Federal law and policy

Cannabis lawOn Tuesday, we wrote that Jeff Sessions’ confirmation hearing had begun, for the post of U.S. Attorney General. In that piece, we expressed our hope that one of the committee members would “drill down from civil rights to marijuana legalization, and specifically, to enforcement of the Federal Controlled Substances Act.” The hearing concluded yesterday and no one did exactly that. No one turned the screws.

Still, Sessions fielded questions from a few different Senators related to marijuana and the Controlled Substances Act (CSA). Below is a close reading on Sessions’ pot-related testimony, beginning with the opening question, when Senator Patrick Leahy (D-VT) asked if Sessions would use federal resources to prosecute sick people using marijuana in accordance with state law. Sessions responded: “I won’t commit to never enforcing federal law, Senator Leahy, but absolutely it is a problem of resources for the federal government….”

This comment is interesting in a few respects. First, and unfortunately, Sessions keeps all options on the table as to CSA enforcement. As we have mentioned, that could mean suing states to block implementation of state marijuana programs, or, more narrowly, wielding the CSA’s asset forfeiture provisions against specific cannabis businesses and related parties. That probably sounds ominous, but two years ago, current Attorney General Loretta Lynch said this (in response to a question by Sessions himself, at her own confirmation hearing): “I can tell you that not only do I not support the legalization of marijuana, it is not the position of the Department of Justice currently to support the legalization. Nor would it be the position should I become confirmed as attorney general.”

We all know that states have largely proceeded with impunity on cannabis during Lynch’s tenure, even though the country had far less state-sanctioned pot activity than it does today. Sessions’ reservation about “never enforc[ing] federal law” seems benign by comparison. Regarding the second part of Sessions’ quote, and the “problem of resources for the federal government,” he concedes a key point: even if it were the Trump administration’s number one goal to eradicate state level marijuana, there are likely too many people involved and too much money to revert to the past.

In the hearing on Tuesday, Sessions continued by discussing the Cole memo and the factors considered by the current administration regarding prosecution of state-level marijuana programs:

The Department of Justice under Lynch and Holder set forth some policies that they thought were appropriate to define what cases should be prosecuted in states that have legalized, at least in some fashion marijuana, some parts of marijuana…. But, fundamentally the criticism I think was legitimate is that [the policies] may not have been followed. Using good judgment about how to handle these cases will be a responsibility of mine. I know it won’t be an easy decision, but I will try to do my duty in a fair and just way.

Again, Sessions leaves open the possibility of enforcing federal cannabis prohibition. His talk of “using good judgment about how to handle these cases” is a euphemism for using prosecutorial discretion, something he misleadingly claimed he didn’t have in a subsequent response to Sen. Mike Lee (R-UT):

One obvious concern is the United States Congress has made the possession [of marijuana] in every state and distribution an illegal act. If that’s something that’s not desired any longer, Congress should pass a law to change the rule. It is not so much the attorney general’s job to decide what laws to enforce. We should do our job as effectively as we’re able.

Here Sessions appears to have forgotten his earlier reference to prosecutorial discretion. His disingenuous argument that “my hands would be tied” by Congress, compelling enforcement action, should not be taken seriously – especially because Congress has sheltered state level medical programs for the past few years, and is likely to do so again. Sessions’ point, however, that Congress should pass a law if it permanently wants to prohibit federal enforcement actions, is probably a fair one, and only reinforces the need for us to secure federal legalization of cannabis.

In all, the hearing could have been better, could have been worse. Sessions was far less retrograde in his statements toward marijuana than he has been in the past. He played his cards closely, as nominees are wont to do, and — like it or not — he is going to be confirmed. This means cannabis operators will simply have to wait and see, which has been the name of the game for a while now.

 

 

 

Cannabis lawyerThe confirmation hearing for Alabama Sen. Jeff Sessions, Trump’s nominee to serve as the U.S. Attorney General, begins this morning at 9:30 a.m. ET. You can view the live feed here. Sessions is opposed by civil rights groups and championed by law enforcement, which, together, signal poorly for marijuana. On the specific issue of federal marijuana prohibition, we wrote on his nomination day that the Senator has been hostile to marijuana for a long time.

