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Rescission of Federal Marijuana Enforcement Policy Sends Shock Waves throughout California

January 8, 2018
The U.S. Department of Justice’s Jan. 4 announcement and memo on marijuana enforcement delivered a shock to the industry in California, causing stock prices in the few publicly traded marijuana-related companies to plummet by as much as 50 percent. 
 
However, it is not certain that the new policy will lead to a significant increase in federal enforcement activity. 
 
The memo represents a reversal of federal policy that conflicts with California state law, which expressly provides for local control and home rule in the context of marijuana regulation. This change is especially important for cities that are proceeding with implementation of legalized commercial marijuana sales.
 
In the Jan. 4 memo to U.S. attorneys, U.S. Attorney General Jeff Sessions specifically rescinded several guidance documents issued by the U.S. Department of Justice pertaining to marijuana enforcement going back to 2009, but most notably the August 2013 Cole Memo and the February 2014 Guidance regarding Marijuana Related Financial Crimes.
 
The Cole Memo provided guidance to states that legalized cannabis for either medical or adult use. Specifically, it listed eight criteria states should observe if they wished to avoid becoming a target for federal enforcement. They are:
  • Preventing the distribution of marijuana to minors;
  • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  • Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  • Preventing marijuana possession or use on federal property.
The Justice Department’s Jan. 4 announcement had two immediate effects:
  • Any safe harbor for the marijuana industry that may have existed as a result of recent federal guidance issued under the Obama Administration has come to an end; and
  • Prosecutorial discretion on the part of individual U.S. attorneys in the area of marijuana enforcement has been reaffirmed.
While a total of five guidance documents issued by the U.S. Department of Justice since 2009 were rescinded by Mr. Sessions’ announcement, the two most relevant appear to be the Cole Memo, and the Guidance regarding Marijuana Related Financial Crimes. Of these, the latter may be the most important, as it helped identify criteria under which financial institutions could at their discretion accept deposits from the cannabis industry. The rescission of this document may make access to the banking and financial services industry even more problematic for cannabis industry operators than it has been to date, if only because it increases uncertainty for banking institutions.
 
Cities that have authorized cannabis businesses of any kind to operate within their borders should be aware that the repeal of the Guidance Regarding Marijuana Related Financial Crimes could have significant implications for municipalities seeking to establish a banking relationship for purposes of depositing cannabis tax revenue.  
 
State of California officials responded late last week in a manner that signals that the business of implementing legal marijuana sales in California will continue as planned.
 
“We’ll continue to move forward with the state’s regulatory processes covering both medicinal and adult-use cannabis consistent with the will of California’s voters, while defending our state’s laws to the fullest extent,” said Bureau of Cannabis Control Chief Executive Lori Ajax.
 
“In California, we decided it was best to regulate, not criminalize, cannabis,” California Attorney General Xavier Becerra said in a statement. “We intend to vigorously enforce our state’s laws and protect our state’s interests.”
 
While the state may be gearing up to defend California’s marijuana laws, federal law remains unchanged.  Marijuana is a Schedule 1 substance prohibited under federal law. This means state officials have no ability to block federal enforcement action by any of the four U.S. attorneys in California. Last week’s memo did not include an explicit order to U.S. attorneys around the country to open an assault on marijuana businesses. Instead, the Attorney General said he would leave that decision up to each of the country’s 93 U.S. attorneys, which may lead to responses that vary across the country and even within the state. It is important to note that three of California’s four U.S. attorneys occupy their positions on an interim basis — a factor that may have a bearing on how they respond. It is also not yet clear to what degree California’s U.S. attorneys have the interest or resources to pursue enforcement action against legalized cannabis operations in the state. 
 
In general, increasing uncertainty seems to be the overall effect of the U.S. Department of Justice’s announcement — for investors, the cannabis industry, the banking industry, and the states and respective political subdivisions that have legalized cannabis for either medical or recreational use. The memo issued last week did not make a distinction between medical and adult use, or recreational cannabis, raising the question of whether Congress will renew, as it has every year since 2013, the provision in federal law prohibiting the use of federal funds for enforcement action interfering with the implementation of states’ medical marijuana laws. That is the sole action Congress has taken to date that might expressly limit future enforcement action on the part of U.S. attorneys, but it remains to be seen whether Congress will renew what has come to be known as the Rohrbacher-Farr amendment in the wake of last week’s action, or whether Congress will go further.   
 
Of particular note is the fact that Attorney General Sessions has voiced specific concerns about marijuana policies in California. The Los Angeles Times reported that in a remark after a news conference last month, for example, he said he was disturbed about California's role as a pot-exporting state, noting that much of the state's crop ends up on the black market.
 
Next Steps
 
The League in partnership with other organizations will be engaged in dialogue with state authorities and the State Attorney General’s office on what steps cities may need to take in the near future.
 
 


 
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