Trump Administration Jeopardizes Legal Cannabis Industry

January 4, 2018

News sources are reporting that Attorney General Jeff Sessions plans on rescinding the Cole Memo, an Obama-administration policy statement that essentially took a federal hands-off approach toward cannabis businesses that are legal and compliant under state law. The Cole Memo provided a moderate amount of predictability for these medical and recreational cannabis businesses, allowing them to operate without too much concern that DEA agents would roll up their operations. Marijuana is still classified as a Schedule 1 drug, and therefore is illegal under federal law. According to the news reports, the new approach will allow federal prosecutors in states where cannabis is legal decide how aggressively they want to enforce federal laws relating to marijuana.

As of September 14, 2017, 29 states plus the District of Columbia had legalized marijuana in some form. Most of those states had legalized medical marijuana, but 8 states have legalized marijuana for recreational use. California’s recreational marijuana law became effective January 1, 2018. Ohio, which recently legalized medical marijuana, has already started evaluating and issuing permits for cultivation, processing, and retail. According to Arcview Market Research, legal marijuana sales in North America were approximately $9.7 billion in 2017, an increase of 33% over 2016. Arcview also predicts that the entire legal cannabis market could reach $24.5 billion in sales by 2021. In Colorado, where recreational marijuana is legal, sales now exceed $1 billion a year, and thousands of people have jobs in cannabis-related businesses. Moreover, a Gallup poll released in October 2017 indicates that 64% of Americans support legalizing marijuana for both recreational and medicinal use. That includes support from 51% of Republicans, an increase from 43% Republican support during the previous year’s poll.

Consequently, the new action jeopardizes an economic sector that is showing dramatic growth and potential. Even if federal prosecutors decide to pursue more important priorities, like illegal opioid sales, the uncertainty could chill potential investment in cannabis-related businesses. For example, a Legal 1 cultivator application fee for Ohio costs $20,000. The initial Level 1 cultivator license fee is $180,000, and the annual license renewal fee is $200,000. Investors are going to be reluctant to commit that level of funds to an operation that could be raided by an overly-zealous federal prosecutor.

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