FEDERAL RESPONSES TO MEDICAL MARIJUANA …Practitioner must consider the appropriate form and dosage of medical marijuana. Smoking marijuana is prohibited. Patient not allowed to possess

FEDERAL RESPONSES TO MEDICAL

MARIJUANA LAWS By Ameer Benno, Esq.

© 2015 Benno & Associates P.C.

1 © 2015 Benno & Associates P.C.

www.ameerbenno.com

DISCLAIMER The following materials and accompanying Access MCLE audio CLE program are for instructional purposes only. Nothing herein constitutes, is intended to constitute, or should be relied on as, legal advice. The author expressly disclaims any responsibility for any direct or consequential damages related in any way to anything contained in the materials or program, which are provided on an “as-is” basis and should be independently verified by experienced counsel before being applied to actual matter. By proceeding further you expressly accept and agree to Author’s absolute and unqualified disclaimer of liability.

© 2015 Benno & Associates P.C. www.ameerbenno.com

Table of Contents BRIEF HISTORY: REGULATION OF MARIJUANA 3 REGISTRATION FEES 10 CERTIFICATION 11 FEDERALISM CRISIS 21 CSA DOES NOT VIOLATE THE 10TH AMENDMENT 22 ANTI-COMMANDEERING DOCTRINE 23 CSA DOES NOT IMPLICATE PROHIBITION 24 SUPREMACY CLAUSE / PREEMPTION 25 “REPUGNANCE” / “POSITIVE CONFLICT” 27 “OBSTACLE” PREEMPTION 28 POSSESSION OF MEDICAL MARIJUANA 30 2009 OGDEN MEMORANDUM 37 2011 COLE MEMORANDUM 39 2013 COLE MEMORANDUM 41 RISK FOR BANKS 46 FILING “SARs” ON MARIJUANA 53 MARIJUANA BUSINESSES ACCESS TO BANKING ACT 61 TAXES – 26 U.S.C. § 280E 65 FEDERAL ASSET FORFEITURE 79 GUN CONTROL ACT OF 1968 85 ADDITIONAL FEDERAL CRIMES 93 ROHRABACHER RIDER TO 2014 OMNIBUS SPENDING BILL 101 “CARERS” ACT 103

BRIEF HISTORY: REGULATION OF MARIJUANA

Marijuana was not regulated under federal law until Congress passed the Marihuana Tax Act of 1937 (which was repealed in 1970).

State efforts to regulate marijuana use in the early 20th century targeted recreational use, but permitted medical use

All twenty-two states that had prohibited marijuana by the 1930s created

exceptions for medical purposes. See Raich v. Gonzales, 500 F.3d 850, 865 (9th Cir. 2007)

By 1965, although possession of marijuana was a crime in all fifty states, almost all states had created exceptions for "persons for whom the drug had been prescribed or to whom it had been given by an authorized medical person.” Leary v. United States, 395 U.S. 6, 16-17 (1969)


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BRIEF HISTORY: REGULATION OF MARIJUANA

Marijuana was not prohibited under federal law until Congress passed the Controlled Substances Act in 1970.

Congress placed marijuana on Schedule I, making all its uses, including medical, unlawful.


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THE CONTROLLED SUBSTANCES ACT OF 1970

“[I]t shall be unlawful for any person knowingly or intentionally … to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance” - 21 USCS § 841(a)(1)

“It shall be unlawful for any person knowingly or intentionally to possess a controlled substance unless such substance was obtained directly, or pursuant to a valid prescription or order, from a practitioner, while acting in the course of his professional practice ….”

- 21 U.S.C. § 844(a)


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“SCHEDULE I” CONTROLLED SUBSTANCES

• Marijuana is categorized as a Schedule I substance under the Controlled Substances Act (CSA). See 21 U.S.C. § 801, et seq.

• The manufacture, distribution, or possession of marijuana is a federal criminal offense, and it may not be legally prescribed by a physician for any reason.

21 U.S.C. §§ 812(b)(1)(A)-(C), 841(a)(1), 844(a)


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STATE ACTION Notwithstanding the federal ban, 23 states and the

District of Columbia have legalized certain marijuana-related activity.

To date, four states and the District of Columbia have legalized recreational marijuana (however, D.C.'s model continues to ban sales)

23 states have legalized marijuana for medical purposes

11 other states have legalized the limited use of low-THC forms of marijuana for medical use.


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CALIFORNIA’S COMPASSIONATE USE ACT OF 1996

No state permitted medical marijuana usage until California's Compassionate Use Act of 1996

Thus, from 1970 to 1996, the possession or use of marijuana --medically or otherwise -- was

proscribed under state and federal law.


