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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 marijuana cannabis
Big ups to Bob.

Washington State Attorney General, Bob Ferguson, appears ready to defend his state’s marijuana program against Jeff Sessions and Donald Trump. Last week, Ferguson spoke to the Columbian’s editorial board about upcoming challenges for the Evergreen State. Naturally, the topic of marijuana came up.

Ferguson stated that his office was prepared for a legal fight over marijuana legalization in Washington, although he said, “we hope it doesn’t come to that.” Due to recent actions by US Attorney General Sessions, however, it seems likely that it “could come to that.” If it does, Ferguson told the Columbian that he would not hesitate to act:

Hypothetically speaking, right, there could be a business that’s licensed in Washington state selling marijuana that’s following state law. Let’s assume they’re following state law to a T—that’s important—and the feds go in and try to shut that business down, they seize the marijuana or the proceeds. If in my view, we’ve got a legitimate business, playing by our rules here in Washington state and the federal government comes in to try to shut that down, we’d be interested in that.

Ferguson also said that he would be willing to get involved if the federal government takes any “adverse action” against a marijuana businesses compliant with state law.

Earlier in January, Sessions rescinded Obama era guidance regarding federal enforcement priorities for states that legalized cannabis and replaced with the single-page Sessions Memo. Now, US Attorneys across the country, like Washington’s Annette Hayes, are authorized to use their own discretion when deciding whether prosecute federal marijuana crimes in their respective states.

Prior to Ferguson’s interview, the Washington State Liquor and Cannabis Board sent out an email on behalf of his office asking for Washington residents to share “if they experienced a change in your business practices or customer relationships that you believe is connected to the Sessions Memo.”

Clearly, this issue has been on Ferguson’s mind for a while. In his interview, Ferguson also emphasized the fact that Washington repeatedly reached out to Sessions to discuss Washington’s cannabis law and policy. In each case, Sessions declined. Ferguson also pulled no punches in deriding Sessions for sending him and Governor Jay Inslee a factually inaccurate letter on Washington’s marijuana program, which failed even to acknowledge that the state had merged its medical and recreational programs:

I think the first thing he accused us of was not having a system that had combined our medical and recreational marijuana systems together, relying on that old report—but, of course, since that report came out, we had! To me that’s embarrassing that the US attorney general, on an issue of that importance, is writing a letter to a governor and attorney general of another state and he’s just got his facts wrong. That’s a problem, I think. I think this is a problem in trying to move forward on these issues.

Ferguson wisely said that he was not willing to discuss legal strategies, but acknowledged that a legal fight could center on “whether federal law preempts state law when it comes to marijuana.” Under the US Constitution, federal law preempts state law when the two directly conflict, but there are strong arguments by states like Washington that their adult use cannabis programs are not in “positive conflict” with federal law. We explained how that works here.

Washington has consistently proven that it is not afraid to challenge the Trump administration. Sessions brought great uncertainty to the marijuana industry, but Washingtonians should feel confident that their Attorney General will fight to protect the will of Washington voters. Hopefully, Ferguson never has to take up his promise, but it’s reassuring to know he is willing to do so.

Congratulations to defiant Vermont!

Yesterday, Vermont Governor Phill Scott signed a bill into law legalizing marijuana. Vermont has become the first state to legalize recreational marijuana through its legislature. Alaska, Colorado, California, Maine, Massachusettes, Nevada, Oregon, Washington, and Washington DC all legalized the recreational use of cannabis through voter initiative. Vermont also becomes the first state to legalize after Jeff Sessions rescinded Obama-era guidance on federal enforcement in states with legal marijuana and issuing his own memo. The new law goes into effect on July 1, 2018.

Vermont’s bill is also unique in that it is noncommercial. It does not create a regulated market (yet) or a tax structure for cannabis sales. The bill simply makes it legal to possess and grow small amounts of marijuana. This is similar to the legal framework regarding recreational cannabis in Washington DC.

The Vermont legislature summarizes the intent of the bill as follows:

It is the intent of the General Assembly to eliminate all penalties for possession of one ounce or less of marijuana and two mature and four immature marijuana plants for a person who is 21 years of age or older while retaining criminal penalties for possession, dispensing, and sale of larger amount of marijuana.

Individuals in Vermont who possess marijuana or marijuana plants in excess of these restrictions face criminal penalties. However, marijuana cultivated from homegrown plants does not count toward the one-ounce possession limit if stored indoors on the property where it was cultivated. Personal cultivation must be out of public view. Cannabis oils and tinctures may be hard to come by as extraction using butane or hexane is prohibited.

Like most cannabis-friendly states, Vermont will not permit the public consumption of marijuana. It also does not change state law regarding driving under the influence of marijuana. Cities and counties may impose additional penalties regarding the public consumption of marijuana. Landlords may prohibit the use or possession of marijuana in a lease and employers may require that their employees do not use marijuana as a condition of employment.