If each member of the Senate Judiciary Committee votes with his or her party, Sessions will pass by a vote of 11 to 9. That seems likely, as there have been no reported signs that any Republicans will defect, either in the committee or on the Senate floor. Still, Democrats have the opportunity to ask some tough questions on a variety of topics. It is our sincere hope that somebody takes the opportunity to drill down from civil rights to marijuana legalization, and specifically, to enforcement of the Federal Controlled Substances Act (CSA).

As it stands, a hostile, Sessions-led Department of Justice (DOJ) could attempt to kneecap marijuana policy reform nationwide. Its options would include everything from suing states to block implementation of marijuana programs, to leveraging the CSA’s asset forfeiture provisions against pot businesses and related parties. These actions would likely be massively unpopular, but they would be well within the power of a hostile administration – even one that ostensibly supports limited government and states’ rights.

Fortunately, there is a bipartisan majority in each chamber of Congress that appears interested in seeing states, and not federal law enforcement, lead on the issue of cannabis legalization. If Congress continues to prohibit the DOJ from chasing state medical marijuana actors, it may be hard for Sessions to keep the jails as full as he would like. There is also a possibility that as much as Sessions dislikes pot, he may have other priorities, at least to start.

As of today, there is probably more uncertainty than at any point in the past few years with respect to enforcement of federal prohibition. Anyone interested in federal marijuana policy would be well served to tune into today’s hearings, and to closely monitor the hearings of other Trump nominees like Georgia Rep. Tom Price, who has been nominated to serve as Secretary for Health and Human Services (and also has a very poor record on pot). Mr. Price is set for hearing next week.

Stay tuned.

Cannabis growsThe Seattle Times ran a story last week about the DEA continuing its marijuana eradication program even in states with legal marijuana like Washington. The DEA authorizes funding for state law enforcement to search for and eradicate marijuana, generally on public land.

Several of our clients asked us about this story, wanting to know if it meant the DEA was also taking action against state-legal marijuana businesses. Fortunately that is not the case. The DEA eradication program is specifically targeted at illegal operations on public lands. Federal law enforcement is going after cannabis grows it claims are operated by Mexican cartels. Regardless of who runs these cannabis grows, they are not compliant with state law. Under current federal enforcement policy, the federal government still has free reign to support law enforcement action against marijuana operations that are outside the bounds of a state-regulated system.

On one hand, this eradication program is in the best interests of compliant, tax-paying marijuana businesses as it eradicates competition from illegal cannabis. If we are going to have a Drug Enforcement Agency to which Congress appropriates funds, we would prefer it spend its time and money seeking to eradicate illegal marijuana grows than going after state-legal cannabis businesses. Even if the DEA is only scratching the surface with the total amount of marijuana it seizes, the mere threat of these eradication efforts forces illegal cannabis growers to try harder to hide their products, increasing their costs and forcing them to sell at a higher price. Anything that increases the legal market’s competitive edge against the illegal market has some benefit to our clients who pay taxes and registration fees and operate fully above board. Finally,  illegal, unregulated cultivation on public land, often in national parks or national forests, can have significant negative impacts on the environment.

Still, we have to ask if local marijuana eradication is the best way for the federal government to spend its money. In 2016, the DEA spent $760,000 in Washington, $200,000 in Oregon, and $4.3 million in California on eradication efforts. In Washington, because of the mountainous areas where illegal grows are found, the per plant eradication cost is $26.49. That’s a huge cost per plant when evidence has shown that these eradication efforts have not significantly reduced the total amount of illegal marijuana making its way to market.

Like a lot of other government programs, it seems that much of the reason for continuing with the cannabis eradication program is that the money is easy for Congress to spend and law enforcement jobs remain secure so long as they continue to receive this kind of money. If the federal government were serious about the ecological concerns of illegal marijuana growing, the eradication program would be run by the United States Forest Service or the Department of Interior or the EPA. Not by the state highway patrol with funding from the DEA.

One of the most pernicious challenges for marijuana decriminalization nationwide is the continued financial interest of those politically popular groups that generate revenue from illegality. Law enforcement and corrections officers represent a huge and organized political constituency, and though they don’t all speak with one voice (see Law Enforcement Against Prohibition), they tend to favor anti-cannabis programs that keep federal funds flowing their way because of the security it brings to the agencies as a whole and to the individual law enforcement officers. So long as marijuana remains illegal, we will throw money at quixotic eradication efforts.