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NY’S COMPASSIONATE CARE ACT

Signed into law in July 2014

Proposed regulations issued December 18, 2014 (comment period ended on Feb. 17, 2015)

$10,000 application fee (non-refundable)

$200,00 registration fee (refundable if you are rejected)

If you don’t have a facility you need to put up a $2mm bond

Limited number of operators (only 4 manufacturers, with each allowed up to 5 dispensaries. Registrations are valid for 2 years at a time and are renewable)

No “pot smoking”

Given the amount of time necessary to cultivate and manufacture marijuana, implementation of theprogram is not scheduled to begin prior to January 2016


9

REGISTRATION FEES

• Washington currently has the lowest fees, with a $250 application fee for retailers or wholesalers/processors, a $1,000 annual fee (initial and renewal), and the same fees applying to manufacturers, for up to 30,000 square feet of dedicated plant canopy.

• Illinois currently has the highest fees, charging cultivators a $25,000 application fee (nonrefundable), a $200,000 licensing fee, and a $100,000 annual renewal fee. For dispensaries, the fees are slightly lower: a $5,000 application fee (nonrefundable), a $30,000 licensing fee, and a $25,000 annual renewal fee.


10

CERTIFICATION Patient would have to be certified by a practitioner in order to obtain

medical marijuana (currently must be an M.D. Does not include D.O.s, Nurse Practitioners, or Physician Assistants)

A practitioner would be a physician, trained by and registered with the DOH, licensed by the State, and qualified to treat the serious condition for which the patient is seeking treatment

A certification could be issued only to a patient with a serious condition, which is limited to a defined list of conditions

The Commissioner of Health may add additional conditions or symptoms to the list

The patient would have to be under the practitioner’s continuing care for the serious condition

Practitioner must consider the appropriate form and dosage of medical marijuana. Smoking marijuana is prohibited.

Patient not allowed to possess an amount of medical marijuana in excess of a 30-day supply of the dosage

Patient required to keep the medical marijuana in the original packaging in which it was dispensed



EXAMPLES OF CONDITIONS APPROVED IN NY (other states allow more)

Cancer HIV/AIDS Amyotrophic Lateral Sclerosis (ALS) Parkinson’s Disease Multiple Sclerosis Intractible Spasticity (spinal cord injury) Epilepsy Inflammatory Bowel Disease Huntington’s Disease Neuropathy



POTENTIAL ADDITIONS TO THE LIST

Within 18 months of the effective date of the legislation, the Commissioner of Health will determine whether to add the following conditions to the list:

Alzheimer's disease

Muscular dystrophy

Dystonia

Post-traumatic stress disorder

Rheumatoid arthritis.


13

WHY JUST THOSE CONDITIONS?

According to the NYS DOH:

“These conditions were included in the law because there is evidence, including in the existing peer-

reviewed medical literature, that marijuana may be effective in alleviating the symptoms accompanying

these conditions. The law does not include conditions or diseases where there is currently a lack of compelling scientific evidence that marijuana may

be effective in alleviating the symptoms of other conditions.”


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REGISTRATION OF CONSUMERS Upon approval of the physician certification, DOH would issue a

registration identification card

The registry identification card would expire would expire one year after the date the certification is signed

Card would contain any recommendation or limitation on form or dosage imposed by the practitioner as well as other information’

A patient or caregiver would have to notify the Department of Health of any change in name or address or if the patient ceases to have the serious condition noted on the certification, at which point the card would have to be returned to the DOH

A patient would be required to carry his/her registration card when in possession od medical marijuana

DOH would maintain a confidential list of persons issued a registry identification card, and individual identifying information would be exempt from disclosure under NYS’s FOIL law


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PACKAGING AND LABELING Medical marijuana shall be dispensed to a certified patient or designated caregiver in a sealed and properly labeled package

The packaging date

Any applicable date by which the medical marijuana should be used

A medical warning

The amount of individual doses contained within

A warning that the medical marijuana must be kept in the original container in which it was dispensed



MEDICAL WARNING ON PACKAGING

“THIS PRODUCT IS FOR MEDICINAL USE ONLY.

WOMEN SHOULD NOT CONSUME DURING PREGNANCY OR WHILE BREASTFEEDING EXCEPT ON

THE ADVICE OF THE CERTIFYING HEALTH PRACTITIONER, AND IN THE CASE OF BREASFEEDING MOTHERS, INCLUDING THE INFANT’S PEDIATRICIAN.

THIS PRODUCT MIGHT IMPAIR THE ABILITY TO DRIVE.

KEEP OUT OF REACH OF CHILDREN.”


17

PRICE CONTROLS

NY is the only state that is doing full price controls. Pricing is set by the State, and medical marijuana cannot be sold at an

unapproved price.


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PENAL LAW

Class E felony: If practitioner issues a certification when the practitioner knows or has reason to know that the patient has no medical need for the certification, or that the certification was requested for a purpose other than to treat a serious condition

Class A misdemeanor: For patients or caregivers to retain an amount of marijuana in excess of the amount they are authorized to possess

Class B misdemeanor: For a person to transfer medical marijuana to an individual who the person knows or has reasonable grounds to know is not authorized to possess medical marijuana


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GOVERNOR MAY UNILATERALLY SUSPEND PROGRAM

New York’s law grants the governor the power to summarily suspend all

cultivation, manufacture and dispensing of marijuana based upon a

recommendation by the Commissioner of Health or by the office of the

Superintendent of the New York State Police


20

FEDERALISM CRISIS

State governors have refused to implement duly enacted state laws for fear that their subordinates will be prosecuted by federal authorities.

