Federal and State Marijuana Laws and Your Pot Business

As a growing number of states have authorized businesses to produce and distribute medical marijuana, or have even gone so far as to legalize the drug's recreational use within the state, entrepreneurs have eagerly established businesses that produce, process, or distribute marijuana products. The federal government, however, continues to view marijuana as an illegal drug with no medicinal use.

The conflict between these views puts marijuana business owners in a tricky situation. This article discusses the risks marijuana businesses face, the caselaw and statements indicating the federal government's position, and how some businesses seek to shield themselves from exposure to liability for federal crimes while still conducting business within their state.

Still Prohibited Under Federal Law

In a climate of increasingly liberal attitudes toward marijuana, as reflected in state marijuana laws, federal marijuana laws remain strict. The Controlled Substances Act (CSA) establishes a system for the classification of controlled substances, dividing substances into groups depending on their potential for abuse, potential for harm to users, and potential use in medical treatments. Marijuana is classified as a Schedule I drug, meaning that the federal government views marijuana as having a high potential for abuse and no acceptable medical uses. Other Schedule I drugs include heroin and methamphetamines.

Because of the federal view of the drug, doctors do not write a prescription for marijuana, which might subject them to liability, but rather provide a "recommendation." Cultivators and distributors of marijuana are unable to insulate themselves from liability, since they are in direct contact with a product that is contraband under federal law.

Convicted Despite State Law Compliance

The Drug Enforcement Agency (DEA) is responsible for enforcing federal marijuana laws. Since states began to legalize medical and recreational marijuana, there have been significant changes in the DEA's position regarding marijuana businesses that comply with state laws. Initially they brought many federal enforcement actions against medical marijuana cultivators and distributors. The Supreme Court's decision in Gonzales v. Raich firmly established that even businesses that were fully compliant with state regulations risk conviction for federal offenses. Now, the DEA says that while it has the ability to prosecute these businesses it will choose not to do so.

Changing Enforcement Policy

A desire to avoid infringing upon states rights, recognition of changing public attitudes toward marijuana, and the unpopularity of prosecutions involving sick and elderly users and their caregivers have resulted in the federal government doing some backpedalling away from strict enforcement. A policy decision by the U.S. Department of Justice was announced in a 2013 memorandum relating to marijuana prosecutions. In the memo, the Attorney General indicated that prosecutions would focus on production, distribution, and sale activities that clearly fall outside of state legalization schemes, such as the distribution of marijuana by organized crime networks, the distribution of marijuana to minors, the diversion of marijuana to states without legalization schemes, drugged driving, and other clearly unlawful activities.

Despite this policy statement, new enforcement actions have commenced against some marijuana businesses that comply with state law and don't otherwise appear to fall outside of the guidelines presented in the memo. Businesses in California were particularly concerned about the federal civil forfeiture action against Harborside Health Center, a large marijuana business with locations in Oakland and San Jose. The case has continued despite the announced change in national prosecution policy and remained unswayed by a lawsuit filed by the city of Oakland (dismissed for procedural reasons) filed in defense of the business.

Contact an Attorney

If the trend continues, marijuana legalization and marijuana businesses will expand greatly in the coming years. Until the federal view of marijuana changes this will mean continuing uncertainty for marijuana business owners. Careful compliance with state and local regulations regarding marijuana businesses may prevent many legal problems. However, the potential for federal seizure of assets or criminal prosecution for conducting a marijuana business make it such that consultation with an experienced small business attorney is a wise investment for most marijuana businesses.

Next Steps

Contact a qualified business attorney to help you navigate your business's legal and regulatory landscape.

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