Don’t be fooled by the smoke screen. Marijuana is still illegal under federal law. Therefore, even in states that have decriminalized marijuana, engaging in business transactions with the marijuana industry could lead to loss of money, loss of profession, and even loss of freedom.
Conflicting federal and state laws
There are 20 states and the District of Columbia which have “legalized,” in some form, medical marijuana. Nevertheless, marijuana is still listed as a Schedule 1 substance under the federal Controlled Substances Act (CSA). Schedule 1 drugs are those that are deemed to have no currently accepted medical use in treatment in the United States and therefore may not be prescribed, administered, or dispensed for medical use.
It remains a federal crime to manufacture, distribute, or possess with intent to distribute marijuana. It is a separate federal crime to help (“aid and abet”) in the manufacture, distribution, or possession of marijuana. Certain financial transactions involving proceeds of marijuana dealing violate the federal money laundering laws. These financial transactions can also lead to forfeiture of significant assets, even without a criminal charge.
When there is a direct conflict between state and federal laws, federal law controls. Therefore, there is great peril in engaging in transactions with a marijuana business, even if that business is operating lawfully under its state’s legal framework (a so-called “legitimate marijuana business”).
Federal policy guidance on marijuana enforcement
To make things more confusing, despite the clear federal prohibition on marijuana, the Justice Department has stated that, as a matter of policy, it will not enforce federal criminal laws against some legitimate marijuana businesses. On August 29, 2013, Deputy Attorney General James Cole issued a memorandum setting out eight enforcement priorities of the federal government regarding marijuana. These priorities include: preventing the sale of marijuana to minors, preventing violence related to marijuana, preventing marijuana revenues from going to criminal enterprises, preventing the spread of marijuana to states where it is still illegal, and preventing marijuana growth on public lands and possession on federal property. Cole directed federal prosecutors and law enforcement agents to focus their enforcement efforts on persons or entities “whose conduct interferes with any one or more of these priorities, regardless of state law.” The Cole Memorandum indicated that federal laws will not be enforced in states that have legalized marijuana so long as those states have implemented strong and effective regulatory and enforcement systems to protect against threats to public safety, public health and other law enforcement issues in a manner that does not undermine federal enforcement priorities.
Industries at high risk if interacting with marijuana businesses
Although anyone providing outside services to a legitimate marijuana business could be viewed as aiding and abetting a crime, the following three industries are at particular risk when doing business with legitimate marijuana businesses: physicians, banks and landlords.
In addition to potentially going to jail, a doctor involved in dispensing marijuana could have his/her ability to write prescriptions for controlled substances revoked, or worse, could lose his medical license. In an attempt to circumvent the federal prohibition, medical marijuana “prescriptions” are generally called “recommendations” or “referrals.” Regardless of what it is called, a physician helping someone obtain marijuana, even for a medical purpose, is violating federal law.
To avoid federal money laundering laws and to comply with federal banking regulations, prudent banks have refused to interact with legitimate marijuana businesses. Therefore, many legitimate marijuana businesses are cash-only operations, unable to open banking accounts, and encounter difficulty accessing banking systems to accept credit cards, write checks, deposits revenue, make payroll or pay taxes. Recognizing the existing legal risks to banks, on July 10, 2013 Representative Ed Perlmutter (D-CO) introduced the Marijuana Businesses Access to Banking Act of 2013. The stated purpose of the bill is to “create protections for depository institutions that provide financial services to marijuana-related businesses.” The bill provides a safe harbor for depository institutions, offers several protections under federal law related to investigation and prosecution, federal criminal law and forfeiture law, and provides an exception from filing suspicious activity reports. Unless this law is passed, banks face significant potential criminal, civil, and regulatory sanctions if they provide financial services to legitimate marijuana businesses.
A recent case in California specifically addresses the perils faced by commercial landowners doing business with legitimate marijuana businesses. The federal government filed a civil forfeiture case against the owner of a $1.5 million commercial building in Anaheim who rented space to a legitimate marijuana business. Under California law, the sale of medical marijuana has been legalized. Additionally, California law prevents the state from taking private property by civil forfeiture unless the property owner has been convicted of a crime. This suit completely bypasses these state law protections and proceeds under federal civil forfeiture laws.
In this specific case, the property owner has not been convicted of a crime and received no notice of risk of forfeiture prior to being served with the suit. The medical marijuana dispensary held all the licenses required by state and local law. Immediately upon receiving the federal complaint, the owner evicted the medical dispensary. Nevertheless, the federal government is proceeding with the forfeiture case. If the federal government wins, the property owner will lose his building for no compensation, despite the fact that he operated within California laws and was never convicted of a crime.
Conclusion – Be cautious
Marijuana remains illegal under federal law. Although current Justice Department policies may limit federal criminal enforcement actions against third parties doing business with legitimate marijuana businesses, those policies could change at any moment. Moreover, these policies do not insulate third parties from regulatory or forfeiture actions. Anyone transacting business with a legitimate marijuana business is proceeding with great risk.
For more information please contact:
Bruce E. Reinhart
Courtney G. Tito