As follow up to part I of our Cannabis Business Structuring and Capital Raising webinar, part II integrates 2018 California cannabis regulations. With our webinar, you will learn about the process to start a legal cannabis business in California with attorneys Kim Arnone and Daniel Dellafosse — from compliance to capital raising.
On January 4, 2018, U.S. Attorney General Jeff Sessions issued a memorandum rescinding the Cole Memorandum and Department of Justice memoranda articulating nationwide guidance for marijuana enforcement. The Cole Memo provided a path for states to have a thriving legal and regulated cannabis industry because it articulated a hands-off approach to enforcement in states with robust medicinal cannabis laws and regulations. Lawmakers from both sides of the aisle have rejected Sessions’ action as a reversion to the failed war on drugs policies that led to mass incarceration of primarily people of color. Sessions’ memo shifted enforcement to individual U.S. attorneys who will decide whether or not to prosecute cannabis businesses, which is likely to result in uncertainty and a patchwork of prosecution priorities between states.
States with legal cannabis businesses may continue to operate within their regulated scheme despite Sessions’ memo. First, the Cole Memo and Sessions’ memo are not law. Both memos provide guidance to the Department of Justice on its enforcement policy but never remove the threat of prosecution. Second, the Cole Memo directed its stance to states with legal medicinal cannabis. The DOJ’s stance on recreational adult use remained the same despite the Cole Memo. Finally, protection for the cannabis industry remains with the Rohrabacher-Blumenauer amendment that prohibits the DOJ from using federal funds to crack down on states with legal medicinal use. The amendment, however, does not provide any protection for recreational adult use. Also, the amendment is a spending provision that congress renews annually. Currently, it is up for renewal and does not expire until January 19, 2018.
What does this mean for California? Lori Ajax, the Chief of the Bureau of Cannabis Control who is in charge of regulating the cannabis industry in California, issued a statement that the state will continue to move forward with the implementation of the regulatory scheme. The statement is a positive sign for the California cannabis industry. Backing by the state regulators reinforces the cannabis industry, which is poised to add billions of dollars to the state economy while creating thousands of jobs. The main concern is how U.S. attorneys in California’s four districts respond to Sessions’ memo. The U.S. Attorney for the Northern District of California, Brian Stretch, recently retired and Alex G. Tse was named as the interim U.S. attorney for the Northern District. It is unclear how he or any of California’s U.S. attorneys will respond. California’s U.S. attorneys could follow the footsteps of Robert Troyer, U.S. Attorney for the District of Colorado, whose response to Sessions’ memo stated that he does not expect enforcement to change for the state. This is a good sign because California’s U.S. attorneys, should they decide not to enforce, would not stand alone. Colorado’s successful implementation of a regulated scheme and decision not to enforce cannabis is a model for the rest of the states, including California.
Sessions’ memo is not the end of the cannabis industry, but it does inject additional uncertainty. Beyond DOJ guidance, there are movements in state legislatures and even the U.S. congress to either legalize or reschedule cannabis (remove it as a Schedule I substance). The uncertainty and variance that might be seen from differing state enforcement as a result of Sessions’ memo may mobilize further action to solidify the place cannabis might hold nationally in what is becoming a thriving industry that is accepting safety regulations and generating significant taxes.