by Gretchen L. Jones, Shareholder and Chair, Business Law Practice Group at Eaton Peabody
While Maine has legalized marijuana for both medical and recreational use, the conflict between state legalization and federal criminal prohibition creates challenges for marijuana businesses and their vendors.
Under the federal Controlled Substances Act, 21 USC §§ 801 et seq., it is a federal criminal offense to manufacture, distribute or dispense marijuana. Therefore, a marijuana business operating legally within the state is nonetheless committing a federal crime.
Knowingly engaging in transactions which involve monetary proceeds derived from violations of the Controlled Substances Act is also a federal criminal offense. 18 USC §§ 1956; 1957. Therefore, a business that provides goods or services to a marijuana business, even if it is operating legally within the state, and knowingly accepts proceeds from the marijuana business in payment for those goods and services is likewise committing a federal crime.
In 2009, the U.S. Department of Justice issued the first of a series of Memos to prosecutors in states where the manufacture, distribution or dispensation of marijuana for medical reasons is legal. This Memo, called the “Ogden Memo”, states generally that while prosecution of “significant traffickers” of marijuana is a “core priority” of the Justice Department, pursuit of that priority “should not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” However, the Ogden Memo also specifically cautions that states cannot authorize violations of federal law and that state legalization is not a defense to a charge of a federal criminal violation.
In 2011, a second memo, called the “Cole Memo”, issued from the Justice Department clarifying that the Odgen Memo was not intended to provide a shield again prosecuting persons who are in the business of cultivating, distributing or selling marijuana, or those who facilitate such activities, even if those activities are legal under state law.
In 2013, a second Cole Memo issued which expands on prior Memos in response to states’ legalization of marijuana for recreational use. The Cole Memo II provides a list of 8 specific priorities of the Justice Department and advises that in jurisdictions with “strong and effective regulatory and enforcement systems . . . conduct in compliance with those laws and regulations are less likely to threaten the federal priorities,” suggesting that marijuana businesses whose activities are appropriately regulated under and comport with State law should not be the subject of federal criminal prosecution.
Finally, in 2014, a third Cole Memo issued which addresses marijuana-related financial crimes. This final Memo states in general that “it may not be appropriate” to prosecute persons who conduct financial transactions with marijuana businesses if those businesses are not in violation of State law or any of the Cole Memo II priorities.
Reading the Memos as a whole indicates that Justice Department 1) is not interested in prosecuting sick people or their caregivers (Ogden and Cole I); 2) wants and expects states which have legalized marijuana to take regulatory enforcement seriously (Cole II); and 3) is providing somewhat of a safe harbor for the transaction of business with marijuana businesses (Cole Memo III).
The challenges remain, however, because none of the Memos provide a defense to a federal criminal prosecution; they are merely guidance to prosecutors, and the Justice Department can amend or revoke them at any time.