Future of MJ + cannabis investing under Trump: Q&A with former DEA official Jodi Avergun

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By John Schroyer

If anyone has a good handle on how federal narcotics prosecutions work, it’s Jodi Avergun.

She spent 17 years as a federal prosecutor, many of those in Brooklyn, before being appointed chief of staff for the U.S. Drug Enforcement Administration, a post she held from early 2005 through 2006.

Now, as a partner in the Washington DC office of the law firm Cadwalader, Wickersham & Taft, one of her responsibilities is advising clients on whether to invest in the legal cannabis industry. And many of them are interested in doing so, she told Marijuana Business Daily.

While optimistic the industry won’t see any major interference from the Donald Trump administration – or the DEA under the guidance of the likely next attorney general, Jeff Sessions – Avergun’s also very careful when it comes to offering marijuana investment advice. She noted there are big risks, especially with adult-use marijuana.

Do you have any specific expectations about how Jeff Sessions or the new DOJ may approach the legal marijuana industry?

My expectation is not a lot is going to change.

(In) the vast majority of states that have legal medical marijuana, there’s enough popular support and public support for the notion of medical that I don’t think the DOJ is going to undo that.

I feel this most strongly of all: It cannot be a priority for the DOJ or the DEA.

The opioid crisis is going to occupy all of their time that is not spent on traditional big-criminal drug trafficking organizations. It’s just too much of a threat. It pervades everything. Because of that, we should not expect to see a turning back of marijuana policy.

What is the worst-case scenario for the legal marijuana industry? 

The federal government cannot undo state law. The threat comes from federal enforcement of the Controlled Substances Act, and that is very much a matter of resources.

Is it a safe investment? Is there zero threat to business? No, I can’t say that. But what I can say is the federal government has limited resources.

There’s an amendment (Rohrabacher-Farr) that prohibits the DOJ from using (federal money) to prosecute compliant MMJ businesses in states, which protects a lot of people involved in those businesses.

If that goes away and the Cole Memo is ripped up, then there’s nothing precluding the DOJ or individual U.S. attorneys from going forward (with prosecutions). But you still have far bigger drug issues to prosecute, and there are limited resources. It’s just a fact of life. It’s not something you can say to an investor, “Look, there’s zero risk here because of the limited resources of the federal government.” It’s small comfort, really.

But I would say I don’t expect to see change from where we were under the Obama administration to now, despite the personal views of Sen. Sessions, which I can understand why people were panicking.

It sounds like you don’t think marijuana companies that are in compliance with state law have anything to fear from the DEA or DOJ.

First of all, I’d put medical in there, because Rohrabacher-Farr only protects medical businesses. And do they have a lot to fear? Yes. They’re breaking federal law.

What is the likelihood that a prosecutor or DEA agent is going to exercise his or her discretion if they’re otherwise compliant with state law? I think that’s a low likelihood, that they’re going to use their small amount of time and money to say, “This is going to be our law enforcement priority.”

Do you think it’s a different story for recreational marijuana businesses?

It is, because it’s not protected by (Rohrabacher-Farr). But I still think that even without that protection, every U.S. attorney’s office has (discretion not to prosecute).

I was a federal prosecutor for 17 years, and Brooklyn, where I was, was a very well-resourced office. But we were in a big city and there was tons of other crime. There was a lot of mafia and drugs and violence, and for us to prosecute marijuana cases you needed a threshold of 1,000 kilos to even touch the case.

And then it went to the state, if the feds couldn’t do it. And if it’s legal in the state, then there’s no law enforcement to prosecute those cases. Even in a small office, where I would imagine the resource constraints are worse than we had in Brooklyn, there’s not a lot of appetite or ability to do these cases in the face of far more serious drug problems.

Would you recommend to your clients that they hold off on investing in any recreational marijuana businesses until there’s more clarity from the Trump administration on how it intends to approach cannabis policy?

It would depend tremendously on the level of compliance by the business being invested in, but it’s a risk no matter what. To me, the bigger risk is the money-laundering risk. Those are easier cases to prove, and you don’t have the state-legal defense as much as you do in a direct marijuana business. And I’m not sure how Rohrabacher-Farr would apply to a money-laundering case, especially if the DOJ was not the investigating agency.

If it was FinCEN doing the investigation … I’m not sure how that would work. No one’s tested that.

But in looking at the industry from an investment standpoint, it sounds like you’d say it’s safer to invest in medical marijuana businesses as opposed to recreational.

I’d have to say that, and it’s even yet safer to invest in ancillary businesses. And even then, I don’t say that’s a safe investment.

There are tremendous risks, and you have to consider the level of compliance of that business, and to what extent those businesses are able to not bump up against the factors in the Cole Memo or the FinCEN memo, and that’s very hard to ascertain if you’re an investor.

This interview has been edited for length and clarity.

John Schroyer can be reached at johns@mjbizdaily.com