Uncertain Federal Stance Could Create Issues for Cannabis Industry in 2017
Business owners, investors and other professionals in the cannabis industry are waiting anxiously for January 20, 2017 — Inauguration Day. With the change in administration comes, potentially, a change in attitude toward marijuana legalization and the cannabis industry.
During the Obama administration, the federal government de-prioritized the enforcement of the “marijuana crimes” — allowing the cannabis industry in legal states to grow and respecting states’ rights to regulate it. The past several years have essentially been a giant regulatory experiment and, so far, the results have been very encouraging. Colorado sold over $1B in legal cannabis in 2016 (+30% growth over 2015), generating hundreds of millions in tax revenue. At the same time, teen consumption in legalized states has gone down, and marijuana arrests have also decreased.
However, cannabis is still federally illegal, and while the federal government can’t make the states enforce federal law, they have the jurisdiction to step into states to enforce it themselves. So basically the new presidential administration may choose, at any time, to enforce the Controlled Substances Act (CSA) to shut down “illegal” businesses and seize their assets.
For many, if not most, marijuana-related businesses, this is a game ender. Frozen assets could choke small businesses and punish legitimate professionals. This is what many cannabis industry professionals are afraid of. Frankly, states should be concerned too.
Current Federal Policy on Cannabis Enforcement
In 2013, the Department of Justice, in response to the legal confusion created by marijuana legalization in Colorado and Washington, issued a memo laying out the federal government’s marijuana enforcement priorities. The “Cole Memo” essentially stated that while cannabis remained illegal under the CSA, the federal government was devoting only limited resources to cannabis enforcement resources and was focusing on eight specific priorities:
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.
At the time, it offered some level of comfort that the federal government would not be looking to shut down the newly state-legal industry. For the rest of the Obama administration, the federal government seemed to abide by the priorities it laid out, leaving the large majority of the industry untouched and able to grow.
Trump Administration Policy on Cannabis Enforcement
How President-Elect Trump and his incoming administration feel about cannabis is unclear at best. In just a few weeks his administration will determine the enforcement strategy the federal government will take toward the cannabis industry for the next four years. If the administration continues a sensible approach of respecting states’ rights, the cannabis industry will grow. However, Trump’s and Sessions’ comments over the years suggest potential issues for the cannabis industry in 2017.
Jeff Sessions, Trump’s pick for Attorney General, will determine DEA, FBI and DOJ enforcement priorities and he could take aim at cannabis. Putting it nicely, Senator Sessions has had a fairly unfavorable opinion of marijuana and marijuana consumers in the past.
However, Mr. Sessions is also a proponent of states’ rights, meaning that rather than launching a full-out assault on the cannabis industry, he may choose not to directly interfere in states that have legalized cannabis.
Will he scrap the Cole Memo completely in favor of aggressive enforcement? What will Sessions’ marijuana enforcement priorities be?
Federal Enforcement Priorities: My Predictions
A hard-line approach is possible, but not likely
If Sessions takes a hard line approach against cannabis, he may authorize raids of state dispensaries like we’ve seen recently in Montreal. An especially aggressive tactic might be starting to enforce the CSA against ancillary businesses that provide business services to the cannabis industry, including banks and financial institutions.
However, given cannabis’s success in the 2016 election and the large number of legalized states, the federal government just may not have the resources and public support to pull off an all-out assault on the cannabis industry. Nor would it be advisable to ignore the will of the nearly 12 million Americans who voted in favor of recreational cannabis in 2016 alone.
Continued focus on protecting minors and prosecuting cartels and criminals
Sessions is likely to maintain focus on a few Cole Memo priorities, including preventing: distribution to minors, revenue to criminals, and diversion of cannabis to non-legal states. I believe Sessions will be very sensitive to any issues involving minors getting access to or being injured by cannabis products. Anything attractive to or marketed towards minors may be perceived as a threat warranting additional federal scrutiny.
The first thing that comes to mind is edibles. There is legitimacy to the concern about injuries to minors ingesting high levels of THC. Just as with alcohol and tobacco, the federal government will have a strong interest in keeping potentially toxic cannabis products from children. For this reason, there’s a great potential for higher scrutiny for edibles companies, particularly with respect to testing for safe consumption (dosage, adulterants), accurate labeling and audience-appropriate packaging.
Diversion of cannabis to non-legal states and other interstate shipping activities might also receive higher scrutiny under Sessions. This activity could amount to drug trafficking, especially if traveling between legal and non-legal state. Federal law enforcement will likely pay close attention to cannabis shipping company operations and other cannabis product supply lines.
Crackdown on Non-Compliant Marijuana-Related Businesses
Given the political popularity of legal cannabis and limited enforcement resources to take on such a large market, the federal government is not likely to undertake an aggressive assault against the industry. Instead, it may opt for a more subtle approach of focusing on “bad actors” — those who are blatantly non-compliant with state law or running illegitimate businesses. This approach may be motivated by a desire to keep the industry’s growth in check without overtly trampling on states’ rights.
We have to assume that even lawful cannabis businesses are already subject to some federal monitoring. The federal government has been paying close attention to the legal cannabis industry since the beginning. But if you aren’t taking every step necessary to keep your business legally compliant, I’m almost certain you will be under higher scrutiny beginning on January 20. Now more than ever, it will be a business’s affirmative duty to make sure they are compliant with all federal, state and local laws.
What The Future Holds
Things will become clearer in the next few weeks. I’ll be watching closely to see what, if any, guidance Sessions provides his marijuana enforcement priorities. Even if he chooses not to share his priorities, the industry will be ready to handle the challenges that come its way.
One thing I can say with certainty is that the cannabis industry has grown exponentially in professionalism and sophistication, especially in the last several years. Industry professionals and businesses are more educated and more aware than ever of the unique challenges they face. Given the uncertainty of a new administration, I believe those who recognize the importance of continuous risk-planning and staying informed can survive federal scrutiny and thrive to become industry leaders.