Cannabis Is A Federal Crime And Cannabis Businesses Should Not Forget This

Harborside Health CenterMelinda Haag, the US Attorney for the Northern District of California, recently moved to shut down Harborside Health Center in Oakland and San Jose, California by seeking to seize assets and property allegedly associated with controlled substances. Ms. Haag posted notices on both of Harborside’s offices announcing the civil forfeiture. Though this story has been widely reported in other outlets, there are a few legal points that are especially important to consider.

First of all, Harborside is not a fly-by-night business that was flouting California law. It is the largest marijuana retail business in California, serving over 100,000 cannabis patients per year. Harborside has worked closely with the city of Oakland and is a model of compliance with both city and state law. It has helped to set cannabis industry standards nationwide, being one of the first dispensaries to lab test its product. In addition, Harborside pays its taxes. In fact, it is the second largest retail taxpayer in Oakland, providing the city with over $1 million in annual revenue. Harborside has the support of the Oakland City council and the Oakland City attorney.

This attempt to shutter Harborside is important to the entire marijuana industry because it shows that federal prosecutors will use their discretion to expand the types of cannabis businesses they will act against. As recently as June 7, 2012, Attorney General Eric Holder testified before Congress that the Justice Department would focus its limited resources only on dispensaries that did not conform with state law or were located too close to schools. Over the past year, federal prosecutors have sent over 300 letters to dispensaries threatening criminal prosecution or asset forfeiture based on violations of state law or proximity to schools. Harborside, though, complied with all state laws and was not located within 1,000 feet of any schools.

The US Attorney seems now to be expanding its earlier list to include marijuana operations that are “too large.” In comments made soon after posting the forfeiture announcements, Haag said, “I now find the need to consider actions regarding marijuana superstores such as Harborside. The larger the operation, the greater the likelihood that there will be abuses of the state’s medical marijuana laws, and marijuana in the hands of individuals who do not have a demonstrated medical need.”

Haag’s comments have significant impact for cannabis businesses in California, Washington, and other states. First, these businesses need to be aware that they are subject to the shifting whims of federal prosecutors. US Attorneys are appointed to their positions by the President, subject to confirmation by the Senate. Because Senate confirmation makes them difficult to replace, active US Attorneys are somewhat shielded from criticism from higher-ups in the Justice Department. They are afforded significant discretion in how to deal with marijuana (medical or otherwise), which explains why federal enforcement varies from jurisdiction to jurisdiction. This means that cannabis businesses (and their cannabis lawyers) need to consider how the local US Attorney treats cannabis in addition to state and local law in deciding where to locate and how to operate their businesses. Though possessing and using cannabis is still a Federal crime, certain US Attorneys make marijuana enforcement a priority while others do not.

In practical terms, marijuana businesses will be safer going forward if they do not grow too large. At least for now. Though there are no concrete numbers for what that means, Harborside is the largest example, with annual revenue over $20 million. Even if there is no state law against producing cannabis revenues at that scale, such earnings do place a target firmly on cannabis businesses that achieve that sort of size.  The best advice for cannabis businesses is to act openly and honestly, to comply fully with state law and pay all taxes, and to avoid growing as large as Haborside. Until the federal government reschedules marijuana, it is likely that the Justice Department will continue to look for ways to slow cannabis expansion.