The legalization of marijuana has been around for quite some time. However, there are no clear regulations about its commercial sale. This is marked by the conflict between state forfeiture laws and the sale of recreational cannabis. Due to this misfortune, many people have lost properties to the government once they are seized due to alleged violations of different marijuana laws. This makes asset forfeiture laws a unique enforcement tool that poses a threat to the recreational cannabis market. 

The relationship between asset forfeiture and the recreational cannabis industry is complicated, and anyone involved in it can end up losing their properties. At the Asset Forfeiture Attorney, we are ready to help our clients with any situation that might arise when asset forfeiture seems to threaten your recreational cannabis businesses. Read further and learn more about asset forfeiture and its relationship with the recreational cannabis industry. 

Significance of Cole Memorandum on Commercial Marijuana

If you are involved in the recreational cannabis industry, you probably have heard the term “Cole Memo.” Although many people in this industry have heard about this term, they do not recognize the memo’s importance to the industry. So, what is the “Cole Memo”? Simply put, this memo is the only thing that stands between the legal cannabis industry and federal enforcement. Therefore, it is crucial for anyone involved in this industry.

You may be wondering how this memo came into play, right? This memo appeared in 2013 when Colorado and Washington approved the growth, distribution, and sale of cannabis and its byproducts. At this time, federal laws were still considering cannabis as an illegal drug, meaning that these two states embarked on a journey that technically broke them. Therefore, those who choose to participate in this industry were at risk of operating their businesses without much freedom.

State and federal governments were at crossroads since these two states were unsure whether to pursue the strict federal government on the recreational cannabis industry or start enforcing the regulations that their voters had approved. With this kind of dilemma, a medium that would help these two sets of laws get along was much needed.

In August 2013, James M. Cole, then-deputy Attorney General in the Barack Obama government, issued a memorandum to all U.S Attorneys. The memo was published through the Department of Justice and aimed at setting expectations for federal and state government agencies on regulating the recreational cannabis industry.

In summary, the Cole Memo expected states to implement a strict regulatory framework to monitor the growth, distribution, and sale of regulated cannabis to create a transparent and accountable market. Once these states comply with these requirements, the federal government would leave them alone. 

Specifically, the Cole Memo expected states to focus on the following priorities to avoid federal interference:

  • Prevent using revenue raised from the sale, growth, or distribution of cannabis in funding criminal enterprises, gangs, or cartels
  • Prevent the distribution of cannabis to minors
  • Prevent the use of state-legal cannabis sale to cover illegal activity
  • Prevent the use of firearms and violence in the growth or distribution of cannabis
  • Prevent exacerbation of adverse public consequences related to cannabis use
  • Prevent growing of cannabis on public lands
  • Prevent the possession of cannabis on federal property like government property and national parks

As long as a cannabis business complies with the regulations described above, you did not expect any federal government interference as per the Cole Memo provisions. 

Attorney General Jeff Sessions Rescission on the Cole Memo

Under the Donald Trump reign, the then-attorney General Jeff Sessions rescinded the Cole memo on 3rd January 2018. Under the new Sessions’ policy, U.S Attorneys were mandated to decide on the federal resources they would devote to marijuana enforcement based on what they see fit for public safety.

The rescission went against Cole’s Memo that had a “low priority” on enforcing marijuana laws against organizations and businesses that comply with their state’s marijuana laws. This happened after implementing Proposition 64 of 2016, which allowed licensing of businesses involved in the recreational cannabis industry.

The legal sale of non-medical use of marijuana began on 1st January 2018, after the formulation of new regulations by the Bureau of Marijuana Control. Therefore, businesses had only two days (between 1ST and 3rd January 2018) to enjoy the freedom of running the recreational cannabis industry.

Jeff Sessions’ new policy revived the conflict of interest between federal laws and state laws regarding the recreational marijuana industry. Even so, state and federal representatives moved quickly to oppose the new memorandum since the cannabis industry had already injected over $20 billion into the United States’ government.

Nevertheless, the industry has continued to find some comfort through the Rohrabacher- Blumenauer amendment that restricts the Department of Justice from using federal funds to prevent states from implementing their state laws to authorize the sale, use, and possession, and cultivation of medical marijuana. 

How Attorney General Jeff Session New Policy Affected the Marijuana Industry through Asset Forfeiture

With Jeff Sessions’ rescission, asset forfeiture has stood as one of the significant ways the federal government can combat marijuana drug law violations. For instance, in April 2018, federal agents seized over 100 homes in Sacramento, CA, in what they claimed was a crackdown on illegal marijuana operations. Other reports from other states indicate that federal law enforcement officials have conceivably used forfeiture to curb the expansion of marijuana operations.

 Although there might be no significant relationship between the use of forfeiture to curb the expansion of future marijuana operations, any affirmative statements or actions of asset forfeiture brings a chilling effect on investment into the cannabis industry.

State and Local Enforcement of Asset Forfeiture on the Cannabis Industry

In December 2018, Detroit’s Wayne County Sheriff’s deputies seized Crustal Sisson’s car after observing her leave a lawfully-operated medical marijuana dispensary. Sisson was found to have marijuana worth $10 and charged for violating the City of Detroit ordinance, “Illegally occupying a place where a controlled substance is sold.” Similar incidences of asset seizure practices have been reported across the country.