Local police officers are concerned that they may be committing federal crimes by returning seized property to individuals who have committed no state law offense—and wonder whether they are obligated by federal law to make arrests for conduct expressly legalized by their state. Oregon v. Kama, 39 P.3d 866 (Ore. App. 2002)


21

CSA DOES NOT VIOLATE THE 10TH AMENDMENT

Congress acted within the bounds of its Commerce Clause authority when it criminalized the purely intrastate manufacture, distribution, or possession of marijuana in the Controlled Substances Act.

Gonzales v. Raich, 545 U.S. 1 (2005)

U.S. v. Oakland Cannabis Buyers Cooperative, 532 U.S. 483 (2001)


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ANTI-COMMANDEERING DOCTRINE

1. Precludes Congress from commanding

state legislatures and executives “to enact or enforce a federal policy or program,” but

2. that Congress can subject the states to regulation by “generally applicable laws.”

Printz v. United States, 521 U.S. 898, 917(1997); accord New York v. United States, 505 U.S. 144, 188 (1992)


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CSA DOES NOT IMPLICATE PROHIBITION

ON FEDERAL “COMMANDEERING”

The Controlled Substances Act "does not require the [state legislatures] to enact any laws or regulations, and it does not require state officials to assist in the enforcement of federal statutes regulating private

individuals."

Reno v. Condon, 528 U.S. 141, 151 (2000).


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SUPREMACY CLAUSE / PREEMPTION

The Supremacy Clause is the provision in Article Six, Clause 2 of the United States Constitution that establishes the United

States Constitution, federal statutes, and treaties as "the supreme law of the

land."


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SUPREMACY CLAUSE / PREEMPTION

“[U]nder the Supremacy Clause, from which our pre-emption doctrine is derived, ‘any state law,

however clearly within a State‘s acknowledged power, which interferes with or is contrary to

federal law, must yield.’”

Gade v. National Solid Waste Management Assn.,

505 U.S. 88, 108 (1992)


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“REPUGNANCE” / “POSITIVE CONFLICT”

“Repugnance” or “positive conflict” preemption exists where it is logically possible for a regulated party to comply with both laws, but logically impossible for

courts to apply both laws to the same case: one law in effect permits a violation of the other.

A state medical marijuana law positively conflicts with the federal Controlled Substances Act, which prohibits

the individual use of marijuana for any purpose.


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“OBSTACLE” PREEMPTION

A conflict will be found if the state law “stands as an obstacle to the accomplishment and

execution of the full purposes of Congress.”

Hines v. Davidowitz, 312 U.S. 52, 67 (1941)

Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000)


28

IN APPLICATION…

The state law requiring the state‘s health department to issue a medical marijuana ID card to that person

creates no positive conflict, since nothing in the CSA addresses the situation. It might, however,

conflicts with the policy of the CSA and is subject to an obstacle preemption argument.


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POSSESSION OF MEDICAL MARIJUANA LEGAL UNDER THE CSA?

The CSA prohibits possession of a controlled substance “unless such substance was obtained . . .

pursuant to a valid prescription or order, from a practitioner, while acting in the course of his

professional practice.”

21 U.S.C. § 844(a)


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http://advance.lexis.com/api/document?collection=statutes-legislation&id=urn:contentItem:4YF7-GHW1-NRF4-454X-00000-00&context=1000516


The CSA defines “practitioner” as “a physician . . . licensed, registered, or otherwise permitted, by the

United States or the jurisdiction in which he practices . . . to distribute, dispense, [or] administer

. . . a controlled substance in the course of professional practice.”

21 U.S.C. § 802(21)


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http://advance.lexis.com/api/document?collection=statutes-legislation&id=urn:contentItem:4YF7-GR41-NRF4-452M-00000-00&context=1000516

“SCHEDULE I” CONTROLLED SUBSTANCES

• Marijuana is categorized as a Schedule I substance under the Controlled Substances Act (CSA). See 21 U.S.C. § 801, et seq.

• Schedule I substances may not be legally prescribed by a physician for any reason.

21 U.S.C. §§ 812(b)(1)(A)-(C), 841(a)(1), 844(a)


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Argument:

That the plain text of the Controlled Substances Act does not prohibit patients from possessing

marijuana pursuant to a doctor's order, since a doctor is a licensed physician who may, in the jurisdiction in which he practices, administer

controlled substances, including marijuana under the Compassionate Care Act, pursuant to a valid

prescription.


