#45
1. WC: 572
State: Provided Tom complies with the various Colorado (CO) state regulations, he will not be
subject to state criminal prosecution. There are many sources of marijuana (MJ) regulations in
CO, including the state constitution, the CO Marijuana Code, Marijuana Tax Rules, and others.
Of course, he (and MediumCann) will need to be appropriately licensed by the state.
MediumCann must comply with regulations related to packaging requirements, product testing,
pesticide use, preventing underage use, and more. These regulations are enforced by CO
Department of Revenue’s Marijuana Enforcement Division. Medical and recreational MJ have
some differences in their regulations (must have a medical card for medical, lower age limit for
medical, etc.). To minimize these risks, Tom must ensure MediumCann strictly complies with all
licensing requirements and regulations imposed by the state. As far as expanding to other states,
Tom will need to carefully research those states’ laws to ensure they are in strict compliance.
Federal: Per the 1970 Controlled Substances Act (CSA), MJ remains a Schedule I substance.
The CSA is a federal statute enacted to regulate drugs deemed to pose a risk of abuse and
dependence and is enforced by the DEA. Its goals are to ensure patients have access to
pharmaceutical controlled substances for legitimate medical purposes AND to protect public
health from the dangers of controlled substances produced for the illicit market. Schedule I drugs
are categorized as having high potential for abuse, no currently accepted medical use, and a lack
of accepted safety for use of the substance under medical supervision. Also in this category are
drugs like heroin, LSD, and meth. Schedule I drugs are entirely banned, other than for use in
highly-regulated clinical trials. Despite MJ’s status under the CSA, many states have moved
towards legalization of MJ and the federal government has indicated in various ways it is treating
MJ differently than drugs like heroin, especially medical MJ. Since the Obama administration,
federal memos have been disseminated that are notoriously vague and confusing. Although the
first memo, the Ogden Memo (2009) was seen as a “green light” for the MJ industry, subsequent
memos have since walked that message back. Under Trump, the Sessions Memo emphasized the
federal government’s power to prosecute marijuana actors even in compliance with state law.
Although Biden has not issued a memo repealing the Sessions Memo, his administration’s
conduct has indicated a lack of interest in prosecuting MJ consumers/businesses in compliance
with state laws. Therefore, Tom, MediumCann, its consumers, and presumably anyone connected
with the business are technically liable to be federally prosecuted (under regulatory and/or
trafficking provisions) for their recreational MJ business any time, but the current
administration’s conduct has indicated this is unlikely. To minimize risk, Tom can ensure he
follows CO regulations to not draw attention to his business or go to court, opening the door to
potentially move the case to federal court.
There are greater protections for medical MJ. In 2015, Congress enacted the Spending Rider
(SR), providing no federal funds may be used to interfere with a state’s medical MJ laws.
McIntosh provided some clarification, holding the rider only offers protections for those in strict
compliance with their state’s medical MJ regulations. Pisarski also held federal funds CAN be
expended to discover whether the individuals/business were in strict compliance with state laws.
In conclusion, Tom and MediumCann will not be federally prosecuted for their medical MJ
business if they are in strict compliance with CO’s laws.
#45
2. WC: 603
Largely due to federal illegality of MJ, there are many unique challenges to running a MJ
business related to banking, taxes, bankruptcy, and lawyer access. However, Green Earth
demonstrated it is not impossible for MJ businesses to get insurance and it seems courts are
willing to look to parties’ intent to insure marijuana, even when a policy might otherwise exclude
“contraband.”
Banking: Many banks and credit cards are entirely unwilling to offer services to those engaged
in MJ commerce due to concerns of money laundering prosecutions. MJ businesses therefore are
forced to operate with cash which presents obvious safety concerns. This also makes it nearly
impossible for MJ businesses to get loans, start-up funds, and other important services otherwise
available to businesses.
Taxes: Per federal tax rule 280E (applies to businesses selling schedule I/II drugs), MJ
businesses cannot deduct expenses (payroll, rent, utilities, etc.) before calculating taxable
income. Only the cost of goods sold, required by the Constitution, may be deducted. This leads
to oppressive burdens in which MJ businesses are often unable to keep up with taxes and may
owe more money than they even have. Importantly, the SR would not protect a medical MJ
business noncompliant with federal taxes because the rider only prevents the DOJ from
prosecuting but does not prevent the IRS from using funds to prosecute, as the IRS is in the
treasury.
Bankruptcy: Due to issues including taxes, many MJ businesses are struggling and may require
bankruptcy relief. Bankruptcy is historically available to all “honest, but unfortunate” individuals
and businesses. However, because MJ remains federally illegal, these businesses/individuals do
not have “clean hands.” Bankruptcy courts are courts of “equity” and having “unclean hands”
makes one unable to access relief. In other words, if you want justice, you have to have done
justice (because MJ is federally illegal, MJ actors are seen as NOT having “done justice”).
Lawyer Access: Some states/lawyers interpret the rules of professional conduct as banning them
from assisting businesses and individuals in engaging with the MJ industry. Specifically, MRPC
1.2(d) bans lawyers from counseling clients to engage or assisting clients to engage in any
criminal or fraudulent conduct. Lawyers are at an impasse because essentially all aspects of the
MJ industry are federally illegal, so any assistance is technically violating federal law. Lawyers
are not only worried about professional discipline but also being held criminally liable for aiding
and abetting or being found as accessories to crimes. However, in recent years, most state bars
have issued opinions indicating lawyers will NOT be disciplined for assisting clients in the MJ
industry. Many states, including CO, require lawyers explain to clients their conduct might
violate the CSA and expose them to federal prosecution.
