Impacts Of Sessions’ Reversal Of DOJ Marijuana Policy

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Above: First day of the legal marijuana sales to adults in California by Maria Alejandra Cardona—LA Times via Getty Images

 

Note: The article below by Alicia Wallace, a Denver, CO reporter for the Cannabist, describes the decision by Attorney General Sessions to re-state the Department of Justice policy on marijuana law enforcement in states that have legalized marijuana and examines the legal, investment and business impacts of the decision.

Essentially, Sessions has moved decison making to US Attorneys responsible for states that have put in place legal marijuana systems. Each US Attorney in those states will need to evaluate the situation and decide how to proceed. No doubt they will meet with federal drug enforcement officials as well as state officials before deciding what to do. At this point prosecutors are being vague in their pronouncements, as seen in Massachusetts:

Each federal prosecutor should announce how they will move forward in this new system to give guidance to state officials, businesses and investors operating under state law. Another approach is for the federal prosecutor to select cases to provide an example of how they will proceed, which could leave some people seriously injured and at risk for long prison sentences. The DOJ change in policy leaves businesses and investors as well as state governments in a period of confusion until enforcement policies become clarified. As you can see in the article below, this is already having impacts on investment in the cannabis industry.

Marijuana has been prohibited by state and federal law for decades. It has only been in the last 20 years that marijuana prohibition has begun to unravel. This began with the passage of Proposition 215 in California in 1996, which allowed the use of medical marijuana. Since then, twenty-nine states, the District of Columbia, and the U.S. territories of Guam and Puerto Rico have enacted laws that allow the medical use of marijuana. Marijuana is legal and regulated for adults in eight states, and adult possession and limited home cultivation are legal in the District of Columbia.

The key areas of focus following Sessions’ announcement will be the eight states that have legalized adult possession. These laws are in their infancy and evolving. This innovation will be stopped or slowed by the new DOJ policy. Confronting key issues in innovative ways is demonstrated in Massachusetts, which is going through a rule making process to implement how marijuana growers, distributors and retailers will operate. They are confronting issues that have not been confronted in some of the earlier states.

In announcing draft rules in December, with final rules expected in March 2018, Massachusetts is considering issues like use of marijuana in public spaces or social consumption. States generally allow someone to purchase marijuana and take it somewhere else to use and do not provide spaces where marijuana can be consumed, much like liquor stores. Massachusetts is considering allowing two types of on-site consumption licenses.

The first type of establishment would be a primary use licence where 50% of the revenue came from marijuana sales. These would be akin to a cannabis bar or cafe where people could gather and use marijuana. The other is a restaurant, cafe, movie theater or massage parlor where a mixed use license, would be available to businesses that may want to make cannabis available. A question in both is whether smoking would be allowed or only the use of edible products.

Massachusetts was also considering how home delivery of cannabis could work, how to create diversity by giving disadvanteged communities and people involved in the marijuana trade when it was illegal preference to make up for the negative impact of past enforcement. Los Angeles, the largest marijuana market in the country, put in place social equity rules to give preference to those who had been prosecuted under marijuana prohibition laws.  Also under consideration is the formation of cannabis Craft Cooperatives, which could be formed to operate up to six marijuana cultivation locations and up to three additional processing or manufacturing facilities and create a label for their cooperative product that would then be provided to retailers (not part of the cooperative) for sale. And, Massachusetts is also considering how to encourage research on the health and safety effects of marijuana. This is much needed as federal research has been biased in its design to support keeping marijuana illegal.

Also developing are new industries related to the marijuana trade but that do not handle marijuana. For example, an investment group announced in December a $50 million public offering for people who wanted to invest in ancillary marijuana businesses.

The marijuana industry was expanding. Not only had California’s legal marijuana law begun operating at the beginning of the year, but Maryland had also begun to open medical marijuana dispensaries throughout the state at the end of 2017.  At the end of November, Ohio announced twelve large-scale marijuana cultivation facilities. States with very restrictive medical marijuana laws, like New Jersey, were examining whether to expand the list of illnesses where marijuana would be allowed for medical use.

