Good Morning Vietnam! or something like that…
Unless you happen to live under a rock, were on a trip to Mars with Elon’s Tesla, or just don’t watch the news, or have a social media account, you know that yesterday morning, bright and early (especially for the left coasters), the big news of the day was not Michael Wolff’s book about the president.
The real news was the rescission (new word in my vocabulary!) of the Cole Memo, by our less than illustrious Attorney General, Jeff Sessions.
Session’s memo claims that Congress has determined that “marijuana is a dangerous drug and that marijuana activity is a serious crime.” Even though a significant majority in the country believes that all marijuana use should be legal, and nearly everyone believes that medical use is fine.
(We’re posting a screenshot of the memo’s verbiage at the end of this post if you want to scroll down and see it in full. We’re also posting his references from the bottom of the memo as well, in a separate screenshot.)
We’ve been reading the news, listening to the news, watching the news, and of course, being inundated by a flood of emails from companies in the industry, trade and lobbying organizations from within the industry, and from our clients asking us to clarify our position at the current moment.
A quick history primer
Let’s start by doing a quick review of Cole, FinCEN and the appropriations bill language (formerly Rohrabacher-Farr Amendment), since there’s always a ton of mistakes in the application of these documents and language.
Cole (the third version) laid out the ground rules for the DOJ’s handling of the cannabis industry, and the last one was written prior to any of the states introducing adult recreational use laws. It’s specific only to medical marijuana, and the Rohrabacher-Farr language also handles medical use, not recreational.
Currently the appropriations bill language that protects state compliant medical cannabis companies from prosecution will expire on Jan 19 – later this month – and the language it contains is due to the Senate preemptively including what had been part of the House bill in the past. House Rules Committee Chair, Pete Sessions (apparently no relation, although Pete’s father was the last FBI director fired before James Comey), refused to allow it out of committee so it never made it to the House version.
So what does it mean for cannabis companies?
The FinCEN guidance from the US Treasury department further clarified how Treasury would handle its’ portion of the industry – banking – with regards to the items on Cole’s list.
One of the primary tenets of FinCEN:
As part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one of the Cole Memo priorities or violates state law.
This poses an extremely fractious and very much open to interpretation situation for banks and credit unions, since without the Cole Memo, there is nothing that can yet be substituted as a basis for FinCEN rules. One could say that FinCEN exists solely because of the last Cole Memo, and there’s been nothing from Treasury so far that indicates what their position will be going forward.
It’s very likely that we’ll see a pull back from credit unions and banks at least as far as opening new accounts, for the time being.
Today, it appears that every cannabis business owner is vulnerable, and none more so than in California. The combining of medical and adult use regulations into MAUCRSA has created a situation where operators in locations like Los Angeles and San Francisco are particularly vulnerable; they are running without updated licensing, regardless of their status as medical or rec use companies.
The entire country is in an uproar, and business owners in states like Arizona, where I live – which are medical only and tending to the more conservative side of the scale – are taking the matter much more seriously than companies in California, Oregon, Washington or Colorado.
Is it really up to the prosecutors at the state level?
While many people make the claim that the memo language says that, we’re going to disagree slightly with that assessment. And not because we want people to worry, but because the language does not say that when you read the memo. Here’s another quote from the memo (emphasis mine):
These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General
I’m not so sure that this means what a lot of people think it means. In the same way that we dissected the language of Cole (all of them) and FinCEN in our pair of podcasts last year (listen directly to either episode from the links on this page), looking strictly at the language in the memo doesn’t indicate that Sessions is not going to direct prosecutions as priorities, given his history with the Devil’s Lettuce and his adamant stance towards resurrecting “The War on Drugs”.
What should happen next?
I’ll go out on a short limb here and say that we are about to see, well in advance of anything I expected, legislative action at the federal level that results in cannabis legalization.
