Federal law and policy

Remember when the DEA adopted a “Final Rule” criminalizing “marihuana extract,” presumably including hemp extracts? Well, the DEA recently clarified that Final Rule, and based on the DEA’s own explanation and interpretation, marijuana extracts derived from hemp that contain no THC are 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” which are also known as hemp. The logical conclusion is that CBD products derived from hemp containing no THC were not illegal (though the FDA would disagree). Prior to adoption of the Final Rule, CBD products derived from hemp that did not contain THC existed in a legal “gray” area; not specifically exempted by the CSA but the DEA kept stating it considered CBD of all kinds to be illegal.

Under the DEA’s Final Rule clarification, CBD products derived solely from hemp containing 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.

Government cannabis lawyersYesterday, the Washington Post ran an illuminating and sad little story on government marijuana, which is pot grown under the oversight of the National Institute on Drug Abuse (NIDA). The government marijuana photographed and featured in the story is a sample distributed to a researcher for use in ongoing clinical studies for treatment of military veterans suffering from PTSD. The marijuana in question looks a lot like green tea: it is blanched and dry, stems and leaves. It does not resemble cannabis.

We have written before about the embarrassment that is our federal system for cannabis research. When the Drug Enforcement Agency (DEA), which oversees NIDA, says things like “[r]esearch is the bedrock of science, and we… support and promote legitimate research regarding marijuana and its constituent parts,” you must forgive the industry for rolling its eyes. The DEA clearly has no interest in studying anything that resembles the plant anyone actually ingests.

In addition to the dismal aesthetics of the government weed (reported to also lack smell), the WaPo story reports that the strain at issue tested out at 8% THC, which is less than half the average concentration found in commercial grade marijuana. The government weed also tests high in common contaminants, like yeast and mold, which would mandate its destruction in states with cannabis consumer safety laws (like Oregon, Washington or Colorado). In all respects, it would be difficult to mistake government cannabis for actual cannabis.

According to researchers, the quality of the NIDA cannabis makes highly controlled medical experiments next to impossible. One example of such an experiment includes the very experiment for which the cannabis was provided. After wending through a labyrinthian 7.5 year approval process and amassing a budget of $2,156,000 (based on a grant from the State of Colorado), it seems like a shameful waste of time and resources to test this “cannabis” on military veterans suffering from PTSD. If the government cannot grow real marijuana, it should at least know where to acquire it.

We have written before that given the lay of the land, it is up to states and private actors to take the lead on cannabis research – just as they have in all other aspects of ending prohibition. Constituent parts of the cannabis plant have real medical value, but they must be investigated properly to explore these promising features. Journalism like the WaPo piece, showing the NIDA shake, is helpful in pushing back on DEA claims that the law enforcement agency is a champion of science that “promotes legitimate research.” It does not. Really, the pictures say it all.

 

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.

Cannabis merger risks
           Cannabis business risks. It’s no game.

Cannabis entrepreneurs have been riding an emotional rollercoaster these past few weeks. Just from Politico, we have seen the following headlines:

Running a cannabis business under these circumstances can be challenging. Employees get nervous about possible legal repercussions just for doing their jobs. It seems like all anyone wants to talk about is what the federal government is going to do about marijuana.

The uncertainty has started to affect the transactional market as well. Mergers and acquisitions in the cannabis industry are certainly still happening, but we are seeing the rate of deals actually closing slowing down a bit, at least in California, Oregon, and Washington. Would-be buyers of cannabis businesses are having a hard time deciding whether a licensed business that was worth $1.5 million four months ago is still worth the same price.

This type of short-term slowdown is typical of volatile markets, where parties are uncertain of how to price risk into their transactions. Looking back at the great recession, part of the reason economic recovery took so long was because firms were slow to deploy capital. Toxic debt had infected so much of the market that even companies with nothing to do with mortgage investments were affected by the outward ripple. They didn’t know if their investments would be caught up in the same debt spiral that killed so many other businesses. If enough people sit on their hands and wait for someone else to move, markets slow down.

Cannabis markets have always had their share of uncertainty. Legislatures and regulators continue to spend large amounts of time tweaking existing laws and regulations for marijuana businesses. Many of these changes happen at a moment’s notice and can absolutely sink people’s businesses. Sometimes they can save businesses and make them thrive. It’s not that regulatory and legal changes are inherently negative or positive — it’s that they create uncertainty. Local governments do the same thing. Unpredictable weather patterns can doom cannabis crops — more uncertainty.

