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BLUNT LEGAL TALK: Is Jeff Sessions Going to Kill Cannabis?

Attorney and author David Feldman.

By David N. Feldman

Short answer: no. Before the longer answer, let me welcome you to the first installment of “Blunt Legal Talk,” my to-be-regular column for Honeysuckle. I’m thrilled and honored to have been asked! As a seasoned corporate lawyer, author and entrepreneur, I have been representing investors and entrepreneurs in the cannabis industry for five years. I also do quite a bit of speaking and writing on the subject (my blog is at www.bluntlegaltalk.com). In this column we hope to bring you plain English (and hopefully entertaining) perspective on the important legal issues the industry faces. From constitutional lawsuits to new states coming online to issues in employment and bankruptcy, there is no shortage of topics. So let’s begin!

As many know, in Barack Obama’s second term the famous Cole Memorandum was issued by his Justice Department. The missive, released in 2014 by then Deputy Attorney General James Cole, told the US Attorneys nationwide that there were to be eight principal priorities in the federal government’s enforcement effort in cannabis. These included things like preventing cannabis distribution to minors and the entrance of criminal enterprises, gangs and cartels. Most believed this meant essentially hands off folks who comply with state cannabis laws, even though the possession and sale of cannabis remains a federal crime.

This was quite a change for Pres. Obama, whose FBI spent over $300 million raiding state legal dispensaries in his first term. That was much more than Pres. George W. Bush before him spent in eight years! The Cole Memo, along with the Rohrabacher-Blumenauer amendment (more about this in a moment), led many, including my law firm, to reduce their fears of potentially being targeted by the feds for entering the industry.

The Rohrabacher-Blumenauer (formerly Rohrabacher-Farr) amendment has been attached to annual spending bills passed by Congress since 2014. The amendment prohibits the spending of federal enforcement dollars to interfere with the implementation of state medical cannabis laws. Federal appeals courts have ruled this includes not being allowed to go after individuals or businesses complying with state medical cannabis law. After one such renewal last year, Pres. Trump issued a strange statement which some construed as suggesting that while he signed the bill, he may reserve the right later to question its constitutionality. As of this writing the current amendment expires on September 30, 2018, after being renewed on March 23, despite Sessions’s objections.

All of this brings us back to our title! Other than the statement on Rohrabacher, our current President has not said much about legalization of cannabis. But during the campaign, on The O’Reilly Factor, Trump said he is “100%” in favor of medical marijuana. He has also suggested that recreational use should be decided by the states. Of course we know he is famous for changing his mind, and it is not clear what views he has currently on the subject. So let’s put him in the category of “probably not focused too much on the issue.”

Our Attorney General, however, Jefferson Beauregard Sessions III, is a very strong anti-cannabis advocate. In January Sen. Cory Booker (D-NJ) said he feels Sessions has an “obsession” with the issue. Booker has been sponsoring proposed legislation to remove the federal criminal penalties on cannabis. Sessions has said that cannabis is only “slightly less awful” than heroin. The other famous Sessions quote: “Good people don’t smoke marijuana.”

Since coming into office, AG Sessions has done more than talk. He has quietly pressured Senators on the Finance Committee not to renew the Rohrabacher-Blumenauer amendment (so far they have continued to do so despite his efforts). He seems to be somewhat behind the DEA’s total stall on approvals for new research grants which the Obama administration had promised to move forward. And his big move: rescinding the Cole Memo on January 4 of this year, just three days after the news was full of stories about the launch of California’s full adult use legalization.

In rescinding the Cole Memo, he issued a new memo telling local US Attorneys to treat cannabis prosecutions with the same priorities as they do any other potential case rather than deprioritizing them as per Cole. He could have urged them to start raiding legal dispensaries again, but instead he left things up to the local prosecutors. Thus far, the locals have either not spoken or have said nothing will change.

One exception: Massachusetts US Attorney Andrew E. Lelling. He issued a statement on January 8 indicating that no one is immune from prosecution, cannabis is illegal, and he will pursue what he wants on a case by case basis following Justice’s rules. Literally days before the Cole Memo rescission, many new interim US Attorneys were added as a deadline hit to do so. This is one reason we haven’t heard from many of them yet.