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WHETHER COURTS WILL ENDORSE THIS ARGUMENT REMAINS UNTESTED

This argument was raised by the plaintiff in Raich, but the 9th Circuit considered it waived by the plaintiff, and therefore it

was not addressed on the merits


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DISPENSING MEDICAL MARIJUANA PROHIBITED UNDER CSA

“[I]t shall be unlawful for any person knowingly or intentionally … to manufacture, distribute, or

dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance”

21 USCS § 841(a)(1)


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EVIDENCE RE LEGALITY UNDER STATE LAW NOT ALLOWED AT FEDERAL TRIAL

There is no affirmative defense under the CSA for complying with the marijuana laws of a particular state

During federal trial, the government has been successful at preventing the jury from hearing that the alleged criminal activity was legal under state law. See U.S. v. Rosenthal, 454 F.3d 943, 947 (9th Cir. 2006)


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2009 OGDEN MEMORANDUM

People who use marijuana for medical purposes and those who distribute it to them should not face

federal prosecution, provided they act according to state law.

The DOJ said that it was committed to the “efficient and rational use” of its resources and that

prosecuting patients and distributors who are in “clear and unambiguous compliance” with state

laws did not meet that standard.


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2011 COLE MEMORANDUM

“Overruled” the 2009 Ogden Memorandum:

Stated that “commercial operations” in the business of “cultivating, selling or distributing marijuana, and those who knowingly facilitate such

activities are in violation of the Controlled Substances Act, regardless of state law,” and that “such persons are subject to federal enforcement

action, including potential prosecution.”

* * *

“The Ogden Memorandum was never intended to shield such activities from federal enforcement action and prosecution, even where those activities purport to comply with state law …. Those who engage in transactions involving the proceeds of such activity may also be in

violation of federal money laundering statutes and other financial laws.”


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2013 COLE MEMORANDUM

U.S. DOJ Deputy Attorney General James Cole issued a memorandum to all U.S. Attorneys providing updated guidance to federal prosecutors concerning marijuana

enforcement under the CSA

The 2013 Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that the illegal

distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-

scale criminal enterprises, gangs, and cartels. The 2013 Cole Memo notes that DOJ is committed to

enforcement of the CSA consistent with those determinations.


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THE 2013 COLE MEMORANDUM PRIORITIES

1. Preventing the distribution of marijuana to minors

2. Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;

3. Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;

4. Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

5. Preventing violence and the use of firearms in the cultivation and distribution of marijuana;

6. Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;

7. Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and

8. Preventing marijuana possession or use on federal property


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OMINOUS LANGUAGE…

The enactment of state laws that endeavor to authorize marijuana production, distribution, and possession by establishing a regulatory scheme for those purposes affects th[e] traditional joint federal-state approach to narcotics

enforcement.”

* * *

The DOJ “expect[s] that states and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective

regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement

interests.”

* * *

“If state enforcement efforts are not sufficiently robust to protect against the harms set forth above, the federal government may seek to challenge the

regulatory structure itself in addition to continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.”

-2013 Cole Memorandum


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FEDERAL PROHIBITION EMBOLDENS CITIES AND COUNTIES TO BAN

Citing public safety concerns, cities and counties in states with medical marijuana

laws have moved to establish zoning regulations for medical cannabis

cultivation.


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RISKY FOR BANKS

CSA: Could be seen as acting in concert to violate the CSA. Banks do not want to face criminal conspiracy charges.

Banking Secrecy Act (“BSA”) of 1970: Regulates how banks must report and respond to transactions believed to be linked to illegal activity. Requires U.S. financial institutions to assist U.S, government agencies to detect and prevent money laundering. The Act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Financial institutions serving marijuana-related businesses could face criminal liability under the BSA for failing to identify and report transactions involving proceeds generated by activity that violates the CSA. See 31 U.S.C. 5318(g).

Anti-Money Laundering Laws (“AML”): Banks could be seen as violating AML laws


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FEDERAL MONEY LAUNDERING STATUTES

Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean").

Bank Secrecy Act (1970)

Money Laundering Control Act (1986)

Anti-Drug Abuse Act of 1988

Annunzio-Wylie Anti-Money Laundering Act (1992)

Money Laundering Suppression Act (1994)

Money Laundering and Financial Crimes Strategy Act (1998)

USA PATRIOT Act of 2001

Intelligence Reform & Terrorism Prevention Act of 2004


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18 U.S.C. § 1956

“Laundering of Monetary Instruments”

“Whoever, knowing that the property involved in a financial transaction represents the proceeds of some

form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact

involves the proceeds of specified unlawful activity … with the intent to promote the carrying on of specified unlawful activity …. shall be sentenced to a fine of not more than $500,000 or twice the value of the property

involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both.”

-18 U.S.C. § 1956(a)(1)(A)(i)


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BANKS UNWILLING TO GIVE BANK ACCOUNTS TO MJ-RELATED BUSINESSES

Many banks have refused to open checking and savings accounts or provide loans to organizations

that cultivate or buy and sell medical and recreational marijuana, and many banks do not

allow transactions from dispensaries on the debit or credit cards they issue.


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NO FINANCIAL INSTITUTION HAS PUBLICLY ANNOUNCED IT WILL ACCEPT MARIJUANA-

RELATED BUSINESS ACCOUNTS

MARIJUANA-RELATED BUSINESSES ARE HEAVILY CASH-ONLY

OPERATIONS


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DEPT. OF TREASURY’S FinCEN GUIDANCE MEMO

On 2/14/14, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued guidance aimed at clarifying Bank Secrecy Act

expectations for financial institutions interested in providing services to marijuana-related businesses

(“FinCEN Guidance”).


