Attorney General Jeff Sessions chose interesting timing to rescind the Cole Memorandum: within three days after the California recreational market opened for business. California state regulators have been working hard to roll out an effective recreational cannabis market by the deadline of January 1, 2018. They managed to do so only to have Mr. Sessions rip the carpet out from underneath them two days later.
So, what does this mean for our cannabis clients in Oregon and California?The short answer is, not much.If you operate a legitimate cannabis business in compliance with state and local laws.
Oregon is a well-established, regulated industry. The cannabis industry has been humming along, generating over $75 million dollars in annual tax revenue and providing over 19,000 new jobs to the Oregon economy. The industry is supported from the top down by Governor Kate Brown and local communities. Cities and counties that have “opted in” to the cannabis industry have decided that they want to take advantage of the benefits that a legal cannabis market brings with it, such as increased property values, lower unemployment,and increased tax revenue for schools, police force and other social services. These communities have decided that the pros outweigh the potential cons of legalization.
Given the amount of political, local and business support the industry has in Oregon, we see no real threat to cannabis operators that are playing by all the rules in Oregon. The Cole memo simply provided “guidance” to US Attorneys on how to enforce the Controlled Substances Act. Without that guidance, it’s reasonable to think that Billy Williams, US Attorney for the District of Oregon, will act consistently with the policies of previous US Attorneys. In addition, for the medical marijuana market, there are still protections from Congress through the Rohrabacher-Farr Amendment (at least for a couple more weeks, though it is likely to be renewed as the Leahey Amendment),over which the Ninth Circuit Court of Appeals has applied to require a hearing on compliance with state laws that implement medical marijuana.
As for California, the California legislature made a bold move to reform asset forfeiture laws by passing Senate Bill 443 (SB 443) to reduce the risk of unfair property seizure by state and local law enforcement beginning January 1, 2017. The bill establishes some of the nation’s strictest standards to protect the due process and property rights of California cannabis business owners, investors, and landlords.
Under SB 443, state and local law enforcement cannot transfer any property seized under state law to a federal agency. In addition, the state agency must obtain a criminal conviction for the illegal manufacture or cultivation of marijuana in order to receive a share of federally seized property, including houses, vehicles or cash under $40,000. A criminal conviction is also required for a state agency to recover any of its expenses for the seizure and destruction of marijuana. Finally, the bill raises the burden of proof for state agencies under existing law, requiring clear and convincing evidence to seize cash of $40,000 or more, and evidence beyond a reasonable doubt to seize cash of more than $25,000 but less than $40,000.
The bill is not specific to medical cannabis and thus it will also serve to lessen the risk of asset forfeiture for recreational cannabis businesses. SB 443 was approved by California Governor Brown on the same day as AB 2679, which created protections for current California cannabis manufacturers. In addition, the state has rolled out a very comprehensive recreational market with clear direction on how to get licensed. In fact, I happen to be attending one of the many free seminars the state is offering in assisting with the licensure process in San Diego this month. I have found the process to be very user-friendly and efficient.
While the effect of this change by Mr. Sessions may lead to some investors pulling out, or it may create a chilling effect on the rapid growth of the industry, it seems clear to me that little has changed except that the US Attorney’s office may have more discretion to go after bad actors. Which, after all, may not be such a bad thing.