Marijuana: Medical and Retail—
An Abbreviated View of Selected Legal Issues
Todd Garvey
Legislative Attorney
Charles Doyle
Senior Specialist in American Public Law
March 25, 2014
Congressional Research Service
7-5700
www.crs.gov
R43437
Marijuana: Medical and Retail—An Abbreviated View of Selected Legal Issues
Summary
The federal Controlled Substances Act (CSA) outlaws the possession, cultivation, or distribution
of marijuana except for authorized research. Twenty states have regulatory schemes that allow
possession, cultivation, or distribution of marijuana for medicinal purposes. Two have revenue
regimes that allow possession, cultivation, or sale generally. The U.S. Constitution’s Supremacy
Clause preempts any state law that conflicts with federal law. Although there is some division, the
majority of state courts have concluded that the federal-state marijuana law conflict does not
require preemption of state medical marijuana laws. The legal consequences of a CSA violation,
however, remain in place. Nevertheless, current federal criminal enforcement guidelines counsel
confining investigations and prosecutions to the most egregious affront to federal interests.
Legal and ethical considerations limit the extent to which an attorney may advise and assist a
client intent on participating in his or her state’s medical or recreational marijuana system. Bar
associations differ on the precise boundaries of those limitations.
State medical marijuana laws grant registered patients, their doctors, and providers immunity
from the consequences of state law. The Washington and Colorado retail marijuana regimes
authorize the commercial exploitation of the marijuana market in small taxable doses.
The present and potential consequences of a CSA violation can be substantial. Cultivation or sale
of marijuana on all but the smallest scale invites a five-year mandatory minimum prison term.
Revenues and the property used to generate them may merely be awaiting federal collection
under federal forfeiture laws. Federal tax laws deny marijuana entrepreneurs the benefits
available to other businesses. Banks may afford marijuana merchants financial services only if the
bank files a suspicious activity report (SAR) for every marijuana-related transaction and only if it
conducts a level of due diligence into its customers’ activities sufficient to unearth any affront to
federal interests.
Marijuana users may not possess a firearm or ammunition. They may not hold federal security
clearances. They may not operate commercial trucks, buses, trains, or planes. Federal contractors
and private employers may be free to refuse to hire them and to fire them. If fired, they may be
ineligible for unemployment compensation. They may be denied federally assisted housing.
At the heart of the federal-state conflict lies a disagreement over dangers and benefits inherent in
marijuana use. The CSA authorizes research on controlled substances, including those in
Schedule I such as marijuana, that may speak to those questions. Members have introduced a
number of bills in the 113th Congress that address the conflict. Only the proposals found in the
farm bill (P.L. 113-79 (H.R. 2642)) have been enacted thus far.
This report is available in an abridged form, without footnotes or citations to authority, as CRS
Report R43435, Marijuana: Medical and Retail—Selected Legal Issues, by Todd Garvey and
Charles Doyle. Portions of this report have been borrowed from CRS Report R43034, State
Legalization of Recreational Marijuana: Selected Legal Issues, by Todd Garvey and Brian T. Yeh.
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Contents
Introduction ...................................................................................................................................... 1
Preemption ....................................................................................................................................... 6
Other Constitutional Considerations ................................................................................................ 7
Banking ............................................................................................................................................ 8
Other Consequences of a CSA Violation ......................................................................................... 9
Ethical Considerations ................................................................................................................... 11
Contacts
Author Contact Information........................................................................................................... 12
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Marijuana: Medical and Retail—An Abbreviated View of Selected Legal Issues
Introduction
Federal law classifies marijuana as a Schedule I Controlled Substance. As a result, it is a federal
crime to grow, sell or merely possess the drug. In addition to facing the prospect of a federal
criminal prosecution, those who violate the federal Controlled Substances Act (CSA) may suffer a
number of additional adverse consequences under federal law. For example, federal authorities
may confiscate any property used to grow marijuana or facilitate its sale or use; marijuana users
may lose their jobs, their homes, or their right to possess a firearm or ammunition; and sellers of
marijuana may lose the tax benefits and banking services that other merchants enjoy, and
ultimately their businesses. Nevertheless, without federal statutory sanction, 20 states have
established medical marijuana regulatory regimes. Two have gone further and “legalized”
marijuana under state recreational marijuana laws. State officials lack the constitutional authority
necessary to trump conflicting federal law. Federal officials, however, lack the unlimited
resources necessary to trump the impact of conflicting state law. The following is an analysis of
some of the legal issues the situation has generated and some of the proposals to resolve them.
