BREAKING NEWS: Bye, Bye Cole Memo, Hello Uncertainty for Marijuana

Jeff Sessions Hates Cannabis
Jeff Sessions Hates Cannabis

It’s finally happening — Attorney General Jeff Sessions will, today, rescind the 2013 Cole Memo regarding federal enforcement in states that legalized cannabis. The Cole Memo, which came on the heels of marijuana legalization in Colorado and Washington back in 2012, set forth the Obama administration’s enforcement policies regarding state-legal marijuana. It set out eight main enforcement directives that essentially allowed states to move forward with legalization so long as they had “robust” regulations to control undesirable side effects. In turn, cannabis operators who consistently complied with hardcore state marijuana regulations basically saw themselves as off-limits to the Feds because of the Cole Memo. Nonetheless, the Cole Memo did not legalize or decriminalize marijuana and marijuana remains federally illegal today.

With this imminent shift in enforcement policies from the Department of Justice (DOJ), the question now becomes what will future DOJ enforcement look like?

Where the Cole Memo basically relinquished marijuana enforcement to the states under certain conditions, rescission of the Cole Memo likely will mean that federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. This means that a U.S. Attorney’s views on cannabis in a state where cannabis is legal will be critically important. It, therefore, behooves you — now more than ever — to familiarize yourself with the stances your particular U.S. Attorney has regarding cannabis. Though we do not foresee a return to high-level and consistent federal enforcement against cannabis — the DOJ lacks money and manpower to prosecute everyone — individual prosecutors will likely soon have sufficient means to target certain operators that get on their radar. Most U.S. Attorneys though (especially in the leading cannabis legal states) will see going after cannabis as political suicide and view themselves as having bigger fish to fry.

There will, however, likely be a ripple effect from this news. Namely, current access to banking, any tax reform progress, and investment are going to feel the chill of uncertainty and the threat of federal enforcement. Banks are only banking the cannabis industry because of a set of FinCEN guidelines from 2014 (and another DOJ memo on marijuana banking) that hinged on the Cole Memo. Banks are incredibly conservative and taking down the Cole Memo will almost certainly lead some banks to stop providing banking services to cannabis businesses. Institutional investors do not like this kind of uncertainty and we fear this will lead to a slowdown in cannabis investments, at least until we see how U.S. prosecutors handle the new enforcement protocol.

And what about the Rohrabacher-Blumenauer amendment (“Amendment”)? It’s still in play as valid federal law until January 19th, when it comes up for renewal. Be mindful though that the Amendment applies only to states with medical cannabis; it does not provide any protection to adult use marijuana operators. Plus, that Amendment has only served to protect medical cannabis operators in the 9th circuit based only on the McIntosh case.

Sessions’ move will increase confusion for both U.S. Attorneys and states, but I have been representing cannabis businesses in California and Washington for eight years now and I am confident that Western States like California, Colorado, Oregon, and Washington are not going to back down in the face of Jeff Sessions’ overzealous pursuit of his personal war on marijuana. Indeed, these (and other) states’ positions may ultimately speed up bonafide legal challenges that finally call into question in a real way the constitutionality of marijuana’s current scheduling and states’ rights to legalize and be left alone.

Stay tuned.

One response to “BREAKING NEWS: Bye, Bye Cole Memo, Hello Uncertainty for Marijuana”

  1. This really is a superficial attempt to change policy without the resources to do so.

    Traditionally, this is labeled the ‘fear of god’ pronouncement. The feds do not have the resources nor budget to pursue prosecutions other than interstate & internet sales, sales to minors and vertically integrated large volume operations.

    In short, this is an attempt by the AG to better align with the conservative base and Trump ( who views him as weak).

    The second factor which will minimize the impact of Sessions decision is the appointment of 17 interim USA’s.

    Remember each prosecution is led by a USA. of which 16 of the 17 are in a medical or recreational marijuana jurisdiction.

    Normally, a new USA takes months to review, prioritize and align threats with resources. The NY, NJ, Cal and other major jurisdictions will be hard pressed to make state regulated marijuana a serious priority, given the increased focus on terrorism. immigration and opioids.

    if I recall correctly, The President elevated the opioid crisis to a Public Health Emergency which devotes NO additional funding to enforcement or treatment. Without additional funding the Feds can do no more than what they are currently doing under Cole. Which translates into a small and highly targeted set of priorities. These will not impact the state licensed supply chain.

    Despite the change in macro-political drivers, the enforcement priorities will remain the same as existed under Cole.

    The net result will be a short term increase in the cost of capital for the sector, which will create an advantage for the well capitalized in terms of both possible acquisitions and gaining turf from the expected increase of 1st year failure rates from 70%

    Finally, one must incorporate the probability of Sessions and Trump staying in office given the continuing traction the Mueller investigation continues to grow.

    Therefore, as a retired VC and hedge fund manager ( I own no investments in the sector) as well as having served as an elected and appointed public official involved with Dug Control Policy, I view this as an opportunity to gain new exposure by scaling into or taking advantage of falling valuations to expand into selected sub-verticals.

    Mitchell E. Sahn

Leave a Reply

Your email address will not be published. Required fields are marked *