In discussing this money tug, Lt. Chris Sweet of the Washington State Patrol told the Seattle Times that public perception that the money can be used for other programs like education and treatment is “definitely a big concern.” The pie is only so big, and those of us who think the money would be better spent on education or treatment need to make our voices heard too.

Cannabis bankingThere has been a ton of speculation about what President-elect Donald Trump and his nominee for U.S. Attorney General, Jeff Sessions, will do about state-legal marijuana in the next four years. Some industry and political experts think a renewed War on Drugs is coming, while others believe neither Trump nor Sessions will undertake the politically unpopular task of undoing state-by-state cannabis legalization and some version of the status quo under the Cole Memo will prevail. What is likely to happen with access to banking for cannabis businesses under this new administration?  Next to 280e, the inability to secure and maintain a bank account is probably the biggest business problem for marijuana entrepreneurs.

Marijuana businesses and ancillary service providers (those businesses that provide services to the industry but that are not cultivating, manufacturing, or distributing marijuana) often cannot get bank accounts or bank financing because marijuana is federally illegal. Regulations issued by the Financial Crimes Enforcement Network (FinCEN) dealing with money laundering are what make it so tough for cannabis businesses to secure banking. The Bank Secrecy Act FinCEN enforces requires banks investigate their customers and neither negligently or knowingly do business with bad actors. State-legal marijuana businesses and even many ancillary businesses are viewed as bad actors for banks and so they generally avoid those businesses and the potential fines that can come with them.

Nonetheless, in 2014, FinCEN finally issued some guidance that allows financial institutions to at least provide bank accounts to marijuana businesses — no mention was made in this guidance about access to banking for ancillary service providers. Under these FinCEN marijuana guidelines, banks are expected to:

  • Verify with state authorities that a marijuana business is duly licensed and registered.
  • Review state license applications and related documentation the marijuana business used to obtain its state license to operate its marijuana-related business.
  • Request from the state licensing and enforcement authorities available information about the business and related parties.
  • Develop an understanding of the normal and expected activity for the business, including the types of products to be sold and the types of customers to be served.
  • Monitor publicly available sources for adverse information about the cannabis business and related parties.
  • Periodically refresh information obtained as part of customer due diligence using methods and timetables commensurate with the risk.
  • File Suspicious Activity Reports (SARs) with FinCEN for all of their marijuana business customers. Banks use SARs to notify regulators that someone may be using their services for an illegal purpose. There will be no direct consequences arising from these SAR filings, but this means the federal government knows exactly who you are as a marijuana business, and with whom you are banking.
  • File SARs if they believe one of their cannabis business customers has violated a state law or has failed to act in accordance with the Cole Memo.

With these guidelines FinCEN essentially dragooned banks into acting as on-the-ground investigators to snitch on marijuana businesses that are not being as compliant or careful as the federal government believes they should be. These guidelines do not change federal banking laws and they are pretty onerous, but they were a positive step towards alleviating the marijuana banking epidemic.

With eight states, including California, electing to legalize/”medicalize” marijuana this past November, I questioned in a recent blog post what FinCEN/the Department of Treasury will do with the 2014 FinCEN guidelines, especially with Trump soon to be our President. In December, Senator Elizabeth Warren (and several other senators) sent a letter to FinCEN requesting it issue increased guidance to banks, given we now have 29 states with some form of legal marijuana and no federal resolution of the banking issue. Specifically, Senator Warren and the other senators wrote that more guidance is necessary to address how ancillary services providers can secure financial services as the 2014 FinCEN guidelines are silent on this issue. The senators’ letter specifically stated that:

The 2014 FinCEN guidance did not distinguish between state-sanctioned marijuana businesses and the [ancillary] businesses that service the marijuana industry, leaving it up to individual financial institutions to determine how to classify and treat [ancillary] businesses. Limitations on access to financial services have become increasingly problematic for legal businesses and will only present a larger problem as more states legalize marijuana . . . since FinCEN’s 2014 guidance was released, less than 3% of the nation’s 11,954 federally regulated banks and credit unions have chosen to serve the cannabis industry.

The senators’ letter also accurately noted that an inability of cannabis businesses to bank promotes tax fraud and creates a public safety issue due to the large amounts of cash marijuana businesses must handle.