Controlled Substance Act. Congress enacted the CSA as Title II of the Comprehensive Drug
Abuse Prevention and Control Act of 1970. The purpose of the CSA is to regulate and facilitate
the manufacture, distribution, and use of controlled substances for legitimate medical, scientific,
research, and industrial purposes, and to prevent these substances from being diverted for illegal
purposes. The CSA places various plants, drugs, and chemicals (such as narcotics, stimulants,
depressants, hallucinogens, and anabolic steroids) into one of five schedules based on the
substance’s medical use, potential for abuse, and safety or dependence liability. Schedule I
substances are deemed to have no currently accepted medical use in treatment and can be used
only in very limited circumstances, whereas substances classified in Schedules II, III, IV, and V
have recognized medical uses and may be manufactured, distributed, and used in accordance with
the CSA. Because controlled substances classified as Schedule I drugs have “a high potential for
abuse” with “no currently accepted medical use in treatment in the United States” and lack
“accepted safety for use of the drug [] under medical supervisions,” they may not be dispensed
under a prescription, and such substances may be used only for bona fide, federal government-
approved research studies. Under the CSA, only doctors licensed by the Drug Enforcement
Administration (DEA) are allowed to prescribe controlled substances listed in Schedules II-V to
patients. Federal regulations stipulate that a lawful prescription for a controlled substance may be
issued only “for a legitimate medical purpose by an individual practitioner acting in the usual
course of his professional practice.”
The CSA establishes an administrative mechanism for substances to be controlled (added to a
schedule); decontrolled (removed from the scheduling framework altogether); and rescheduled or
transferred from one schedule to another. Federal rulemaking proceedings to add, delete, or
change the schedule of a drug or substance may be initiated by the DEA, the U.S. Department of
Health and Human Services (HHS), or by petition by any interested person. Petitions for
rescheduling marijuana have been largely unsuccessful. Congress may also change the scheduling
status of a drug or substance through legislation.
Federal civil and criminal penalties are available for anyone who manufactures, distributes,
imports, or possesses controlled substances in violation of the CSA (both “regulatory” offenses as
well as illicit drug trafficking and possession). When Congress enacted the CSA in 1970,
marijuana was classified as a Schedule I drug. Today, marijuana is still categorized as a Schedule
I controlled substance, and is therefore subject to the most severe restrictions contained within the
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CSA. Pursuant to the CSA, the unauthorized cultivation, distribution, or possession of marijuana
is a federal crime. Although various factors contribute to the ultimate sentence received, the mere
possession of marijuana generally constitutes a misdemeanor subject to up to one year
imprisonment and a minimum fine of $1,000. On the other hand, the cultivation or distribution of
marijuana, or the possession of marijuana with the intent to distribute, is subject to more severe
penalties, ranging from imprisonment for five years to imprisonment for life.
Either in addition to, or in lieu of, bringing criminal prosecutions, the Department of Justice
(DOJ) may choose to rely more heavily on the civil forfeiture provisions of the CSA in order to
disrupt the operation of marijuana dispensaries and production facilities. Forfeiture is a penalty
associated with a particular crime in which property is confiscated or otherwise divested from the
owner and forfeited to the government, in accordance with constitutionally required due process
procedures. Property forfeiture is used both to enforce criminal laws and to deter crime.
Forfeitures are classified as civil or criminal, depending on the nature of the judicial procedure
which ends in confiscation. Civil forfeiture is ordinarily the product of a civil, in rem (against the
property) proceeding in which the property is treated as the offender. No criminal charges are
necessary against the owner, landlord, or mortgage holder because the guilt or innocence of the
property owner, landlord, mortgage holder, or anyone else with a secured interest in the property
is irrelevant; it is enough that the property was involved in, or otherwise connected to, an illegal
activity (in which forfeiture is authorized). Criminal forfeiture proceedings, on the other hand, are
in personam (against the person) actions, and confiscation is possible only upon the conviction of
the owner of the property and only to the extent of the defendant’s interest in the property.
Property that is subject to forfeiture includes both the direct and indirect proceeds of illegal
activities, as well as any property used, or intended to be used, to facilitate that crime.
Section 511 of the CSA (21 U.S.C. §881) makes a wide array of property associated with
violations of the CSA subject to seizure by the Attorney General and forfeiture to the United
States. Property subject to the CSA’s civil forfeiture provision includes any controlled substance
that has been manufactured, distributed, dispensed, acquired, or possessed in violation of federal
law, as well as any equipment, firearm, money, mode of transportation, or real property used or
intended to be used to facilitate a violation of the CSA. In order to seize the covered property, the
government need show only that the property is subject to forfeiture by a preponderance of the
evidence. Once forfeited, the Attorney General may destroy the controlled substances seized, and
sell the other property at public auction. After expenses of the forfeiture proceeding are recouped,
excess funds are forwarded to the DOJ Asset Forfeiture Fund.
Developments in the States. Most of the states have legislation modeled after the federal CSA.
Over the years, some have reduced possession of small amounts of marijuana to a civil offense
under state law. Several have also created a state law exception for medical marijuana. Colorado
and Washington have enacted legislation authorizing the growth, sale, and possession of
marijuana under state law.
State medical marijuana laws are predicated upon a doctor’s recommendation rather than a
prescription, and the medicine is dispensed other than through a pharmacy. In addition, the laws
afford registered patients, caregivers, cultivators, and distributors immunity from the
consequences of state criminal laws. Physicians may recommend medical marijuana only for
patients suffering from one or more statutorily defined “debilitating,” or “qualifying” medical
conditions. The list usually includes a condition such as “severe pain” or “chronic pain” or
“severe and chronic pain” that is easy to claim, difficult to diagnose, and grounds for potential
abuse. Some states seek to limit the scope of the term by statute or by regulation. In many
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jurisdictions, a qualified patient must be a resident of the jurisdiction. Most states and the District
of Columbia restrict the amount of marijuana a patient may possess for medical purposes. The
limit is usually an amount less than three ounces. Medical marijuana statutes ordinarily do not
allow patients to use marijuana in public. Caregivers must register and have been designated by
one or more registered medical marijuana patients. Medical marijuana laws afford caregivers the
same immunity and impose the same limitations upon them as apply to patients. Some state
medical marijuana laws contemplate cultivation exclusively by the patient or his or her caregiver.
