Shelter from the Storm: Ninth Circuit Provides Shield for MMJ Businesses

Shelter from the Storm: Ninth Circuit Provides Shield for MMJ Businesses

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By David Fermino, Andrew Muir and Nicholas Costanza

Last month, the U.S. Court of Appeals for the Ninth Circuit in San Francisco issued an opinion in United States v. McIntosh that essentially eviscerates the power of the federal government to prosecute cannabis businesses that strictly comply with state medical marijuana laws, which is certainly good news for California medical marijuana businesses. For attorneys seeking to advise these businesses, the opinion should be read not only as a direct instruction to industry participants to obtain advice from competent counsel, but also as an approval for attorney representation with respect to medical marijuana business.


United States v. McIntosh

In McIntosh, the court addressed the consolidated appeals of medical marijuana dispensary owners from California and Washington who had been indicted for violating the Controlled Substances Act by operating their dispensaries in purported compliance with state law. The issue was a narrow one: “whether criminal defendants may avoid prosecution for various federal marijuana offenses on the basis of a congressional appropriations rider that prohibits the United States Department of Justice from spending funds to prevent states’ implementation of their own medical marijuana laws.”

The court held that the rider “prohibits DOJ from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by the State Medical Marijuana Laws and who fully complied with such laws.” The Court cautioned that federal prosecution of those “who do not strictly comply” with state medical marijuana laws is permissible, though. The difficulty in strictly complying with state medical marijuana laws was certainly implied as the court also stressed that these laws are “in flux” and “… changing as new statutes are enacted, new regulations are promulgated, and new administrative and judicial decisions interpret such statutes and regulations.”


Practical Limitations

While the McIntosh decision is a clear win for the cannabis industry, this apple is not without its worms. Individuals seeking to start businesses in this industry should be aware of the practical limitations of the decision that affect the likelihood of federal prosecution. Let’s review some of those limitations.
First, the DOJ “merely lost funds to continue” prosecuting those in compliance with state medical marijuana laws by way of section 542 of the Consolidated Appropriations Act, and the protection stemming from McIntosh could vanish if Congress decides to appropriate funds for prosecution of cannabis related violations of the CSA. Nonetheless, the security provided by McIntosh within the Ninth Circuit will remain viable so long as section 542 remains a part of future appropriation bills and the decision is not overturned by the Supreme Court.

Second, the Ninth Circuit’s interpretation of section 542 as a bar on federal prosecution applies only to compliance with state medical marijuana laws. This is significant to Washington, Oregon and Alaska, which have legalized adult non-medical use, as well as Arizona, California and Nevada, where adult non-medical initiatives will appear on the ballot this fall. The decision does not prohibit the DOJ from using federal funds to prosecute violations of the CSA in connection with a recreational marijuana business, regardless of compliance with state law.

Businesses in Washington, Oregon, and Alaska, should take note: compliance with state recreational marijuana laws does not bar prosecution. In Oregon, for example, an OLCC-licensed recreational marijuana retailer may face potential criminal exposure with respect to its recreational use business even though it is also a licensed, fully-compliant medical marijuana dispensary as well. Given the limited application of McIntosh to medical marijuana businesses and the discretion afforded to local federal prosecutors, the “guidelines” set forth in the DOJ’s Guidance Regarding Marijuana Enforcement may provide some direction to non-medical marijuana businesses operating under state law; however, these businesses are ultimately left waiting to see how the federal government will treat fully-compliant non-medical cannabis businesses.

Finally, the Court stated that section 542 does not bar prosecution of those “who do not strictly comply” with their state’s medical marijuana laws. Although the court acknowledged that state laws are continuously “changing” and “in flux,” it did not define, or set parameters for, “strict compliance.” For example, under California’s current medical marijuana laws, there is no explicit provision permitting the “delivery” or “transportation” of cannabis in excess of the qualified individual possession limit, i.e., eight ounces of dried marijuana and/or six mature, or 12 immature, marijuana plants. In the absence of a specific provision, the attorney general has provided guidance that collectives and cooperatives “may cultivate and transport marijuana in aggregate amounts tied to its membership numbers.” Thus, transportation could still violate local ordinances, especially in counties with bans or limitations on the delivery of medical marijuana, such that a transporter may not be in “strict compliance” with local law.

Recently enacted legislation in California aims to solve the ambiguities surrounding, among other issues, the transportation of medical marijuana by providing specific “transportation” and “distribution” licenses. However, obtaining these licenses will depend on the applicant’s existing licenses and the intended nature of the business. For instance, an entity with a “Type 1” license to cultivate medical marijuana may not obtain a license to “transport” it under the new licensing scheme, with anticipated implementation in 2018, and is urged to seek guidance from counsel to ensure that entities it contracts with for transportation purposes are properly licensed. Doing so only increases the likelihood of being “fully compliant” with California medical marijuana laws that continue to be in flux.


The Takeaway

In order to increase the likelihood of strict compliance with state law and at the same time minimize the likelihood of federal prosecution for violations of the CSA, cannabis businesses and entrepreneurs are encouraged to be up to date on their state’s medical marijuana laws and be sure to seek the advice of counsel when needed in order to take full advantage of the security provided by the McIntosh decision.


David Fermino, Andrew Muir and Nicholas Costanza are attorneys at Sideman and Bancroft LLP in San Francisco, California.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Guest Contributor designates a writer who is guest publishing content with MJINews.

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