If Congress will not adjust the banking laws to accommodate state-legal marijuana businesses, pressuring banking regulators to change their enforcement policies is the logical next step and we need to see more congressional representatives and senators from marijuana-friendly states standing up for marijuana banking. If we expect the state-by-state democratic experiments with cannabis to succeed, we need to equip marijuana and ancillary businesses with the tools for success, including access to banking.

Mike_Pence_&_Jeff_Sessions_(29299670541)My cannabis clients are all over the map with how they are reacting to Donald Trump’s election victory and his subsequent naming of Jeff Sessions as the presumptive nominee for Attorney General. Some of them are absolutely confident that marijuana legalization momentum cannot be slowed, much less halted. Others are much more cautious and are concerned that the political climate may have terrible effects on their cannabis businesses. The majority, however, are not really engaging directly with the issue. They are doing business as usual as they wait to see if major changes are in order on the federal policy side.

But even for those that aren’t sure yet what is going to happen, business is full of small gambles. We have clients right now that don’t know if they should move forward and buy another piece of equipment or expand into a larger facility because they don’t know if they will be able to get their money back. If Jeff Sessions is as scary to the cannabis industry as his prior public statements would support, then every dollar invested into a marijuana business right now is a dollar that may not be recouped. There is a real risk here.

But with that risk comes opportunity. One of the great fears for small marijuana entrepreneurs has been that large businesses will squeeze them out as soon as they get the chance. But big business will never make that move so long as the legal climate for marijuana remains as risky as it is. If Hillary Clinton had been elected, the long, slow march toward overall legalization may not have accelerated, but it also wasn’t going to slow down or stop. With Trump, I would be surprised to see any major moves into the marijuana industry by large businesses any time soon. Small businesses can be flexible in an uncertain landscape, but large businesses abhor uncertainty. They are simply too slow-moving and have too much internal inertia to be able to react well in a legal climate where it feels like policy changes by the week.

So, small businesses retain their advantage. This isn’t to say that marijuana businesses won’t or can’t grow. It is saying that, at least for the foreseeable future, most of the growth in marijuana businesses is likely to be organic — from businesses that started in the industry. The idea that Philip Morris or Pfizer or Monsanto are going to come in and throw money at the marijuana industry and run everyone else out of business is dead in the short term because those massive businesses have so much to lose. The Trump effect will keep them out, whereas they would probably have been more likely to get involved in different circumstances.

American-style capitalism has a way of quickly generating enterprises that fill whatever void is created by government policy, or lack thereof, and this holds true for cannabis as well. No matter what the administration does, cannabis businesses, both legal and illegal, will adapt. Any move that keeps big business away from marijuana will simply allow smaller state-legal actors and black market actors to play a stronger role. Federal cannabis policies moving forward will not determine whether there is a marijuana market — that is set in stone — but they will determine which players are most advantaged.

Cannabis lawyersWalking home one freezing night in December 2014, I was taken aback to look up and see a storefront with a bright neon sign that read “CBD OIL SOLD HERE” in the window. It was not the “what” of the sign that startled me – CBD oil is, of course, a product with many therapeutic qualities and a wide range of uses – but the “where.” Far from cannabis-friendly Seattle, I was home for the holidays in southwest Missouri, a socially conservative state where attempts to even put medical marijuana on the ballot face fierce opposition. Though only a first-year law student at the time, I knew enough to know something did not add up: CBD is derived from the cannabis plant, and marijuana is illegal under federal — and, in Missouri, state law. Therefore, I thought, CBD is illegal. How were they getting away with this?

As I now know – and as we have explained before – the business in question was relying on an ambiguity in the Federal Controlled Substances Act’s definition of “marijuana.” The Controlled Substances Act does not include in its definition of “marijuana” the plant’s “mature stalks.” Mature stalks are the part of the cannabis plant used to make hemp, which is not prohibited by the Controlled Substances Act either. The stalks also contain CBD oil that can be extracted and used just the same as CBD derived from other parts of the plant. The ambiguity was enlarged with the passage of the 2014 farm bill, which allowed some cultivation of hemp with THC levels below 0.3%. Ergo, CBD oil is not technically illegal – right?

Wrong.