Most, however, establish a regulatory scheme for dispensaries.
Two states, Washington and Colorado, have established retail marijuana regimes. Both regulate
the distribution of marijuana without a necessary medical nexus, but raise many of the same
federal-state conflict issues found in the medical marijuana statutes. Washington Initiative 502
amends state law to provide that the possession of small amounts of marijuana “is not a violation
of ... Washington law.” Under the Initiative, individuals over the age of 21 may possess up to one
ounce of dried marijuana, 16 ounces of marijuana infused product in solid form, or 72 ounces of
marijuana infused product in liquid form. However, marijuana must be used in private. In
addition to legalizing possession, the Initiative provides that the “possession, delivery,
distribution, and sale” by a validly licensed producer, processor, or retailer, in accordance with the
newly established regulatory scheme administered by the state Liquor Control Board (LCB),
“shall not be a criminal or civil offense under Washington state law.” The Initiative establishes a
three-tiered production, processing, and retail licensing system that permits the state to retain
regulatory control over the commercial life cycle of marijuana. Qualified individuals must obtain
a producer’s license to grow or cultivate marijuana, a processor’s license to process, package, and
label the drug, or a retail license to sell marijuana to the general public.
Washington will impose an excise tax of 25% of the selling price on each marijuana sale within
the established distribution system: the sale of marijuana from producer to processor, from
processor to retailer, and from retailer to consumer. The Initiative specifically provides that
operation of a motor vehicle while under the influence of marijuana remains a crime. As of the
date of this report, recreational marijuana retail stores have yet to open in Washington under the
Initiative, although the LCB has received well over 3,000 applications to grow, process, or sell
marijuana.
Unlike the relatively specific Washington Initiative 502, Colorado Amendment 64 provides only a
general framework for the legalization, regulation, and taxation of marijuana in Colorado—
leaving regulatory implementation to the Colorado Department of Revenue. In November 2012,
Colorado voters approved an amendment to the Colorado Constitution to ensure that it “shall not
be an offense under Colorado law or the law of any locality within Colorado” for an individual 21
years of age or older to possess, use, display, purchase, consume, or transport one ounce of
marijuana; or possess, grow, process, or transport up to six marijuana plants. Unlike Initiative
502, which permits only state-licensed facilities to grow marijuana, Amendment 64 allows any
individual over the age of 21 to grow small amounts of marijuana (up to six plants) for personal
use. Marijuana may not, however, be consumed “openly and publicly or in a manner that
endangers others.”
In addition, the amendment also provides that it shall not be unlawful for a marijuana-related
facility to purchase, manufacture, cultivate, process, transport, or sell larger quantities of
marijuana so long as the facility obtains a current and valid state-issued license. However, the
amendment expressly permits local governments within Colorado to regulate or prohibit the
operation of such facilities. By comparison, Washington’s Initiative 502 does not expressly allow
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Washington cities to ban marijuana stores from opening within their borders, and there is
uncertainty about the degree to which such local prohibitions or moratoriums on the operation of
recreational marijuana businesses may be enforced.
Amendment 64 appears to envision a three-tier distribution and regulatory system, similar to that
established in Washington, involving the licensing of marijuana cultivation facilities, marijuana
product manufacturing facilities, and retail marijuana stores. On September 9, 2013, the Colorado
Department of Revenue and State Licensing Authority adopted regulations to implement
licensing qualifications and procedures for retail marijuana facilities. The regulations establish
procedures for the issuance, renewal, suspension, and revocation of licenses; provide a schedule
of licensing and renewal fees; and specify requirements for licensees to follow regarding physical
security, video surveillance, labeling, health and safety precautions, and product advertising. On
November 5, 2013, Colorado voters approved a 25% tax on retail marijuana transactions (a 15%
excise tax that would raise revenues to be used for public school capital construction, and an
additional 10% sales tax that would generate revenues to fund the enforcement of the retail
marijuana regulations). On December 23, 2013, the Colorado Marijuana Enforcement Division
issued its first recreational marijuana licenses to 348 businesses (136 retail stores, 31 product
companies, 178 growing facilities, and 3 testing laboratories). While these businesses have been
granted state approval to produce and sell marijuana, they may also have to gain the licensing
approval from local governments prior to their operation. On January 1, 2014, 40 licensed retail
marijuana stores opened their doors to sell marijuana to anyone 21 years of age or over.
Justice Department Memoranda. The Department of Justice is not required, and realistically
lacks the resources, to prosecute every single violation of the CSA. Indeed, pursuant to the
doctrine of “prosecutorial discretion,” federal law enforcement officials have “broad discretion”
as to when, whom, and whether to prosecute for violations of the CSA. Courts have recognized
that the “decision to prosecute is particularly ill-suited to judicial review,” as it involves the
consideration of factors, such as the strength of evidence, deterrence value, and existing
enforcement priorities, “not readily susceptible to the kind of analysis the courts are competent to
undertake.” Through the exercise of prosecutorial discretion, DOJ is able to develop a policy
outlining what marijuana-related activities will receive the most attention from federal authorities.