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DEPT. OF TREASURY’S 2014 FinCEN GUIDANCE MEMO

In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes:

i. Verifying with the appropriate state authorities whether the business is duly licensed and registered;

ii. Reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;

iii. Requesting from state licensing and enforcement authorities available information about the business and related parties;

iv. Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);

v. Ongoing monitoring of publicly available sources for adverse information about the business and related parties;

vi. Ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance;

vii. Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk;

viii. Considering whether a marijuana-related business implicates one of the Cole Memo priorities or violates state law


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FILING “SARs” ON MARIJUANA- RELATED BUSINESSES

A financial institution is required to file a SAR if the financial institution

knows, suspects, or has reason to suspect that a transaction conducted

or attempted by, at, or through the financial institution:

i. Involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity;

ii. Is designed to evade regulations promulgated under the BSA, or

iii. Lacks a business or apparent lawful purpose


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FILING “SARs” ON MARIJUANA- RELATED BUSINESSES

Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve

funds derived from illegal activity.

Therefore, a financial institution is required to file a “suspicious activity report” (“SAR”) on activity

involving a marijuana-related business (including those duly licensed under state law).


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“MARIJUANA LIMITED” SAR

Financial institution providing financial services to a marijuana-related business that it reasonably

believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or

violate state law.


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“MARIJUANA PRIORITY” SAR

Financial institution filing a SAR on a marijuana-related business that it reasonably believes, based

on its customer due diligence, implicates one of the Cole Memo priorities or violates state law.


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MARIJUANA TERMINATION” SAR

If a financial institution deems it necessary to terminate a relationship with a marijuana-related

business in order to maintain an effective anti-money laundering compliance program


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EVEN WITH GUIDANCE MEMOS, UNCERTAINTY REMAINS

Preparing the required SAR filings may satisfy a financial institution’s requirements under the BSA,

but does not explicitly protect a financial institution from criminal liability under the CSA.


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THIS HAS CREATED TAX PAYMENT ISSUES

Legal marijuana businesses without bank accounts are assessed a 10 % penalty on federal employee

withholding taxes they are required to pay electronically but are forced to pay in cash because

they are unable to obtain financial accounts that would enable them to pay their taxes electronically.


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Allgreens LLC v. Comm’r of Internal Revenue Case No. 13860-14, U.S. Tax Court.

The IRS sent the company a letter saying that not being able to get a bank account is no excuse for not paying employee withholding taxes electronically, as required by federal tax law. The dispensary has tried to get a bank account for at least two years. IRS said that companies have two alternatives to pay electronically. Both methods required Allgreens to funnel the cash to a third party, who could then make the tax payment on its behalf. In other words, money laundering.


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MARIJUANA BUSINESSES ACCESS TO BANKING ACT (HR 2652)

The proposed legislation would permanently resolve the conflict between state and federal law for financial

institutions seeking to serve marijuana-related businesses:

Would protect financial institutions from federal liability for service to state-sanctioned legitimate marijuana-related businesses; Would exempt financial institutions from SAR

obligations solely based on the fact that a party to a transaction is a marijuana-related business.

(H.R. 2652 is currently awaiting hearing in the House

Financial Services Committee)


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FOURTH CORNER CREDIT UNION? According to Fourth Corner’s website, it is “The only credit

union in the world constructed from the ground up to serve the interests of the legalized cannabis industry and its supporters.”

Colorado’s banking regulators granted Fourth Corner a charter on Nov. 19, 2014.

While the Federal Reserve Bank of Kansas City usually would handle requests for “critical master accounts” in Colorado, the board of governors for the Federal Reserve System in Washington, D.C. have become involved because, given marijuana’s illegal federal status, the decision would have national ramifications.

While the Federal Reserve must give out numbers to organizations that have been granted state charters the Feds could also dish out a “no” by simply not responding to the request.


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CREDIT CARD COMPANIES’ OFFICIAL RULES

Most credit card companies’ official rules forbid the use of their cards for purchasing illegal goods or

services.

However, MasterCard and Visa have reportedly unofficially relaxed their rules. Nevertheless, accepting cards requires a merchant banking

account.


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SECURITY CONCERNS

Since marijuana producers and sellers are forced to handle

transactions in cash, they often become targets for thieves.


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TAXES – 26 U.S.C. § 280E

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such

trade or business) consists of trafficking in controlled substances (within the meaning of

schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”


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WHAT DOES THAT MEAN FOR YOU?

Marijuana businesses are NOT treated like other businesses by the

IRS.

Marijuana businesses face effective federal tax rates of 50% to 85%.


