With Harborside lawsuit in rearview mirror, end of difficult chapter for MJ industry is near

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By John Schroyer

Steve and Andrew DeAngelo fought the law … and the brothers won.

The duo scored a major legal victory this week after the U.S. Department of Justice dropped its high-stakes legal case against their prominent dispensary, California-based Harborside Health Center.

The four-year battle threatened to close Harborside, one of the nation’s largest and oldest dispensaries, and potentially other medical marijuana businesses if a court ruled in the DOJ’s favor.

The case was at one point the biggest news in the marijuana industry, as it stoked fears that the federal government would use civil forfeiture laws to successfully shut down dispensaries across the country.

But Tuesday’s decision suggests cannabis businesses complying with state laws will probably be safe from federal prosecution for the foreseeable future, experts said. It also represents another nail in the coffin for government attempts to stifle the industry.

“It’s one more indication that we’re going to start seeing the federal government get into line and allow states to occupy this space,” said attorney Aaron Herzberg, a partner at CalCann Holdings, a California-based marijuana company.

A new era?

Herzberg and attorney Khurshid Khoja, a member of the California Cannabis Industry Association’s board, said the DOJ’s decision can’t be considered a formal legal precedent, because the agency simply dropped the case vs. a court making a legal ruling.

But they agreed it probably reinforces a larger policy shift that has been playing out in recent years: Marijuana businesses won’t face prosecution by the Justice Department and the Drug Enforcement Administration as long as they follow state and local laws.

“It was a de facto admission by the DOJ that they would not get anywhere pursuing this case or any case where they tried to go after a licensed dispensary that had been compliant with state law,” Henry Wykowski, Harborside’s attorney, said. “The federal government is just not getting anywhere with these cases.”

Harborside co-founder Steve DeAngelo went so far as to predict in a statement that “the dismissal signals the beginning of the end of federal prohibition” on cannabis.

The case began in 2012. Under former U.S. Attorney Melinda Haag, federal prosecutors filed suit against Harborside in an attempt to shutter the business.

They also served the dispensary and its landlord with civil forfeiture notices in a bid to pressure Harborside to close and seize the buildings that housed its dispensaries in Oakland and San Jose.

Over the years, federal prosecutors targeted more than 600 dispensaries across California using the asset forfeiture tactic and other strategies.

It sent shockwaves through the industry. Harborside, for its part, managed to keep its doors open. But others were forced to close.

The situation eventually began to change, however, as the federal government loosened its position on the marijuana industry and failed to gain traction in legal battles against cannabis businesses.

Haag also stepped down last September, prompting California dispensary owners to breathe a sigh of relief. In addition to going after Harborside and another major dispensary, Haag had helped close hundreds of MMJ businesses in California that she said were too close to parks, playgrounds and schools.

The climax

Wykowski, the Harborside attorney, said the case came to a head a few weeks ago, when the presiding judge asked both parties for a status update.

Wykowski met with the local U.S. attorney and told him that Harborside’s case was going to rest on the Rohrabacher-Farr Amendment, which Congress first approved in 2014 in a one-year budget bill and then renewed last year.

The measure prevents the U.S. government from spending federal dollars to crack down on MMJ businesses in state-regulated markets.

“I told (the DOJ) that it was going to be our position that under the Rohrabacher-Farr budget rider that they couldn’t spend any time pursuing this case anymore, because that’s not what the DOJ was supposed to use their funds for,” Wykowski said. “I think that the DOJ thought about that and realized … they would probably lose.”

About a week ago, in fact, the DOJ came back and offered to dismiss the entire forfeiture case if everyone involved, including multiple Harborside patients tied to the case, would agree not to file any further legal claims. It took until Monday to get all involved parties to sign, Wykowski said.

Wykowski added there’s one outstanding forfeiture case against a major dispensary in California that he knows of, Berkeley Patients Group. He represents that dispensary and is confident that case will be dismissed, too.

The DOJ did not respond to a request for comment from Marijuana Business Daily on Tuesday.

A little help from some friends

Additional factors also appeared to play a role in the Justice Department’s decision to abandon the case.

The two lawmakers who penned the Rohrabacher-Farr Amendment put pressure on the department, angry that it had interpreted the amendment differently and continued to spend federal dollars to pursue cases against state-legal dispensaries.

A spokesman for U.S. Rep. Sam Farr, a California Democrat, said Harborside’s Wykowski was correct in his interpretation of the amendment’s intent, and that the DOJ was not legally supposed to spend the money.

“The federal government is finally realizing that California does not want limited resources wasted attacking medical marijuana providers,” Farr said in a statement to Marijuana Business Daily. “This victory gives patients confidence that they will have continued access to their medicine, not just in Oakland but all over California.”

Herzberg, the attorney, predicted: “It’s the start of the federal government beginning to respect states’ laws in this area.”

But he acknowledged “there’s a long way to go,” including tax issues, the marijuana industry’s banking woes, and the fact that cannabis remains on the federal list of Schedule 1 controlled substances.

“Until those issues are addressed, we’re going to have tremendous problems,” Herzberg added.

John Schroyer can be reached at johns@mjbizdaily.com