Indeed, DOJ has issued four memoranda since 2009 that explain the Obama Administration’s
position regarding state-authorized marijuana activities, as described in the following sections.
In 2009, Deputy Attorney General David W. Ogden provided guidance to federal prosecutors in
states that have authorized the use of medical marijuana. Citing a desire to make “efficient and
rational use of its limited investigative and prosecutorial resources,” the memorandum stated that
while the “prosecution of significant traffickers of illegal drugs, including marijuana … continues
to be a core priority,” federal prosecutors “should not focus federal resources [] on individuals
whose actions are in clear and unambiguous compliance with existing state laws providing for the
medical use of marijuana.” The memorandum made clear, however, that “this guidance [does not]
preclude investigation or prosecution, even where there is clear and unambiguous compliance
with existing state law, in particular circumstances where investigation or prosecution otherwise
serves important federal interests.” Nevertheless, the Ogden Memorandum was widely considered
an assurance that DOJ would not prosecute any marijuana cultivation, distribution, or possession,
as long as those activities complied with state law.
At about the same time, it became apparent the state medical marijuana programs had
consequences that were perhaps unintended. In some states, the affliction most easily claimed and
most difficult to diagnose—chronic pain—accounted for 90% of all physicians’
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recommendations. It was said that Los Angeles alone had somewhere between 500 and 1000
medical marijuana dispensaries. No one knew how many for sure, but all agreed there were more
dispensaries than there were Starbucks coffee shops. Rather than the old and infirm,
“[r]emarkably the age distribution of medical marijuana users seem[ed] to mimic that of
recreational users in its concentration of young persons.” “After Colorado legalized medical
marijuana, the state went from the healthiest in the nation to one with thousands of mostly young
adults in need of medical treatment.”
DOJ reiterated and clarified its position in a 2011 memorandum, by Deputy Attorney General
James M. Cole, drawing a clear distinction between the potential prosecutions of individual
patients who require marijuana in the course of medical treatment and “commercial” dispensaries.
The surge in enforcement activity proximate to the release of the 2011 Cole Memorandum caught
unawares many of those who considered the Ogden Memorandum a green light for marijuana
entrepreneurship.
The Obama Administration’s official response to the Colorado and Washington initiatives was a
second Cole Memorandum intended to guide the “exercise of investigative and prosecutorial
discretion” for civil and criminal enforcement of the federal Controlled Substances Act within all
states. The memorandum expresses DOJ’s position that, although marijuana is a dangerous drug
that remains illegal under federal law, the federal government will not pursue legal challenges
against jurisdictions that authorize marijuana in some fashion, assuming those state and local
governments maintain strict regulatory and enforcement controls on marijuana cultivation,
distribution, sale, and possession that limit the risks to “public safety, public health, and other law
enforcement interests.” The memorandum instructs federal prosecutors to prioritize their “limited
investigative and prosecutorial resources to address the most significant [marijuana-related]
threats” and identified the following eight activities as those that the federal government wants
most to prevent: (1) distributing marijuana to children; (2) revenue from the sale of marijuana
going to criminal enterprises, gangs, and cartels; (3) diverting marijuana from states that have
legalized its possession to other states that prohibit it; (4) using state-authorized marijuana
activity as a pretext for the trafficking of other illegal drugs; (5) using firearms or violent
behavior in the cultivation and distribution of marijuana; (6) exacerbating adverse public health
and safety consequences due to marijuana use, including driving while under the influence of
marijuana; (7) growing marijuana on the nation’s public lands; and (8) possessing or using
marijuana on federal property. The memorandum advises U.S. Attorneys and federal law
enforcement to devote their resources and efforts toward any individual or organization involved
in any of these activities, regardless of state law. Furthermore, the memorandum recommends that
jurisdictions that have legalized some form of marijuana activity “provide the necessary resources
and demonstrate the willingness to enforce their laws and regulations in a manner that ensures
they do not undermine federal enforcement priorities.” However, the memorandum cautions that,
to the extent that state enforcement efforts fail to sufficiently protect against the eight harms listed
above, the federal government retains the right to challenge those states’ marijuana laws.
A third Cole Memorandum in 2014 recited the eight priority points listed in the 2013
memorandum and explained that the same considerations should guide the allocation of
investigation and prosecution resources to marijuana-related offenses involving financial
transactions—money laundering, money transfers, and Bank Secrecy Act transgressions,
discussed later in this report.
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Preemption
To what extent does the CSA trump or preempt state medical and recreational marijuana laws?
