Timed almost to the day that California legalized recreational marijuana, Attorney General Jeff Sessions announced on Thursday, January 4, that the Department of Justice has rescinded the Obama-era guidance (the Cole Memo) issued to federal prosecutors relative to marijuana enforcement. The announcement characterizes the move as an effort to restore prosecutorial discretion, noting that the U.S. Attorneys’ Manual requires prosecutors to weigh all relevant considerations in determining which cases to bring, including the seriousness of the crime, the deterrent effect of the prosecution, and the cumulative impact of particular crimes on the community. Notably, the announcement also appears to characterize marijuana as a contributor to “the growing drug crisis.”

This development is not a surprise. Attorney General Sessions has made a number of statements that reflect a view that marijuana is properly classified as a Schedule I narcotic under the Controlled Substances Act, putting it in the same category as heroin. Nevertheless, given that eight states (Alaska, Washington, Oregon, California, Colorado, Nevada, Maine, and Massachusetts) and the District of Columbia have legalized recreational marijuana and 29 states allow medical marijuana, it opens questions as to federal enforcement priorities and risks for companies operating or considering doing business with the cannabis industry.

While recreational marijuana may seem like the obvious target for future enforcement, Sessions has not limited his stated concerns about marijuana to recreational use. In a May 2017 letter to House and Senate leaders, Sessions specifically renewed the DOJ’s objection to any limitation on its ability to enforce the Controlled Substances Act. Consistent with the language used in the January 4 announcement, Sessions characterizes state-regulated medical marijuana as a contributing factor in the “historic drug epidemic and potentially long term uptick in violent crime.”

It is also not clear from his public statements, such as this one from his confirmation hearing, whether Attorney General Sessions has specific opinions as to CBD, a non-psychoactive derivative that can be produced either from cannabis or industrial hemp. CBD has been legalized in many states but its legal status at the federal level depends on whether the product is derived from cannabis (Schedule I narcotic) or industrial hemp, a legal substance.  However, as we have written about here, it is likely that the Food and Drug Administration remains the agency most interested in CBD product classification and claims.

Wave of Enforcement Unlikely

It also seems likely that, even though the Cole Memo no longer stands as official agency guidance, its principles will continue to guide prosecutors’ decision-making, rendering a sudden wave of law enforcement activity unlikely. Whether to take action will be up to individual U.S. Attorney’s Offices, and, in exercising their prosecutorial discretion, those Offices will look primarily to the seriousness of the crime.  In assessing seriousness, in turn, prosecutors will most likely look back to the newly-rescinded Cole Memo, which sets forth the top priorities for law enforcement.  So even though the Cole Memo now lacks any formal effect, it likely will remain the best guide for U.S. Attorney’s Offices in terms of prioritizing marijuana cases.  What that means is that those in violation of state law, or engaged in distribution to minors, or engaged in other criminal activity, will be the most likely to attract law enforcement attention, just as they were prior to the Attorney General’s announcement.  State compliant medical marijuana businesses, and the ancillary business who provide products or services to them, will remain the least likely.

Notwithstanding that the risk to ancillary businesses providing services to state compliant marijuana businesses remains low, financial institutions are likely to have heightened concerns, and those previously on the fence about whether bank marijuana-related businesses will probably take a wait-and-see approach for a while. However, those that continue to engage in the due diligence steps set forth in 2014 by the Financial Crimes Enforcement Network (FinCEN) are unlikely to find themselves the target of law enforcement activity. After all, there is increasing recognition that the scrutiny and record-keeping that financial institutions bring to marijuana-related businesses is beneficial to law enforcement.  Without them, the industry is forced to rely on large movements of cash, which poses a security risk to the businesses, raises the risk of money laundering and other illicit activity, and makes that activity more difficult to detect and prevent.

Elected officials from several states, particularly those with legalized recreational marijuana, have already expressed opposition to the DOJ’s announcement.   We will continue to follow this issue closely and provide updates here.