Feds Attacking States’ Medical Marijuana Industries

Disputes between states’ versus federal powers predate the Constitution and continue today. In Arizona, the Justice Department has staked a high profile battle with state officials over immigration laws. The Environmental Protection Agency exists in a perpetual cycle of litigation over regulations states argue inhibit industrial and economic growth. Even the Controlled Substances Act has been challenged as an overextension of federal power on states’ rights to control their own police enforcement.

But just two years and three months ago, it appeared the worm had finally turned on the federal government’s destructive and costly campaign against state-sanctioned medical marijuana operations.

On October 19, 2009, Attorney General Eric Holder issued a statement that essentially laid the ground work for a new hands-off policy regarding states’ regulation of medical marijuana licensing and distribution. The new guidelines, authored by then-Deputy Attorney General David Ogden, directed federal prosecutors avoid wasting resources prosecuting individuals and businesses operating within states’ guidelines.

“It will not be a priority to use federal resources to prosecute patients with serious illnesses or their caregivers who are complying with state laws on medical marijuana,” said Holder. “This balanced policy formalizes a sensible approach that the Department has been following since January: effectively focus our resources on serious drug traffickers while taking into account state and local laws.”

The shift in federal policy sparked a boom in new businesses specializing in providing state-regulated medical marijuana to licensed patients. According to one study, last year the pot industry grossed $1.7 billion in taxable earnings, providing new jobs and a new source of revenue for state and local governments. Today, 16 states, plus Washington D.C., have enacted statutes legalizing marijuana to various degrees. The list includes western states Washington, Oregon, California, Nevada, New Mexico and Wyoming neighbors Montana and Colorado. Analysts predict as legitimate businesses continue to divert money and customers away from the black market, and more states enact pot-friendly legislation, medical marijuana industry earnings could reach upwards of $8.9 billion by 2016.

Business owners and patients who took the feds at their word, however, are learning that shifting federal policies should be taken with a grain of salt. Instead of focusing efforts on major drug-trafficking, federal agents have reversed course and are attacking state-legal marijuana distributors and growing operations through a variety of threats and tactics designed to shutter legitimate businesses’ operations.

The latest about-face in federal attitude came last summer, when Ogden’s replacement, James Cole, issued a memorandum that reneged on the promises contained in the landmark Ogden memo. Cole’s June 29, 2011 letter directed U.S. Attorneys; “persons who are in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law.

“State laws or local ordinances are not a defense to civil or criminal enforcement of federal law with respect to such conduct…. Those who engage in transactions involving the proceeds of such activity may also be in violation of federal money laundering statutes and other federal financial laws,” wrote Cole.

Entrepreneurs and small business owners who believed they were operating within state laws, and with the consent of the federal government, suddenly found themselves the target of federal prosecutors. To add to their struggle, owners of medical marijuana shops (commonly known as dispensaries) have increasingly found it difficult to find banks willing to do business with them. Spokespersons for the Drug Enforcement Agency (DEA) and Bank of America have confirmed that the feds have placed pressure on the banking industry to cease conducting business with medical marijuana small business owners.

State politicians have taken notice. Colorado legislators are considering a bill which would allow marijuana industry members to create a “financial cooperative.” The cooperatives would be designed to operate similar to credit unions while free from federal regulations.

Even worse for marijuana business owners, it appears the federal government is beginning to put teeth behind its threats.

In March of 2011, federal agents raided medical marijuana greenhouses and dispensaries operating in 13 cities throughout Montana. In October, U.S. Attorneys in California issued a series of threats to state-sanctioned marijuana businesses, including, “civil forfeiture lawsuits against property owners involved in drug trafficking, written warnings to landlords of storefronts illegally selling pot and criminal prosecution of other cannabis offenses.”

Then, just last week, John Walsh, U.S. Attorney for Colorado, sent out “cease and desist” orders to 23 Colorado dispensaries, ordering the businesses to shut down by February 27 or face federal prosecution.

Skeptics of the federal government debate the authenticity of the threats coming from the Justice Department. However, several of the small business owners, possessing finite resources to take on the federal government, say they are preparing to close for business.

“(Walsh)’s declaring war on state lawmakers who set up a highly regulated medical marijuana industry,” said Rob Corry, a Denver attorney who represents several dispensaries in an interview with the Denver Post. “There’s an entire state bureaucracy devoted to this, not to mention thousands of jobs and countless sick people.”

Business owners seeking protections under state laws, however, have little reason for assurance. So long as federal prosecutors see fit to shift their stance on enforcing federal laws which conflict with state regulations, the medical marijuana industry is reduced to operating in a legal purgatory.

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