Green Conflict — Marijuana Businesses and the Law, Part 1

Cannabis_sativa_001Green Conflict — Marijuana Businesses and the Law, Part 1

In life, and fiction, the growing (ha ha) business of marijuana is complicated—and so are the legal issues. I recently attended a CLE (continuing legal ed) seminar on Marijuana Business Legal Considerations. In this two-part post, I’m summarizing some of the key issues and suggesting a few areas with story potential. (As with all my posts, all comments here are intended solely to alert fiction writers to issues that may give them story ideas or suggest where further research is needed; for advice in real life situations, consult a lawyer admitted in your state.)

The status of the law: Basically, the field is an evolving, squishy, mish-mash of a mess—which makes writing about it both tricky and intriguing. Short version: Because Congress has not legislated the issue, the federal response to the increasing acceptance and state-legality of both medical and recreatiional marijuana is primarily regulation by policy. The federal government still views marijuana use and possession as illegal, but will not enforce anti-drug laws where the states have adequate regulation and enforcement. That, of course, varies tremendously. Currently, twenty-three states and the District of Columbia have legalized some form of medical marijuana. Four have legalized recreational use, which has created new regulation structures. (Even within a state, the medical and recreational regulations may vary widely, as in Colorado, where, for ex., some communities chose not to allow recreational licensing.) The federal priorities—set out in the 2013 Cole memorandum—include keeping the pot and associated money away from kids, the black market (including organized crime and criminal gangs), and other states, and preventing violence, drugged driving and public health problems, and grow operations on public lands.

Will that change with a new attorney general? Maybe, maybe not. The current nominee, Loretta Lynch, chaired the advisory committee when the 2013 “Cole memorandum” stating current policies was issued, but that’s no guarantee that she agrees with all its provisions.

Enforcement and its impact: Common enforcement avenues include raids and arrests, letters to landlords, enforcement partnerships with municipal authorities, and seizure/civil asset forfeiture procedures. Lots of story potential here. During a brief period in Montana, when medical marijuana looked more like the Wild West than the Race for a Cure, green entrepreneurs seemed to be setting up business on every corner. Few state laws reined them in. The feds stepped in—to the astonishment of some and the relief of others—with raids and arrests that created some genuine confusion. Most of the shops disappeared as quickly as they sprouted, and the state legislature and courts continue to struggle to develop a system that carries out the intent of the voters when we approved medical marijuana years ago but doesn’t allow every ex-jock with a bum knee a medical pot card.

Consider a character who owns rental property—commercial or residential—and gets a letter warning of potential legal action, including loss of the property, for knowingly renting to tenants engaged in illegal activity. What if a couple owns the property jointly—and one knows of the tenant’s illegal activity, but the other doesn’t? What about a couple who owns their own home and forfeiture raises its head—can an innocent spouse prevent a forfeiture, or lose her home and major asset? In the seminar, the Colorado attorney speaker said no rental properties have been seized; one of the Washington lawyer speakers said three property owners there have lost buildings to asset forfeiture, but each was involved in the illegal business. But in all states, the risk creates fear for landlords and lenders. How will those fears and risks affect your characters?

Other issues: Can a medical marijuana cardholder legally own a gun? Yes. Can he legally buy a gun? No. According to the speakers, the dealers eventually sought policy clarification; what’s evolved is a version of “don’t ask, don’t tell.”

What’s the effect of marijuana usage on other government benefits, such as housing assistance? One speaker told of a client who lost her federal Section 8 housing voucher because she had a medical marijuana card; she got it back, but the situation points out that the various state and federal housing assistance agencies have had to work out their approach and establish policies as well. Obviously, the problem of access by kids comes up here, and the evolution of recreational access complicates things even further.

If you’re writing a story set on or near an Indian reservation, look at tribal control. The basic federal policy applies there as well, but of course, tribes are sovereign states. So far, the federal government seems to be allowing tribal regulation consistent with the regulations in the state where the tribe is located.

In the states, medical and recreational use are regulated differently. Colorado seems to have the most evolved systems, although they differ. For example, recreational marijuana undergoes testing and tracking not currently required of medical marijuana. Colorado initially required “vertical integration” or “seed to sale” control within one business, but that’s already changing, in part because of the expansion into recreational use, and because that model forced growers and sellers to merge or form partnerships that did not always work out. Caps on amounts a user can purchase may change.

Follow the money—or the water. Is the local water board okay with a cultivation facility locating there? What about state health department regulations, including sanitary standards? Are water and other waste products being properly disposed of? Beware the sanitation inspector with a citation pad and a grudge.

Banking issues are potentially huge. Some banks have feared making loans to marijuana businesses and even feared holding deposit accounts, because of the risks of being held criminally liable for aiding and abetting criminal activity. But in the modern world, no business can function without a bank account—some mandatory government payments, such as payroll taxes, can’t be made in cash. There are now federal guidelines—again, not laws—addressing money laundering that may come into play. A banker character may allow you to introduce all kinds of personal and legal conflicts.

Maybe the banking regulations—or the fear of running afoul of them—mean your character can’t get a loan, whether to finance a marijuana greenhouse or to expand a plant building grow lights commonly used in the pot industry. Does that make him vulnerable to predatory lending? (Usury rates typically don’t apply in commercial context.) What about an unsavory venture capitalist? (Colorado has strict requirements that licensees and investors in fact live in the state.) Your story facts may create fertile ground for that organized crime element that the federal policy wants to prevent.

Another big issue? Taxation. Colorado has an intricate taxation system; is your fictional pot business following, or flouting, the law? Remember Al Capone: The notorious criminal went to prison for tax evasion. “Trafficking” technically includes marijuana businesses, even if state-legal, so under IRS provision 280(e), those businesses could not take business deductions—meaning they were taxed on gross receipts. That was challenged; businesses can now deduct the cost of goods sold, though not other business deductions. Easier for wholesalers and growers than for retailers, who can only deduct their wholesale costs and not the costs of rent, equipment, advertising, and the like. There will be state tax issues as well—and the speakers made clear that Washington and Colorado take very different approaches. As one speaker, Jeffrey Gard of Colorado, said, legislators across the political spectrum agree that the marijuana industry should be taxed to the state’s benefit. So your fictional marijuana dealer will need a good accountant and a tax attorney.

A new federal wrinkle? After I wrote this but before it went up, I learned of a new provision in a congressional spending bill that would prohibit the Dept of Justice from spending money to prevent states from “implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” The New York Times reports that one California man, a medical marijuana seller, convicted under federal law has asked the Ninth Circuit to order DOJ to stop working on his case, arguing that spending any money on his case would violate the law. The Times says “But the Justice Department strongly disagrees, asserting that the amendment does not undercut its power to enforce federal drug law. It says that the amendment only bars federal agencies from interfering with state efforts to carry out medical marijuana laws, and that it does not preclude criminal prosecutions for violations of the Controlled Substances Act.”

Changes in state law: And then there’s this, passed so recently I haven’t read the article, let alone the bill, changing medical marijuana in Washington State.

Stay tuned.

We’ll wrap this up in two weeks.

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