It’s been said that few things are as good or bad as they are first made out to be. However, the mainstream media, never fearful of hyperbole, usually writes as if the glass is half empty…and getting worse; e.g. selling fear under the guise of rhetorical questions, such as whether Jeff Sessions’ rescission of the Cole Memo will spell the death of the cannabis industry? No, the sky is not falling.
On January 2, 2018 U.S. Attorney General Jeff Sessions’ rescinded the Cole Memo – the official Obama era guidance that can generally be described as the federal government’s laissez faire approach to marijuana production, sale and use. Remember, marijuana, or “cannabis”, its officially name, is listed as a Schedule I controlled substance, right up there with heroin and LSD. [I’m not equating them, just reporting the facts….]
According to a recent article by attorney, Zane Gilmer, of Stinson Leonard Street, LLP, here:
That guidance had provided marijuana participants with a perceived notion of protection from federal intervention in an otherwise legally murky industry, and permitted the industry to expand to 29 states and the District of Columbia over the last several years. Sessions’ reversal undercuts whatever comfort the industry enjoyed and injects a level of legal uncertainty, not only for the marijuana industry but also for businesses that provide services to the industry, which has not been seen since 2013. [Underscore mine.]
Attorney General Sessions created his own Memo that – pardon the pun – trumps the Cole Memo, here. In it he said:
In deciding which marijuana activities to prosecute under these laws with the Department’s finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions. Attorney General Benjamin Civiletti originally set forth these principles in 1980, and they have been refined over time, as reflected in chapter 9-27.000 of the U.S. Attorneys’ Manual. These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.
Given the Department’s well-established general principles, previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effective immediately.
To paraphrase Mark Twain’s famous statement, reports of the death of the marijuana industry have been greatly exaggerated. First, even with the Cole Memo in place, there always existed the “cash only” problem created because the Bank Secrecy Act (“BSA”) requires banks to report large cash transactions, due to potential money-laundering activities. Compliance requires banks to file Suspicious Activity Reports (“SARs”) if they suspect these activities to be occurring.
And as noted above, cultivation, possession, and distribution of marijuana are violations of the federal Controlled Substances Act, and thus, proceeds derived from those transactions would be proceeds of an illegal transaction. As a result, many banks in states where marijuana has been legalized, decline to offer depository services to marijuana businesses. The presence or absence of the Cole Memo did not affect the banking industry’s reticence in catering to cannabis – the Bank Secrecy Act did. Although, early on, it might have led some in this embryonic industry to believe they were safe, but that would have been a mistake.
Secondly, the Cole Memo contained several “enforcement priorities” which are likely to survive, since they were always regarded as fair game for federal prosecutors:
- Preventing the distribution of marijuana to minors;
- Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
- Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
- Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
- Preventing marijuana possession or use on federal
Lastly, in May, 2016, the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, issued due diligence guidelines, “Know Your Customer” or “KYC”(here), which will continue to act as a safe harbor for financial institutions who adhere to them. The smart money is betting that the Department of Treasury will update its rules now to provide further guidance, and perhaps remove some ambiguity. [But query: What’s wrong with a little ambiguity for an industry as fraught with potential criminal activity as this one? It keeps people on their toes, which avoids complacency, and assures better compliance, if for no other reason than fear, i.e. the “better safe than sorry” philosophy.]
Is the Sessions Memo a Good or Bad Thing? As much as the mainstream media and Blue-State Governors may want to lambaste the Attorney General, they forget that what they are criticizing – the rescission of the Cole Memo – it was always just a political “work-around” aka “cop-out” to avoid addressing the real issue: Whether cannabis production, sale and use, should be decriminalized under the federal law. Instead of making the hard decision, prior administrations kicked the can down the road, choosing instead, benign neglect.
A recent Wall Street Journal article by its Editorial Board (“Jeff Session’s Marijuana Candor”) here made some salient points worth remembering:
President Obama tried to dodge this conflict, as he so often did, with an executive diktat. After Colorado and Washington State voted to legalize pot, his Justice Department in 2013 instructed U.S. Attorneys to refrain from prosecuting marijuana offenses in states where the drug is legal. This let him side with the legalizers without taking responsibility for it.
Drug traffickers have exploited the aegis of state laws, which has let the black market flourish. A police report in Oregon revealed that 70% of marijuana sales in 2016 occurred on the black market, and up to 900 tons more cannabis is produced than consumed in the state. Mexican cartels have moved into Alaska.
We report all this because the legalization debate has been dominated by a haze of cultural sentiment largely devoid of facts, and the promises by advocates about reduced enforcement costs and crime haven’t materialized. Meanwhile, the failure to enforce federal law, and letting states ignore it, erodes confidence in the law and lets Congress duck a debate on legalization.
Social mores are changing, and a majority of Americans support legalizing pot. But instead of taking the cop-out of blaming Mr. Sessions, legalizers in Congress ought to have the courage of their convictions and try to decriminalize pot nationwide. Let Senators Cory Gardner and Kamala Harris persuade their colleagues that what’s good for Colorado and California is good for the country.
As I’ve written before (here), while the Trump Administration may be faulted for many things, indecision and avoidance are not among them. Perhaps now the debate will focus on the realities of marijuana as a drug, and not get lost in “a haze of cultural sentiment”. ~PCQ
 SUMMARY: FinCEN is issuing final rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements for: Banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities. The rules contain explicit customer due diligence requirements and include a new requirement to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions. (31 CFR Parts 1010, 1020, 1023, et al. Customer Due Diligence Requirements for Financial Institutions; Final Rule.)
Posted in Legislation - Federal, Marijuana, Miscellany, News You Can Use | Tagged Banks