Providing marijuana to a minor can result in criminal penalties. The new bill also creates a civil cause of action for a “spouse, child, guardian, employer, or other person who is injured in person, property, or means of support” as a result of marijuana use by a person under the age of 21. These civil claims can be filed against anyone who provides or enables the consumption of marijuana.  This means that a person who provides marijuana to a minor can be liable for the minor’s driving accidents.

Vermont may not be a large state but its decision to legalize marijuana is of national significance. Other state legislatures may follow suit and legalize marijuana through the traditional lawmaking process. New Hampshire, for example, could join Vermont as its House of Representatives recently voted to legalize marijuana. Similarily, a Republican state senator in Kentucky also recently filed a bill to legalize recreational cannabis. In addition, and perhaps more importantly, Vermont’s legalization success is a signal that states are going to continue to push forward with marijuana legalization even though Jeff Sessions has raised concerns over federal enforcement.

washington marijuana cannabis
Will she or won’t she?

Jeff Sessions’ decision to rescind Obama-era guidance on the Department of Justice’s approach to marijuana enforcement was troubling for the cannabis industry. The “Sessions Memo”  withdrew earlier marijuana-specific guidance memoranda and directed US attorneys to decide which marijuana activities to prosecute “with the Department’s finite resources,” based on well-established principles that govern all federal prosecutions including, “the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”

The Sessions Memo does not provide much additional insight as to what prosecutors should look for in determining what marijuana crimes to target. In lieu of such guidelines, it is important that stakeholders in the cannabis industry familiarize themselves with the US Attorney in their district. This post is focused on Annette Hayes, the US Attorney for the Western District of Washington.

On January 4, Hayes issued the following statement regarding the Sessions Memo:

Today the Attorney General reiterated his confidence in the basic principles that guide the discretion of all U.S. Attorneys around the country, and directed that those principles shepherd enforcement of federal law regarding marijuana.  He also emphasized his belief that U.S. Attorneys are in the best position to address public safety in their districts, and address the crime control problems that are pressing in their communities.  Those principles have always been at the core of what the United States Attorney’s Office for Western Washington has done – across all threats to public safety, including those relating to marijuana.  As a result, we have investigated and prosecuted over many years cases involving organized crime, violent and gun threats, and financial crimes related to marijuana.  We will continue to do so to ensure – consistent with the most recent guidance from the Department – that our enforcement efforts with our federal, state, local and tribal partners focus on those who pose the greatest safety risk to the people and communities we serve.

This short paragraph indicates that Hayes’ office will focus on threats to public safety, as it has for the past few years, and will act in a manner “consistent with the most recent guidance from the Department.” This statement is fairly vague and does not give a strong indication as to how Hayes will act in light of the Sessions Memo. To better understand Hayes’ opinions on cannabis, we can turn to her career as a prosecutor.

Hayes joined the U.S. Attorney’s Office in 1997 as an Assistant United States Attorney in the Criminal Division. Early in her career she was assigned drug cases including large-scale, international trafficking and cartel-related cases. In 2002, she became the Deputy Supervisor of the Complex Crimes Unit where she prosecuted cyber hacking and intellectual property cases.  In 2005, she became one of the supervisors of the General Crimes Unit, focusing on a range of federal crimes including child exploitation, drug, fraud, identity theft, immigration and violent crimes cases. Hayes took over for Jenny Durkan (Seattle’s current mayor) as the Acting US Attorney for the Western District of Washington in October 2014.

As she moved up the ranks, Hayes has not focused solely on drug crimes. Since taking over as US Attorney for the Western District of Washington, Hayes’ office has focused on marijuana cases involving acts of violence or the distribution of other drugs, like methamphetamine. I uncovered no examples of Hayes’ office prosecuting a licensed marijuana business. The following are some of the key marijuana-focused cases prosecuted in western Washington under Hayes:

  1. Illegal BHO Operation in Bellevue. In June 2015, Hayes announced that David Shultz had been sentenced to nine years in prison after causing a fire in a Bellevue apartment complex while manufacturing Butane Hash Oil (BHO). A man was killed as a result of the fire and several others were injured. The incident occurred in November 2013 and Hayes took over this case after replacing Durkan. Mr. Shultz was operating squarely outside of Washington’s regulatory framework.
  2. IRS Fraud. In May 2016, Hayes announced that former IRS agent Paul Hurley would serve 30 months in prison for soliciting and then accepting a bribe while auditing Have a Heart. Have a Heart worked with the FBI and local law enforcement to document the events leading to Mr. Hurley’s arrest and conviction. Have a Heart is a licensed retailer but did not face charges relating to this incident.
  3. Unlicensed Medical Marijuana. In June 2016, Hayes announced that Lance Gloor would serve a ten-year sentence for drug trafficking. Gloor owned several medical marijuana dispensaries. In 2010, police officers obtained a warrant to search Gloor’s home and found over 70 marijuana plants and a firearm. While awaiting charges in state court, Gloor allegedly opened four marijuana dispensaries in the Puget Sound area. During his trial,  the court ruled that Gloor violated court orders by contacting witnesses. In announcing the conviction and sentence, Hayes stated, “[d]espite repeated notice that his marijuana business was illegal under state and federal law, he continued to use lies, threats and intimidation to try to cover his tracks and make as much money as he could.” The court found that Gloor was not operating in compliance with state law and he did not have a license to produce, process, or sell marijuana from the Washington State Liquor and Cannabis Board.
  4. SPD Marijuana Diversion. In May 2017, Hayes announced the arrest of four Seattle Police Officers on conspiracy charges related to the delivery of hundreds of pounds of marijuana from Seattle to Baltimore. Alex Chapackdee, a 16-year veteran of SPD, was the alleged ringleader who also drove across the country to deliver marijuana on several occasions. This case is ongoing and the individuals involved have not yet been convicted.

