July 1, 2011

DOJ to Medical Pot Industry: Government Could Prosecute Dispensaries, Growers

Well, you asked for it, and now you got it. Unfortunately, it’s probably the worst news possible for the medical marijuana industry.

Yesterday, the Department of Justice issued a long-awaited clarification on the government’s stance toward medical marijuana in a letter to state attorneys. Brace yourselves, ’cause it ain’t pretty. The DOJ made its position very, very clear: Anyone involved in cultivating, selling or distributing marijuana for any purpose as well as those who knowingly facilitate these activities are “subject to federal enforcement action, including potential prosecution.” At the same time, they could be in “violation of federal money laundering statutes and other federal financial laws.”

This is not the type of clarification dispensaries and related businesses wanted. The most important part of the letter – which was penned by deputy attorney general James M. Cole – deals with the so-called “Ogden memo,” a government communique released in 2009 that essentially cleared the way for the medical pot industry. In the Ogden memo, the government said it would put a low priority on prosecuting people who buy and sell medical marijuana in states that have legalized the practice.

This is what the DOJ now has to say about that issue: “The Ogden Memorandum was never intended to shield such activities from federal enforcement action and prosecution, even where those activities purport to comply with state law.”

At the same time, the government reiterated its strong opposition to marijuana in general. “The Department of Justice is committed to the enforcement of the Controlled Substances Act in all States. Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large scale criminal enterprises, gangs, and cartels.”

Make no mistake: This is a serious blow to the industry, and it could drive a stake through the heart of medical marijuana efforts – particularly in states that have recently passed or are contemplating such laws (this is perhaps the death knell for Arizona’s fledgling industry).

It remains to be seen what will happen in the two biggest medical marijuana states: Colorado and California. From what I can tell, it seems that the government will take a lenient position toward tiny caregivers who are growing and providing a very small amount of marijuana for a patient or two. But the dispensaries and larger enterprises could come under fire.

You can search for ambiguities in the language contained in the letter. But to me this is a pretty clear statement that dissolves the thin film of protection that medical marijuana businesses have been hiding behind.

Will the federal government actually begin prosecuting medical marijuana dispensaries that are operating within state laws? Maybe, maybe not. Either way, this letter will most certainly have a chilling effect. If you think finding financing or a business bank account is hard now, wait until investors and financial institutions digest this news. The risk level for everyone involved just jumped significantly.

Now, the industry has wandered into the great unknown.

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