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A favorable ruling from the Ninth Circuit in United States v. McIntosh is a reassuring win for the medical marijuana industry.  This federal case concluded that § 542 of the Consolidated Appropriations Act prohibits DOJ from spending money on actions that prevent medical marijuana states giving practical effect to their state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

What does this mean?

It’s a nice reassurance for medical marijuana businesses, their employees and patients acting in compliance with state rules. It is also likely to dissuade the DOJ from taking similar actions in the near future and provides a valuable precedent to certain defendants so long as the current prohibition on DOJ enforcement spending remains in effect. However, Congress can change the spending prohibition at any time.

The footnote of the case reaffirms that marijuana is still federally illegal and does not provide immunity from prosecution for federal marijuana offenses.   The footnote is below:

[Footnote 5: The prior observation should also serve as a warning. To be clear, § 542 does not provide immunity from prosecution for federal marijuana offenses. The CSA prohibits the manufacture, distribution, and possession of marijuana. Anyone in any state who possesses, distributes, or manufactures marijuana for medical or recreational purposes (or attempts or conspires to do so) is committing a federal crime. The federal government can prosecute such offenses for up to five years after they occur.

Congress currently restricts the government from spending certain funds to prosecute certain individuals. But Congress could restore funding tomorrow, a year from now, or four years from now, and the government could then prosecute individuals who committed offenses while the government lacked funding. Moreover, a new president will be elected soon, and a new administration could shift enforcement priorities to place greater emphasis on prosecuting marijuana offenses.

Nor does does any state law “legalize” possession, distribution, or manufacture of marijuana. Under the Supremacy Clause of the Constitution, state laws cannot permit what federal law prohibits. Thus, while the CSA remains in effect, states cannot actually authorize the manufacture, distribution, or possession of marijuana. Such activity remains prohibited by federal law.]

Finally, this ruling also only covers “medical marijuana” and not “recreational marijuana.”  As I have stated before, this does not prevent the DOJ from using funds for enforcement actions against recreational marijuana businesses.

The U.S. Drug Enforcement Administration filed documents with the Federal Register on Thursday outlining its denial of petitions to reschedule marijuana.  The DEA stated that marijuana has no known medical use and that the decision was based heavily on the evaluations of the U.S. Food and Drug Administration and the Department of Health and Human Services.  This determination should not be interpreted as the DEA now going after state-legal marijuana business, rather DEA enforcement action will remain focused on heroin, fentanyl, meth, cocaine.  Ultimately, the DEA’s decision is a neutral to the marijuana industry.

 

President Obama approved the 2016 federal budget and it contained a prohibition that none of the funds made available to the Department of Justice may be used, with respect to any of the States that have state-legal medical marijuana programs, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

In addition, the 2016 federal budget also prohibits the use of any funds made available to any agency that might be used in contravention of the Agricultural Act of 2014 or prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with the Agricultural Act of 2014, within or outside the state in which industrial hemp is grown or cultivated.

What does this mean to you?

Medical Marijuana – Similar to the 2015 Federal Budget, this prohibition only covers “medical marijuana” and not “recreational marijuana.”  As I have stated before, this does not prevent the Department of Justice from using funds to prevent recreational marijuana programs from implementing laws.  While this is a continued step in the right direction, the prohibition does not extend to state-legal recreational marijuana.

Industrial Hemp – This is also a positive step for the industrial hemp industry for those operating under the Agricultural Act of 2014.  This will allow the continued cultivation of industrial hemp for purposes of research conducted under an agricultural pilot program or other agricultural or academic research.  However, this does not allow industrial hemp to be sold for commercial purposes.  For a State like Colorado, that allows the commercialization of industrial hemp.  You should contact your legal counsel to discuss the implications prior to selling any products.

This ruling is a definitive win for medical marijuana business that are operating consistent with state regulations.  The Rohrabacher-Farr amendment to last year’s spending bill lists the states that have medical marijuana laws, and mandates that the DOJ is barred from using federal funds to “prevent such State from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

“The DEA, however, didn’t see it that way. In a leaked memo, the Justice Department contended that the amendment only prevents actions against actual states — not against the individuals or businesses or business that actually carry out marijuana laws. In their interpretation, the bill still allowed them to pursue criminal and civil actions against medical marijuana businesses and the patients who patronized them.”

The ruling could discourage the Department of Justice from creative interpretations of the Rohrabacher-Farr amendment going forward, which should let medical marijuana businesses and their patients in 23 states breathe a sigh of relief.”

The Washington Post

What does this mean for you?

I view this as a big step forward for state-legal medical cannabis businesses.  Note that the Rohrabacher-Farr amendment only covers “medical marijuana” and not recreational marijuana.  However, striking down any creative interpretations of the Rohrabacher-Farr amendment will pave the way for the new bills introduced by the Senate and House that account for recreational marijuana.  While not yet law, these bills are a positive step towards a regulated cannabis market.

BIS Research has published the North American Cannabis Market – Analysis and Forecast Through 2015-2025 estimating “the cannabis derivative market value to grow over $20.7 billion by 2020 at an estimated CAGR of 29.80% from 2014 to 2020.”

So what does this mean?

There is an old adage that it wasn’t the gold miners that made it big in the Gold Rush, it was people selling the picks and shovels.  As thousands of people rush to be the next big marijuana cultivation/retail/infused product mega-millionaire with a reality TV show, only a select few will be successful… most have or will fail.

However, unlike a state-locked marijuana cultivation/retail/infused product company that cannot sell its products across state lines, ancillary businesses that service such companies are subject to less regulatory scrutiny and are able to launch national product lines and services across state lines.

Our cannabis team has successfully represented such ancillary businesses in the cannabis industry with corporate structuring, raising capital, IP protection and developing functional businesses that can service or provide products to a highly regulated industry.

The 10th Circuit court ruled on August 21, 2015, that neither Chapter 7 nor 13 is available to a marijuana business owner.  The court stated that because of “the federally illegal marijuana based income stream, the debtors cannot fund a plan without breaking the law, and are therefore ineligible for relief under Chapter 13.”

While this not unexpected from my perspective, the ruling emphasizes that the dichotomy between federal and state law will continue to wreak havoc on the marijuana industry until actual laws are changed.  This is a painful reminder that while current federal policy has permitted the proliferation of the cannabis industry in Colorado and other states – it is just policy, not actual law.