Overall, Hayes does not appear to have the same zealous opposition to cannabis as Jeff Sessions. However, she has pursued marijuana cases that involved individuals who operated outside of Washington’s regulatory framework.  Hayes, like all of us, has relied on the Cole Memo for the last four years and is likely re-evaluating how her office will deal with marijuana in Washington. Under the Sessions Memo, we could see Hayes take a tougher approach to cannabis but her history of prosecuting marijuana crimes appears to indicate that she is not inclined to target licensed businesses.

Our Seattle office often receives calls from entrepreneurs who want to operate in Washington’s thriving recreational cannabis market. Washington is not currently accepting applications for new cannabis licenses which means there are a finite number of licenses available. This leaves one option for entrepreneurs who want to operate their own Washington’s cannabis business: buy an existing licensed business. These transactions are common but can be risky if the buyer is not careful. This post outlines some of the key issues buyers need to watch out for when purchasing a cannabis business in Washington state.

1. Prepare to buy the business, not the license. 

Generally, a prospective buyer has two options in buying a business: (1) purchase the entity itself by buying all outstanding shares or membership interests, or (2) purchase the business’ assets, such as the equipment, fixtures, property, and goodwill. When buying a Washington cannabis business, purchasing only the assets is not much of an option.

The Washington State Liquor and Cannabis Board (LCB) does not treat a license to produce, process, or sell cannabis as a transferable asset. This means that a buyer must purchase the business that holds a license, rather than purchase the license itself (it is possible to buy a partial share in a business but this post focuses on scenarios where the buyer takes full control over a licensed entity). There are some exceptions to this rule. For example, when a buyer targets a sole proprietor it is possible to assume the license. However, in most cases, the buyer must purchase the entity rather than the assets.

By buying an entity, the buyer takes on all contracts, debts, and anything else registered under the business’ name. This requirement means that a buyer faces increased liability and therefore must carefully evaluate the target business.

2. Do your homework and know what you’re buying. 

As with the purchase of any business entity, a potential buyer should perform thorough due diligence before closing. (See our articles on that here and here.) Washington’s Uniform Commercial Code database is available online and can be used search what creditors have filed against a debtor in the state providing useful information about the target entity’s debts. Buyers can also perform federal, state, and county lien searches to determine whether there are encumbrances taken out against the target company. A buyer may also search a licensee’s violation history on the LCB’s website, though this information may be limited. If time permits, a buyer can make a public record’s request for the license to uncover a full history of investigations, violations, and other pertinent information.  Such requests take a few weeks or months to process so they may not be available if time is a factor.

The buyer should request all relevant seller company documents and require the seller to list all other debts that could impact the business, including wages owed to employees or debts owed on unfulfilled contracts. Once these debts are outlined, a buyer’s attorney can draft a warranty or indemnity stating that the seller will pay for any outstanding debts that arose before the sale.

3. Know what you’re paying and when you’re paying it. 

After due diligence, the parties must agree to terms of the sale, including the purchase price. For background on how to value a cannabis business take a look at the following posts:

Once the parties are settled on the purchase price, it’s time for an attorney to draft the purchase and sale agreement.

In drafting a purchase and sale agreement, timing is everything. This is because the LCB must approve of anyone who is a true party of interest in a cannabis business. The definition of a true party of interest is broad and includes the following individuals in a given entity:

  • Sole Proprietorship: The sole proprietor and his or her spouse;
  • Partnership: All partners and their spouses. This includes general and limited partners in LPs, LLPs, and LLLPs;
  • LLC: All members and managers and their spouses;
  • Corporations: All stockholders and corporate officers and their spouses. This includes both publicly and privately held corporations; and
  • Multilevel ownership structures: All persons and entities that make up the ownership structure and their spouses.

The definition also includes any person or entity that expects a percentage of gross or net profits (excluding financial institutions) or who exercise control of the licensed business in exchange for money or expertise. Additionally, the LCB requires disclosure of financiers, which includes anyone lending or gifting money to a licensed entity.