This can go one of any number of ways, not all of them good for the status quo:
- Marijuana drops to a Schedule 2 on the CSA list. This would require prescriptions and pharmacies like Walgreens to fill them. It would require FDA approval of drugs, and even if there were a way to fast track a ton of studies, it’s still not going to do anything to help the current industry. This is a bad option.
- Marijuana stays at Schedule 1 on the list and there’s some workaround legislation to offer some protection to current and newly approved license holders. After all, the state of Vermont’s Senate passed an adult use law yesterday evening, even in light of the Cole rescission. This is an ok option, but not ideal.
- Lots of bills are introduced but nothing gets moving and we’re still in limbo, just like we are today. This is a bad option.
- Marijuana is de-scheduled – dropped off the CSA entirely. We still have a few issues with the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances to contend with, but hey, the current administration seems to want to thumb its’ nose at the UN for nearly any reason, so perhaps they’ll do it with this one. Especially in light of the fact that Canada is going to legalize this year. This is, obviously, the best option for the industry.
If marijuana is de-scheduled, how will this affect the current industry?
That’s hard to say. We can be sure, right now, that if there’s potentially a real chance of de-scheduling, that the drug companies are all over DC lobbying against it, or lobbying to have new restrictions put in place, that will give them a leg up over the current license holders.
There are many members of Congress who are making cannabis a strong part of their platforms – Cory Booker and Kirsten Gillibrand are the two most prominent supporters from states without adult use legalization, and of course, nearly every representative in the House and the Senate from states that have adult use are pro-cannabis.
Why do I think that de-scheduling is potentially on the table?
I’m not a conspiracy theorist, but I also do not believe in coincidence. And I find it hard to believe that the administration would go to these lengths to try and divert attention from a book release. In no particular order, the contributing factors:
- Democrats do not like Sessions. In the mostly blue states where this action will have the most impact, the loss of funding from state taxes is not going over well, nor is the risk to jobs and business owners.
- Freedom Caucus members including leadership Mark Meadows and Jim Jordan want Sessions to resign. Not because they care about cannabis, but because they want the Mueller investigation reigned in, and since Sessions recused himself, he can’t do anything about it.
- More Republicans, like Devin Nunes, head of the House Intelligence Committee that’s charged with investigating Russia, has decided to reassert himself (ethics violations investigation last year) and is now targeting the members of Mueller’s team as the target of the House investigation. Getting Sessions out of his office strengthens the committee’s chances of helping get rid of Mueller.
- Cannabis could very well turn into a bargaining chip for the administration IF Sessions is forced out or decides to go of his own volition. It’s highly unlikely, in my opinion, that Sessions held the rescission out of the December group without input from the White House, and also highly unlikely that he unilaterally decided to rescind it yesterday – that’s possible, heck anything is possible in this administration, but not likely.
- With Doug Jones’ swearing in to the Senate this week, the Republican majority takes another hit.
- McCain may or may not be healthy enough to head to DC any time soon, but he’s not resigning yet so he’s still a member of the Senate.
- Republicans are unlikely to have enough votes to confirm a new AG in the Senate, as long as we have cannabis laws in such a state of disarray. Colorado Republican Cory Gardner has threatened to hold up all DOJ nominations in the Senate indefinitely and that’s without thinking one of those nominees could be for the AG job.
- It’s pretty much impossible to imagine that ANY of the Republicans from states that have legalized cannabis will swing with any candidate that doesn’t promise to return to the status quo – however, Sessions’ actions this week clearly demonstrate that having the fate of state legal cannabis in one man’s hands is a terrible idea.
The TLDR version of those bullet points is easy. Republicans don’t have the votes to replace Sessions.
Bottom line here – if Sessions goes away, Trump can trade legal cannabis for a new AG and likely get Mueller off his back if they manage it quickly enough.
We will continue to post updates, musings and any new conspiracy theories we think could hold some water, and my suggestion to anyone in the industry that doesn’t belong to NCIA at the moment, get over there and join. Quarterly caucus meetings are starting next week and everyone needs to get up and get moving to protect the industry.
As promised, here’s the screenshot text of the Sessions memo –
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