In what could hardly be characterized as a surprise, on January 4, U.S. Attorney General Jeff Sessions issued a memorandum (the “Sessions Memo”) that rescinds the seminal cannabis “Cole Memo” of August 29, 2013 and other previous Department of Justice (DOJ) guidance involving cannabis. The implications of this rescission for the medical and recreational marijuana businesses that have been rapidly developing throughout the United States are uncertain.

The Cole Memo played a critical role in the development of marijuana businesses in the states that have approved marijuana production, manufacturing and sales in their states. The Cole Memo, issued during the Obama administration, directed the Department of Justice and the U.S. Attorneys’ offices to focus their prosecutorial authority for marijuana enforcement under federal law only in specific limited areas, such as sales to minors, interstate sales, criminal enterprises and drugged driving. The Cole Memo relied on “prosecutorial discretion,” indicating that “Main Justice” left it to the local U.S. Attorneys’ Offices as to whether to emphasize the prosecution of cannabis activity authorized under state laws.

While the Cole Memo effectively instructed U.S. Attorneys to limit cannabis prosecutions, federal laws remain on the books that make it a crime to possess, sell or manufacture marijuana, or to aid or abet others in doing so. (21 U.S.C. §841(a)(1) and 18 U.S.C. §2). Moreover, there are other federal statutes that can result in criminal or civil penalties for engaging or supporting cannabis manufacture, production or sales, including: 18 U.S.C. §371 (conspiracy to manufacture and distribute a schedule I controlled substance), 18 U.S.C. § 1962(d) (conspiracy to participate in a pattern of racketeering activity) and 21 U.S.C. § 881(a)(6) (civil asset forfeiture).

The Sessions Memo does not eliminate prosecutorial discretion. Instead, the Sessions Memo eliminates the Cole Memo’s enforcement priorities and states U.S. Attorneys “should follow the well-established principles that govern all federal prosecutions.”  The Sessions Memo notes that prosecutorial discretion involves weighing all the relevant factors, “including federal enforcement priorities set by the Attorney General.”  It is not clear whether Jeff Sessions considers marijuana an “enforcement priority.” The DOJ’s fiscal year 2018 budget request included a request for $403 million to target violent criminals trafficking drugs into the U.S. It also included a request for federal funds to “combat the prescription drug and opioid epidemic,” but did not specifically mention marijuana as a priority.

The Sessions Memo is consistent with other actions taken by the DOJ. On November 16, 2017, Attorney General Sessions issued a memo prohibiting improper guidance documents. The press release accompanying the memo stated, “The Attorney General’s Regulatory Reform Task Force, led by Associate Attorney General Brand, will conduct a review of existing Department documents and will recommend candidates for repeal or modification in light of this memo’s principles.”  Arguably, the Cole Memo was one of those existing DOJ documents.

Among the various DOJ guidance rescinded by the Sessions Memo is the February 14, 2014 DOJ memo regarding marijuana related financial crimes. The same day the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance to “clarify Bank Secrecy Act expectations for financial institutions seeking to provide services to marijuana-related businesses.” FinCEN issued its guidance in light of “related guidance by the [DOJ] concerning marijuana-related enforcement priorities.” It is unclear how FinCEN will respond to the Sessions Memo, but we should expect a decline in the number of financial institutions offering services to marijuana-related businesses.

While individual U.S. Attorneys will continue to have prosecutorial discretion in their federal districts to de-emphasize cannabis prosecutions, it is highly likely that in some locations U.S. Attorneys may now want to move forward in bringing criminal and civil actions against those engaged directly or indirectly in the marijuana business. Attorney General Sessions’ rescission of the Cole Memo removes an impediment to such actions and may be seen by U.S. Attorneys and federal prosecutors as an encouragement to actually encourage them.

At this time, it is difficult to predict how this will affect people directly involved in the manufacture, production and sale of marijuana and those — such as financial institutions or other service providers — that are providing important services to these businesses. While it is possible that some states, such as California, may try to go to court seeking relief, the Constitution’s Supremacy Clause (Art. VI, Paragraph 2) likely makes any such state activity futile.

In the meantime, a Congressional appropriations rider from 2014 prohibiting the DOJ from using funds to interfere with state laws legalizing medical marijuana remains in place, at least until January 19, 2018. The U.S. Court of Appeals for the Ninth Circuit ruled in 2016 that this rider prevented federal medical marijuana prosecutions unless the defendants were not strictly complying with state laws. In light of Attorney General Sessions’ actions today, it is unclear whether the appropriations rider will be renewed or, if it is, whether the DOJ will challenge the Ninth Circuit’s ruling that the rider prohibited federal medical marijuana prosecutions.

We will continue to update clients on these important developments, and encourage you to seek legal counsel to discuss the full implications of this action.

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Photo of Barry A. Abbott Barry A. Abbott

Barry Abbott represents established corporations and startups in all aspects of their corporate, financial services, internet, payments and e-commerce businesses. He is nationally recognized for his work advising clients on developing ground-breaking consumer financial services products.

Barry Abbott is a pioneer in e-commerce lending matters. National and international financial institutions look to him for counsel on major transactions. He also advises startups (including crowdfunding, peer-to-peer and gaming companies) on corporate and regulatory matters. Notably, Barry was:

  • Involved in developing the legal documents for the first equity line product (for Crocker Bank in the late 1970s)
  • Principally responsible for developing all legal documents for the first major reverse mortgage program (for Transamerica HomeFirst in the late 1980s)
  • Original legal counsel responsible for organizing the National Council of Real Estate Investment Fiduciaries (NCREIF)
  • General Counsel to the REX Group, which developed the first true home owner-occupied option investment product and marketplace
Photo of Justin E. Hobson Justin E. Hobson

Justin’s practice includes all aspects of business taxation. He has particular experience counseling clients on a variety of cross-border tax matters, including global restructuring, cross-border transactions, entity formation, tax treaties, accounting for income taxes, transfer pricing, import and export taxes, customs duties, and value-added taxes.

Photo of Justin A. Okun Justin A. Okun

Justin Okun is a member of Lane Powell’s Investigations, Compliance & White Collar practice team. He advises clients on compliance issues and guides individuals and companies through investigations that could lead to government enforcement actions and resulting litigation.

Justin joined Lane Powell from the U.S. Attorney’s Office in Los Angeles where he served as an Assistant U.S. Attorney in the Civil Division. Prior to that, he served as Director of the Coordination of Remedies Division within the Department of the Navy, managing the coordination of criminal, civil and administrative remedies against government contractors accused of fraud. Justin also served as a Trial Attorney at the Department of Justice in Washington, D.C., litigating cases across the country.