Will the federal government prosecute people who enter the cannabis industry in compliance with state cannabis laws? There is a temptation here to make things clearer than they really are.
In 2009, 2011 and again with the Cole memo in August 2013, the Department of Justice issued “guidance to federal prosecutors” concerning state laws legalizing marijuana.
These guidelines have been read to suggest that a person who complies with state cannabis laws might be safe so long as their conduct does not impact eight specified federal 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.
Entrepreneurs have been acting as though this series of memos creates a safe haven for cannabis businesses that comply with state law. More conservative opinions from lawyers caution that the full spectrum of federal prosecution is still a significant risk. Compliance with state law provides no insulation.
To date, compared to the number of cannabis businesses that have surfaced and even made a splash, prosecutions are few, but dramatic. This counsel is aware of several federal criminal prosecutions in Montana and a handful in Washington involving persons or businesses that appeared to be in compliance with state law (prior to I-502). Evidently this is also true for California. So far, it appears the feds are tolerating Colorado’s new scheme. But even the Cole memo itself cautions:
This memorandum is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal.
It applies prospectively to the exercise of prosecutorial discretion in future cases and does not provide defendants or subjects of enforcement action with a basis for reconsideration of any pending civil action or criminal prosecution. Finally, nothing herein precludes investigation or prosecution, even in the absence of any one of the factors listed above, in particular circumstances where investigation and prosecution otherwise serves an important federal interest.
On Feb. 14, 2014, the Department of Treasury Financial Crimes Enforcement Network (FinCEN) issued a memorandum titled “Guidance” purporting to clarify the involvement of banks in the cannabis business. The Department of Justice issued a simultaneous memo discussing the subject.
In what I consider an important signal from the government, the Guidance memo provides that financial institutions “can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity.”
The burden of “due diligence” is on the banks, requiring them to engage in a microscopic ongoing examination of their potential cannabis customers.
The bank is also instructed to “consider whether a marijuana-related business implicates one or more of the Cole Memo priorities or violates state law.” Failure to ferret out criminal activity or properly assess the impact on the eight priorities could result in prosecution of the bank and its officers. Forfeiture of the proceeds, of course, is also on the table. “Implicates” is a troublesome word. To whom can a bank turn to assess this factor reliably?
Banks are required to file a “Suspicious Activity Report” (SAR) on all cannabis related transactions. Where the bank’s investigation reveals conduct that may implicate one of the federal priorities it must file a “priority” SAR.
No brief article can describe the burden placed on banks by the new guidance — nor the risk both they and their customers incur by conveniently documenting and collecting incontrovertible evidence of what is essentially criminal activity on a large scale. A cynic might speculate that these regulations were designed to entirely prohibit bank participation in the cannabis industry. That may be their result. Within hours, the Colorado Bankers Association announced that “no bank can comply with the rules.”
“At best this amounts to ‘serve these customers at your own risk’ and emphasizes the risk. The light is red.”
Denny Eliason, lobbyist for the Washington Bankers Association, was slightly less cynical. He, too, viewed it as “an important signal from the government.”
He called the Guidance memo “an important first step, albeit a first step.”
The Department of Justice memo, also issued on Feb. 14, 2014, adds no clarity to Guidance. The memo says “if a financial institution or individual offers services to a marijuana-related business whose activities do not implicate any of the eight priority factors, prosecution for these offenses may not be appropriate.”
Evidently, the status of the cannabis business is as unclear as ever. The public wants the product, business wants the business, and governments want the tax. Though it will probably require a change in federal law, sooner or later it’s inevitable.
In the interim, I can only give some very self-serving advice: If you plan to get into the cannabis business, be prepared to get to know some lawyers pretty well.
Though no lawyer can guarantee you won’t be prosecuted, the lines are getting a little clearer, and it may be possible to give some worthwhile legal advice to potential cannabis entrepreneurs who aren’t afraid to take some risks.