The Supremacy Clause of the U.S. Constitution states that “[t]he Constitution, and the Laws of
the United States which shall be made in Pursuance thereof; and all Treaties made ... under the
Authority of the United States, shall be the supreme Law of the Land.” The Supremacy Clause,
therefore, “elevates” the U.S. Constitution, federal statutes, federal regulations, and treaties above
the laws of the states. As a result, where federal and state law are in conflict, the state law is
generally preempted, leaving it void and without effect. Preemption is a matter of Congress’s
choice when Congress operates within its constitutionally enumerated powers. When Congress
prefers the co-existence of state and federal law, state law must give way only when it conflicts
with federal law in either of two ways: (1) if it is “physically impossible” to comply with both the
state and federal law (“impossibility preemption”); or (2) if the state law “stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of Congress” (“obstacle
preemption”). What constitutes an obstacle for preemption purposes is a matter “to be informed
by examining the federal statute as a whole and identifying its purpose and intended effects.”
When Congress acts within an area traditionally within the purview of the states, it will be
assumed not to have intended to give its words preemptive force unless a contrary purpose is
manifestly clear.
The Controlled Substances Act contains an explicit statement of the extent of Congress’s
preemptive intent. Section 903 provides that “No provision of this subchapter shall be construed
as indicating an intent on the part of the Congress to occupy the field in which that provision
operates, including criminal penalties, to the exclusion of any State law on the same subject
matter which would otherwise be within the authority of the State, unless there is a positive
conflict between that provision of this subchapter and that State law so that the two cannot
consistently stand together.”
The Colorado case, People v. Crouse, arose when a defendant, acquitted of cultivation charges on
the basis of immunity under the state medical marijuana law, petitioned the trial court to order
police to return of the marijuana plants they had seized in connection with his prosecution. The
state questioned whether the CSA precluded such an action. The Court of Appeals of Colorado
determined that a state marijuana law is only in “positive conflict” with the CSA when it is
“physically impossible” to simultaneously comply with the state and federal law. It held that in
order to preempt the CSA Section 903 “demands more than that the state law ‘stands as an
obstacle to the accomplishment and execution’ of the federal law.’” Thus, the language of the
CSA “cannot be used to preempt a state law under the obstacle preemption doctrine.” The
decision in Crouse adopted the reasoning of County of San Diego v. San Diego NORML, a
California state court decision that also determined that obstacle preemption should not be
applied in determining whether a state marijuana law is preempted by the CSA. Under this line of
reasoning, a state marijuana law is only in “positive conflict” with the CSA when it is “physically
impossible” to simultaneously comply with the state and federal law. In both instances, however,
the court supplied an alternative, obstacle preemption explanation. In Crouse, the court noted
Section 885(d) of the CSA “carves out a specific exemption for distribution of controlled
substances by law enforcement officers.” Thus, if the officers returned (“distributed”) the
marijuana to Crouse they would not be not obstructing the CSA but acting in a manner which it
authorized. In San Diego NORML, the California law required local governments to issue medical
marijuana cards to qualified applicants. In the eyes of the California appellate court, the medical
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marijuana statute posed no obstacle to the CSA, because “[t]he purpose of the CSA is to combat
recreational drug use, not to regulate a state’s medical practices.”
The Michigan case, Beek v. City of Wyoming, involved a Wyoming City property owner and
medical marijuana registrant who sought a declarative judgment against a city ordinance which
proscribed the use of his property in a manner contrary to federal law including the CSA. The
Michigan Supreme Court held that the CSA did not preempt the Michigan Medical Marihuana
Act (MMMA). As understood by the court, the MMMA escaped impossibility preemption
because it was permissive and therefore did not command the performance of an act prohibited by
federal law: “impossibility results when state law requires what federal law forbids, or vice
versa.” The MMMA escaped obstacle preemption because it merely conveyed immunity from the
consequences of state law: “the MMMA’s limited state-law immunity for [medical marijuana] use
does not frustrate the CSA’s operation nor refuse its provisions their nature effect, such that its
purpose cannot otherwise be accomplished.... [T]his immunity does not purport to alter the CSA’s
federal criminalization of marijuana, or to interfere with or undermine federal enforcement of that
prohibition.”
The Oregon Supreme Court understood obstacle preemption a little differently in Emerald Steel.
State regulators had charged Emerald Steel with disability discrimination for firing an employee
for medical marijuana use. The Oregon court concluded, based on its interpretation of U.S.
Supreme Court precedent, that “[a]ffirmatively authorizing a use that federal law prohibits stands
as an obstacle to the implementation and execution of the full purposes and objectives of the
Controlled Substances Act.” Thus, “[t]o the extent that [the Oregon statute] affirmatively
authorizes the use of medical marijuana, federal law preempts that subsection leaving it without
effect.” The continued viability of Emerald Steel may be open to question. While the Oregon
Supreme Court has not overturned its earlier decision, it has observed in Willis that Emerald
Steel’s “affirmative authorization” obstacle preemption test may have been an overgeneralization:
“Emerald Steel should not be construed as announcing a stand-alone rule that any state law that
can be viewed as ‘affirmatively authorizing’ what federal law prohibits is preempted. Rather it
reflects this court’s attempt to apply the federal rule and the logic of the most relevant federal
cases to the particular preemption problem that was before it. And particularly where, as here, the
issue of whether the statute contains an affirmative authorization is not straightforward, the
analysis in Emerald Steel cannot operate as a simple stand-in for the more general federal rule.”
Other Constitutional Considerations
Preemption is only an issue when Congress acts within its legislative sphere. Colorable
constitutional issues involving the CSA and state medical or recreational marijuana statutes have
arisen on a number of occasions. The Supreme Court resolved one of them when it found that
Congress’s constitutional authority to regulate interstate and foreign commerce enabled it to craft
the CSA so as to categorically outlaw the cultivation and possession of marijuana.
