3 Things Marijuana Businesses Need To Do To Prepare For Justice Department/DEA Raid
The one-page Marijuana Enforcement Memorandum issued by Attorney General Jeff Sessions has created uncertainty as to whether federal prosecutors now will prosecute marijuana-related businesses in the states where medical or recreational marijuana sales presently are legal under state law.
Whether we soon actually will see federal enforcement will be the individual decisions of 93 United States Attorneys around the country. No sooner did the Attorney General alter more than seven years of guidance that had provided a perception of protection to marijuana-related businesses than one U.S. Attorney said he would pursue business as usual and another said the industry would be fair game for prosecution.
We don’t expect federal prosecutors to rush into widespread prosecutions because of significant other policy enforcement priorities and resources. If federal prosecutors were to do so, and the “prosecuted” are in compliance with state law, then we will see constitutional challenges to the prosecutions.
Nonetheless, the fundamental fact remains that under federal law, marijuana-related business objectively is a criminal offense, and the purveyors of marijuana put at risk their property and freedom merely by their participation in these businesses.
We offer three general recommendations for industry participants. They are: Establish or enhance your compliance program, improve documentation, and monitor closely statements of local federal prosecutors to determine their likely enforcement postures. These recommendations are worth heeding outside the cannabis industry too.
The first, rooted in the Principles of Federal Prosecutions of Business Organizations adopted and followed by DOJ, is, regardless of industry segment, industry participants should review with competent counsel all elements of their company compliance programs.
To be clear, compliance programs offer no guarantees, particularly where the marijuana-related businesses by definition presumptively violate federal law. Nevertheless, a company’s ability to demonstrate its efforts to work within the framework of applicable and governing state laws may prove persuasive for the lawyer advocating for the marijuana-related business.
The second is don’t cut corners and do tighten up documentation. Doing so is consistent with wise business practices in all young and emerging industries, as well as those in which aggressive enforcement impacts the compliance landscape.
Business principals, to cut corners, much too often download and reuse sample contracts from the internet and other standardized sources. In highly regulated and scrutinized industries, such as cannabis, this is a recipe for disaster, no different than hiring professionals merely because of pretty web pages or impressive sounding puffed bios.
An immediate response to guidance such as the Sessions Memo, or as in the anti-corruption world best practices that can be inferred from a deferred prosecution agreement, is for industry participants to review contracts in use and planned for use to ensure that the agreements reflect the most up-to-date terms and best practices.
Poorly drafted contracts with business partners may result in parties being pulled into investigations, rather than operating as a protective shield.
Third, individuals and businesses involved in state legal marijuana businesses should pay close attention to the US Attorney overseeing that person’s or business’ federal district to ascertain that US Attorney’s philosophical perspective on state legal medical or recreational marijuana businesses.
That US Attorney alone will be the decision-maker, not a centralized Washington-driven policy. Some US Attorneys will preview their enforcement perspectives, and others may keep close to their vests their investigative and prosecutorial intentions, leaving only to speculation what will become policy in that federal District.
Within one week of the Sessions Memo, we saw two opposite approaches and public positions. US Attorney Bob Troyer in the District of Colorado declared that his office will not change its approach and will continue “focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state.”
Meanwhile, in the District of Massachusetts, US Attorney Andrew Lelling stated that he “cannot ... provide assurances that certain categories of participants in the state-level marijuana trade will be immune from federal prosecution. This is a straightforward rule of law issue.
Congress has unambiguously made it a federal crime to cultivate, distribute and/or possess marijuana.” Some of the US Attorneys’ offices in states with state-legalized marijuana business still are under the leadership of interim US Attorneys, so in those districts policy yet may change again. Not only will the personal perspectives of the permanent appointee US Attorneys in those districts ultimately determine enforcement policy, but Sessions also well may make the views of the candidates for permanent appointments a litmus test during those lawyers’ interviews for the chief federal prosecutor roles.
To understand what Sessions did that caused the uproar in the cannabis world requires an examination of the language and context of previous guidance, none of which actually made marijuana-related businesses activities lawful. Memoranda issued by DOJ under imprimatur of two Deputy Attorneys General serving under the Obama Administration – David Ogden in 2009 and James Cole in 2013 – effectively created a safe harbor for marijuana-related businesses that complied fully with state law in the jurisdictions that legalized marijuana. The Ogden Memo related only to activities in states that had enacted laws authorizing the medical use of marijuana. The Cole Memo was more expansive, extending the safe harbor to states that legalized possession of small amounts of marijuana and regulated marijuana production, processing and sale.
The phrases “committed to making efficient and rational use of its limited investigative and prosecutorial resources” in the Ogden Memo and “committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way” in the Cole Memo were the Obama Administration Justice Department’s code words for leaving alone the state law compliant businesses.
Both memoranda distinguished clearly criminal enterprises, gangs and cartels as continuing fair game for criminal prosecution. The Sessions Memo makes no such distinction.
Rather, the Sessions Memo sets forth that individual US Attorneys should make marijuana-related prosecutorial decisions based on the law enforcement priorities that Sessions himself sets for DOJ, and on the subjective criteria of the “seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”
The Attorney General, in rescinding prior guidance, effectively reiterated that federal prosecutors have discretion as to what offenses to investigate and prosecute, and federal law alone should govern those decisions. For guidance, Sessions defers to the United States Attorneys Manual, which has existed for almost 40 years and has evolved in substance, perspective and detail over the nearly four decades.