Two days ago, the Drug Enforcement Administration issued regulations that effectively put the kibosh on attempts to dance around the Controlled Substances Act’s definition of “marijuana” when it comes to CBD oil. The new rule creates a new “Controlled Substances Code Number” for “Marihuana Extract” and extends that classification to extracts “containing one or more cannabinoids from any plant of the genus Cannabis.” Because CBD is a cannabinoid and hemp is a plant of the genus Cannabis, the rule explicitly applies to the many CBD products currently being widely sold online and in shops like the one I encountered in Missouri. DEA confirmed as much in response to public comment on its initially proposed rule, stating that “[f]or practical purposes, all extracts that contain CBD will also contain at least small amounts of other cannabinoids. However, if it were possible to produce from the cannabis plant an extract that contained only CBD … such an abstract would fall within the new drug code 7350.” DEA justifies its new rule as necessary to fully comply with the UN Convention on Narcotic Drugs and finds its statutory authority to promulgate the rule in the Controlled Substances Act.

What does this mean for sellers of CBD extracts online or in states with unfriendly cannabis laws? It means the DEA is explicitly saying that it considers your product to be illegal under the Controlled Substances Act along with other illicit cannabis products. It also means that they are enhancing their ability to track CBD and enforce its interpretation of the law.

In truth, CBD merchants were probably always on the wrong side of the gray area in DEA’s eyes because CBD extracts almost necessarily contain other cannabinoids. As DEA stated in its justification: “Although it might be theoretically possible to produce a CBD extract that contains absolutely no amounts of other cannabinoids, the DEA is not aware of any industrially-utilized methods that have achieved this result.” The difference now is that the DEA is officially putting CBD sellers on notice that their businesses are subject to enforcement action.

Though our cannabis lawyers are unhappy with the DEA’s statement, we would be remiss if we did not tell you that you would be wise to heed this warning: selling CBD is illegal.

Cannabis LawyersThis is proving to be a big year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts will analyze one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments. As a result of the overwhelming success of many cannabis initiatives this November, all the remaining states in this series have legalized the adult use of recreational marijuana.

With four states remaining — Alaska, California, Oregon and Washington — we deviate from our regular format of ranking the actual states and we instead turn to the District of Columbia. This post will examine the District’s cannabis laws and focus on how the federal government has made implementing those laws in D.C. so difficult.

Our state rankings are as follows: 5. Alaska; 6. Massachusetts;  7. Maine; 8. New Mexico; 9. Nevada; 10. Hawaii; 11. Maryland; 12. Connecticut; 13. Vermont; 14. Rhode Island; 15. Kentucky; 16. Pennsylvania; 17. Delaware; 18. Michigan; 19. New Hampshire; 20. Ohio; 21. New Jersey; 22. Illinois; 23. Minnesota; 24. New York; 25. Wisconsin; 26. Arizona; 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Washington D.C. 

Recreational Marijuana. On November 4, 2014, voters in Washington D.C. approved Initiative 71, allowing individuals 21 and older to legally possess, use, purchase, or transport up to two ounces of marijuana within the District. The initiative also permits individuals to legally possess, grow, and harvest up to six marijuana plants in their principal residence, with no more than three flowering plants at one time. However, the initiative did not directly address cannabis sales. Instead, Initiative 71 called for the city council to draft regulations for marijuana retail sales.

Those regulations were never drafted due to interference by the federal government. Congress possesses budgetary oversight for Washington D.C. and it has used that spending power to frustrate Initiative 71’s implementation. In December 2014,  U.S. Congressional members included a rider in the U.S. federal spending bill prohibiting the use of federal funds towards any efforts to implement Initiative 71. Despite this, D.C city officials and the mayor pledged to move forward with legalization. Eventually, members of Congress actually threatened D.C.’s mayor with criminal penalties for implementing legalization.

Amidst legal uncertainty, legalization in D.C. nonetheless went into effect in February 2015. The threats by Congressional members were somewhat effective though because the D.C. City Council has yet to create regulations necessary for a truly functioning legal recreational marketplace in our nation’s capital. In D.C., cannabis is legal to possess and cultivate, but not to buy or sell. The District’s recreational marijuana market has operated in this “gray area” since cannabis was legalized. With Republicans now controlling both our nation’s House and Senate, our cannabis lawyers do not see the Washington D.C.’s betwixt and between situation changing anytime soon.