Colorado: In addition to the aforementioned, the CO MJ industry is facing shrinking revenue
due to an over-saturation of the market (no state cap on amount of licenses or amount of MJ that
can be produced) combined with changes in growing policies that have made growing MJ much
cheaper. This has led to a race to the bottom with prices and CO businesses are struggling to keep
up.
#45
To ease complications: It is simply a difficult time to be in the MJ industry in CO. Making
smart business decisions, such as somehow differentiating oneself in the market and finding a
suitable location, can hopefully mitigate some market concerns. If bankruptcy is needed,
MediumCann could potentially seek a receivership instead (the voluntary transfer of a business’s
assets to a third party to apply the assets to debts owed to business’s creditors), though this
brings about other problems, such as those receivers needing appropriate licensure.
#45
3. WC: 298
Because MJ is legal for medical in 38 states and for recreational in 24 states, there is ongoing
discussion for the federal government to make changes that will reflect what is clearly the
increasing desire of the People.
One of the proposals getting the most attention is the Biden Administration’s proposal to
reclassify MJ under the CSA as a Schedule III drug, essentially legalizing its use with
regulations. The proposal cites MJ’s accepted medical uses, low potential for harm, and
relatively low risk of dependence. This will have various ramifications, some positive and some
not.
Benefits to rescheduling: This will impact the criminal code around MJ and result in less
prosecutions for MJ-related crimes. Residents of states where MJ is currently illegal will
theoretically have greater access to MJ for recreational/medical purposes. MJ will be more
available for clinical trials and its potential benefits can be further explored. 280E does not apply
to schedule III drugs and therefore the federal taxation system will be friendlier to MJ
businesses. Bankruptcy will probably also be more readily available to individuals and
businesses, as they will no longer be engaging in a federally illegal business. Lawyers will not
hesitate to assist businesses/individuals in complying with federal laws. It is likely banks/credit
cards will be more willing to lend services to MJ businesses, as they would no longer be
violating federal law.
Drawbacks of rescheduling: However, risks of rescheduling are also great. It is unlikely the
federal government will approve of the way people want to consume MJ, and federal regulations
might be more restrictive than most current state laws. This will also disrupt the current market
and might take years for the FDA to approve each product, resulting in a significant period of
time where MJ is not available to consumers.
#45
4. WC: 515
Hemp and its regulation is an important part of the larger MJ regulatory framework. The 2018
Farm Bill (FB) removed hemp-derived products from schedule I status under the CSA, though
enacted strict regulations. Per the FB, hemp is essentially defined as Cannabis Sativa L. (and its
parts and derivatives) with a delta-9 THC makeup of not more than 0.3%. States must submit
regulatory plans to the USDA for approval (or in states that do not opt to devise a hemp
regulatory program, USDA will construct a federal program states can comply with).
Additionally, growers must be licensed.
Interim rules offered more guidance. It clarified growers will not be prosecuted as having
committed a negligent violation if they produce a plant exceeding acceptable THC levels, as long
as growers used reasonable efforts to grow and it is below 0.5% THC. They also provided
guidance for how to dispose of “hot crops” (those above 0.3%) and which workers need
background checks.
Despite these strict regulations, a loophole remains. The FB requires delta-9 THC not exceed
0.3%. However, a nearly identical structure, delta-8 THC, is not a scheduled drug and not
regulated within the FB. It is federally legal (and relatively easy) to create delta-8 THC from
legal hemp/CBD and create highly potent, psychoactive substances to sell on the market, often in
competition with the MJ industry. A significant issue is this product is outside regulatory control,
meaning things like age limits, packaging requirements, product testing, etc. are not explicitly
required, unless states choose to require them. Conservative republicans and some MJ companies
have joined forces to advocate this loophole to be closed, though for obviously different reasons.
Tom has little reason for concern about hemp competition in CO, which has a clear definition of
THC that broadly applies to isomers other than delta-9. CO has made it clear they consider the
process of chemically modifying or converting naturally occurring cannabinoids from industrial
hemp to be noncompliant with the statutory definition of an “industrial hemp product.” As a
result, manufacturers are essentially banned from producing or selling delta-8 or other THC
isomers if they are converted from other cannabinoids.
Psychedelics have been used for thousands of years though were banned in the US as a schedule
I drug under the CSA. Recently, states are beginning to decriminalize psilocybin and have begun
to consider how to regulate it. In 2022, CO voted to decriminalize psilocybin. However,
commercial retail is not yet legal. Residents may grow and give away psilocybin and may charge
for therapeutic services that include psilocybin. Future direction for state regulation is relatively
murky and it is possible the CO legislature is “watching and waiting” to see how this first step
goes before providing for any legal retail. Currently, Tom does not need to worry about
competition with psychedelics, as there is no retail market. Additionally, psilocybin and MJ are
very different drugs and the public appetite is much greater for MJ. It will likely be a long time
until psilocybin is de-stigmatized to the same degree as MJ and before they will be in direct
competition.