When uncertainty, like that created by the back and forth Jeff Sessions drama, leads to short-term stagnation in sales markets. The first movers in that sort of market are either the most confident about their analysis of the situation or the most willing to gamble. Players in uncertain markets must price their perception of risk into what they are willing to spend. If I think there is a 90% chance the federal government will leave marijuana businesses alone and a 10% chance they will shut down marijuana businesses everywhere, there’s no way I should pay more than 90% of the value that would be there if the federal risk did not exist.

Where uncertainty and gambling converge is in judging that 90% chance. Do we think the chances that Jeff Sessions goes nuclear on cannabis are 10%? What if someone else thinks the chance is 20% or 30%? If you aren’t certain how to price that risk into your cannabis investments or acquisitions, you’re going to have a hard time participating in the cannabis market right now, and hence short-term stagnation.

At the same time, if you have a high level of confidence in your ability to perceive and price risk into your cannabis transactions, there is money to be made by playing the risk spread. There are sellers right now who think the federal government is going to destroy cannabis businesses everywhere and these sellers are willing to accept lower prices for their assets because they have a higher perception of the risks to that asset. If a buyer feels strongly that the risk is lower than the seller does, there’s room for a transaction.

The next few years are going to be interesting to watch, especially if the Trump administration remains cryptic about its attitude toward cannabis businesses. The risk-tolerant and the risk-intolerant are going to start showing their colors, and we will all learn a lot about the power that early movers in uncertain markets have when it comes to creating price anchors for business valuations and finding the biggest spreads between buyers’ and sellers’ risk perceptions. All of this is worth keeping an eye on, even if you aren’t in the short-term cannabis M&A or investment markets.

Cannabis LawA litany of comments made by White House Press Secretary Sean Spicer, Attorney General Jeff Sessions, and many other Tump administration officials have sent tremors through the cannabis industry in the weeks since Trump’s January inauguration.

Most alarming to many cannabis industry stakeholders was the administration’s uncertain position on state-legal cannabis programs. True to form, Press Secretary Sean Spicer predicted, “greater enforcement” of the Controlled Substances Act in recreational states under the Trump administration during a press conference two weeks ago. More recently, Attorney General Jeff Sessions reportedly reassured some GOP senators that he will not be moving away from Obama-era deference to state-legal cannabis programs. To many invested in the marijuana industry, however, Sessions’ statement is cold comfort coming from an Attorney General who harbors an irrational hatred of cannabis and intends to enforce existing federal drug laws to the letter.

Nevertheless, a glimmer of silver lining shines from the House of Representatives hopper for Democrats in the form of HR 1227 or the Ending Federal Marijuana Prohibition Act of 2017. The bill, introduced by Congressman Tom Garrett (R-VA), is co-sponsored by congressional Democrats Tulsi Gabbard of Hawaii and Peter Welch of Vermont. This law would de-schedule cannabis from the Controlled Substances Act and allow for states to self-regulate their own cannabis programs.

If passed, the Act would be an unprecedented win for the cannabis industry as a whole and fundamentally change the landscape of legal cannabis in the United States. Here are the details:

What would HR 1227 do?  Essentially, the Act would remove cannabis from Schedule I of the Controlled Substances Act (CSA). This is distinct from hints from the Drug Enforcement Administration in 2015 that it might consider re-scheduling cannabis from Schedule I to Schedule II of the CSA. Though de-scheduling cannabis would allow state marijuana programs to carry on essentially unfettered, re-scheduling could introduce new obstacles akin to those that other fledgling and experimental drugs must overcome.

What wouldn’t HR 1227 do? HR 1227 will not give blanket permission for transferring cannabis across state lines; states would be free to prohibit shipments of cannabis to and from their own jurisdictions. The bill also would not override state-level regulations that set standards for licensure, labeling, and purity. The status quo of state cannabis laws would therefore persist, but against a far less draconian backdrop of federal criminal law.

What are the bill’s prospects in 2017? Not great, unfortunately, but it is not all its fault. Congress has a lot on its plate this session – including still-pending confirmations of several presidential appointees – and cannabis reform is just not a high priority for lawmakers on either side of the aisle. Prospects for meaningful cannabis reforms on the federal level are dim under a unified Republican government absent an ideological shift. At least in the short term.

Why does this sound so familiar? The bill is identical to the Ending Federal Marijuana Prohibition Act of 2015 introduced by Senator Bernie Sanders (I-VA). The 2015 bill was a hit among Sanders’ core supporters at the time but it failed to gain any significant traction in Congress.