Medical marijuana. Washington D.C.’s medical marijuana market is currently operational after years of delay. Voters legalized medical marijuana in 1998. But just as it did with Initiative 71, Congress stalled the process by limiting D.C.’s use of federal funds to get its medical cannabis program off the ground. Cannabis dispensaries did not start selling medical marijuana in D.C. legally until 2013. Washington D.C.’s Department of Health summarizes its medical cannabis program as follows:

All qualifying patients have the right to obtain and use marijuana for medical purposes when his or her primary physician has provided a written recommendation that bears his or her signature and license number. This recommendation must assert that the use of marijuana is medically necessary for the patient for the treatment of a qualifying medical condition or to mitigate the side effects of a qualifying medical treatment.

Unlike many states, D.C. does not have a list of qualifying conditions, meaning that doctors have the freedom to recommend cannabis for a wide range of medical conditions.

D.C. patients and recreational users are both limited to two ounces of cannabis. But unlike recreational users, cannabis patients may purchase cannabis at a dispensary. A 2013 Amendment to D.C.’s medical cannabis law prohibits more than five marijuana dispensaries from opening in the District. The mayor has authority to expand that number to eight. The D.C. City Council recently implemented new regulations requiring the city’s dispensaries to submit cannabis to labs for testing. These rules are intended to protect consumers from ingesting dangerous additives that can be found on cannabis.

Bottomline. For years, the federal government has taken a generally hands-off approach to the states legalizing both medical and recreational cannabis. So long as an individual state’s legalization regime complies with the dictates of the Cole Memo, the federal government typically stays away. This has not been the case in our Nation’s Capital, as federal lawmakers are simply more concerned with cannabis legalization in their own backyard. Though Washington D.C. now has a workable medical marijuana program, we see the battle over its recreational marijuana program getting only more heated as the Trump administration and a Republican Congress take over. If D.C. were a state, it would definitely rank within our top ten for cannabis, but that may change for the worse, and soon.

Cannabis importsImporting cannabis into the United States is illegal since cannabis is a Schedule I controlled substance. But it’s not necessarily illegal to import smoking accessories into the United States, such as (pipes, grinders, rolling papers, etc.) so long as you’re not violating federal paraphernalia laws. Even though marijuana legalization is sweeping the U.S. and people are consuming cannabis in all shapes and forms, importers of smokers accessories still have to abide by all federal importation laws. Based on the large number of calls and emails we get from such importers with products being held up by U.S. Customs at the border, far too many do not realize this. For this reason, I asked Adams Lee, one of our firm’s international trade and customs lawyers, to write the below post with me.

U.S. Customs and Border Protection recently initiated an action before the U.S. Court of International Trade (“CIT”) to recover approximately $500,000 in civil penalties and unpaid taxes from two companies that imported cigarette rolling papers, mini hookahs, smoking pipes, and pipe screens from China. U.S. Customs alleged that Green Planet, Inc. and Token Group, LLC, both at the same address in Riverside, California, had imported various smoking products from China without including the correct amount of duties owed on the import entry declarations filed with Customs.

According to Customs, between June 2010 through February 2013, Green Planet made four entries (with an entered value of $407,308.71) and Token Group made five entries (with an entered value of $1,412,456.73) of imported products from China, but failed to pay Customs over $200,000 in applicable duties that should have been declared at the time of entry. U.S. Customs alleged that Green Planet and Token Group filed import entry declarations that contained material false statements and/or omissions and that their failure to exercise reasonable care in submitting information to Customs constituted negligence in violation of 19 U.S.C §1592(a).

After the entries had been made, Green Planet and Token Group (or their surety companies) paid Customs almost all of the outstanding duties that should have been paid. Though Green Planet and Token Group together now owed less than $30,000 in outstanding duties, Customs still decided to seek penalties of $432,975.86 against them for their having negligently filed material false statements on their Customs entry declarations. For negligent filing of entry declarations, Customs is entitled to collect civil penalties equal to twice the lawful duty amount that should have been collected at the time of entry.

It is not clear why Green Planet and Token Group did not pay the duties owed on their imported Chinese rolling papers and smoking products. Perhaps they sought to cheat Customs and purposefully tried to avoid paying lawful duties. Or perhaps they had a legitimate basis to claim the products should have been declared under a duty free tariff heading. Numerous cannabis related products have ambiguous or uncertain classification, particularly as new products are developing. Regardless of their intent, Green Planet’s and Token Group’s failure to properly file true and accurate Customs entry declarations was deemed to be negligence warranting the initiation of a Customs penalty action.