Congress’s Commerce Clause authority, however, does not include the power to compel a state
legislature to act at its bidding or a state official to enforce its will. From time to time, medical
marijuana litigants have invoked this limitation in an effort to shield themselves from the CSA.
Because the CSA makes no demands of state legislatures or officials, those efforts have been to
no avail. The related Tenth Amendment argument that the CSA intrudes upon those police powers
reserved to the states has enjoyed no greater success.
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Due process and equal protection challenges have surfaced both in cases questioning the CSA and
those contesting application of the various state marijuana laws. At the federal level, several
courts have rejected the suggestion that the government is estopped from enforcing the CSA by
virtue of misleading or inconsistent statements in the Ogden Memorandum and elsewhere. Some
of these same cases have rejected the contention that placement of marijuana in Schedule I of the
CSA is irrational and consequently constitutes a violation of equal protection. Municipal zoning
or land use ordinances set the stage for most of the state marijuana-related due process cases.
State laws vary as to whether municipalities may ban or restrict marijuana-related activities
within their jurisdictions. Where they may do so, the regulatory scheme must comply with due
process requirements.
Banking
The federal banking laws are designed to shield financial institutions from individuals and entities
that deal in controlled substances. In fact, Congress has crafted several of them to enlist financial
institutions in the investigation and prosecution of those who violate the CSA. As a consequence,
medical marijuana providers have experienced difficulty securing banking services. On February
14, 2012, the Department of Justice and the Treasury Department’s Financial Crimes
Enforcement Network (FinCEN) issued guidance with respect to marijuana-related financial
crimes. FinCEN’s guidance specifically addresses the obligations to file suspicious activity
reports. Banks must file suspicious activity reports (SARs) relating to any transaction involving
$5,000 or more that they have reason to suspect are derived from illegal activity. Willful failure to
do so is punishable by imprisonment for not more than five years (not more than 10 years in cases
of a substantial pattern of violations or transaction involving other illegal activity). Breaking up a
transaction into two or more transactions to avoid the reporting requirement subjects the offender
to the same 5/10 year maximum terms of imprisonment. Banks must also establish and maintain
anti-money laundering programs, designed to ensure that bank officers and employees will have
sufficient knowledge of the banks’ customers and of the business of those customers to identify
the circumstances under which filing SARs is appropriate. Suspicion aside, banks must file
currency transaction reports (CTRs) relating to transactions involving $10,000 or more in cash.
Willful failure to do so is punishable by imprisonment for not more than five years (not more than
10 years in cases of a substantial pattern of violations or transaction involving other illegal
activity). Again, structuring a transaction to avoid the reporting requirement exposes the offender
to the same 5/10 year maximum terms of imprisonment.
In its recent guidance, FinCEN addressed banks’ SAR reporting requirements. FinCEN began its
guidance by emphasizing the point made in the 2014 Cole Memorandum, that the Justice
Department’s investigation and prosecution of financial crimes would be focused on activities
that conflicted with any of several federal priorities. FinCEN advised financial institutions that in
providing services to a marijuana-related business they must file one of three forms of special
SARs: a marijuana limited SAR, a marijuana priority SAR; or a marijuana termination SAR. The
marijuana limited SAR is appropriate when the bank determines, after the exercise of due
diligence, that its customer is not engaged in any of the activities that violate state law or that
would implicate any of the Justice Department investigation and prosecution priorities listed in
the 2014 Cole Memorandum. A marijuana priority SAR must be filed when the bank believes its
customer is engaged in such activities. A bank files a marijuana termination SAR when it finds it
necessary to sever its relationship with a customer in order to maintain an effective anti-money
laundering program.
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FinCEN also provides examples of “red flags” that may indicate that a marijuana priority SAR is
appropriate: “[1] The business is unable to produce satisfactory documentation or evidence to
demonstrate that it is duly licensed and operating consistently with state law; [2] The business is
unable to demonstrate the legitimate source of significant outside investments; [3] A customer
seeks to conceal or disguise involvement in marijuana-related business activity. For example, the
customer may be using a business with a non-descript name (e.g., a “consulting,” “holding,” or
“management” company) that purports to engage in commercial activity unrelated to marijuana,
but is depositing cash that smells like marijuana; [4] Review of publicly available sources and
databases about the business, its owner(s), manager(s), or other related parties, reveal negative
information, such as a criminal record, involvement in the illegal purchase or sale of drugs,
violence, or other potential connections to illicit activity; [5] The business, its owner(s),
manager(s), or other related parties are, or have been, subject to an enforcement action by the
state or local authorities responsible for administering or enforcing marijuana-related laws or
regulations; [6] A marijuana-related business engages in international or interstate activity,
including by receiving cash deposits from locations outside the state in which the business
operates, making or receiving frequent or large interstate transfers, or otherwise transacting with
persons or entities located in different states or countries; [7] The owner(s) or manager(s) of a
marijuana-related business reside outside the state in which the business is located; [8] A
marijuana-related business is located on federal property or the marijuana sold by the business
was grown on federal property; [9] A marijuana-related business’s proximity to a school is not
compliant with state law; [10] A marijuana-related business purporting to be a “non-profit” is
engaged in commercial activity inconsistent with that classification, or is making excessive
payments to its manager(s) or employee(s); [11] A customer appears to be using a state-licensed
marijuana-related business as a front or pretext to launder money derived from other criminal
activity (i.e., not related to marijuana) or derived from marijuana-related activity not permitted
under state law.”
