Doing Business with Pot Businesses #1: Criminal Risks

This is the first in a series of posts directed at counsel for companies that are not directly involved in marijuana but have relationships with marijuana businesses. More and more companies that don’t have any interest in marijuana legalization are finding themselves forced to determine whether they should provide or deny services to marijuana businesses. The primary question third party vendors ask my firm’s cannabis business lawyers is: what is our legal exposure because we offer services to a marijuana cultivator/processor/retailer?

Marijuana and Criminal RisksLet’s start by looking at criminal issues for companies that provide general business services — internet service providers, IT contractors, general contractors, carpet cleaners, etc. If you provide your services to a marijuana company, are you breaking the law?

The first theory of liability to look at is accessory liability for violating the federal Controlled Substances Act. In general, anyone who aids, abets, or conspires to commit a crime is just as guilty as the principals of that crime. For now, we can cede that the companies cultivating or selling marijuana are, in fact, criminally liable for their acts. What we still have though is a pretty strong argument against third party service providers being found equally liable for aiding and abetting those criminal acts. Our savior is the mental state requirement. To find criminal liability, the federal aiding and abetting statute and interpreting case law require that an accomplice intend to facilitate the commission of a crime. Our third party service provider examples do not care in the slightest whether their customers sell marijuana or remain in the industry. They may know that their actions facilitate the selling of marijuana, but they do not necessarily intend for it to be so.

Sure, prosecutors could argue against this interpretation, but any cases they would try to make for aiding and abetting would have to resolve the intent question to the satisfaction of a judge and/or jury.

The federal money laundering statutes present some tougher questions to third party service providers. The two main money laundering statutes are 18 U.S.C. § 1956 and § 1957.

Section 1956 is the primary money laundering statute. It makes it a crime for anyone to conduct a financial transaction when they know that the money comes from specified illegal activity (including revenue from marijuana sales) and they either intend to promote the illegal activity, are helping to evade taxes, or know that the transaction is designed to conceal the source of funds. Our analysis of this one is actually very similar to the one above for aiding and abetting. Yes, third party vendors are engaging in financial transactions that they know involve proceeds from marijuana sales; that is how they get paid. Our hope for avoiding liability is again the idea that they don’t have the “intent to promote the carrying on of specified unlawful activity” as the statute puts it. Just knowing that the transaction will promote unlawful activity isn’t enough for criminal liability — the service provider has to specifically intend to promote the activity. Again, under our reading, the service providers don’t meet this strict standard.

They may, however, meet the more lax standards of 18 U.S.C. § 1957. Under that statute, it is a crime to engage in the same financial transactions Section 1956 criminalizes, but it removes the intent requirement and adds a requirement that the transaction be for greater than $10,000. Unpacking that, it looks like we are out of arguments when transactions exceed that amount. If you’re a general contractor and your services cost more than $10,000 and you accept the money from a business you know makes its money by selling marijuana, you are probably violating § 1957.

But what about for transactions below that threshold? The Ninth Circuit has gone so far as to call the statute “draconian” due to its removal of the intent prong. It has stated clearly, however, that the law only targets “large” transactions. If your bill is less than $10,000, you are in the clear under §1957. Even if you have multiple separate bills (a monthly service provider, for instance), you wouldn’t face liability if you are specifically structuring transactions to come in under the $10,000 threshold even though the total amount owed is at least that much.

In addition to potential federal law liability, there is always a slight chance that if cannabis is illegal in your state and you are providing services to a cannabis company in a state in which cannabis is legal, your own state will seek to prosecute you for violating its laws. This is extremely unlikely and we are not aware of such a case, but I suppose that anything is possible, particularly with some states vehemently opposed to legalization.

In the end, there’s a really strong chance that going through the criminal side of this for service providers is a mental exercise only. If the DOJ changes its enforcement model on marijuana crimes, there’s about a 99.99% chance that the first enforcement target will not be the guy who delivers water to the pot shop break room. Still, the fact that there are good defenses to a lot of these “crimes” should provide at least some peace of mind for those doing business with the industry.