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Compliance: Now it's Critical

Attorney General Jeff Sessions reiterated his position on conservative radio host Hugh Hewitt's show on Thursday morning, saying that the Justice Department will commit to enforcing federal laws on marijuana in an "appropriate way."

"Marijuana is against federal law, and that applies in states where they may have repealed their own anti-marijuana laws," Sessions told Hewitt. "And I’m not in favor of legalization of marijuana. I think it’s a more dangerous drug than a lot of people realize."

The marijuana industry has been watching Sessions closely. If the Trump Administration were to crack down on states with legalized marijuana, the Department of Justice would have to lead the charge. In other words, marijuana stock prices tend to move whenever Sessions mentions the topic.

Marijuana industry lawyers and compliance experts described an industry on edge.

"There's a degree of nervousness running through this industry generally," Brian Vicente, a partner at the Denver-based law firm Vicente Sederberg and one of the authors of Colorado's amendment to legalize marijuana, said.

"People have staked their life savings on this, and devoted years of their lives to building up their brand," Vicente said, noting that some of his clients employ "hundreds" of people.

Although a number of states have legalized and regulated marijuana for both recreational and medical use, it's illegal at the federal level. Marijuana is classified as a Schedule 1 drug — putting it in the same category as heroin — and the government can restrict cross-state shipment and financing as a result. It forces legal states, like Colorado and Washington, into direct conflict with the federal government.

President Trump himself has stayed mum on the topic since the campaign trail — where he discussed tepid support for states' rights to legalize — though his press secretary, Sean Spicer, hinted at a federal crackdown during a press briefing in February.

Clamping down' on compliance

In this time of uncertainty, Vicente says that he's telling his clients to "really clamp down" on compliance. The low-hanging fruit Sessions is likely to go after first are dispensaries or other marijuana companies who are receiving complaints from neighbors, serving underage customers, or playing fast-and-loose with their taxes.

"It's safe to say Sessions is going to come after companies viewed as bad actors," Vicente said. "This sort of doubling-down on compliance will keep our customers from falling within those crosshairs."

Sessions himself told Hewitt much of the same on Thursday morning.

"Neighbors are complaining, and lawsuits are being filed against them," Sessions said. However, Sessions did admit that it's not possible for the federal government to go in and enforce federal law in every legal state, where police and local authorities are beholden to state law.

Eight states — amounting to almost a quarter of the US population — live in states with legalized marijuana.

Amy Margolis, a partner at Greenspoon Marder's Cannabis Law practice, said that now's the time to become "extra-protective" of her clients as we "head into unknown times."

The federal government's approach to the marijuana industry is governed by the Obama-era Cole Memorandum, which stipulates that the Justice Department place "low priority" on enforcing marijuana laws against businesses and organizations that comply with state law.

The Cole Memorandum makes it difficult for the Justice Department and the DEA to go after marijuana companies, Keegan Peterson, the CEO of Wurk, a compliance and payroll platform for marijuana companies in Colorado, told Business Insider. Agencies like the IRS and the Department of Labor could pose problems for the marijuana industry, however.

"Companies that are exclusively worried about the DEA are focusing on the wrong thing," Peterson said. "Instead, they need to make sure they are compliant with all labor, accounting, and tax provisions, to stop those other agencies from coming down on them."

Vicente, the marijuana lawyer, thinks that Sessions will eventually have to "re-write" Cole Memorandum in order to enforce federal laws.

"My personal hunch is that he’d like to overturn the Cole Memorandum, but this administration, whether it believes it or not, has pretty glaring net unpopularity in the polls," Jesse Alderman, an attorney at the Boston-based Foley Hoag LLP, said.

"The regulated sale and decriminalization of cannabis is uniquely popular across the political spectrum and particularly with Trump’s blue-collar, libertarian-minded core voter," Alderman said.

Bipartisan support for a booming industry

Though the Trump Administration has tried to frame the arguments against marijuana legalization as a public health issue — Spicer compared recreational marijuana to opioid abuse — Margolis says the economic benefits outweigh the health argument of which "there's no evidence to support."

"We have tried hard to shift this conversation to an economic one and have been very successful with voters," Margolis said. "If the new administration does crackdown on regulated cannabis they will be doing it in the face of a majority of American voters who support state’s rights to regulate cannabis how they see fit."

BMI Research, one of the few companies to publish regular analysis on the marijuana industry, is still bullish despite the ambiguity coming down from the Trump Administration:

"The timeline for full marijuana legalization in the US will accelerate, especially in the context of newly passed initiatives in several US states. The most likely outcome will be that Congress passes a law removing marijuana from the Schedule system completely as opposed to re-scheduling the drug."

BMI notes the bipartisan support from members of Congress for legalization. Conservatives, focused on the bottom-line, see marijuana legalization as a way to reduce federal spending on criminal justice and healthcare. Progressives, meanwhile, oppose the lopsided incarceration of minority groups for marijuana crimes.

In his written responses to the Senate Judiciary Committee at his confirmation hearing, Sessions said Congress should pass a law to "change the rule," if it desires federal legalization.

To Peterson, the CEO of Wurk, the numbers add up in favor of the federal government keeping the hands-off approach. Some projections show the legal marijuana industry adding more than a quarter of a million jobs to the economy by 2020 — overtaking the manufacturing sector's job creation.

"We have a private sector president," Peterson said. "Cannabis is a major part of Colorado's economy. Taking it away would be really detrimental to the state's economy."

Cannabis Compliance is Critical

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