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Revised March 2017

Marijuana 2016 Update: The McIntosh Decision and Federal Enforcement

A number of significant developments affect marijuana business owners, operators and investors, as well as companies that do business with the cannabis industry.

Steve Lenn   Evan Hiller  
   

This update summarizes a number of significant developments, both in Arizona and nationally, since our initial article on marijuana business ownership and investment issues was published in April 2016 (see “Marijuana 2016: Dance with the Angels or Swim with the Sharks”) and subsequently updated.

Of particular significance is the U.S. Ninth Circuit Court of Appeals’ August decision, in United States v. McIntosh[1], regarding limitations under current law on marijuana prosecutions by federal authorities in connection with activities that are legal under state laws. This decision is particularly important to anyone who is involved in any aspect of a marijuana business and is concerned about the conflict between federal and state marijuana laws. If you’re not already aware of it, you should be.

In addition to the McIntosh decision (discussed below), other notable developments since November 2016 include the following:

  • Decriminalization of non-medical marijuana in four other states – California, Maine, Massachusetts and Nevada.

  • The Arizona Department of Health Services has accepted, but not yet acted upon, more than 750 applications for 31 additional dispensary certificates for issuance under existing law.

  • As many predicted, the federal Drug Enforcement Administration (DEA) declined to reclassify marijuana from its Schedule 1 substance categorization (i.e., a drug determined to have a high potential for abuse and no accepted medical efficacy and safety) under the federal Controlled Substances Act. However, in a potentially significant development, the DEA did substantially liberalize its policy regarding marijuana medical research and testing.

The McIntosh Decision

On August 16, 2016, the Ninth Circuit narrowly ruled that Congressional appropriations bills for fiscal years 2014 and 2015 prevented the U.S. Department of Justice (DOJ) from prosecuting individuals whose

“conduct was completely authorized by state law, by which we mean that they strictly complied with all relevant conditions imposed by state law on the use, distribution, possession and cultivation of medical marijuana.” (Emphasis supplied)

The Ninth Circuit has appellate jurisdiction over the federal district courts of nine states, including Arizona, California and five other states that have decriminalized marijuana to some degree. Of those seven states, five have already decriminalized non-medical marijuana.

The McIntosh case consolidated interlocutory appeals and petitions for writs of mandamus from 10 separate federal district court cases involving three district courts in two states. The defendants in these cases had been indicted for various infractions of the Controlled Substances Act, including the operation of dispensaries and the cultivation and possession of marijuana. The defendants were seeking to either dismiss their indictments or enjoin their prosecutions on the grounds that the DOJ was prohibited from spending funds to prosecute them.

To place the McIntosh case in context, individuals and businesses engaged directly in the cultivation, processing, distribution and sale of marijuana and marijuana products (oils, extracts, ingestibles, etc.), as well as businesses providing goods and services to the industry, have done so largely in reliance on a series of advisory memoranda initially issued by the DOJ to federal prosecutors and subsequently released to the public.

In substance, these advisories, while reaffirming the illegality of marijuana activities and the authority of the DOJ to enforce U.S. laws, have (i) recognized that various states have decriminalized certain marijuana-related activities that are prohibited under federal law, and (ii) indicated that, as a matter of “prosecutorial discretion,” enforcement will be a “low priority” in circumstances in which activities are conducted in compliance with state law and do not involve an articulated list of activities or behaviors.

In a memorandum dated February 27, 2015, the DOJ took the position that the 2014 appropriations bill did not preclude expenditures to enforce federal criminal laws concerning marijuana against private individuals and entities, regardless of state marijuana laws. This interpretation appears to have been firmly rejected by the Ninth Circuit in McIntosh.

Caveats

As was noted in the April article, what would advice from a lawyer be without caveats? Against the background of the developments since our April 21, 2016, article and the McIntosh case, it is important to keep the following in mind:

  • Notwithstanding the McIntosh decision and the DOJ’s policy guidance, the cultivation, processing, distribution, sale and possession of marijuana remain illegal under federal law. Neither the DOJ releases nor the McIntosh decision creates an immunity from prosecution and other possible enforcement actions. In addition, neither necessarily provides any defense if such a prosecution is brought or other enforcement action is taken.

  • The DOJ guidance is just that: guidance. The policy position is subject to change or modification at any time.

  • The Ninth Circuit’s decision is based on the language in the appropriations bills for 2015 and 2016. There can be no assurance that similar language will be included in the appropriations bills for 2017 or subsequent years. In this regard, the McIntosh decision is subject to reconsideration by the Ninth Circuit and to review and possible reversal or substantial modification by the U.S. Supreme Court. Moreover, while the Ninth Circuit’s decision creates a precedent, presumably persuasive, it is not binding on federal courts in other circuits.

  • The appropriations language on which the McIntosh decision is based specifically addresses “medical marijuana” but does not reference non-medical marijuana. There can be no assurance that the FY 2017 appropriations bill, even if it continues to include the 2014 and 2015 language regarding medical marijuana, will include language specifically extending the prohibition against expenditures to enforce federal laws with respect to non-medical marijuana. If it does not, there can likewise be no assurance that federal courts will apply that prohibition against expenditures to non-medical marijuana enforcement actions.

  • With regard to both the DOJ policy guidance and the appropriations language on which the McIntosh decision was based, it is important to note that 2016 is a general election year and a new President or Congress could dramatically alter the landscape by changing the DOJ policy, modifying the appropriations language, or adopting new or amending existing federal law.

  • The information set forth herein is limited to a review and discussion of the current conflict between state and federal law. It does not provide legal advice with respect to the laws of any particular state nor with respect to any other legal issues.

  • This review and discussion should not be regarded as a legal opinion or legal advice with respect to any particular set of circumstance, nor with respect to any particular activity, individual or business. Individuals or businesses considering becoming involved in any aspect of the marijuana industry in the U.S., including as investors or suppliers of goods and/or services, should consult with their own legal counsel with respect to the implications of federal or state law.


[1] United States v. McIntosh, No. 15-10117, 2016 WL 4363168, at 32 (9th Cir. Aug. 16, 2016).