Ownership of a cannabis business must not transfer until the LCB approves of the new owner. An undisclosed true party of interest or financier is a major penalty that results in a cancellation of license. This means that the buyer will not “get the keys to the company” until the LCB signs off. To deal with this, we often recommend using a conditioned contract where payment is made in increments over time based on certain events.  Buyers may elect to put money in escrow with instructions to distribute funds upon LCB approval. However, buyers should prepare to pay the seller a fee in exchange for the option to purchase the business after LCB approval.

4. Prepare for Licensing. 

After the purchase and sale agreement is executed, the LCB will investigate the buyer to determine whether he or she is qualified to own a cannabis business. The LCB investigates the buyer’s finances, requires the buyer show proof that he or she is a Washington resident, and requires the buyer submit fingerprints for a criminal background check. In addition, the buyer must provide detailed information on the source of funds used to purchase the business. This process starts with a phone call where the buyer outlines the details of the transaction. Then the LCB sends out a document request so that the buyer can provide documents to show the details of the transaction. These document requests often require that the buyer submit the purchase and sale agreement, proof of the source of funds which can include bank statements, a list of the buyer’s previous jobs and places of residence, and other personal information.

Conclusion. The process of purchasing a cannabis business can seem difficult, but a buyer with adequate preparation and counsel can get through the process without too much of a headache. Washington’s cannabis market is booming and the limited number of licenses makes a marijuana business a potentially valuable asset. If you have questions about how the process works, contact one of the cannabis business lawyers in our Seattle office.

 

Washington Cannabis
Washington homegrown cannabis

The Washington State Liquor and Cannabis Board recently issued a report on recreational cannabis home grows to the Washington State Legislature without making a specific recommendation as to whether the state should legalize recreational home cultivation. Instead, the LCB analyzed the following  three proposed option (which options we discussed here):

  1. Tightly Regulated Recreational Marijuana Home Grows. This option would impose a strict regulatory framework. Home cultivators would need a permit to grow legally. Permit holders could then purchase plants from licensed producers. Each household would be allowed four plants and all plants would be tracked in the same traceability system used to monitor commercially grown cannabis.  The LCB would impose requirements to ensure security and to prevent youth access and diversion. Both the LCB and local authorities would monitor home grows. Cannabis processing would be subject to the same restrictions as apply to medical cannabis (e.g., no combustible processing).
  2. Local Control of Recreational Marijuana Home Grows. Like Option One, this option would require a permit, require safeguards to prevent diversion, limit each household to four plants, and allow permit holders to purchase plants from producers. Option Two would not require home cultivators to use the State’s traceability system. It also would give greater authority to local jurisdictions to create more restrictions and to authorize, control, and enforce the homegrown program.
  3. Recreational Home Grows are Prohibited. The third option is to maintain the status quo and prohibit home cultivation.

The Board weighed the benefits and drawbacks of each measure. A tightly regulated system provided in the first option would address concerns over traceability and public safety but would require allocating significant resources to monitor home grows. The second option would allow local governments to control home cultivation but could result in inconsistent and confusing rules and regulations across the state. The third option would mean the state would not need to implement a new system but would continue allocating resources to prohibit home cultivation.

The LCB contacted cannabis regulators from Colorado, Oregon, and Rhode Island. Colorado and Oregon allow for recreational home cultivation (along with all other states that have legalized recreational marijuana) and Rhode Island permits medical home cultivation with tight regulations. Colorado’s constitution provides a right to home cultivation. The Colorado State Legislature expressed concerns about large home grows as the law originally allowed for up to 99 plants in a home and in 2017, Colorado limited that number to 12 plants per home. Oregon citizens can grow up to four plants generally but can grow more after obtaining a permit or a doctor authorization. Oregon recommended a low number of plants if recreational grows are allowed. Rhode Island expressed concerns over diversion and created a strictly regulated home grow system where all grows must be permitted and plants traced in the traceability system.

The Washington Board also spoke to the Association of Washington Cities, Washington State Association of Counties, the Washington Association of Sheriffs and Police Chiefs, the Department of Social and Health Services, Department of Health, Washington Healthy Youth Coalition, and received public comment through a public hearing and written comments. The LCB reports that law enforcement generally opposed implementing a home cultivation program as it could create public health and safety concerns, including diversion of legally grown product to the illicit market. Law enforcement officials also expressed concern over whether the state could regulate home grows as individuals are afforded privacy protections in their homes that can prevent law enforcement officers from inspections. Other state agencies expressed concerns about children accessing cannabis grown in their homes.

The report emphasizes Washington’s compliance with the Cole Memo through a tightly regulated system, stating that recent changes made by the legislature continue “to add public safety measures to the system rather than making it more lax.” It summarized the viability of home grows as follows:

If the maximum plant number is kept very low, the less of an overall impact there may be to a regulated system and diversion to feed the illicit market and marijuana being exported to other states. While the majority of people may likely follow the rules, there may be those who will intentionally not stay within legal requirements with the goal of engaging in the illicit market.

