Marijuana Industry’s Latest Blow

Attorney General Jeff Sessions just threw a major wrench in the growth of the American legal marijuana industry. Before we explain how, here is some background. As states started legalizing recreational marijuana over the past few years, many banks and credit unions decided not to serve them for fear of facing criminal charges, such as money laundering given that the drug is still illegal on a federal level. In order to address this conundrum, former US Attorney General James Cole issued a memorandum to all US attorneys in 2013 that listed eight priorities for prosecutors and law enforcement to focus on as it pertained to state-legal marijuana operations.

The priorities included: “preventing the distribution of marijuana to minors; preventing revenue from the sales of marijuana from going to criminal enterprises; preventing the diversion of marijuana from states where it is legal under state law in some form to other states…” This memo gave greater clarity on how the federal government would treat states allowing medical or retail cannabis sales. The Obama Administration’s message: channel law enforcement resources and efforts towards activity that interferes with any of their eight priorities. Otherwise, the former Justice Department told federal prosecutors to de-prioritize marijuana-related prosecutions in states where selling cannabis is legal.

The current Attorney General Jeff Sessions just retracted this memo by issuing his own that stated, “Previous nationwide guidance specific to marijuana enforcement is unnecessary and rescinded effective immediately.” He sent his memo to all US Attorneys, which now allows federal prosecutors to choose how to enforce federal laws prohibiting the drug in states where it is legal.

The memo adds: “In deciding which marijuana activities to prosecute under these laws with the Department’s finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions.” This is not necessarily surprising given Sessions’ long standing negative views regarding the drug, but it is a huge step backwards from the legal marijuana industry’s progress achieved under the Obama Administration when the federal government was more lenient.

So what does this mean for anyone investing in and around this industry? It creates a lot of uncertainty about whether it is legal to buy, sell, grow or possess marijuana even in states that legalized said activity. Especially now, when the country’s largest state – California – started allowing dispensaries to sell retail cannabis this past Monday. Massachusetts and Maine will also likely begin recreational cannabis sales this year on top of states that already do, such as Colorado, Washington, Oregon, Nevada and Alaska. When addressing reporters, Justice Department officials did not indicate if federal prosecutors plan to increase marijuana-related prosecutions, such as going after dispensaries. So we will have to wait for more clarity on how this memo will affect the industry.

With that said, today’s news could easily spook banks and credit unions into severing ties with marijuana-related businesses who no longer have the assurance from the Cole memo, especially with such a newly hawkish Attorney General. A lack of banking is not only inconvenient, but presents safety concerns as businesses handling hordes of cash act as larger targets for theft and violence.

Sessions’ memo could also hurt investment in dispensaries and grow operations as some investors may feel it is now too risky. Whether federal prosecutors will go after large retailers or marijuana production facilities is also uncertain. These and other questions remain unanswered, but it does serve as a cautionary case study for how regulations can hinder new disruptive industries. We’ll keep you updated as the implications of this new guidance for the marijuana market plays out.

Here is a link to Jeff Sessions' memo, and another link to the Cole memo.