The marijuana industry is estimated by various sources to be a seven to eight billion dollar annual business. At the end of last year, Colorado, the first state to legalize adult use provided a treasure trove of data on the size of its marijuana market. The Official Colorado sales data reported sales for marijuana:

2014: $683.52 million
2015: $995.59 million
2016: $1.31 billion
2017 (January to October): $1.26 billion
Total: $4.25 billion

As a result of continued expansion and large population states putting in place legal marijuana laws, the market was expected to grow to more than $20 billion in annual sales by 2020.

The Sessions memo changing federal enforcement policy will bring to a halt consideration of many of the details of marijuana policy in this new era of legal, regulated sales and move the focus to dealing with the threat of severe federal prosecutions. – KZ

What now? Experts and politicians weigh in on potential impact of Sessions’ rollback of marijuana policy

“With no guidance, it basically takes the dog off of the leash,” says cannabis lawyer Bob Hoban

Days after California became the largest U.S. state to initiate regulated sales of cannabis to adults, a wave of uncertainty has crashed over America’s cannabis industry with the Justice Department’s elimination of Obama-era guidance on marijuana enforcement.

Attorney General Jeff Sessions’ move Thursday to rescind the Cole Memo and related guidance on marijuana has the potential to upend cannabis operations that have, from Day One, operated in a vulnerable limbo between federal illegality and state legality, policy experts say.

Whether the attorney general’s actions will spell doomsday for the burgeoning cannabis industry remains to be seen. At the very least, the lack of formal guidance could stymie growth, industry observers told The Cannabist.

“I don’t think that the attorney general is doing this for window dressing,” said John Hudak, a senior fellow at the Brookings Institute, a left-leaning Washington, D.C., think tank and an author and expert on marijuana policy. “I think this is an area of policy that he considers dangerous, that he considers problematic, and that he wants something done about.”

What Sessions wants, Hudak said, is to scare businesses, scare states and “to put people in jail.”

The result of Sessions’ actions Thursday is a policy void, said Bob Hoban, managing partner at Denver-based Hoban Law Group, which specializes in cannabis legal matters. It’s effectively a turning back of the clock to the Bush era policy of no guidance, he said.

“With no guidance, it basically takes the dog off of the leash,” he said.

The enforcement onus is now placed on the 93 U.S. Attorneys operating across America, financial institutions, as well as members of Congress, Hudak and Hoban say.

Although state-authorized medical marijuana operations have some protections baked into federal law — the Rohrabacher-Blumenauer provision restricts Justice Department spending on prosecutions — adult-use programs have no such safety net.

“(The removal of the Cole Memo and related guidance) does empower U.S. Attorneys to start going after the adult-use cannabis industry,” Hudak said. “It creates uncertainty for businesses and investors.”

U.S. Attorneys Empowered

Sessions appears to be giving authority to U.S. Attorneys for their respective jurisdictions, Colorado Attorney General Cynthia Coffman told The Cannabist Thursday.

“I think that is a good thing, but it depends on how it is carried out,” she said.

It’s too soon to tell how the Justice Department may act on Sessions’ memo, she said, adding that the missive released Thursday provides more details about the guidance going away than any new policy being put in place.

Robert Mikos, a federalism and drug law expert at Vanderbilt University, had a measured read on Thursday’s Sessions memo. In particular, Mikos made note of Sessions’ statements about enforcement priorities already in existence.

This indicates a potential desire to limit elements of redundancy or also to keep enforcement approaches closer to the vest, he said.

“That sort of signals to me that maybe he’s not contemplating an actual crackdown,” he said.

As such, the public statements issued and actions taken by U.S. Attorneys could be the most telling of all, Mikos said.

The country’s 93 U.S. Attorneys serve as the nation’s principal litigators under the direction of the Attorney General. Each exercises wide discretion in the use of their resources to further the priorities of the local jurisdictions and needs of their communities, according to the Justice Department.

It remains to be seen what those prosecutors would do with that discretion, Mikos said, adding that those offices have the same resource constraints today as they did yesterday. Some may choose to take an aggressive stance, while others may not.

One of the first indications came out of Colorado, the first state to have legal, regulated sales of adult-use marijuana.

