Attorney General Jeff Sessions, a vocal and longtime opponent of marijuana, issued a memorandum to all United States Attorneys on January 4, 2018 (“Sessions Memo”),[1] rescinding the Department of Justice’s previous guidance on marijuana enforcement, including the Cole Memo, leading the industry to question what federal marijuana enforcement will look like going forward. Read on to find out what it means to lose the Cole Memo and what marijuana-related businesses should be doing immediately after the Sessions Memo.
What Does the Cole Memo Mean?
The cultivation, distribution and possession of marijuana is federally illegal under the Controlled Substances Act (“CSA”) but in 2013, Deputy Attorney General James Cole issued a memorandum[2] which essentially shifted marijuana enforcement to the states under certain circumstances. Thereafter, Federal prosecutions dropped off in states that implemented robust regulatory and enforcement schemes to control marijuana–related activity. However, the Cole Memo did not have the force of law–it was merely guidance on federal agents’ exercise of investigative and prosecutorial discretion. As guidance, the Cole Memo did not eliminate the conflict between state and federal law, preclude prosecution of activity that violates federal law, or create any legal defense to a violation of federal law.
Although not law, the Cole Memo’s change in federal policy contributed to the explosive growth of the nascent commercial marijuana industry because it provided clarity as to the federal government’s enforcement priorities, enabling marijuana-related businesses to develop policies and procedures to mitigate the risk of federal prosecution. It also instilled confidence in investors, resulting in more explosive growth (especially in research and development), contributed to the success of legalization efforts, and inspired the Financial Crimes Enforcement Network (“FinCEN”), the federal regulator of financial institutions, to issue guidance for financial institutions desiring to service marijuana-related businesses.
What Does it Mean to Lose the Cole Memo?
- Prosecutorial Discretion is Left to Individual United States Attorneys. Each state’s federal prosecutors are in charge of deciding whether to prosecute marijuana cases there.
- No Change in Federal-State Conflict. Since the Cole Memo is not law, the disparity between state and federal law is the same as it was before the Sessions Memo.
- Banking Setback. Although banking has always been a challenge for the industry, banking will likely be even more of a challenge as the rescission of the Cole Memo increases financial institutions’ risk of civil and criminal enforcement penalties under U.S. Code Title 31. Some financial institutions servicing marijuana-related businesses are likely to halt services to marijuana-related businesses until FinCEN addresses the Sessions Memo.
- Lower Valuations and Slowdown in Investment Likely Near Term. Many investors are more hesitant to invest more in marijuana-related businesses at least short term until the confusion settles, slowing the industry’s growth and resulting in lower business valuations. This slowdown is likely to impact business valuations and result in more favorable terms for investors.
- Extensions of Moratoriums. Localities with temporary moratoriums on licensing and/or zoning approvals for marijuana establishments are likely to extend said moratoriums until the confusion surrounding the Session Memo settles.
What Should Marijuana-Related Businesses Do Immediately After the Sessions Memo?
- Get to Know Your US Attorney. Now that Sessions rescinded the Cole Memo, each state’s federal prosecutors are in charge of deciding whether to prosecute marijuana cases there. To mitigate risk, its essential to determine what your state’s United States Attorney’s priorities are. In Nevada, the federal prosecutor in charge is Dayle Elieson. Attorney Jeff Sessions appointed Elieson as Nevada’s Interim United States Attorney effective January 5, 2018, and thus it is still early to gauge her stance on marijuana enforcement priorities. Prior to her appointment, Elieson served as a federal prosecutor in Texas handling fraud, money laundering and terrorism cases.[3]
- Maintain the Status Quo. Marijuana establishments should continue business as usual for now and keep abreast of all developments.
[1] Available at https://www.justice.gov/opa/press-release/file/1022196/download.
[2] The Cole Memo directed all federal enforcement efforts to activities that implicate the following enforcement priorities: (1) preventing the distribution of marijuana to minors; (2) preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; (3) preventing the diversion of marijuana from states where it is legal under state law in some form to other states; (4) preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; (5) preventing violence and the use of firearms in the cultivation and distribution of marijuana; (6) preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; (7) preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and (8) preventing marijuana possession or use on federal property. See The Cole Memo, available at https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf.
[3] Associated Press, US Prosecutor in Dallas to Be Top Nevada Federal Prosecutor, https://www.usnews.com/news/best-states/nevada/articles/2018-01-03/us-prosecutor-in-dallas-to-be-top-nevada-federal-prosecutor).