This case demonstrates how Customs will pursue penalty actions regardless of how small the amount of duties owed. We mention this because we often hear otherwise from our customs clients, many of whom wrongly believe there is some sort of minimum safe haven amount Customs will ignore. If you are an importer that makes any material false statement or omission on your entry declaration, you are at risk of a substantial Customs penalty action. Because the penalty for negligent Customs declarations is double the amount that should have been collected at the time of entry, under-reporting can have costly consequences.

If you catch your mistake on your customs entry declaration before Customs initiates a penalty action, you can make a prior disclosure to Customs of your error. This will help mitigate potential penalty actions, and could limit your exposure just to the amount of outstanding duties owed.

Importers need to take care to ensure that their import declarations are filed accurately. Although customs brokers file Customs entry documents on behalf of importers, they are only agents of the importers who bear ultimate responsibility for any Customs entry declaration. In fast developing industries (like cannabis), importers need to be especially mindful of the Customs reporting challenges to make sure their imported products are correctly declared to Customs so as to avoid potentially penalties.

Bottom Line: Let’s get real here. New President. New Republican Administration. Not China friendly. Not import friendly. Not cannabis friendly. If you do not realize that customs is going to be cracking down doubly hard on cannabis-related imports going forward, you are living in an alternate universe. What this means in this universe is that you need to handle everything related to customs right the first time and if you don’t you need to fix it quickly and appropriately.

It looks like President-elect Trump intends to name Senator Jeff Sessions as his new Attorney General. As I mentioned in the last post about Trump’s pot policy, Sessions has been hostile to marijuana for a long time. Here is a general flavor of Sessions talking about marijuana:

Not very encouraging. So where does that leave us? Just because Sessions doesn’t like marijuana does not automatically mean increased law enforcement action against it. Any federal attempt to roll back cannabis’s big gains would be incredibly unpopular politically, and it seems Sessions wants to focus on national security, terrorism, and immigration as his primary areas of focus. He may rant and rave against marijuana, but actions speak loudest, and taking action may be too costly.

Sessions is also limited in what he can do, so long as the federal spending bill says that the federal government cannot spend money to interfere with state medical marijuana laws.

Still, that means recreational laws and people that participate in recreational marijuana businesses must remain cautious. There is nothing stopping federal agents from raiding marijuana businesses, as possession, distribution, and manufacture of marijuana remain illegal under federal law. The Cole Memo isn’t going to stop them, and Sessions can withdraw that memo with the stroke of a pen. Logistically, there simply are not enough federal agents to enforce federal marijuana laws everywhere, but that won’t necessarily stop them from targeting big players.

If this issue is important to you, please call your state’s Senators, particularly if they serve on the Judiciary Committee, to let them know the cannabis issue is important to you. Sessions has to go through a confirmation process. Last time he tried this, in 1986, he was rejected for having made racist comments in his past. I doubt he will be rejected this time (there will be far less qualified nominees for other positions, and the Republican-controlled Senate won’t reject everybody). But political pressure on him to maintain his focus on real law enforcement and leave marijuana policy to the states can have a real impact.

As cannabis lawyers, we will obviously be watching what happens pretty closely but mostly continuing to move forward with business (in Washington, Oregon and California) as usual. Or as Hilary Bricken from my firm put it in an interview regarding what to expect with California cannabis:

Bricken says she and other lawyers with clients in the marijuana business are paying close attention to the trend in federal law, but they aren’t slowing down in anticipation of a new administration. “If the federal government goes around arresting attorneys, then we have a constitutional crisis on our hands. But for us, it’s business as usual until we get some dramatic turnaround.” And even in that event, she says, “I wouldn’t be afraid to take up the fight.”

Fingers crossed.

Trump on cannabisSince last Tuesday, we have seen a deluge of stories asking what federal pot policy is going to look like under President-Elect Trump. NBC, the Washington Post, CBS, and many others have weighed in. The short answer, so far, is that nobody knows. Trump himself has made statements on every side of this issue, much as he has on issues broadly. In the past, he has made arguments in favor of drug legalization. During the campaign, he bounced between positions where he was positive on medical marijuana, to saying that it was all a states’ rights issue, to saying that legal marijuana has caused a lot of problems in Colorado.

So Trump is, to some extent, a wildcard on cannabis. After meeting with President Obama in the White House, Trump came away thinking that there actually were some good parts of Obamacare that he wanted to keep, which is different from his campaign trail calls for its total repeal. Many say Trump often takes positions based on the last person to speak to him and the people that he has surrounded himself with to date are not legalization warriors in any sense.