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C.H.A.M.P., Inc. v. Comm’r

Petitioner taxpayer, a provider of both caregiving and medical marijuana to AIDS and cancer patients, challenged a ruling of respondent Commissioner of Internal Revenue that 26 U.S.C. 280E precluded the taxpayer from deducting all the ordinary and necessary expenses it incurred in providing care and medical marijuana pursuant to the California Compassionate Use Act of 1996. The taxpayer argued that its supplying medical marijuana to its members, who were generally very ill, was not "trafficking" within the meaning of Section 280E.

The court disagreed, recognizing Congress's sharply defined public policy against dealing illegal drugs, even if State law permitted their possession, and denied the deductions based on sales of medical marijuana.

However, provision of its care giving services was separate trade or business from its marijuana trade, so those expenses were deductible under 26 USCS § 162(a).

C.H.A.M.P., Inc. v. Comm’r, 128 T.C. 173 (2007)


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OLIVE V. COMM’R

“We … reject petitioner's contention that section 280E does not apply because the Vapor Room was a legitimate operation under California law. We have previously held that a California medical marijuana dispensary's dispensing of medical marijuana pursuant to the CCUA was "trafficking" within the meaning of section 280E ….That holding applies here with full force.

* * *

“The dispensing of medical marijuana, while legal in California (among other States), is illegal under Federal law. Congress in section 280E has set an illegality under Federal law as one trigger to preclude a taxpayer from deducting expenses incurred in a medical marijuana dispensary business. This is true even if the business is legal under State law.”

Olive v. Comm’r, 139 T.C. 19 (2012)


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OLIVE v. COMM’R

Whereas the court found that the medical marijuana dispensary in CHAMP Constituted two businesses (one the dispensing of medical marijuana and the other the providing of caregiving services), it declined to make the same finding here:

“We find instead that petitioner had a single business,

the dispensing of medical marijuana, and that he provided all of the Vapor Room's services and activities as part of that business”

Olive v. Comm’r, 139 T.C. at 39


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REASONS TAX COURT RECOGNIZED C.H.A.M.P. AS HAVING 2 BUSINESSES It operated exclusively for charitable, educational and scientific purposes;

Its income was slightly less than its expenses;

The director was experienced in health services;

Director operated the dispensary with caregiving as primary feature and dispensing of medical marijuana as a secondary feature

72%of CHAMP dispensary's employees (18 out of 25) worked exclusively in its caregiving business

Dispensary provided caregiving services “regularly, extensively and substantially independent of its providing medical marijuana” (i.e., rented space at a church for peer group meetings and yoga classes and the church did not allow marijuana on the church's premises);

Provided its low-income members with hygiene supplies and with daily lunches consisting of salads, fruit, water, soda and hot food;

Its members, approximately 47% of whom suffered from AIDS, paid a single membership fee for the right to receive caregiving services and medical marijuana;

The name of the dispensary stressed the dispensary's caregiving mission, not the sale and consumption of marijuana


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STANDARD APPLIED BY TAX COURT

Two activities can be separated or aggregated for tax purposes depending on:

1. The "degree of organizational and economic interrelationship;

2. The business purpose which is (or might be) served by carrying on the various undertakings separately or together in a trade or business, and

3. The similarity of * * * [the] undertakings.”

Sec. 1.183-1(d)(1), Income Tax Regs.


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VAPOR ROOM ≠ 2 BUSINESSES

“[T]he Vapor Room's dispensing of medical marijuana and its providing of services and activities share a close and inseparable organizational and economic relationship. They are one and the same business.”

- Olive v. Comm’r, 139 T.C. at 41-42


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REASONS TAX COURT RECOGNIZED VAPOR ROOM TO BE JUST 1 BUSINESS

Petitioner formed and operated the Vapor Room to sell medical marijuana to the patrons and to advise them on what he considered to be the best marijuana to consume and the best way to consume it;

Petitioner provided the additional services and activities incident to, and as part of, the Vapor Room's dispensing of medical marijuana;

Petitioner and the Vapor Room's employees were already in the room helping the patrons receive and consume medical marijuana and the entire site of the Vapor Room was used for that purpose;

Vapor Room did not pay any additional wages or rent to provide the incidental services and activities;

Vapor Room did not make any other significant payment to provide the incidental activities or services;

Petitioner oversaw all aspects of the Vapor Room's operation;

Vapor Room had a single bookkeeper and a single independent accountant for its business.


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EXISTENCE OF OTHER ACTIVITIES DOES NOT IPSO FACTO = SEPARATE BUSINESS

“The Vapor Room did not spawn a second business simply by occasionally providing the patrons with

snacks, a massage, or a movie, or allowing the patrons to play games in the room and to talk there

to each other.”

- Olive v. Comm’r, 139 T.C. at 42



FEDERAL TRADEMARK

Registering a trademark with the USPTO is the best way to protect one’s mark, but because

marijuana is a Schedule I controlled substance under federal law, and because the USPTO will not register a mark if the applicant cannot show lawful use of the

mark in commerce, it is impossible to secure federal registration of a marijuana-related

mark.


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STATE TRADEMARKS

Marijuana businesses CAN obtain State trademarks.

