Trump Admin Threatens Cannabis Industry: What You Need to Know

(Note that we use the term “marijuana” when discussing the impact of Sessions’ memo, because it addresses only the parts of the cannabis plant that fall within Controlled Substances Act’s definition of “marijuana”; industrial hemp grown in accordance with the 2014 Farm Bill and applicable state regulatory provisions may not be impacted.)

While the most obvious impact of the guidance rescission may relate to possible DOJ criminal prosecution, we thought it would be helpful to examine the potential broader implications and what this may mean for enforcement priorities across a variety of federal agencies. Given the rescission of the Cole Memo and related Obama-era guidance, it may become important for companies involved in marijuana operations to become more knowledgeable about various federal agency standards to continue their business operations.

Below are a few agency considerations such companies may want to keep in mind:

Medicinal v. Recreational: It is not immediately clear if or how the rescission of the Cole memo will impact state-compliant medical marijuana operations that have not been under direct federal enforcement scrutiny under the Rohrabacher-Blumenauer Amendment, which prohibits the DOJ from spending federal funds to prosecute state-compliant medical marijuana operations. Given the recent cases from the 9th Circuit, we expect DOJ to be reluctant to bring any enforcement actions against state-compliant medical marijuana businesses.

President Trump has indicated he does not believe that Congress can limit federal enforcement via budget restrictions, but for now the courts generally have been willing to go along with the Congressionally-imposed limitations. The Rohrabacher-Blumenauer Amendment was recently ratified on December 22, 2017 as part of the budget extension, and is valid until January 19, 2018, when it comes up for renewal in the budget showdown. For investors and business operations that include recreational marijuana products, the Cole Memo rescission may prove to be more problematic, especially for operations involving interstate commerce or larger-scale operations.

Banking: This is one area where companies involving marijuana products already faced significant difficulties. Attorney General Session’s actions will likely make it even more difficult for the industry to obtain banking services. The Obama-era DOJ not only issued the Cole Memo outlining principles to guide prosecution by US Attorneys of violations of the Controlled Substances Act, but it also established policies that appeared to be designed to provide possible ways banks could support businesses involving the production, processing, and sale of marijuana without violating federal or state laws. Attorney General Session’s memo also rescinded that guidance, and despite the Department of Treasury’s FinCEN memo remaining in place, the FinCEN guidance relied in part on the Cole Memo and its progeny for its foundation. It is not hard to imagine that Treasury may follow DOJ’s lead with respect to the FinCEN guidance. While some banks have already, and may continue to work with certain businesses that involve marijuana operations and comply with the FinCEN guidance and other applicable authorities, the rescission and lack of certainty might have a chilling effect on this area and continue to limit access.

US Department of Agriculture/Environmental Protection Agency: Given increased scrutiny of the integrity of organic products (for example, see our recent alert regarding media investigations into organic integrity), Attorney General Sessions’ memo could spur the USDA to consider more closely scrutinizing companies currently marketing their marijuana products as “organic.” The USDA could, for example, take the position that marijuana is a crop that cannot be certified as organically grown, and therefore marijuana products may not be lawfully marketed or labeled as “organic.” Rescission of the Cole Memo appears to be consistent with the approach taken by EPA, which oversees the use of pesticides and in June 2017, signaled an unwillingness to approve states’ special local needs registrations for use of pesticide products on cannabis. In a guidance issued under the previous Administration, EPA had appeared willing to grant such approvals in certain circumstances.

Federal Trade Commission: The FTC enforces a wide range of laws intended to prevent anticompetitive, deceptive, and unfair business practices. One area in which FTC enforcement could be increased would be deceptive, unfair, or unsubstantiated claims made regarding marijuana products. For example, the FTC could proactively seek to limit the improper use of testimonials and endorsements for marijuana products on company websites and social media platforms, and the use of health claims that are not supported by adequate scientific evidence. The FTC also enforces requirements related to product packaging, warranties, and pricing—all of which could be subject to greater scrutiny following the rescission of the Cole Memo.

Food and Drug Administration: FDA is one of the few federal regulatory agencies that has already been active in enforcing its laws against companies selling marijuana products. Under Sessions’ memo, we may begin to see the FDA take a more aggressive posture against companies marketing their marijuana products with health claims. To date, the FDA has focused enforcement against companies employing marketing tactics that target vulnerable populations or serious diseases (e.g., cancer) (see our recent alert on warning letters sent to CBD companies). These claims not only render advertising unlawful under FTC’s rules, but also make the products unlawful unapproved drugs under FDA law. It appears that, to date, FDA has not enforced its food rules against edible marijuana products. But in a new enforcement environment, the agency could begin looking to take action against edibles as adulterated and misbranded foods, because these such products contain an unapproved food additive (marijuana).

Homeland Security: Although it may not be a new position, the Department of Homeland Security (DHS) could take a more proactive role related to search and seizure, especially at airports and border checkpoints. Before being appointed as President Trump’s Chief of Staff, Retired General John Kelly, in his role as head of DHS, made his position clear with respect to marijuana noting, “When marijuana is found at aviation checkpoints and baggage screening Transportation Security Administration personnel will also take appropriate action. Finally, Immigration and Customs Enforcement will continue to use marijuana possession, distribution and convictions as essential elements as they build their deportation / removal apprehension packages for targeted operations against illegal aliens. They have done this in the past, are doing it today, and will do it in the future.”

Labor and Employment: The guidance rescission may provide more confidence to employers who continue to enforce drug-free workplace policies against employees in states where marijuana is legal, because the federal laws that make marijuana unlawful may be more stringently enforced.

Unlike President Trump, who during his campaign for president said “…in terms of [medical] marijuana and legalization, I think that should be a state issue, state-by-state,” Attorney General Sessions has always been a vocal opponent of all uses of marijuana and an ardent supporter of prohibition. Despite the President’s campaign rhetoric, this guidance rescission should not come as a surprise, and given the potential impact on operations involving the production, processing, and sale of marijuana throughout the country, businesses should be sure to understand how this shift could impact their operations and what enforcement actions might be on the horizon.

Despite Attorney General Sessions’ recent memo, it would be prudent for companies working in this space to continue to adhere to the principles set forth in the Cole Memo. The enforcement priorities outlined therein—such as prohibiting use by minors and distribution across state lines—are likely to continue to serve as a guide for US Attorneys as they exercise prosecutorial discretion in bringing cases. Further, companies would also be well served by familiarizing themselves and coming into compliance with requirements of other federal regulators, e.g., by ensuring advertisements conform to FTC Trade Practice Rules and reviewing (and revising, as necessary) all marketing and labeling for compliance with FDA food, drug, cosmetic, and dietary supplement requirements.

Arent Fox’s Cannabis group will continue to monitor developments in this area. If you have any questions, please contact James Ravitz, Emily Leongini, John Malone, or the Arent Fox professional who usually handles your matters.