Is your cannabis business prepared for greater scrutiny from the feds in the post-Cole Memo era?

(This is an abridged version of a story that appears in the March issue of Marijuana Business Magazine.)

After Attorney General Jeff Sessions ripped up the Cole Memo and gave U.S. attorneys greater leeway to prosecute marijuana businesses, many industry executives and experts wondered whether the days of the federal government leaving legal cannabis alone were over.

Sessions’ decision, disclosed in a Jan. 4 memo, raised three questions:

  1. Would there be a return to 2010-2012? That’s when federal agents routinely raided marijuana dispensaries and grows in California and other states, making the cannabis industry a treacherous one to do business in.
  2. Should marijuana businesses be prepared to fight against federal intervention?
  3. Has the marijuana industry entered a new normal marked by heightened caution and worry?

The answers to those three questions are: no, yes and yes.

U.S. Attorney General Jeff Sessions

Many lawyers and others argue that the new Sessions Memo didn’t change much – that, according to current policy guidance, top U.S. attorneys have more or less the same legal leeway as they did when the Obama-era Cole Memo was in force.

Moreover, the attorney general’s decision didn’t change the fact that federal drug enforcers are already stretched thin by way of resources.

If the feds go after any marijuana companies, they will probably target those operating in the black market or licensed businesses breaking state cannabis laws – not licensed operators in good standing.

“For the most part, we are still dealing with the status quo,” said Darren Weiss, an attorney with Verano Brands, an infused product manufacturer in Maryland.

Still, unless Congress changes federal marijuana laws, cannabis business owners remain vulnerable to federal action.

Taking precautions that reduce – if not completely eliminate – risk and exposure makes practical business sense.

And while 2012-style raids seem unlikely, federal authorities could try less conspicuous methods of interference.

“The federal authorities know the public won’t stand for militaristic enforcement, but they could get away maybe with backdoor enforcement, things not necessarily in the public eye,” said Rachel Gillette, an attorney with Greenspoon Marder in Denver.

She pointed to the Financial Crimes Enforcement Network (FinCEN), a U.S. Treasury Department agency.

An Obama-era FinCEN memo effectively gives banks permission to serve marijuana customers, provided they can prove those businesses are complying with state laws.

“Maybe we’ll see the feds crack down on banks or businesses that can’t meet FinCEN requirements,” Gillette said.

She also noted that state-legal marijuana “is a heavily taxed and audited industry, so we might see more tax authority enforcement.”

Moreover, many of the practices that cannabis companies should be executing are things that smart businesses in any regulated market are already doing, not only because of compliance requirements but because they make for good business practices.

Experts said the most important of those is compliance.

“Your best defense against federal interference is to stay in strict compliance with your state law and local law,” Gillette said.

That means paying taxes, keeping thorough records and backing them up and making sure facilities meet safety standards, among other demands.

Click on the links below for more details on other measures your marijuana business can undertake to reduce exposure to federal interference:

Omar Sacirbey can be reached at [email protected]

6 comments on “Is your cannabis business prepared for greater scrutiny from the feds in the post-Cole Memo era?
  1. Joan Hogg on

    Just declassify it – for the betterment of mankind. Ignorance prevails – too many uninformed people with power making decisions without being educated. It seems the “dumbing down of America” is alive and well!

    Reply
  2. Rick on

    In my experience, retailers and/or dispensaries don’t react to stories like these, they believe that if the state or the fed isn’t sending them letters or knocking at their doors already, they’re completely safe and secure.

    My associates in the industry are hearing rumors that the fed is going after banks and credit unions, which should be especially troubling to MJ companies with multiple accounts set up under different names to handle their cash volume, which is illegal and violates federal KYC rules at the very least.

    The fed has limited funds so they’ll target the low hanging fruit first, all they have to do is follow the money through the banks and credit unions. Once that happens and violators start getting arrested, maybe that will shake retailers and dispensaries out of their complacency. They could use a good wake up call.

    And beware of lawyers, all they care about is getting ongoing billable hours from their clients. We run a FinCEN, AML, and Dodd-Frank based MJ compliance company and have witnessed lawyers telling clients not to do business with us. Why? Because we keep them legal and less dependent on their lawyers, so the legal profession sees us as competition.

    Sad state of affairs, really, but hopefully this all gets resolved when the fed legalizes it, once all 50 states are on board from the look of things.

    Reply
  3. Mark on

    Again COMPLIANCE is key to success and sustainability. There isnt an industry in which this isnt the case.
    When will it stop receiving lip service by and actually be priority of business owners, CEOs, directors, etc.
    Those not in compliance with state and local laws and standards and regulations of ALL applicable governing entities involved in with thier business SHOULD face consequence of non-compliance. They are attemepting to operate with short cuts or blatant illegal practices. Either are fatal to a business and certainly not what is needed as seen as “common” in this industry if we desire for it to survive and thrive

    Reply
  4. Janis Hall on

    Yes, compliance! Don’t forget the need to address the data breach and privacy rules that apply to all businesses. In this age of ransomware, all staff should be trained on privacy practices and PC safety. And, on a tangent here, but… set up an encrypted offsite backup. It can literally save your business in a number of crisis situations.

    Reply
  5. Scott on

    Hey Rick – As an attorney, I would tell my clients not to do business with a “compliance company” because nothing that my clients tell a “compliance company” is privileged. Any government entity is entitled to obtain any information a client provides to a “compliance company.” If a client does business with an actual attorney to ensure compliance with the law, no government entity can discover anything that was said to the attorney or obtain the documents provided to the lawyer.

    If a “compliance company” practices law without a license, that itself is a crime in most states. Maybe you should think twice before bashing other professionals.

    Reply

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