Focus on Nevada Business

Legal Opinion by Alicia Ashcraft to appear in Nevada Business Magazine
November 1

Compliance is Key in the Marijuana Industry

By Alicia Ashcraft, Esq., Managing Partner & Jeffrey Barr, Esq., Partner, Ashcraft & Barr, LLP.

In the United States, 25 of 50 States permit some form of legalized marijuana use. However, business owners and operators in this industry face the frustrating and risky morass of conflicting government regulations. Marijuana is illegal under federal law, but it is legal under Nevada law. And when the laws, rules, and regulations are ferreted out, compliance by business owners and operators is essential to avoiding potential Federal prosecution and possible imprisonment.

A Short History of the War on Marijuana

Prior to 1937, marijuana regulation was left up to the individual States, but in 1937, the U.S. Congress passed the Marijuana Tax Act, which, of course, taxed cannabis. A few years later in 1952, Congress passed the Boggs Act, which provided for stiff, mandatory sentences for certain drug offenses, including marijuana. By and large, however, marijuana regulation was still a matter of individual State control.

This changed in 1970, however, when President Nixon declared war on drugs. Congress obliged, passing the Controlled Substances Act of 1970. The CSA placed marijuana on Schedule I, the most restrictive category, asserting that cannabis was highly addictive and had no medicinal use. States soon followed the Federal example, and marijuana became illegal under both Federal and State laws. Placing marijuana on Schedule I has ensured that there has been no formal medical or scientific research on the plant in the last 50 years. Moreover, according to the Federal Bureau of Prisons, drug offenses account for the overwhelming majority of Federal inmates, nearly 50% of all prisoners in the Federal system.

Nevada’s Truce

In 2001, Nevada legalized medical marijuana by an amendment to the State’s Constitution. Patients could apply for a registry identification card, which permitted them to grow and use their own marijuana strains, but there was no commercial availability of marijuana products until 2013 when the Nevada Legislature authorized, “medical marijuana establishments.” Nevada licenses four types of establishments: (1) cultivation facilities; (2) facilities for production of edible or marijuana-infused products; (3) dispensaries; and (4) independent laboratories.

Cultivation facilities grow marijuana. Production facilities produce edibles or infused products. Dispensaries act like pharmacies and dispense marijuana products. Finally, independent laboratories test the marijuana products for purity and strength. In effect, Nevada has set up a shadow pharmaceutical system to circumvent Schedule I.

Federal Détente?

The Federal Government has maintained its hardline on marijuana. The U.S. Supreme Court has ruled that State legalization is not a defense to Federal offenses, and the DEA recently refused to reconsider whether marijuana should remain on Schedule I. But cracks in this edifice are beginning to emerge.

For example, in 2009, the Department of Justice published guidelines for Federal prosecutors and declared that while cannabis remained illegal under Federal law, it was no longer a priority to prosecute marijuana establishments who were in “clear and unambiguous compliance” with State law. In 2011, the DOJ issued the famous “Cole Memo,” reiterating the 2009 guidelines. The Cole Memo has been seen as a significant change in Federal drug enforcement policy. In 2014, Congress prohibited the DOJ from spending money prosecuting marijuana cases in States where cannabis is legal, and in August 2016, the Ninth Circuit Court of Appeals interpreted the 2014 law and ruled that the DOJ could only prosecute marijuana cases of “[i]ndividuals who do not strictly comply with all state-law conditions regarding the use, distribution, possession, and cultivation of medical marijuana….”

The enforcement priorities set out in these guidelines are intended to guide the DOJ’s enforcement of the CSA against marijuana-related conduct. Outside these enforcement priorities, the federal government relies on states and local law enforcement agencies to address marijuana activity through enforcement of their own narcotics laws. Accordingly, strict compliance with Nevada law is essential for marijuana-related businesses and is key for owners and operators to avoid the risk of becoming a federal enforcement priority.

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