The FinCEN guidance ends with the observation that a bank is not absolved of its obligation to
file a currency transaction report for any financial transaction involving more than $10,000 in
cash, regardless of how it resolves its marijuana SAR obligations.
Other Consequences of a CSA Violation
Employment. The use of marijuana, medicinal or otherwise, may have adverse employment
consequences. Both state and federal courts have upheld firing an employee for medical
marijuana use. Employee challenges have cited in vain state medical marijuana laws as well as
federal and state anti-discrimination laws. The state medical marijuana laws ordinarily immunize
medical marijuana users from the adverse consequences of the law but in most instances do not
give them a right that can be used affirmatively against a private entity. The Americans with
Disabilities Act (ADA) and similar state anti-discrimination in employment statutes are
predicated upon discrimination based on lawful activity and the CSA has consequently proven to
be an insurmountable obstacle.
They differ somewhat in the case of nongovernment employees, because, among other things,
federal, state, and local government employees enjoy Fourth Amendment protections. The Fourth
Amendment, binding on government employers, does not give employees the right to use
marijuana, medical or otherwise, but it limits the likelihood that their employers will discover
their use. The Fourth Amendment’s proscription on unreasonable governmental searches means
that federal, state, or local entities must have either reasonable suspicion or a constitutionally
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recognized special need in order to conduct employee drug testing. A significant number of
government employees, however, must undergo random drug testing because the nature of their
duties places them in a “special needs” category. For example, random drug testing is a fact of
life and continued condition of employment for anyone with access to classified or similarly
sensitive information. In the case of employees of state or local governmental entities, the “lower
courts have allowed drug testing in other safety-sensitive occupation” such as “aviation
personnel, railroad safety inspectors, highway and motor carrier safety specialists, lock and dam
operators, forklift operators, tractor operators, engineering operators, and crane operators.”
More generally, federal contractors may face the loss of federal funding or could be subject to
administrative fines if they do not maintain and enforce policies aimed at achieving a drug-free,
safe workplace. The federal Drug-Free Workplace Act of 1988 (DFWA) imposes a drug-free
workplace requirement on any entity that receives federal contracts with a value of more than
$150,000 or that receives any federal grant. DFWA requires these entities to make ongoing, good
faith efforts to comply with the drug-free workplace requirement in order to qualify, and remain
eligible, for federal funds.
Absent status as a federal contractor and grantee status or some other federal influence,
employers are relatively free to establish their own drug free workplace and to fire employees
who test positive for marijuana use, medical or otherwise. Although an occasional medical
marijuana statute will shield employees, more often the statute is silent and thought not to cabin
at will employment status, as noted earlier. Moreover, depending upon the factual situation and
the state unemployment statute in play, employees fired for marijuana use may also be ineligible
for unemployment benefits.
Taxation. Income from whatever source is ordinarily subject to federal taxation. This is so even
when the activity that generates the income is unlawful. Marijuana merchants, however, operate
under a special federal tax disadvantage. They cannot deduct their operating expenses. Most
businesses, similarly situated, arrive at their taxable income after deducting the cost of things like
employee salaries, rent or mortgage payments, legal services, state taxes, and equipment
depreciation. Marijuana merchants may take no such deductions. Several Members of Congress
asked for Internal Revenue Service (IRS) guidance in order to allow marijuana merchants
operating in a medical marijuana state to deduct their business expenses. The IRS responded that
they would be unable to do so until Congress amended either the Internal Revenue Code or the
CSA. Moreover, the customers of a medical marijuana merchant may be unable to treat their
purchases as deductible medical expenses.
Possession of Firearms. It is a federal crime punishable by imprisonment for not more than 10
years for an unlawful user of a controlled substance to possess a firearm or ammunition. Federal
regulations define an “unlawful user” to include “any person who is a current user of a controlled
substance in a manner other than as prescribed by a licensed physician.” The Bureau of Alcohol,
Tobacco, Firearms and Explosives (ATF) has made it clear that “any person who uses ...
marijuana, regardless of whether his or her State has passed legislation authorizing marijuana use
for medicinal purposes, is an unlawful user of ... a controlled substance, and is prohibited by
Federal law from possessing firearms or ammunition.”
Federally Assisted Housing. “Illegal drug users” are ineligible for federally assisted housing.