U.S. Attorney Bob Troyer, for the District of Colorado, released the following statement:

“Today the Attorney General rescinded the Cole Memo on marijuana prosecutions, and directed that federal marijuana prosecution decisions be governed by the same principles that have long governed all of our prosecution decisions. The United States Attorney’s Office in Colorado has already been guided by these principles in marijuana prosecutions — focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state. We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”

Andrew Lelling, the U.S. Attorney for the District of Massachusetts, said his office will continue to pursue federal marijuana crimes, “especially bulk trafficking,” according to a statement Tweeted by Boston Globe reporter Joshua Miller.

“As the Justice Department has highlighted, medical studies confirm that marijuana is in fact a dangerous drug, and it is illegal under federal law,” Lelling said, according to the statement posted by Miller. “As a result, our office will continue to investigate and prosecute bulk cultivation and trafficking cases, and those who use the federal banking system illegally.”

What about existing medical marijuana protections?

Lawmakers and policy wonks alike conjectured that Thursday’s elimination of Obama-era guidance on marijuana enforcement could possibly galvanize support in Congress to further secure medical marijuana protections.

“The announcement today on the Cole (Memo) will actually serve our purposes in the sense that it will mobilize people around the country who have taken (Rohrabacher-Blumenauer) for granted,” Rep. Dana Rohrabacher, R-California, said during a tele-press conference Thursday afternoon.

The so-called Rohrabacher-Blumenauer protections, previously known as Rohrabacher-Farr, prohibit the U.S. Department of Justice from using federal funds to prevent certain states “from implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana.”

Those protections have been included in amendments to omnibus spending legislation since December 2014 and were temporarily extended last month as part of stopgap spending measures.

Speculation has swirled as to whether the Rohrabacher-Blumenauer provisions will be included in the upcoming spending bill, and in November a letter was made public in which 66 members of Congress urged Senate and House leaders to extend the medical marijuana protections.

Co-sponsor Rep. Earl Blumenauer, D-Oregon, reiterated optimism for the continuation of language that ties the Justice Department’s hands when it comes to medical marijuana.

“I’m confident that we are in a strong position for (Rohrabacher-Blumenauer) to be renewed,” he said. “There is support in both parties, and this puts the spotlight on it.”

Ripples through cannabis banking and investment

Even if Sessions’ memo might not result in federal agents busting down dispensary doors, it could still hamper the industry, said Mikos, of Vanderbilt.

“I think banks are going to become even more reluctant to deal with marijuana suppliers without the assurances provided by the Cole memoranda,” Mikos said, referencing specifically the rescission of the 2014 memorandum from former Deputy Attorney General James M. Cole guidance regarding marijuana-related financial crimes.

The Financial Crimes Enforcement Network, or FinCEN, subsequently issued guidance to clarify expectations for how banking institutions could serve marijuana-related businesses.

On Thursday, FinCEN officials said in an emailed statement to The Cannabist that, “FinCEN works closely with law enforcement and the financial sector to combat illicit finance and provide relevant information that allows law enforcement to pursue their priorities. We will continue to work with (the Department of Justice) and other stakeholders on this issue.”

Cannabis industry expansion also could be chilled if potential investors are spooked by the updated guidance, said Michael Weiner, a partner at law firm Dorsey & Whitney LLP.

“Right now, we don’t see any big changes for the existing industry,” he said. “I have concerns that it’ll slow down new investment from new investors who are not currently in the industry.”

Any immediate negative impacts to businesses likely will be seen by companies whose shares trade publicly, officials from New Frontier Data, a cannabis data analytics firm based in Washington, D.C.

“The immediate impact of Attorney General Sessions’ decision to rescind the Cole Memo will be felt most acutely in the public markets, where some companies have already lost 30 percent or more of their stock value since the announcement was made this morning,” New Frontier Data CEO Giadha Aguirre De Carcer said in a statement. “Overall, publicly traded cannabis companies are down about 15 percent since this news broke.

“This is a similar though more acute reaction to what we saw after former Press Secretary Sean Spicer made comments one year ago suggesting that the administration was going to enforce medical and recreational cannabis differently.”

