On Thursday, January 4, 2018, US Attorney General Jeff Sessions and the Department of Justice (DOJ) announced they would rescind the Cole Memo, Obama-era guidance for the DOJ that minimizes interference from the federal government for state’s that have legalized adult-use cannabis. The move did not come as a surprise and came just five days after California, the largest medical market in the US, legalized adult-use of cannabis. The process of legalization in California included implementing a legal and regulatory framework that had been developed over the previous 14 months through public and private partnership and collaboration. This move by Sessions and the DOJ has caused some concern, but what does it mean?

Although the cannabis industry has pointed to the Cole Memo as a de-facto protection of state-licensed and regulated cannabis businesses from federal prosecution, it was never law nor binding policy. In reality, it only served as guidance to prosecutors regarding prioritization and prosecutorial discretion with respect to federal cannabis law enforcement. It remains to be seen what, if anything, the Department will do as US Attorneys General have vast prosecutorial discretion.

The response has been swift and resounding, and many Republican senators and state Attorneys General have publicly said they will uphold and aggressively defend the will of their constituents across California, Colorado, and many other states that currently have some form of medical or adult use laws in place. There has been strong and overwhelming public support for letting states develop their own cannabis laws and regulations. Polls show nearly two-thirds of American voters think cannabis should be legal for adult use – and the approval number is even higher for medical use. Many others have expressed concern and opposition to the federal government interfering with policy decisions made at the state level, and feel these laws and regulations should be left to the states themselves.

There is also a growing body of evidence that cannabis is not a gateway drug, is an effective policy solution against the growing opioid epidemic, provides benefits to patients suffering from PTSD, Dravet syndrome and other ailments, and is, in general, far less dangerous and disruptive than what Sessions has publically asserted.

CBS LA interviewing Evan Eneman about DOJ’s latest action.

We at ELLO are not overly concerned that this change in policy will be meaningfully disruptive to the cannabis market in the long term. In the near-term, we advise caution as the DOJ’s action may cause a temporary chilling effect in the cannabis industry. In direct opposition to the DOJ and Sessions’s stance, several state Attorneys General, Congressmen and Governors have vocalized their support of the industry, including CA AG Becerra, CO AG Coffman, CO Senator Gardner (R), CA Representative Rohrabacher (R) and many others.

How does this affect you, a cannabis business owner or operator? This move by the Federal Government will add more complexity to an already complicated legal and regulatory compliance process. It may also temper investment in the industry just as entrepreneurs and investors are ramping up their focus and resolve. Hopefully, this chilling effect will be short term as both public and political sentiment seem to be supportive of legalization. The DOJ’s change may cause some slowdown in implementation of local ordinances that could impact how different municipalities monitor and control the legal market as well as how businesses can develop compliant operations.

In the short term this could keep cannabis operators and consumers in the black market, rather than the legal, regulated market that we are helping to further develop in California and around the country. In the long term, this move could deny states billions of dollars in tax revenue and other valuable public health and safety benefits.

We here at ELLO, and all the cannabis businesses and regulators we talk to, are working hard to create trust, transparency, and accountability in this emerging industry. The DOJ’s latest move makes that much more difficult. Our focus is to help you comply with laws and regulations, to mitigate risk, and to build robust, scalable and sustainable businesses. Businesses that become the stewards of positive change for the industry.

The bottom line is that both local government and cannabis business operators want the same thing: legitimacy through a clear and transparent legal and regulatory environment. This move by Sessions and the DOJ is disruptive to the hardworking entrepreneurs, regulators, advocates, patients and professionals working to bring legitimacy to this new industry. We will continue to support our clients and advise them on how to best manage this challenging and complex regulatory environment.

About the author(s)

Evan Eneman
Evan has more than 18 years of experience assisting private and public companies in a variety of industries including Cannabis, Financial Services, Healthcare, Technology, Media, and Entertainment. His areas of expertise include: strategy, compliance, enterprise risk management, business process, internal controls, audit, governance, and IPO readiness. Evan also has experience founding and running an early stage venture capital firm and a branding and marketing agency dedicated to the cannabis industry. Prior to his involvement in the cannabis industry, Evan spent 12 years with a Big Four firm, advising Fortune 100 and emerging growth companies on various aspects of governance, risk, compliance, operations and strategy.