 

 

Cannabis laws on public eventsI’ve said it before and I’ll say it again–more state regulation of marijuana is going to lead to fewer and fewer cannabis cups and similar marijuana events and this in turn will force the purveyors of such events to get creative. Case in point: the 2017 High Times Cannabis Cup on the Moapa Band of Paiutes reservation in Nevada near Las Vegas. The most recent update on this particular Cup is that despite receiving two warning letters from U.S. Attorney David Bogden, the Tribe is moving forward this Saturday with the Cup as planned.

The High Times Cannabis Cup, and others like it, revolve around events that assess the cannabis and cannabis products submitted to them by local competitors. At their core, these cups are commercial boons for the sponsors who use them to increase their brand recognition and for the local marijuana businesses that perform well and can use their good performances to tout their products for months and years down the road. Having the right to label your cannabis products as a “High Times Best In (fill in the blank)” is not an honor to be taken lightly in the marijuana industry where such accolades can and do influence cannabis buying decisions.

Even cannabis-friendly states have myriad prohibitions against selling or even gifting cannabis without specific state operational licenses. And virtually all states prohibit consuming cannabis in public and even quasi-private spaces. For example, High Times had to cancel its cannabis cup in Seattle in 2015 because such an event would have violated Washington State’s “sampling” laws that allow only state-licensed marijuana businesses and not consumers to “sample” cannabis products. High Times also had to cancel its Cup in both Denver and Pueblo, Colorado last year because Colorado restricts public cannabis consumption. I assume High Times chose to host this upcoming event on Moapa tribal lands because Nevada’s medical marijuana laws would not allow for such an event and because the Tribe can enact its own ordinances allowing for such Cups.

Given the Wilkinson statement regarding Tribal cannabis from and the Cole Memo regarding federal enforcement of its cannabis laws, it’s easy to see why the Moapa Indians are trying their hand at hosting this Cup. Nonetheless, tribes that have tried to legalize or “medicalize” marijuana on their lands have been met with mixed reactions and enforcement by the federal government (see here, here, here, here, and here). The Moapa are no exception.

On February 16th and 23rd, U.S. Attorney Daniel Bogden sent “warning letters” to the Tribe concerning this upcoming cannabis cup, reiterating that marijuana remains federally illegal and that the Tribe has an “incorrect interpretation” of the Cole Memo and Wilkinson statement. Bogden’s letters also reminded the Tribe that neither the Cole Memo nor the Wilkinson statement alter the power of the federal government to enforce federal laws on tribal lands. At no point in his February 16th letter did Bogden threaten to shut down the Cup. But Bogden’s February 23rd letter states that his office communicated with tribal officials and his understanding is that no cannabis or cannabis products will be present at the Cup. He also writes that High Times’ promotion of this event mentions nothing about the prohibition on cannabis and he asks the Tribe to confirm their understanding on this prohibition matches his. Given that the heart of these High Times Cannabis Cups are the competitions for best cannabis products, one has to wonder if there’s any advantage to High Times having the Cup on tribal lands at this point.

Since Bogden’s warning letters come on the heels of White House press secretary Sean Spicer’s comments about the likelihood for increased federal enforcement in states with recreational marijuana programs, many are wondering if Bogden’s actions are the beginning of what “increased enforcement” may look like. We do not believe so; we think this federal intervention is just another example of the Department of Justice’s continued unpredictable treatment of tribes and cannabis and its varying regional positions on cannabis.

Time will surely tell…

California marijuana
Bears are tough animals, and California will fight hard for its cannabis laws.

Last Thursday, White House Press Secretary Sean Spicer stated during a press conference that we should expect to see greater federal enforcement against recreational marijuana use and in the following days the cannabis industry had a lot to say in response. Representatives from several states, including Washington, have spoken out against potential federal enforcement, saying they will fight any attempts by the federal government to interfere with their legalized marijuana systems. We want to assure you that California is ready to fight back as well. (Though not everyone in California is on the same side; we’re looking at you San Bernardino City Council.)

The day after Secretary Spicer’s statements, California elected officials announced that they were preparing for a potential showdown in the courts and Congress to defend recreational cannabis under Proposition 64, which the state’s voters passed in November. California Attorney General Xavier Becerra said:

I took an oath to enforce the laws that California has passed. If there is action from the federal government on this subject, I will respond in an appropriate way to protect the interests of California.”