The Manual makes clear the ultimate authority of each District’s chief prosecutor to make charging decisions, expressly providing that each US Attorney has “the broadest discretion in the exercise of such authority ... with relation to criminal matters encompass[ing] without limitation ... declining prosecution ... authorizing prosecution ... [and] determining the manner of prosecuting.
The Manual is clear that neither its text nor DOJ guidance is intended to, does, or may be relied on “to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal.”
What remains as protection only for medical marijuana-related businesses, at least until January 19, 2018, is three-year old legislation nested in federal funding legislation. In December 2014, California Representative Dana Rohrabacher sponsored an amendment included in the omnibus appropriations bill, which then funded the federal government through September 2015, that provided simply DOJ could not use Congressionally appropriated funds to “prevent” states from “implementing” their own state laws authorizing the use, distribution, possession, or cultivation of medical marijuana their medical marijuana laws.
The Rohrabacher Amendment did not apply to recreational use state laws. As an amendment to annual Congressional appropriations bills, the Amendment expires upon the expiration of the prior year’s federal funding.
The Rohrabacher Amendment, with various co-sponsors, has been renewed since its original adoption. The current federal budget continuing resolution expires on January 19, 2018. So, including the next iteration of the Rohrbacher Amendment in the next federal budget will determine whether medical marijuana related businesses will continue to benefit from indirect protection from federal enforcement.
DOJ put the Rohrbacher Amendment to a test in California in 2015 and lost in what medical marijuana cultivators and dispensaries hailed as a significant victory. A three-judge panel of the United States Court of Appeals for the Ninth Circuit (west coast) in August 2016 upheld a constitutional challenge and decided that DOJ’s prosecution violated the Appropriations Clause of the United States Constitution by expending funds on a federal criminal prosecution.
By the court returning the case to the federal district court to determine whether the defendants were operating in conformity with applicable California medical marijuana law, the appellate court effectively ruled that defendants are entitled to evidentiary hearings at which they can try to show that their conduct was authorized and permitted under state law.
Despite this precedent, we would not be surprised to see DOJ test the limits of the Rohrbacher Amendment when prosecutors believe that they have the right set of facts.
With much of the focus on federal criminal enforcement, marijuana-related businesses should not lose sight of the extremely powerful civil forfeiture tool that Attorney General Sessions previously unleashed. On July 19, 2017, Sessions issued a statement that “civil asset forfeiture is a key tool that helps law enforcement defund organized crime, take back ill-gotten gains, and prevent new crimes from being committed.... [It] takes the material support of the criminals and instead makes it the material support of law enforcement, funding priorities....”
In the Attorney General’s July 2017 Order, Sessions expressly authorized federal prosecutors to effect “federal forfeiture of property seized lawfully by state and local law enforcement agencies ... whenever the conduct giving rise to the seizure is in violation of federal law.” Civil forfeiture proceedings in fact are civil proceedings, so the burden of proof is preponderance of the evidence (50% plus 1), not the criminal evidentiary standard of beyond a reasonable doubt. And, the preemptive nature of a civil forfeiture action ties up the assets from the inception of the proceeding.
One additional area for caution for those seeking guidance is uninformed memoranda offering opinions and interpretations but lacking an understanding of how DOJ establishes policy. Relying on widely circulated analysis memoranda issued by law firms is not legal advice on which a marijuana-related business can attach its decision-making.
For any business or person to assert reliance on counsel, that “client” must have a formal attorney-client relationship in place with a lawyer or law firm, and the advice must be informed and specific to that client. In short, internet available memoranda, even if correct, do not offer any actual protection.
Finally, the federal focus of the Sessions Memo read together with the Sessions’ Civil Forfeiture Memo should not lead industry participants to ignore state law enforcement interests. Drug interdiction and enforcement long has been an area of deep and close cooperation between federal authorities and state and local police. State and local law enforcement officials who are far from enamored with legalized medical and recreational use laws readily could propose to the US Attorneys, who have been released from their perceived safe-harbor shackles, entities and persons whom they in the non-federal enforcement ranks wish to see investigated and prosecuted.
With the limited protection from the prior Administration’s guidance eviscerated, DOJ presumptively setting the stage for open season for criminal enforcement and civil forfeiture, the likeliest source of relief may be the Legislative Branch. One of the preeminent corporate transactional lawyers advising marijuana-related businesses, Scot Crow, is of the opinion that “the true effect may be to expedite action on Capitol Hill for more permanent legislation.” Time will tell whether we will see a federal legislative fix, and what such federal legalization would or could look like also is a guess.
In the worlds of federal criminal law and civil regulatory enforcement, the buzz word is “deterrence.” Limited resources and shifting priorities make it impossible for prosecutors and regulator to bring charges in every fact pattern they otherwise may wish to enforce.
The next best strategy in the Government’s arsenal is to bring cases or create an environment that provides a meaningful deterrent effect, that is one in which companies and individuals act with great hesitation for fear of being investigated and prosecuted.
The Sessions Memo immediately converted a bumpy but somewhat predictable landscape into one of risk and uncertainty. Former United States Attorney Kerry Harvey of the Eastern District of Kentucky, who understands well how the highest levels of DOJ make decisions and set policy, believes that DOJ leadership “firmly believes marijuana is a dangerous gateway drug without legitimate medical application.”
That mindset of DOJ leadership, combined with always eager drug enforcement agents, is a recipe for unpredictability and significantly increased risk of federal criminal enforcement particularly in states where state law permits medical or recreational marijuana businesses to operate.