The Board also emphasized the need for clear regulation if the State allows recreational home cultivation:

The more clearly and simply the parameters are drawn – how many plants a person may have, definitions of a plant and the level of maturity of plants a person may have, restrictions on when a person is illegally growing vs. legally growing – the less overall impact to the regulated system and the greater the enforceability of home grows, thus supporting the tenets of the Cole Memo. This greater enforceability does not completely abate enforcement concerns.

The LCB’s analysis will now be used by the Washington State legislature to implement a program to legalize home cultivation or to uphold the status quo. Washington’s legislative session starts in January and we’ll continue to write about the status of homegrown cannabis in the Evergreen State.

Right now the jury is definitely still out.

 

On November 8, 2016, Donald Trump defeated Hillary Clinton in the US Presidential election. That same day, voters in California, Nevada, Massachusetts, and Maine legalized marijuana for recreational use, and voters in Florida, Arkansas, North Dakota, and Montana approved medical marijuana initiatives. For supporters of marijuana, Election Day was bittersweet; the overall success of marijuana ballot initiatives was undercut by a potentially hostile new administration.

Now that we have a year’s worth of Trump administration comments and action on cannabis, it’s a good time for us to access where things are with this administration.

1. Donald Trump changed his tune on drug policy before becoming President. Donald Trump has been a wildcard on marijuana, having made statements on every side of the issue. In 1990, Trump told the Sarasota Herald-Tribune that US drug enforcement efforts were “a joke” and advocated for legalizing all drugs to “take the profit away from these drug czars.” During his campaign, Trump responded to a question about Colorado cannabis legalization as follows:

I say it’s bad. Medical marijuana is another thing, but I think [recreational marijuana] it’s bad. And I feel strongly about that. If they vote for it, they vote for it. But they’ve got a lot of problems going on right now, in Colorado. Some big problems. But I think medical marijuana, 100 percent.

2. President Trump has barely discussed cannabis since becoming President. Trump appears to have publicly commented on cannabis but once since he became president when sports journalist Jim Gray asked him whether NFL players should be allowed to use medical cannabis and Trump replied by saying he had “no opinion on it. They’re going to have to take a look at that. They’re going to talk with the league, they’re going to be talking to, obviously, government officials wherever it may be.” This Trump statement is hardly illuminating regarding his current position on cannabis.

3.  Jeff Sessions hates cannabis.  Trump appointed Jeff Sessions as Attorney General. Sessions has a long history of being vehemently anti-marijuana. As a Senator, Sessions often criticised President Obama’s “hands-off” approach to marijuana and once stated that “we need grown-ups in charge in Washington to say marijuana is not the kind of thing that ought to be legalized, it ought not to be minimized, that it’s in fact a very real danger.” He also went so far as to say that “good people don’t smoke marijuana.” Sessions’ hatred for cannabis has not cooled since taking over as Attorney General and he made the following statement earlier this year:

I reject the idea that America will be a better place if marijuana is sold in every corner store. And I am astonished to hear people suggest that we can solve our heroin crisis by legalizing marijuana—so people can trade one life-wrecking dependency for another that’s only slightly less awful. Our nation needs to say clearly once again that using drugs will destroy your life.

4. Sean Spicer warned of a crackdown on recreational cannabis that hasn’t happened. In February, then Press Secretary Sean Spicer made comments that sent tremors through the legal cannabis industry when he predicted “greater enforcement” of the Controlled Substances Act in recreational states. Spicer stated, “[t]he president understands the pain and suffering that many people go through who are facing, especially terminal diseases, and the comfort that some of these drugs, including medical marijuana, can bring to them,” Spicer went on to tell reporters that states’ allowance of marijuana for recreational purposes “ is something the Department of Justice, I think, will be further looking into.” Fortunately, this prediction has not come true.

5. Sessions is evaluating the Cole Memo. At his confirmation hearing, Attorney General Sessions said that he intended to consider the viability of the Cole Memo:

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.

Sessions was critical of the Cole Memo during his confirmation but he has not yet rescinded the memo or its underlying policies. In March, Sessions reportedly reassured some GOP senators that he will not be moving away from the Cole Memo and the Obama-era deference to state-legal cannabis programs. But the Huffington Post uncovered a July 24, 2017, letter Sessions sent to Washington State Governor Jay Inslee that was harshly (and inaccurately) critical of Washington State’s marijuana regulatory system. Earlier this week, Sessions confirmed that his office is continuing to follow the Cole Memo with regards to state-legal marijuana.

Trump as president so far seems not to care much one way or the other about cannabis legalization. In the meantime, cannabis legalization continues to move forward.