The most important appointment President Trump will be making is the Attorney General, who is the head of the Department of Justice, the agency that enforces and prosecutes federal crime, including federal drug laws. The Cole Memo, which sets out the current federal policy of only enforcing federal criminal laws against cannabis in egregious circumstances, was issued by the Department of Justice and can be withdrawn by the Department of Justice. The status of the Cole Memo is the main battle line we are talking about right now. If Hillary Clinton had been elected, everyone assumes the Cole Memo would have remained in effect, and the main question would have been whether banking would be easier, or if federal tax policy would be less punitive toward marijuana businesses. With Trump’s election, safety from federal enforcement is the paramount concern.

So, let’s take a look at the names floated for Attorney General so far: Chris Christie, Rudy Giuliani, Jeff Sessions, and Pam Bondi.

Christie: Chris Christie is probably the most ardent opponent of marijuana legalization on the national stage. He has stated in very clear terms that he would enforce federal laws even in states that have fully legalized marijuana. The only time he has backed down on the issue was in September, when he signed a New Jersey bill adding PTSD to the list of ailments for which marijuana can be recommended. Otherwise, Christie has shown a keen interest in cracking down on marijuana. Christie’s chances of becoming Attorney General, however, are hampered by the “Bridgegate” scandal, and that he is now believed to have fallen out of Trump’s inner circle. Christie as attorney general is a scary proposition for anyone in the cannabis industry, but that is looking less likely.

Giuliani: During his 2008 campaign for president, Giuliani made statements that were as strongly anti-marijuana as Christie’s recent statements. He has made fewer public statements on it in recent years, but he is generally assumed to still be a drug warrior and strongly anti-cannabis. But just this morning, Giuliani said that he is not in the running for the Attorney General position and there are rumors now that he may be named as Secretary of State.

Sessions: Jeff Sessions has been a drug warrior for a long time. Among his other choice quotes on the issue, he once said that “good people don’t smoke marijuana.” He attacked President Obama after the President said that alcohol was likely more harmful than marijuana. Throughout his career he has not shown any movement on the issue, even toward medical marijuana.

Bondi: Pam Bondi is the Florida Attorney General who ran into scandal for accepting a $25,000 campaign donation from the Trump Foundation while Florida was considering joining a lawsuit against Trump University, which she eventually opted not to join. On the marijuana question, Bondi was actively against medical marijuana legalization in Florida, but she did not fight to keep the 2016 ballot initiative off the ballot. That acquiescence, however, was based more on an acceptance that there was no legal way to challenge it as opposed to a belief change on marijuana itself. Still, it is hard to imagine a state official feeling comfortable with federal law enforcement going after marijuana businesses and users in a state that just passed medical marijuana with a 70% plus majority.

Other Considerations: Even if Trump appoints an anti-marijuana zealot to the Attorney General post, it isn’t clear that will lead to major changes in federal cannabis policies. Public approval for legalizing marijuana (especially medical cannabis) is solidifying and growing. Marijuana laws were approved in eight out of the nine states on which it was on the ballot, including heavily republican states. See Marijuana Election Overview. A majority of the people in the United States now live in places that have decriminalized or legalized medical or recreational marijuana. If Trump’s Department of Justice were to start going after marijuana businesses in legal states, the backlash would likely be swift and furious, and it would threaten to overwhelm the rest of his agenda.

Further, Congress still has a role here. In the past few federal spending bills, Congress has ruled that the Department of Justice could not use federal money to interfere with state marijuana laws. The 9th Circuit has ruled that this budget rider prohibits the Department of Justice from spending money on cannabis prosecutions against defendants fully compliant with their state’s medical cannabis laws. This budget rider does not protect recreational cannabis businesses, but there is an added complication where Washington and Colorado have at least partially merged their medical and recreational marijuana programs. Even if the Department of Justice wants to crack down on marijuana businesses, it’s not clear it has the legal right to do so.

At this point, there are no clear answers. No matter what happens, it is vital that the legalization community stay involved and stay loud. Public opinion does matter, and public officials don’t like their agendas to be dragged down by single issues. Organized cannabis lobbying is more important than ever, so keep letting your elected officials know where you stand on cannabis.