DoJ to Pro-Marijuana States: Please Legislate Responsibly



In October of 2010, United States Attorney General Eric Holder issued a statement regarding the Department of Justice’s position on the enforcement of the Controlled Substances Act. The address was given in response to California Proposition 19, a ballot initiative due to be voted on in November of that year that, if passed, would have legalized various (read: recreational) uses of marijuana at the discretion and regulation of local governments. Holder said the following.

“Regardless of the passage of this or similar legislation, the Department of Justice will remain firmly committed to enforcing the CSA in all states. Prosecution of those who manufacture, distribute, or possess any illegal drugs, including marijuana and the disruption of drug trafficking organizations is a core priority of the Department. Accordingly, we will vigorously enforce the CSA against those individuals and organizations that possess, manufacture, or distribute marijuana for recreational use, even if such activities are permitted under state law.”

The message was loud and clear — and echoed the tone set in 2005 when the U.S. Supreme Court heard Gonzales v. Raich, a case in which a California producer of marijuana for medical use sued the government for interfering with (read: shut down by the Drug Enforcement Agency) their right to operate a solely intrastate business that adhered to state laws but violated federal laws. The case addressed the inevitable issue. What happens when the federal government decides to exercise its authority over a conflicting state law?

The short answer is: the fed wins, and Holder wanted everybody to know that. But the times, they say, are changing. On August 29, 2013, Deputy Attorney General James Cole issued a memorandum regarding marijuana enforcement under the CSA. Of particular interest to advocates of legalized marijuana, the memorandum establishes, according to a DoJ statement (emphasis added).

“For states such as Colorado and Washington that have enacted laws to authorize the production, distribution, and possession of marijuana, the Department expects these states to establish strict regulatory schemes that protect the eight federal interests identified in the Department’s guidance. These schemes must be tough in practice, not just on paper and include strong, state-based enforcement efforts, backed by adequate funding.

Based on assurances that those states will impose an appropriately strict regulatory system, the Department has informed the governors of both states that it is deferring its right to challenge their legalization laws at this time. But if any of the stated harms do materialize — either despite a strict regulatory scheme or because of the lack of one — federal prosecutors will act aggressively to bring individual prosecutions focused on federal enforcement priorities and the Department may challenge the regulatory scheme themselves in these states.”

The decision, as Republican New Jersey Governor Chris Christie said, amounts to de facto legalization of recreational marijuana. Washington state and Colorado have already legalized recreational use to some degree, and it was really only the specter of federal prosecution that haunted the decision.

But now the great experiment is on. The feds have given states the room they need to test regulatory structures for recreational — and, more importantly, medical — use of marijuana. On August 20, the Financial Industry Regulatory Authority — or, FINRA – issued an alert to investors warning them about potential scams associated with marijuana-related stocks.

Specifically, FINRA warned about the well-known ‘pump-and-dump’ scheme, in which, “fraudsters lure investors with aggressive, optimistic — and potentially false and misleading — statements or information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the pump). Once share prices and volumes reach a peak, the cons behind the scam sell off their shares at a profit, leaving investors with worthless stock (the dump).”

Because of marijuana’s demonstrated and potential medical applications — as well as the recreational market, which many think is not far off — the plant is expected to become a cash crop like nothing else before it. Since cannabis is still illegal at a federal level, major pharmaceutical corporations have yet to claim market share, and big tobacco already fighting an uphill legal battle, has stayed away.

This trend has left small companies, most of which are privately held or trade penny-stock equity on the OTC markets, to fight for the title of ‘first mover.’ The ambiguous regulatory environment that surrounds the budding marijuana industry has cast a pall over businesses that operate directly within or even at the edge of the industry.

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