 

Washington and Federal Cannabis lawsLast week, the Federal Department of Justice (DOJ) filed a motion with the Ninth Circuit Court of Appeals to stay or remand appellate proceedings in its case against Rhonda Firestack-Harvey, Rolland Gregg and Michelle Gregg, the remaining members of the Kettle Falls Five, because it does not have funds to continue the prosecution. The Kettle Falls Five is the name given to a group of medical marijuana growers in Kettle Falls, a town in North East Washington. The group consisted of Rhonda Firestack-Harvey and Larry Harvey, their son Rolland Gregg and his wife Michelle, and Jason Zucker.

The Kettle Falls Five were charged by the federal government after a 2012 raid on their farm in Northeast Washington. The group was collectively growing medical cannabis plants in an amount permitted by state law. The federal government vigorously prosecuted the Kettle Falls Five over the last five years. The feds originally sought 10-year mandatory prison terms. The feds dropped charges against Larry Harvey who was battling stage four pancreatic cancer. Mr. Harvey passed away in August 2015.

Jason Zucker pleaded guilty and testified against the other defendants prior to trial. He was sentenced to 16 months of prison time based on his cooperation.  The remaining defendants faced charges of growing, possessing, and distributing cannabis, in addition to charges relating to firearms found on the same property as the cannabis grow. Rhonda, Rolland, and Michelle were acquitted of all charges except growing cannabis. Michelle and Rhonda received a sentence of one year and a day and Rolland received a sentence of 33 months.

The Kettle Falls Five appealed to the Ninth Circuit. The DOJ was expected to continue its vigorous prosecution, which makes its recent motion to stay or remand the case quite a surprise. In its motion, the DOJ provided the following explanation:

This motion is based upon Congress denying funding to the Department of Justice for the prosecution of medical marijuana patients in states where medical marijuana is lawful. The purpose of this motion is to acknowledge that the United States was not authorized to spend money on the prosecution of the defendants after December of 2014 because the defendants strictly complied with the Washington State medical marijuana laws.

This refers to the Rohrabacher-Blumenauer Amendment which limits prosecution of state-compliant medical marijuana actors.  As part of a federal budget deal in December 2014, Congress cut off funds for the federal prosecution of medical marijuana growers and users in states where medical cannabis is legal, so long as those actors are following state law. Since 2014 the Amendment has repeatedly been renewed.

The DOJ’s motion also cites United States v. McIntosh,  in which the Ninth Circuited decided the Rohrabacher-Blumenauer Amendment prohibited the DOJ from “spending funds for the prosecution of individuals who engaged in conduct permitted by the state medical marijuana laws and fully complied with the laws.” The DOJ’s motion states that the “prohibition regarding DOJ expenditure of funds applies even though the prosecution was properly initiated prior to [Rohrabacher-Blumenauer’s] enactment.”

The DOJ asks the court either to either back off on the appeal or to send the case back to the trial court. This is promising as it appears the DOJ may have finally seen the writing on the wall and is going to drop its case against the Five. However, it may also mean the DOJ is attempting to hold off on prosecuting the defendants to see if Congress reaffirms the Rohrbacher-Blumenauer Amendment, which is not guaranteed, especially given the current political status of our federal government. It should go without saying that Jeff Sessions has openly lobbied Congress against the Amendment.

In any event, this is an opportunity for defense counsel to ask the judge to toss out the case, which we fervently hope will be its eventual outcome. On a broader scale, this motion shows that the Rohrabacher-Blumenauer Amendment is a powerful tool to limit federal prosecution of medical cannabis growers.

BuzzFeed recently reported on Target’s short-lived effort at selling cannabis-based products online. By the end of the day on which the story ran, the major retailer had already removed the product from its website. The Phoenix New Times quoted Target spokesperson Kate Decker as saying, “We started carrying Charlotte’s Web hemp extract items last week on Target.com. After further review, we have decided to remove it from our assortment.” However, the Phoenix New Times reported earlier in September that Target was selling CBD products online. Decker could not confirm exactly when Target started selling CBD. The only certainty is that it ended the same day as BuzzFeed’s article.

The thing is that many online retailers (WalMart, Groupon, and Amazon) sell or have sold CBD online. This is in part likely because of the complex legal status of CBD. The Drug Enforcement Agency’s (“DEA”) stance is that CBD, and other cannabinoids derived from cannabis, are Schedule I substance under the Controlled Substances Act (“CSA”), regardless of their source. Last year the DEA created a rule defining “marihuana extract” as an extract “containing one or more cannabinoids derived from any plant of the genus Cannabis,” as marijuana, a Schedule I controlled substance. Use of “any” means it applies to any derivative of the cannabis plant including, CBD and other cannabinoids found in cannabis. This far-reaching definition, on its face, purports to make parts of the cannabis plant that were seemingly legal illegal.