Public housing agencies and owners of federally assisted housing must establish standards that
would allow the agency or owner to prohibit admission to, or terminate the tenancy or assistance
of, any applicant or tenant who is an illegal drug user. An agency or an owner can take these
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actions if a determination is made, pursuant to the standards established, that an individual is
“illegally using a controlled substance,” or if there is reasonable cause to believe that an
individual has a “pattern of illegal use” of a controlled substance that could “interfere with the
health, safety, or right to a peaceful enjoyment of the premises by other residents.” Thus, any
individual whom the housing authority reasonably believes is using marijuana could be denied
access to, or evicted from, federally assisted housing. With respect to medical marijuana, the
Department of Housing and Urban Development previously concluded that public housing
agencies or owners “must deny admission” to applicants who are using medical marijuana, but
“have statutorily-authorized discretion with respect to evicting or refraining from evicting current
residents on account of their use of medical marijuana.” The question of whether marijuana users
may be excluded from federally assisted housing is not the same as whether applicants for such
housing may be required to undergo drug testing. The Eleventh Circuit’s Labron decision in
another context would seem to preclude such a preliminary in the absence of some individualized
suspicion.
Ethical Considerations
Rule 1.2(d) of the American Bar Association’s Model Rules of Professional Conduct, adopted in
virtually every jurisdiction, states that “A lawyer shall not counsel a client to engage, or assist a
client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the
legal consequences of any proposed course of conduct with a client and may counsel or assist a
client to make a good-faith effort to determine the validity, scope, meaning or application of the
law.”
Bar officials in several states—Arizona, Colorado, Connecticut, Maine, and Washington, among
them—have issued ethics opinions addressing ethical constraints arising out of the conflict
between state and federal marijuana laws. The Arizona State Bar concluded in Opinion 11-01that
the Ogden Memorandum had created a “safe harbor” for those that operated within the confines
of the state’s medical marijuana statute. In its view, Arizona lawyers may counsel and assist their
clients in any activity permitted under the Arizona medical marijuana law as long as their clients
were made fully aware of the consequences under federal law.
In contrast, Opinion 199 of the Maine Professional Ethics Commission advised attorneys that,
absent an amendment to either the Rules of Professional Conduct or the CSA, a member of the
Maine bar “may counsel or assist a client in making good faith efforts to determine the validity,
scope, meaning or application of the law,” but “the Rule forbids attorneys from counseling a
client to engage in the [marijuana] business or to assist the a client in doing so.” The Commission
declined to provide more specific advice, but warned that significant risks attended practice in the
area. The Connecticut Bar Association offered much the same advice. Lawyers may advise their
clients about the features of the state medical marijuana statute, but they may not assist clients in
a violation of the CSA.
While the Arizona, Maine, and Connecticut opinions are relatively general and relatively terse,
the Colorado opinion provides far more examples of its view of the permissible and
impermissible. It concluded that, consist with Rule 1.2(d) and CSA, a Colorado attorney might
(1) represent and advise a client concerning the consequences of marijuana-related activities for
purposes of criminal law, family law, or labor law; (2) as a government attorney advise a client in
a matter involving the establishing, interpreting, enforcing, or amending zoning relations, local
ordinances, or legislation; or (3) advise a client on the tax obligations incurred when cultivating
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or selling marijuana. It concluded, on the other hand, that a Colorado attorney may not (1) draft or
negotiate contracts, leases, or other agreements to facilitate the cultivate, distribution, or
consumption of marijuana; or (2) provide tax planning assistance with an eye to violating federal
law. Moreover, the Opinion points out that providing such assistance while aware of a client’s
intent is “likely to constitute aiding and abetting the violation of or conspiracy to violate federal
law.” The Opinion contains an addendum that indicates that the Colorado Supreme Court has
been asked to amend the Rules of Professional Conduct to remove the shadow of the CSA from
the application of the Rules to legal services provided within the confines of the state marijuana
laws.
Washington State attorneys have the advantage of not one, but two bar advisories. Both take a
position similar to the Arizona opinion: attorneys transgress no ethical boundaries if their
professional conduct is consistent with state law and perhaps with federal enforcement priorities.
The Bar Association of King County (Seattle and environs) opined that an attorney, who advises
and assists a client to establish and maintain a marijuana dispensary, is not subject to discipline as
long as his client’s conduct is permitted under state marijuana law and as long as he makes his
client aware of the provisions of the CSA including the Cole Memorandum. Moreover, in the
opinion of the King County Bar Association, an attorney is likewise not subject to discipline
merely because he owns an interest in a marijuana dispensary. Although such activity may
constitute a crime under the CSA, it is not “a criminal act that reflects adversely on the lawyer’s
honesty, trustworthiness or fitness as a lawyer,” in the eyes of the County Bar Association.
The second Washington opinion is a proposed advisory opinion which the Washington State Bar
Association submitted to the Washington Supreme Court along with a proposal to add a comment
to Rule 1.2 of the Washington Rules of Professional Conduct. In its proposed opinion, a lawyer
would be free to advise a client as to the nuances of state marijuana law as long as he did not do
so in furtherance of an effort to violate or mask a violation of state marijuana law. A lawyer would
also be free to advise and assist a client to establish and maintain a dispensary within the bounds
of state law at least until such time as federal enforcement policies change. Finally under the
proposed opinion and accompanying proposed comment, a lawyer would be free to engage in a
marijuana business without offending the Rule that condemns criminal conduct that reflects
adversely on a lawyer’s fitness to practice.
Author Contact Information
Todd Garvey
Charles Doyle
Legislative Attorney
Senior Specialist in American Public Law
tgarvey@crs.loc.gov, 7-0174
cdoyle@crs.loc.gov, 7-6968
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