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What’s Up in Weed

January 5, 2018

I am pleased to bring you this instalment of my blog, rounding up what’s currently happening in the cannabis industry in Canada and abroad.

In with the new year, and out with the Cole Memo!

Effective immediately, US Attorney General Jeff Sessions has rescinded the Cole Memo, the Obama-era Justice Department guidance which has protected state-legal cannabis programs from federal prosecution. Other guidance was also rescinded, including a supplementary memo which shielded financial institutions and individuals that offered services to state-compliant marijuana-related businesses. Although these memos were not law and did not make cannabis legal, they created a hands-off approach by the US federal government to marijuana and helped state cannabis regimes flourish.
Sessions’ new memo, released yesterday, directs federal prosecutors to follow “the well-established principles that govern all federal prosecutions” in deciding which marijuana activities to prosecute. These principles, Sessions explains, include “federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”
With this new announcement, US federal prosecutors are now free to more aggressively enforce marijuana laws and undermine the legalization movement, including by raiding pot businesses and suing states where the drug is legal. The move “rais[es] doubts about the viability and growth of the burgeoning commercial marijuana industry,” said the New York Times.
US Justice Department officials have refused to say whether they plan for federal prosecutors to carry out a crackdown on marijuana dispensaries, or whether they are merely looking to chill the cannabis industry’s explosive growth.
In Canada, the possibility of participating in the business opportunities represented by US cannabis regimes has helped buoy share prices of public cannabis companies (for example, cannabis stocks leapt after several marijuana ballot initiatives were approved in the November 2016 US federal election). Share prices of Aphria, which has US medical cannabis interests, and Canopy (which has no US investments) plummeted by double-digit percentages on Sessions’ announcement. MedReleaf shares dropped 9% of their value, even though the company issued a press release confirming that it has no involvement in the US cannabis industry.
Analysts polled by the Globe and Mail downplayed the effect of the policy change. “We have not seen any reports indicating Sessions will deploy additional resources for this initiative,” said Stefanie Miller of Height Securities. “Knowing that the effort will receive no additional funding, it’s hard for us to see how the Justice Department will be able to pursue new, broad-sweeping anti-marijuana actions.” Another analyst, however, pointed out that the policy shift “will further hamper efforts to increase the cannabis industry’s access to traditional banking products.”
In fact, some industry players even viewed the move as a positive. “This is likely to be good for leading Canadian companies in the sector,” said Cam Battley, an executive vice-president at Aurora. “It will continue to drive US investors to Canada. And we will not be bumping into US competitors” both in Canada and overseas, he added. But Aurora shares dropped 8% on the news, even though the company doesn’t have US investments.
In some ways, Sessions’ memo was the drop of the second shoe: uncertainty over the current US federal administration’s approach to cannabis has hung over the industry since the last election. While the President had previously indicated he was in favour of leaving cannabis decisions to the states, Sessions is a vocal cannabis opponent who has called the drug “only slightly less awful” than heroin, joked that he thought two Ku Klux Klansmen were “OK until I learned they smoked pot”, supported legislation that would have established a mandatory death sentence for anyone convicted of selling drugs (including cannabis) more than once, and told a meeting of US Senators that “good people don’t smoke marijuana.”
Last April, Sessions directed a Justice Department task force to review the Cole Memo and recommend possible changes; the task force came up with no new policy recommendations. However, in late November, Sessions indicated that the Cole Memo was on thin ice: “We’re working on that very hard right now. We had meetings yesterday and talked about it at some length,” he said at a November 29 press conference. In early December, Sessions held a closed-door meeting with anti-legalization activists. An agenda for the meeting appeared to include items such as “Marijuana is not a substitute for opiates as a pain medication”, “The harm from today’s marijuana,” and “The effect of marijuana on drugged driving.”
Nonetheless, it seems like Sessions caught the industry by surprise, even within his own political party. Colorado’s Republican senator, Cory Gardner, tweeted that “this reported action directly contradicts what Attorney General Sessions told me prior to his confirmation”, and declared he would “take all steps necessary”, including holding up Justice Department appointments, until Sessions honoured his commitments. Republican Senator Lisa Murkowski (R-Alaska) called Sessions’ decision “disruptive” and “regrettable”, while Republican Senator Rand Paul (R-Ky.) was quoted as saying “the federal government has better things to focus on.”
Democrats reacted with fury and sass. Oregon Democrat Rep. Earl Blumenauer, who was quoted just a few days ago saying “Part of me just thinks: Let ‘em try. There will be such a ferocious backlash,” responded to Session’s announcement with outrage: “Going against the majority of Americans – including a majority of Republican voters – who want the federal government to stay out of the way is perhaps one of the stupidest decisions the attorney general has made.”
Rep. Ted Lieu (D-Calif.) tweeted “Dear Attorney General Jeff Sessions and @TheJusticeDept: Let me give you a list of things more important for federal prosecutors and federal law enforcement to pursue other than marijuana: 1. Basically anything.”
In a prescient Reddit conversation, Rep. Jared Polis, a Colorado Democrat, vowed just a few days ago to “push back on any federal effort to interfere with our laws and not share information if it’s not related to a criminal investigation under our own law or ordered by a court. So long as we don’t cooperate it would be hard, almost impossible, for there to be a major federal-only enforcement action.”
But it could be that Sessions’ new guidance doesn’t change much, at least in Colorado. The Colorado U.S. Attorney issued a statement which confirmed that its office “has already been guided by [Sessions’] principles in marijuana prosecutions – focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state. We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”
In the US cannabis industry itself, which is currently valued at about $6 billion and projected to grow to $8.8 billion by the end of the year, feelings seem to vacillate from confidence to vulnerability. “They are not going to put this industry back in the bottle,” said Chris Walsh, editor of MJBizDaily, to the New York Times. Walsh estimates that there are about 4,500 medical and recreational shops across the country.
But the National Cannabis Industry Association sent out an email blast calling Sessions’ announcement “disturbing news” and calling on its members to amplify the message that regulated cannabis “is successfully undercutting the criminal market, while funding important state programs.”
Critics of legalized cannabis, on the other hand, praised the move. “I do expect to see the larger investors and businesses targeted,” said Kevin Sabet, a prominent American cannabis critic. “It puts the industry on notice in these states who thought they had cover from the states and the feds. All these people are going to wake up today with a bit of a heartache because they thought were scot-free, when in reality, they’re not.”

What’s Up in Weed is not legal or financial advice. It is a blog by SkyLaw which is made available for informational purposes only and should not be used as a substitute for professional advice from a lawyer. This blog is subject to copyright and may not be reproduced without our permission.

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This blog post is not legal or financial advice. It is a blog which is made available by SkyLaw for informational purposes and should not be used as a substitute for professional advice from a lawyer.

This blog is subject to copyright and may not be reproduced without our permission. If you have any questions or would like further information, please contact us. We would be delighted to speak with you.