third Group Four offense.
  • Group Five—Violations involving the transportation freight of marijuana. These violations can result in cancellation of a license for a first offense if marijuana is transported from or diverted to an unauthorized source. This includes marijuana transported outside the state of Washington.

The LCB generally doesn’t temporarily suspend producer or processor licenses; it instead employs monetary fines, destruction of inventory, and/or license cancellations to penalize non-retail cannabis licensees. On the other hand, Cannabis retail license holders generally see temporary license suspensions, monetary fines, or license cancellation.

A cannabis licensee has 20 days after receiving a Violation Notice to accept the penalty, request a settlement conference, or request an administrative hearing before an administrative law judge. At these settlement conferences, the cannabis licensee and the LCB discuss the circumstances surrounding the LCB allegations, the recommended penalty, and any aggravating or mitigating factors. You are allowed to bring an attorney to these settlement conferences and you should. The hearing officer’s settlement authority is often limited, but the primary goal of the hearing is to explain why the incident occurred, to identify what failures there were in the licensee’s internal compliance program, and for the licensee to detail a plan to prevent future violations. If a licensee successfully explains all of that, the penalty is generally mitigated. In mitigation, fines and suspension periods are generally cut by 40%-50%.

The administrative hearings on LCB rule violations are similar to court proceedings but a bit less formal. For example, these proceedings do not use the strict evidentiary rules of courts. At these hearings, the cannabis licensee and the LCB may question witnesses and submit and challenge documents regarding the alleged violation. The administrative law judge typically reviews the circumstances surrounding the alleged violation, including any mitigating and aggravating factors and determines guilt or innocence and then hands down a penalty pursuant to the penalty guidelines in the Washington Administrative Code. If the cannabis licensee is not satisfied with any aspect of the administrative judges’ decision, it can appeal to the LCB to have the decision overturned.

Bottom Line: Cannabis licensees should have company-wide policies and procedures in place to avoid rule violations and as a mitigation factor should any rule violation occur. They should also know their various options for dealing with any alleged violations.

washington state cannabis law marijuana lawOn Thursday, President Trump’s Press Secretary Sean Spicer predicted “increased enforcement” against recreational cannabis. By Friday, Washington State Attorney General Bob Ferguson was promising Washington State would “resist any efforts by the Trump administration to undermine the will of the voters in Washington state.”

Washington State AG Ferguson’s office also tweeted  the following:

 I was deeply disappointed to hear the White House Press Secretary’s comment today regarding marijuana legalization by states like Washington.

Last week [Washington State] Governor Inslee joined me in sending a letter to Attorney General Sessions, asking for a meeting on this issue. I look forward to sharing how our state’s approach is working.

I will also be very clear with AG Sessions that I will defend the will of Washington voters. My office will use every tool at our disposal to ensure that the federal government does not undermine Washington’s successful, unified system for recreational and medical marijuana.

The Ferguson/Inslee letter describes how legalization in Washington State has allowed local law enforcement to use its limited resources to combat other, more serious crimes, and how legal marijuana has generated significant tax revenue for the state. Ferguson and Inslee also requested Sessions continue to uphold the the Cole Memo.

Sessions has not yet indicated how he will treat legal cannabis nor what his position will be on the Cole Memo, which essentially says the federal government will stay away from robustly regulated state-legal cannabis. Washington State has already scored a legal victory by blocking the President’s travel ban, so few view AG Ferguson’s stated intention to fight for cannabis as an idle threat.

If the Feds do seek to shut down Washington State’s highly successful recreational cannabis industry, we expect the state would argue that federal law on cannabis cannot preempt state law. Washington State would likely argue there is no conflict between Washington’s recreational laws and the federal Controlled Substances Act because the two can stand together. Washington’s recreational marijuana laws support the intent of the federal Controlled Substances Act, which is to sufficiently control and oversee scheduled narcotics.

Though Washington State will likely concede that the federal government has the power to enforce its own marijuana laws, it will likely argue that the Tenth Amendment of the Constitution prohibits the federal government from forcing Washington State to use any of its own resources to carry this out. Since Jeff Sessions concedes that marijuana enforcement is a question of “federal resources,” the more the states with legal cannabis force the federal Department of Justice to expend federal funds and resources to eradicate cannabis, the less likely it is to occur. If the federal government is serious about going after recreational marijuana in states like Washington, we should expect serious and sustained resistance from states whose citizens voted legal marijuana.

 

Marijuana Cannabis and the DEA

The Drug Enforcement Administration (DEA) has made many a dubious claim about cannabis over the years. For this reason and countless others, our cannabis lawyers have consistently called to disband the DEA, believing it past the point where it can be redeemed. The good news it that the DEA took a hit last week for having posted false claims about cannabis.

In December 2016, the nonprofit medical marijuana advocacy group, Americans for Safe Access (ASA) formally requested the DEA either remove or correct misinformation regarding cannabis on the DEA’s website. ASA made its claims under the federal Information Quality Act, which ensures “the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies.” ASA contends that the DEA failed to meet the Information Act’s and the ASA’s executive director explained why it was challenging the DEA on its inaccurate marijuana claims:

For years, the DEA has published scientifically inaccurate information about the health effects of medical cannabis, directly influencing the action —and inaction— of Congress. We are simply taking the DEA’s own statements, which confirm scientific facts about medical cannabis, and analysis that has long been accepted by a majority of the scientific community. Our request is simple: the DEA must change its public information to better comport with its own expressed views, so that Congress has access to the appropriate tools to make informed decisions about public health. Alternatively, ASA requests that the DEA simply remove the inaccurate statements or the documents in their entirety.

ASA’s take-down request focused on “The Dangers and Consequences of Marijuana Abuse,” an article available on the DEA’s website that contained 25 allegedly inaccurate statements, including the following:

  • “Marijuana use can worsen depression and lead to more serious mental illness such as schizophrenia, anxiety, and even suicide.”
  •  “Marijuana takes the risks of tobacco and raises them. Marijuana smoke contains more than 400 chemicals and increases the risk of serious health consequences, including lung damage.”
  • “Teens who experiment with marijuana may be making themselves more vulnerable to heroin addiction later in life, if the findings from experiments with rats are any indication.”

The ASA pointed out that the DEA itself had contradicted many of these 25 claims in a DEA report from August 2016 on its decision not to initiate proceedings to reschedule marijuana, including the following:

  • “At present, the available data do not suggest a causative link between marijuana use and the development of psychosis.”
  • “The HHS concluded that new evidence suggests that the effects of smoking marijuana on respiratory function and cancer are different from the effects of smoking tobacco.”
  • “The HHS cited several studies where marijuana use did not lead to other illicit drug use. Two separate longitudinal studies with adolescents using marijuana did not demonstrate an association with use of other illicit drugs.”

By using the DEA’s own research against it, ASA forced the DEA into a corner where it had to either disavow its August 2016 report or admit that its website was incorrect. By removing the offending page, the DEA chose the latter.

Count one for the good guys.