California Lieutenant Governor Gavin Newsom called Spicer’s remarks “grossly uninformed” and sent a letter to President Trump where he wrote:

The government must not strip the legal and publicly-supported industry of its business, and hand it back to drug cartels and criminals. Dealers don’t card kids. I urge you and your administration to work in partnership with California and the other eight states that have legalized recreational marijuana for adult use in a way that will let us enforce our state laws that protect the public and our children, while targeting the bad actors. We have a shared goal of reducing crime, and the best way we can achieve that is through a tightly regulated market.”

If the federal government chooses to move forward with marijuana enforcement, we provided an idea of what that might look like based on the options the feds can pursue. Though the federal government won’t be able to force states to shut down their marijuana programs or to enforce federal law under the Constitution, they could try to coerce local law enforcement into assisting them.

However, California already has measures in place to undercut the federal government’s ability to coerce local law enforcement through proposed Assembly Bill 1578, which would prohibit state and local agencies from assisting federal agencies against California’s legal medical and recreational marijuana businesses without a court order.

Spicer’s comments did not include specifics on how the federal government would proceed, plus he does not have the authority to make these types of decisions, so we have our doubts on whether the feds will make good on his threats. in any event. And since the Trump Administration has held out medical cannabis as good and recreational/adult use cannabis as bad, what would happen were California (or any other state) to call all cannabis “medical” and to give any cannabis “patient” who fills out a free online “medical” form access to cannabis so long as they check something like “occasional pain” or “sometimes sad” or “sometimes agitated” as qualifying symptoms for medical cannabis use?

The California Bureau Medical Cannabis Regulation has expressed its intent to continue “full speed ahead” on drafting state regulations for medical and state cannabis licenses until they see a formal plan from the federal government. For now, it’s business as usual for California’s cannabis companies and license hopefuls, but if the federal government does try to interfere know that the state is behind you.

tenth-amendmentYesterday, we wrote about the various ways that enforcement of federal cannabis laws could ensue, if the current administration were bullheaded enough to attempt such a thing. The day before, we wrote about the Washington State Attorney General’s promise to fight any potential enforcement action. Today, we offer a brief primer on what rights the states may have to uphold their medical and recreational marijuana programs in the face of federal enforcement action. The answers may surprise you.

As a baseline matter, it is imperative to note that Article VI, Clause 2 of the U.S. Constitution declares that federal law is “the supreme law of the land,” preempting conflicting state laws. This means—and courts have confirmed—that if the federal government wants to enforce its draconian marijuana laws by targeting specific actors, it can, and states cannot stand in the way. However, if the federal government wants to force states to shut down their marijuana programs, or to use state resources to enforce federal law, it probably cannot.

The constitutional question that will determine the outcome of any lawsuit to invalidate state cannabis laws, whether for medical or recreational marijuana programs, is whether those state laws impermissibly conflict with the federal Controlled Substances Act (CSA). Another way of asking this would be: “Does the federal CSA ‘preempt’ state cannabis programs?” Given the plain language of the CSA, we think the answer is “no.”

Section 903 of the CSA includes express anti-preemption language:

No provision of this subchapter shall be construed as indicating an intent on the part of Congress to occupy the field in which that provision operates, including criminal penalties, to the exclusion of any State law on the same subject matter which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and the State law so that the two cannot consistently stand together. (Our bold emphasis.)

What would a “positive conflict” with state law be? It may sound funny, but a positive conflict might consist of a state law requiring a citizen or state official to possess or distribute marijuana. Such a law would almost certainly violate the CSA. But, state marijuana programs that only permit individuals to traffic in federally controlled substances—because states do not proscribe them—make no such requirement. Think about it: anyone in Oregon, Washington, California, or any other state with a cannabis program, is free to ignore these state programs and follow federal law.

This begs the question as to whether the federal government could require states to shut down their programs, and assist in enforcing its horrible laws. Again, we think the answer is “no.” The Tenth Amendment to the Constitution serves as a constitutional check to the Supremacy Clause. The Tenth Amendment provides that the federal government cannot “commandeer” states by forcing them to enact laws in the federal interest, or to enforce federal laws whatsoever. In the context of cannabis, this means that neither Congress nor any federal actor can require states to enact or maintain laws prohibiting the cultivation, distribution or intra-state sale of pot.