What does this mean for industrial hemp and products like CBD extracts?

Sessions’ rescission of the Cole Memo and related guidance has no effect on the existing U.S. hemp industry, experts told The Cannabist.

“The Sessions’ order explicitly is limited to marijuana, which is considered a controlled substance under federal law, even in the dozens of states that have legalized it,” said Jonathan Miller, general counsel for the U.S. Hemp Roundtable, a 501(c)(4) nonprofit organization lobbying for the passage of the Industrial Hemp Farming Act. “By contrast, industrial hemp retains strong protections under federal law, specifically industrial hemp products that have been clearly exempted from the Controlled Substances Act for decades, as well as those that are derived from hemp grown or cultivated in Farm Bill-authorized state pilot programs.”

Domestic hemp grower and producers of CBD oil products, frequently described and labeled as “hemp extracts,” have built an industry on the foundation of a 2004 9th U.S. Circuit Court of Appeals ruling on hemp foods that exempted parts of the cannabis plant — the stalk, fiber, sterilized seed and seed oil — from marijuana’s Schedule I status in the Controlled Substances Act.

Hemp industry advocates argue that an amendment in the Agricultural Act of 2014, also known as the Farm Bill, allowing states to create pilot programs for growing industrial hemp, further extracted hemp from the Controlled Substances Act.

But what the U.S. Hemp Roundtable sees as a “clear legal distinction” between hemp and marijuana is muddled in the marketplace, Miller said. And it’s possible that the elimination of the marijuana guidance will only exacerbate that confusion, he added.

“That’s why public education on the distinction between hemp and marijuana — and the clear economic benefits of the hemp crop for U.S. farmers — remains a critical goal for the US Hemp Roundtable and the national hemp trade associations that are our partners,” he said. “And that’s why it is so critical that in 2018, Congress pass the Industrial Hemp Farming Act to remove hemp permanently from the purview of the Controlled Substances Act, and unleash a vibrant U.S. hemp industry.”

Leaders in Colorado unfazed

In Colorado, a state that has served as a trailblazer for legal recreational marijuana, Gov. John Hickenlooper Thursday chastised the removal of the existing Cole Memo guidance and indicated his approach to regulation would not change.

“Thirty states comprising more than two thirds of the American people have legalized marijuana in some form,” Hickenlooper said in a statement. “The Cole memo got it right and was foundational in guiding states’ efforts to regulate the production and distribution of marijuana.

“Our focus will continue to be the public health and public safety of our citizens. We are expanding efforts to eliminate the black market and keep marijuana out of the hands of minors and criminals. Today’s decision does not alter the strength of our resolve in those areas, nor does it change my constitutional responsibilities.”

Colorado Attorney General Coffman, meanwhile, told The Cannabist that as of Thursday afternoon, her office had not received any directives or correspondence from the Department of Justice.

“We don’t see our priorities changing,” she said.

At a press conference Thursday afternoon, Hickenlooper further qualified Sessions’ stance as a “case where the bark is going to be worse than the bite.”

“Maybe there will be one or two people or dispensaries that are made an example of,” he said. “I think it’s a waste of money, but that might happen.”

He expressed optimism that there could be efforts taken at a federal level to legalize marijuana in states where voters have chosen to do so.

“Ultimately, I hope this will be a nudge to Congress,” Hickenlooper said.

Mark Bolton, senior legal counsel and marijuana adviser to Hickenlooper, said he’s hopeful that states could continue to serve as “laboratories of democracy,” and that Colorado officials will continue on the course of fortifying the state’s existing regulatory system and sussing out illegal activities that negatively affect public health and safety.

“We have put a strong emphasis on trying to eliminate the black market, on trying to prevent youth use,” he said. “Those things will continue to be our focus.”

The Cannabist editor Alex Pasquariello and Denver Post reporter John Frank contributed to this report.

Alicia Wallace joined The Cannabist in July 2016, covering national marijuana policy and business. In her 14 years as a business news reporter, her coverage has spanned topics such as the economy, natural foods, airlines, biotech, retail, technology, craft beer and real estate. She serves as a contributor to the Denver Post’s beer industry coverage.

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