Even though the USPTO will not register trademarks for cannabis-products, state trademark

registrations are a viable and relatively inexpensive option for protecting your trade name. Obtaining state registration of a cannabis trademark/trade

name gives exclusive rights to use that trademark/trade name within that particular state.


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REGULATE MARIJUANA LIKE ALCOHOL ACT (H.R. 1013)

Would remove marijuana from the Controlled Substances Act and allow states to set and enforce their own marijuana policies without federal interference.

Would transfer oversight of MJ from the DEA over to the ATF, and regulate marijuana in a way similar to how alcohol is currently regulated in the U.S.

This would remove the many unintended consequences of the current conflict between state and federal

marijuana laws.


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MARIJUANA TAX REVENUE ACT

Would set up a federal excise tax for recreational marijuana, but not medical marijuana.

Would initially tax recreational marijuana at 10 % and gradually raise the rate to 25 %. It would not

tax medical marijuana at the federal level.


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FEDERAL ASSET FORFEITURE

Allows for seizure and forfeiture of assets that represent the proceeds of, or that were used to

facilitate the commission of, federal crimes.


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21 U.S.C. 881(a)(7)

“The following shall be subject to forfeiture to the United States and no property right shall exist in

them … All real property, including any right, title, and interest (including any leasehold interest) in the

whole of any lot or tract of land and any appurtenances or improvements, which is used, or

intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation

of this title punishable by more than one year's imprisonment.”


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TARIFF ACT OF 1930 - 19 U.S.C. § 1607

Administrative forfeiture is an in rem action that permits the federal seizing agency to forfeit the property without judicial involvement. Property that can be administratively forfeited is:

Merchandise the importation of which is prohibited;

A conveyance used to import, transport, or store a controlled substance;

A monetary instrument;

Or other property that does not exceed $500,000 in value.



FEDERAL CEASE AND DESIST LETTERS – TO DISPENSARIES

Many dispensaries have recently been targeted by federal authorities. The feds typically begin by sending cease and desist letters that instruct

dispensary owners to shut down the operation or risk federal prosecution.


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FEDERAL CEASE AND DESIST LETTERS – TO LANDLORDS

If the dispensary operates in rented space, a second letter from the DEA often goes to the landlord. The letter warns the property owner that if it allows the dispensary to continue to violate federal law on the

premises, the owner risks losing the property through forfeiture to the federal government.

Owners who are fearful of losing their property may terminate dispensaries’ leases, effectively shutting

them down at no cost in time or effort to the federal government.



EVICTION ISSUES

A lease agreement in California which requires a tenant to operate a business for a “lawful purpose” would not necessarily result in the operation of a medical marijuana dispensary being in breach of the contract.

On the other hand, a lease agreement which asks a tenant to follow “all applicable laws” will also be subject to federal law, which outlaws the sales of marijuana, for any reason. A contract which contains this phrase would allow a landlord to evict a tenant selling medical marijuana.


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GUN CONTROL ACT OF 1968

“It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person

knowing or having reasonable cause to believe that such person … is an unlawful user of or addicted to any

controlled substance.”

-18 U.S.C. § 922(d)(3)

“It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person

knowing or having reasonable cause to believe that such person … is an unlawful user of or addicted to any

controlled substance …. to … possess … any firearm or ammunition.”

-18 U.S.C. § 922(g)(3)



ATF FORM 4473

Everybody who buys a gun must fill out ATF Form 4473, which asks: "Are you an unlawful user of, or

addicted to, marijuana or any depressant, stimulant, narcotic drug, or any other controlled

substance?”

Answer “Yes,” and you don’t get the gun.

Answer, “No,” and you’ve committed a crime.


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ATF’S “OPEN LETTER TO ALL FEDERAL FIREARMS LICENSEES” OF 9/21/11

"Any person who uses or is addicted to marijuana, regardless of whether his or her State has passed legislation

authorizing marijuana use for medicinal purposes, is ... prohibited by Federal law from possessing firearms or

ammunition.“

• Clarifies that the ATF includes medical-marijuana patients in that group of prohibited buyers because their marijuana use

is illegal federally.

• The letter also tells gun sellers that they could be in line for punishment if they knowingly sell to medical-marijuana

patients.


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QUALITY HOUSING AND WORK AND RESPONSIBILITY ACT OF 1998 (QHWRA)

QHWRA Section 576(b) addresses admissions standards related to current illegal drugs use for all public and other federally assisted housing. This section requires PHAs and

owners to deny admission to those households with a member who the PHA or owner determines, at the time of

admission, is illegally using a controlled substance.

Under the QHWRA’s termination standards, however, PHAs and owners have the discretion to evict or refrain from

evicting a current tenant who is illegally using a controlled substance. Thus, PHAs and other owners must deny

admission to illegal drug users (including medical marijuana), but they are not required to evict current illegal

drug users.



THE FAIR HOUSING ACT

Under a 1/20/11 Memo from HUD:

Public Housing Authorities (PHA) and owners of other federally assisted housing may not

accommodate requests by current or prospective residents with disabilities to use medical marijuana.

In other words, permitting usage of medical marijuana is NOT a reasonable accommodation.


