California Adopts Emergency Cannabis Regulations
On January 4, 2018, Attorney General Jeff Sessions issued a memorandum to all U.S. Attorneys rescinding previous enforcement priorities of the Department of Justice related to marijuana, including guidance provided under the Ogden and Cole Memorandums. In the memorandum Sessions states that since Congress has prohibited the cultivation, distribution and possession of marijuana under the Controlled Substances Act, Congress has determined that marijuana is a dangerous drug and marijuana activity is a serious crime. As a result, Attorney General Sessions has determined that the previous enforcement priorities undermine the rule of law1 and are unnecessary. The memorandum calls on all U.S. Attorneys to follow the “Principles of Federal Prosecution” originally set forth in 1980, and as refined over time, in the U.S. Attorneys Manual.
The memorandum does not create or set any specific prosecutorial mandate, but it does eliminate the guidance from the Cole Memorandum. While the Cole Memorandum never legalized marijuana federally it did create enforcement priorities related to certain enumerated criminal activities related to marijuana. This guidance is what certain states relied on in developing regulations related to the production, distribution and use of medicinal and recreational marijuana.
The memorandum is certain, at least in the short term, to have a chilling effect on the red-hot cannabis industry. The memorandum creates uncertainty by providing federal prosecutors broad discretion in deciding whether or not to prosecute marijuana related activity as a violation of federal law. However, it should be noted that the memorandum does not set forth specific enforcement priorities with respect to existing marijuana businesses legally operating under state law.
The memorandum should also be of concern to publicly listed Canadian cannabis companies. In October 2017, the Canadian Securities Administrators (“CSA”) and the Toronto Stock Exchange (“TSX”) released staff notices with respect to such issuers. The CSA staff notice required enhanced public disclosure for Canadian public companies with U.S. cannabis related assets or operations. The TSX staff notice warned that Canadian issuers with U.S. cannabis assets or operations are operating in violation of U.S. federal law and are not in compliance with TSX listing requirements, and at the discretion of the TSX, could delist such issuers. At the time of the staff notices the Cole memorandum was in effect. However, now that the Ogden and Cole memorandums have been formally rescinded, Canadian issuers need to speak with counsel and take a serious look at their U.S. assets or operations to determine how best to manage the regulatory and compliance risks.
At Nauth LPC we are monitoring this development and would be pleased to discuss the cross-border implications with any issuer affected in order to develop a strategy for compliance.
Please contact Daniel D. Nauth at 416-477-6031 or at dnauth@nauth.com.
1. See the Press Release from the Department of Justice here.