What is not as clear is what Sessions actually wants his prosecutors to do. Step things up? Scare people? There does not appear to be any evidence that he is quietly advising them in any way. Truthfully, Sessions has been rather distracted facing blistering public criticism from his boss, Trump, for having recused himself from the FBI’s Russia investigation. He did that, he says, because the campaign is under investigation and he was part of the campaign. Trump has said if he knew Sessions would recuse himself he never would have appointed him Attorney General. He privately mocks him, reportedly calling him Mr. Magoo (sorry young folks you’ll have to look that one up).

So it may be that Sessions feels he did one important thing by reversing Cole. Maybe, he thinks, this may slow down the rapid expansion of states legalizing. Maybe investors will be more nervous to finance cannabis businesses. Maybe fewer people will want to become growers or sellers, or act as lawyers or accountants. Despite the move, my large global law firm continues to represent folks in the industry, and others are entering, as are more and more of the accounting firms and other advisory businesses.

If his goal is to put a stop to legal cannabis by returning to the aggressive enforcement postures of prior presidents, he has not yet chosen to go Full Monty on us just yet. Why not? For one, as noted we are pretty sure this is not something Trump cares about. Second, Sessions knows the states are raking in huge sales taxes, many jobs are being created, and a dramatic shift in enforcement will likely lead to a huge backlash, a fight he may not be up for at the moment. Thus, incremental action. My government moles tell me the DEA, FBI and US Attorneys believe that nothing has changed from before the Sessions action enforcement-wise. In fact, in remarks to students on March 10 this year, he seemed to pull back a bit, making clear the DOJ won’t be pursuing “small” marijuana cases.

Another wrinkle in the Cole Memo rescission affects banks seeking to be interested in opening accounts for cannabis companies. The Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department had issued its own guidance for financial institutions seeking to assist cannabis companies. The 2014 release requires extensive due diligence and a filing of a “suspicious activity report” (SAR) with Treasury for each such customer they have. The type of SAR varies depending, among other things, on whether the institution has determined that the customer has complied with the Cole Memo. While the number of banks accepting cannabis customers has grown, the number remains very small and many growers and dispensaries are forced to transact almost entirely in cash.

Many wondered how Sessions’ rescission of the Cole Memo would impact the FinCEN guidelines. Ultimately, Treasury made clear that the guidance remains in force despite Sessions’ action. They also indicated that they are reviewing their guidelines for possible change. Last month, Treasury Secretary Mnuchin, who said Treasury was not consulted before Sessions took his action, seemed to take a positive tone. In Congressional testimony, he said, “I assure you we don’t want bags of cash.” On this one, stay tuned.

While Sessions may believe his action was relatively mild compared to what he could have done, it did indeed wake up quite a few. This was especially true in Congress, where the entire House and one-third of the Senate is up for reelection this year. Legislators from both sides of the aisle who hail from cannabis-legal states were up in arms over the Sessions action. Colorado’s Republican Sen. Cory Gardner said Sessions had “trampled on the will” of Colorado’s voters by rescinding Cole. He said he would block nominations of judges and others submitted by Sessions until he reverses himself and thus far has kept that promise.

Last year three bills to deschedule cannabis as a Schedule I drug under the Controlled Substances Act were introduced to the House. Each is a little different, but if the groundswell grows, presumably they would be combined and modified in some fashion. If Sessions’ actions garner Congress’ attention (especially knowing that 70% of Americans now favor legalization), the moment for federal legalization may be sooner than many thought. So no, Mr. Sessions is not going to stop legal cannabis.

David N. Feldman is an attorney specializing in small company finance and the author of several books including the award-winning Reverse Mergers: And Other Alternatives to Traditional IPOs and The Entrepreneur’s Growth Startup Handbook: 7 Secrets to Venture Funding, as well as co-author of PIPES: A Guide to Private Investments in Public Equity. A partner at Duane Morris LLP, he writes a column, “The Uncut Entrepreneur,” for Smart CEO magazine. His blog bluntlegaltalk.com has been recognized by LexisNexis as a Top 25 corporate law blog, and his videos appear on his YouTube channel The Entrepreneur’s Advocate. For more information, follow him on Facebook, Twitter, and LinkedIn.

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