Legal Marijuana Industry Left with Uncertainty

For those in the cannabis industry, life after the Cole memo recission remains largely unchanged, but ancillary businesses – finance, insurance and logistics –are having second thoughts

Scott Martinez //January 14, 2018//

Legal Marijuana Industry Left with Uncertainty

For those in the cannabis industry, life after the Cole memo recission remains largely unchanged, but ancillary businesses – finance, insurance and logistics –are having second thoughts

Scott Martinez //January 14, 2018//

Attorney General Jeff Sessions, former Alabama Senator, stated last year that legalized marijuana was “slightly less awful” than opioid and heroin addiction. His widely known anti-marijuana beliefs recently became actionable as the Department of Justice rescinded long-standing legal guidance regarding marijuana prosecutions, creating uncertainty in the legal marijuana markets.

In August 2013, the Department of Justice issued a memorandum by James Cole (the “Cole memo”) providing guidance as to when to prosecute marijuana-related federal crimes under the Controlled Substances Act (CSA). The Cole memo provided clarity between the state laws that permit medical and recreational use of marijuana and federal laws prohibiting its consumption. In general, the Cole memo focused prosecutors on preventing the distribution of marijuana to minors and going after those who thwarted state laws for the purpose of engaging in criminal enterprises, gangs and drug cartels.

State and local governments used the Cole memo as justification to create robust regulatory systems that helped keep marijuana sales a safe distance from schools. And, local governments relied on the Cole memo to assure businesses that complying with their tax burdens reduced the risk of federal prosecution.  

Those that complied with the Cole memo could be relatively certain they were the lowest priority for related federal law enforcement efforts.

The societal benefit of marijuana-related businesses engaging in a robust regulatory system was that these organizations were required, and proactively sought to comply with laws and regulations to keep their licenses in good standing. With the industry operating in the sunlight, workers, owners and neighbors were vested in compliance and meeting community standards.  

Attorney General Sessions’ recent decision to rescind the Cole memo has created a vacuum of information, leaving the marijuana industry filled with speculation and removing its biggest incentive to comply with local regulations — federal criminal prosecution.  

This uncertainty exists because each of the country’s 93 U.S. Attorneys now has individual discretion to prosecute violations of the Controlled Substances Act in their jurisdiction. For Americans working in the marijuana industry, this means trying to figure out how each individual U.S. Attorney feels about marijuana prosecutions.  

In an effort to create calm, the U.S. Attorney for the District of Colorado, Bob Troyer, publicly stated his enforcement priorities have not changed with the recission of the Cole memo and that marijuana prosecutions would continue to focus on those that “create the greatest safety threats to our communities.”

For those already involved in the cannabis industry and those who choose to consume marijuana in Colorado, life after the Cole memo recission remains largely unchanged. On the other hand, ancillary businesses involved in the finance, insurance and logistics of marijuana sales and use are having second thoughts, especially in California.

On January 1, 2018, California cannabis shops opened their doors for recreational sales for the first time. Large financial institutions and private equity were looking to this market as a great potential for investment and return; however, Sessions’ recission of practical guidance for federal marijuana laws has already dried up lines of credit and infusions of investment opportunities. Financiers and lenders are seeking counsel to understand the risks of engaging in the marijuana business.  

Many of those ancillary businesses on the margins of the marijuana industry are changing course, choosing to take a pass on marijuana-business investments due to the threat of potential federal prosecution. While there is money to be made, the risk is just too high when trying to decide how an individual prosecutor may feel, especially when that prosecutor may be trying to make a name for him or herself.

After Sessions’ decision, the analysis of whether to engage in marijuana-related business outside of Colorado has become much more complicated. I now tap my network of large law firm attorneys to understand the proclivities of individual prosecutors, enforcement priorities and local politics and policy. 

Unfortunately, the cost of gaining certainty just went up.

Scott Martinez leads government relations, regulatory and administrative law at Snell & Wilmer's law practice in the firm's Denver office. He operates at the intersection of commerce, politics and policy, helping businesses navigate complex government regulatory and administrative processes. Martinez previously served as Denver’s City Attorney under Mayor Michael Hancock.