Setting aside the Rule, there are three scenarios in which cannabis extracts are arguably legal under federal law. The first being when extracts are derived from the “mature stalk” of the cannabis plant because the CSA’s definition of marijuana “does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.” 21 USC § 802(16). The DEA has clarified that the Rule does not include portions of the plant specifically exempt from the CSA’s definition of marijuana but also maintains that products that contain any meaningful amount of CBD can be derived from the mature stalks.

The second scenario is when extracts are derived from an industrial hemp plant lawfully grown in compliance with section 7606 of the 2014 US Farm Bill (“the Farm Bill”). The Farm Bill allows states to enact pilot programs for hemp research making hemp legal in the state’s borders. Hemp cultivated in compliance with a State’s program is expressly legal under the Farm Bill. Extracts from compliant hemp are legal in the State in which they were derived though the sale of these products in other states is not explicitly allowed.

The final scenario is when products are derived from imported hemp. In the early 2000s, two cases out of the Ninth Circuit, Hemp Indus. Ass’n v. DEA, 357 F.3d 1012 (9th Cir. Cal. 2004) and Hemp Indus. Ass’n v. DEA, 333 F.3d 1082 (9th Cir. 2003) determined that the DEA cannot regulate hemp products simply because they contain trace amounts of THC. This is because some portions of the cannabis plant are explicitly outside the scope of the CSA and the DEA was not permitted to expand its scope to encompass all parts the plant. At the time of the ruling, it was illegal to grow hemp so it only applied to hemp imported from outside the USA. However, its holding could also apply to hemp grown pursuant to the Farm Bill. In other words, marijuana extracts from non-psychoactive (industrial) hemp with only trace amounts (or less) of naturally occurring THC are permitted under the Ninth Circuit’s ruling.

The Hemp Industries Association has sued the DEA over the “marijuana extract” rule and that case is still pending and until it is decided, uncertainty remains as to the legality of CBD products. The DEA may very well lose because the Rule appears to conflict with the Farm Bill and the Hemp Industry cases from the early 2000s.  Nonetheless, despite potential legal flaws, the Rule is currently in place and anyone who distributes “marijuana extracts” is a potential target of the DEA. This is likely why online retailers like Target have flirted with selling CBD products online but often end up pulling products.

 

Unlike other states with recreational cannabis, Washington does not allow for home cultivation of recreational cannabis. However, that could change soon as SB 5131 requires the Washington State Liquor and Cannabis Board (LCB) to study the viability of home cultivation. The LCB will hold a public hearing on Wednesday, October 4, 2017, at 10:00 AM on whether the State should allow home grows of recreational marijuana.  Written public comments may be submitted through October 11 at rules@lcb.wa.gov or hard copy at PO Box 43080, Olympia, WA 98504.

The LCB will hold a public hearing on Wednesday, October 4, 2017, at 10:00 AM on whether the State should allow home grows of recreational marijuana.  Written public comments may be submitted through October 11 at rules@lcb.wa.gov or hard copy at PO Box 43080, Olympia, WA 98504.

The LCB must consider home cultivation in light of the Cole Memorandum, the Obama-era policy statement from the Department of Justice that tacitly permits states to legalize marijuana so long as those states enact strong and effective regulations. The Cole Memo outlines eight enforcement priorities:

  1. Preventing the distribution of marijuana to minors;
  2. Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  3. Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  4. Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  5. Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  6. Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  7. Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  8. Preventing marijuana possession or use on federal property.

The LCB has opposed home cultivation in the past. In 2015, Washington lawmakers considered a bill that would have allowed cultivation of up to six cannabis plants. In response, the LCB sent a letter outlining the Board’s concern that unregulated home grows would increase the occurrence of all eight enforcement priorities outlined in the Cole Memo.

The LCB worries that home cultivation will lead to diversion. Washington producer, processors, transporters, researchers, and retailers must all use “seed-to-sale” traceability software. As the name suggests, a cannabis plant is monitored throughout its life to prevent cannabis from being diverted to other states, to minors, or to the black market.

The LCB is seeking public input on three proposed options:

  1. Tightly Regulated Recreational Marijuana Home Grows. This option would impose a strict regulatory framework. Home cultivators would need a permit to grow legally. Permit holders could then purchase plants from licensed producers. Each household would be allowed four plants and all plants would be tracked in the same traceability system used to monitor commercially grown cannabis.  The LCB would impose requirements to ensure security, preventing youth access, and preventing diversion. Both the LCB and local authorities would monitor home grows. Cannabis processing would be subject to the same restrictions as apply to medical cannabis (e.g., no combustible processing).
  2. Local Control of Recreational Marijuana Home Grows. Like Option One, this option would require a permit, require safeguards to prevent diversion, limit each household to four plants, and allow permit holders to purchase plants from producers. Option Two would not require home cultivators to use the State’s traceability system. It also would give greater authority to local jurisdictions to create more restrictions and to authorize, control, and enforce the home grown program.
  3. Recreational Home Grows are Prohibited. The third option is to maintain the status quo and prohibit home cultivation.