The upshot here is that the Tenth Amendment, coupled with the express, anti-preemption language of the federal CSA, grants the states authority to run cannabis programs. This paradigm gives the states a strong argument in any potential lawsuit by the feds seeking to shutter those programs. Thus, the extremely tall and unpopular task of chasing state-approved pot merchants, would be left to the resource-poor federal government. And if the federal government really wants to go there, well, we’re in for another kind of fight.

DEA and cannabisWe have our doubts that Sean Spicer’s comments last week will morph into active federal enforcement against marijuana businesses. Any federal action that interferes with state marijuana laws would be incredibly unpopular. Presidential administrations often use the media to float policy proposals to get a feel for how the public and Congress will react. In late January, the administration circulated a draft executive order that would have decreased discrimination protections for LGBT people, and the administration ended up scrapping it. Unlike immigration, marijuana policy was not a centerpiece of the Trump campaign. If reaction from the public and other government leaders is strong enough and swift enough, we may well see the administration avoid the topic.

On the other hand, the Trump administration has been savvy at manipulating the media. When there are stories that get real traction that can move voters (Trump’s Russia ties, incompetence with foreign leaders, etc.), the administration seeks to shift the media conversation. Much like the attacks on the media, moving on marijuana could be an attempt to move the national conversation away from the issues that truly scare them.

If it turns out that the administration wants to move more strongly against recreational marijuana businesses, they have a few distinct options in how to proceed.

  1. Boots on the ground law enforcement — This is the scariest option for marijuana business owners, at least if they are one of the unlucky few. It also is the most random and smacks the most of injustice. There are just under 5,000 special agents in the Drug Enforcement Agency. Most of these agents are tasked with working on things other than marijuana, like heroin, money laundering, and organized crime. The DEA does not have enough resources to use its agents to bust down doors of cannabis businesses right and left, but that doesn’t mean they couldn’t come in and make a few examples. It wouldn’t be effective at shutting down the cannabis industry, but it would be effective at creating fear.
  2. Asset Forfeiture — The federal government can seize any assets used in the commission of drug crimes or gained from the sale of drugs, including marijuana. Many marijuana businesses, especially cultivation companies, spend millions of dollars on their facilities, including greenhouses, HVAC equipment, lights, moisture control, etc. All this property is subject to federal seizure. The mere threat of seizure tends to affect capital markets as well. Lenders don’t value collateral at market rates because of the chance that it can be seized by the federal government. But just like boots on the ground enforcement, asset forfeiture cannot be used against thousands of state-legal marijuana businesses at once. Asset forfeiture cases can involve significant litigation, and it would take a huge influx of legal power in the Department of Justice to manage a significant increase in federal forfeiture cases.
  3. Withdrawing or Amending the Cole Memorandum — Remember that the Cole Memorandum from August 2013 was written as guidance to U.S. Attorneys on how to exercise their prosecutorial discretion. If the current administration lifted the Cole Memo, it may not mean we would see uniform enforcement of federal law. Instead, we may return to how things looked in 2011 and 2012, where each federal judicial jurisdiction had a different enforcement criteria determined by that district’s U.S. Attorney. In Washington, we had a relatively hands-off U.S. Attorney in western Washington and a significantly more aggressive U.S. Attorney in Eastern Washington. The law was not enforced uniformly even within the state, and California had it worse with its four judicial districts. Amending the Cole Memo could increase enforcement efforts if the administration puts new enforcement priorities in place. For example, they could seek to enforce against any marijuana business that gets too large and seek to limit sales growth.
  4. Coerce Local Law Enforcement — In interpreting the U.S. Constitution’s implementation of our federalist system, American courts have developed an anti-commandeering and anti-coercion jurisprudence. In short, the federal government cannot force state legislatures or state officials to act in certain ways. This limits the federal government’s ability to achieve state action through coercion. If the federal government wants to tie federal funds to state action, for instance, it must show links between the conditioned funds, the federal interest, and the state action in question. The classic example is that the federal government can coerce states into passing seatbelt laws by threatening to withhold highway funds. In the same way, the federal government could potentially threaten to withhold grants to local law enforcement agencies that don’t cooperate with federal government anti-marijuana law enforcement efforts. Any such action would be met with a constitutional challenge, but we could see a situation where a state governor and attorney general want to defend a state’s marijuana laws, while local law enforcement are coerced into assisting federal enforcement efforts.

All of this can seem frightening in a vacuum, but we will just have to wait and see what the Department of Justice says and does. This entire marijuana enforcement scare could (and probably will) end up amounting to nothing, but it is vital everyone stay engaged with the issue and make sure their government representatives know where they stand.

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.