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THE ADA AND SECTION 504 OF THE REHAB ACT --

Under Section 504 and the ADA, current illegal drug users (including medical marijuana users) are

excluded from the definition of “individual with a disability” when a provider acts on the basis of

illegal drug use. Section 504 and the ADA determine whether a drug is “illegal” by looking

exclusively at the CSA. The CSA prohibits all forms of marijuana, so the use of medical marijuana is

illegal under federal law even if it is allowed under state law.


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PHYSICIANS

The federal government cannot revoke a physician’s license to dispense controlled

substances merely because he/she “recommends” marijuana as a therapy to

a patient.

Conant v. McCaffrey,

2000 U.S. Dist. LEXIS 13024 (N.D. Cal. Sept. 7, 2000)


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ADDITIONAL FEDERAL CRIMES

21 U.S.C. § 846 – Conspiracy

21 U.S.C. § 854 – “Investment of Illicit Drug Profits”

21 U.S.C. § 856 – “Maintaining a Drug-Involved Premises”

21 U.S.C. § 863 – “Drug Paraphernalia”



21 U.S.C. § 846 – Conspiracy

“Any person who attempts or conspires to commit any offense defined in this

title shall be subject to the same penalties as those prescribed for the

offense, the commission of which was the object of the attempt or conspiracy.”


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21 U.S.C. § 854

“Investment of Illicit Drug Profits”

“It shall be unlawful for any person who has received any income derived, directly or indirectly, from a violation of this

title or title III punishable by imprisonment for more than one year in which such person has participated as a principal within the meaning of section 2 of title 18, United States

Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any

interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which

affect interstate or foreign commerce….”

- 21 USCS § 854(a)


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21 U.S.C. § 854

“Investment of Illicit Drug Profits”

Penalty:

“Whoever violates this section shall be fined not more than $ 50,000 or

imprisoned not more than ten years, or both.”

- 21 USCS § 854(b)


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“It is unlawful for any person … to

sell or offer for sale drug paraphernalia.”

-21 U.S.C. 863(a)(1)


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Penalty

“Anyone convicted of an offense under subsection (a) of this section shall be

imprisoned for not more than three years and fined under title 18, United States

Code.”

21 USC § 863(b)


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21 U.S.C. 856

“Maintaining a Drug-Involved Premises”

Except as authorized by this title, it shall be unlawful to:

1) knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance;

2) manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance.



21 U.S.C. § 856

“Maintaining a Drug-Involved Premises” Penalty:

1) Any person who violates subsection (a) of this section

shall be sentenced to a term of imprisonment of not more than 20 years or a fine of not more than $ 500,000, or both, or a fine of $ 2,000,000 for a person other than an individual.

2) a civil penalty of not more than the greater of-- (A) $ 250,000; or (B) 2 times the gross receipts, either known or estimated, that were derived from each violation that is attributable to the person.



ROHRABACHER RIDER TO 2014 OMNIBUS SPENDING BILL

A provision authored by Rep. Dana Rohrabacher (R-Calif.) and tucked into an 1,603-page federal spending measure bars the DOJ from spending money to "prevent" states or the District of Columbia from "implementing" laws allowing medical use of cannabis:

“None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of Alabama, Alaska,

Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland,

Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico,

Oregon, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Washington, and Wisconsin, to prevent such States from

implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”


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EFFECT OF THE ROHRABACHER RIDER?

Doubtful whether this will have much effect since federal prosecutions do not, strictly speaking, prevent states from implementing their medical marijuana laws (as would be the case if the feds tried to force the state to prosecute)

Although enforcing the federal ban on marijuana in states that allow medical or recreational use may undermine the goals of those state laws, it does not render them ineffectual.

Irrespective of what the DOJ or DEA does, residents of those states no longer face state penalties for specified marijuana-related activities In that sense these states have not been stopped from implementing their laws.



Compassionate Access, Research Expansion, and Respect States (“CARERS”) Act

A bill with bipartisan support was introduced in the U.S. Senate on March 10, 2015 and in the House on March 25, 2015 would:

Decriminalize transportation of cannabidiol (CBD) oil (the active ingredient in marijuana) from states that allow its production to states that allow its use.

Would help patients in the 23 states that allow medical use of cannabis itself by amending the Controlled Substances Act (CSA) so that the federal ban on marijuana does not apply to people who grow, distribute, or use the drug for medical purposes in compliance with state law.

This is the first time a bill legalizing medical marijuana has been introduced in both houses of Congress. Could represent a turning point in the national debate about marijuana.


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CONTACT INFORMATION

Ameer Benno, Esq.

BENNO & ASSOCIATES P.C.

30 Wall Street – 8th Floor

New York, NY 10005

Tel.: (212) 227-9300

Fax: (212) 994-8082

Email: [email protected]

www.ameerbenno.com



Documents

FEDERAL RESPONSES TO MEDICAL MARIJUANA …Practitioner must consider the appropriate form and dosage of medical marijuana. Smoking marijuana is prohibited. Patient not allowed to possess