The LCB must report its findings to Washington’s legislature by December 1, 2017. Lawmakers provided the LCB with no additional funds, meaning the Board must conduct its study without expanding its budget. There is no guarantee that anything changes but this is could be the beginning of recreational home cultivation in Washington.

Over the weekend, I attended CanEx Jamaica in Montego Bay. The event focused on the business and policy of cannabis in Jamaica and abroad. Jamaica decriminalized cannabis in 2015, imposing a fine for possession of less than two ounces of cannabis rather than possible jail time. Jamaica also has legalized cannabis for medical use, but is still in the process of implementing a regulated program.

Jamaica is facing challenges in regulating a plant that has long been celebrated in Jamaican culture despite legal prohibition. Ganja, as it is known on the Island, has deep cultural and religious significance. It is a sacred herb in the Rastafarian religion. Its religious and recreational use on the island has been widespread for years. As a result, many Jamaicans are not excited about it being regulated. I went to this event for two reasons. One, because Hilary Bricken, our lead cannabis lawyer out of our Los Angeles office would be speaking there. And two, because our cannabis practice has always been an international one, and that has been accelerating in the last few months as Barcelona, Spain, (where we have an office) continues to liberalize.

Dr. Jalani Adwin Niaah, a professor at the University of the West Indies at Mona and Rastafarian, gave a presentation on Rastafarian Dispensing and Advocacy. He noted an increased interest in ganja from local business leaders after it was decriminalized. He fears though that commercialization of Jamaica’s medical cannabis will leave Rastafarians behind and cannabis as a sacrament will become marginalized. Dr. Niaah suggested Rastafarian’s hosting “herb camps” where they could grow and dispense ganja for religious purposes while also providing guidance to Jamaicans and visitors who want to use ganja for healing and wellness. Dr. Niaah proposed these camps would give Rastafarians a place in Jamaica’s regulated cannabis market. Jamaican law allows cannabis for religious purposes, but it is not clear these sorts of camps would qualify under this exemption.

Hilary Bricken hosts a panel on Cannabis Policy in Jamaica.

Hilary Bricken from our office moderated a panel on cannabis policy that included Florida attorney Michael Minardi, entrepreneur Sidney Himmel, Dr. Lorenzo Gordon of Jamaica’s Ministry of Health, and Greg Douglas, CEO of Jamaica’s Cannabis Licensing Authority.

Dr. Gordon and Mr. Douglas provided insight into the challenges Jamaica faces as two of its regulatory bodies work together to establish Jamaica’s medical cannabis scheme. The Ministry of Health regulates cannabis processing, strains, and products. It looks at the scientific side of cannabis, studying the percentage of CBD and THC in each strain. This Ministry also requires a microbiological analysis of each product and provides training for physicians who wish to recommend cannabis. The Cannabis Licensing Authority focuses on location, security, and cultivation. As the title suggests, it also will eventually provide licenses to cultivators and dispensaries.

Mr. Douglas expressed the need for the two agencies to work together to send a unified message and provide a consistent process for applicants hoping to obtain a cannabis license. He also acknowledged the importance of cannabis in Jamaica saying “in Jamaica, ganja is cultural, not just a matter of money.” Mr. Douglas maintains that the emotional impact of ganja in Jamaica must be taken into account in creating a regulated industry.

The elephant in the room was the impact United States Government policy has had and will continue to have on Jamaica’s cannabis regime, especially considering the Trump administration has been hostile to cannabis. Both Jamaica and the US have entered into treaties prohibiting the manufacture and distribution of cannabis and other drugs. The US wields significant influence over international trade and could force its will on a small nation like Jamaica. At one point in the panel discussions, Hilary asked whether Jamaican government officials see the US as a bully. Both Jamaican officials gave diplomatic answers, acknowledging they are aware of the United State’s position on the subject and how it is necessary to “consider” the international environment when implementing Jamaica’s regulatory regime.

Though over half the states in the US have legalized medical cannabis and eights states (plus Washington DC) allow cannabis for recreational use, the United States is still viewed internationally as somewhat of a drug law dinosaur with sharp teeth. Many of the speakers and attendees talked of how Canada and Israel (and to a lesser extent Uruguay and Spain) are model nations for cannabis research and policy. Dr. Gordon stated he hoped Jamaica could be an international leader in cannabis as well. See Marijuana Legalization: The International Edition

 In addition to Hilary’s panel, CanEx hosted Montel Williams for a keynote address, held a job fair for individuals interested in working in cannabis and hosted a number of other panel discussions on topics like “Women in Cannabis”, “Finance and Trade”, and “Arts and Entertainment.” The event was well attended and very informative. If you regret missing it this year, I highly recommend attending in 2018.
Great locale and great speakers. What more could you want?
Daniel Shortt and Hilary Bricken at CanEx Jamaica.