Under the Sessions’ rollback on Cole’s memo, law enforcement can seize and forfeit cash or property alleged to be used in violation of state drug laws without the judicial oversight and without charging the possessor of the property or cash. Since there is an existing variance between federal and state marijuana laws’ provisions, the officer can seek a seizure warrant from a federal judge to actualize the asset forfeiture.

Law enforcement officers can also seize an asset under a lawful arrest and search or when a different exception to the Fourth Amendment warrant requirement applies. The officer should establish probable cause to believe that the property is subject to forfeiture. 

Although state laws might reduce the possibility of asset forfeiture, you can still end up losing your property when local agencies turn the forfeiture to a federal agency. Once a case is turned to the federal agency, it will adopt federal laws and will process the forfeiture process even when it is illegal under state laws. Funny enough, local or state agencies can end up receiving up to 80% of the proceeds through the Equitable Sharing Program.

 Please note, forfeiture can happen to different types of assets including real property, vehicles, jewelry, financial instruments, firearms, cash, and ammunition.

How Federal Government Use Standalone Civil Asset Forfeiture on Marijuana Sale

As we have recently learned, the federal government can seize any property that facilitates marijuana-related activity as long as the prosecutor sees fits to take it. This means that federal law enforcement agencies can take these properties without involving their owners.

Instead of charging an individual, federal law agencies bring these cases against the property, which becomes the defendant. For instance, the federal government can seize a property from a landlord who rented space to a marijuana dispensary. This is a risky process that can lead to asset forfeiture without the owners’ direct involvement and other third parties in the alleged drug violation.  

Risks to third Parties

Third parties like landlords, credit unions, banks, software providers, and financial institutions also stand at risk of asset forfeiture due to their “involvement” in violation of state or federal marijuana laws.

Landlords seem to be at the highest risk if their properties were involved in violating federal or state marijuana laws. Federal law enforcement agencies assume that they knew about the illegal marijuana-related business operating on their property.

For instance, federal authorities in California sought to forfeit a property with two medical cannabis dispensary rentals in his property. Fortunately, the Cole Memo restricted this move and had him keep his property. However, with the Cole memo’s withdrawal, this landlord might end up losing the property to asset forfeiture.  

Financial institutions are also at risk of forfeiture, especially if they hold and move money for marijuana businesses. You might think that federal authorities would prosecute the account owners, but a third party like a financial institution if their customer can be charged for flouting marijuana regulations.

The most obvious means that financial institutions are at risk of forfeiture is when the government identifies a transaction involving a marijuana offense’s proceeds. Most of these offenses constitute money laundering violations. Most drug cartels seek to use financial institutions to make their money “clean,” whereas the proceedings were made through illegal marijuana-related activities like trafficking.

Financial institutions are at risk of losing all the amount in a general bank account even if part of it was not involved in money laundering. This happens as long as there is a direct trace of marijuana sale proceeding in the account. 

How Property Owners Protect Themselves from Asset Forfeiture

Property owners do not deserve forfeiture due to another person’s criminal activity. That’s why the innocent owner defense applies. The 18 U.S.C 983(d) created the innocent owner defense, stating that federal agencies should not forfeit an innocent owner’s property under any civil law statute.

However, claimants should prove by a “preponderance of the evidence” that they were unaware of the illegal marijuana business.  Upon learning about this risk, they did everything to terminate the activity on their property.

In a marijuana-friendly state like California, the innocent owner defense cannot work since property owners are expected to explicitly allow their tenants to cultivate, sell, manufacture or distribute marijuana. Additionally, these states also allow tenants to apply and acquire state licenses authorizing them to run their businesses. Therefore, this creates a dilemma on what landlords should do to protect themselves from forfeiture.

So how is this dilemma solved?

Firstly, real property leases should have an “escape clause” that lists federal intervention, forfeiture threats, and federal enforcement policies as the basis of lease violation and cancellation. Nevertheless, the lease agreement should provide relevant regulations that govern the activities that should take place on the property.

For instance, if your tenant is a marijuana retailer, your lease should reflect this by explicitly explaining that they are marijuana retailers. Being unclear in your lease agreement runs the risk of breach of the lease by the tenant by conducting illegal activity on your property and invites federal scrutiny. 

You can also set out a strict code of conduct relating to the use of your property. You can do this by explicitly forbidding any action that violates state or federal marijuana laws. You can also use lease provisions relating to the tenant’s operation in your neighborhood, odors, loitering, and the use of hazardous substances on your property. Restricting the number of people permitted on your property also suits you best in protecting yourself from asset forfeiture. 

How Financial Institutions Protect Themselves from Marijuana-related Civil Forfeiture

Financial institutions can also prevent civil forfeiture due to marijuana-related violations by complying with federal anti-money laundering policies. Under these policies, financial institutions should know their customer, identify any suspicious activity, and report the matter to the right agencies. Complying with these policies reduces the risk of civil forfeiture with connection to marijuana-related violations.

However, with the withdrawal of Cole’s Memo safe harbor, financial institutions have been at risk of facing anti-money laundering charges by serving marijuana businesses. This means that they should have their means to monitor these businesses to ensure that their customers do not egregiously violate state marijuana laws. 

The Use of Warning Letters as a Form of Asset Forfeiture

Although asset forfeiture has been one of the harshest means used by federal authorities to close down marijuana businesses, the Department of Justice has been using warning letters as a less severe means to regulate the recreational cannabis industry. This involves warning letters to pressure marijuana businesses to close once suspected of violating state marijuana laws.

These warning letters usually instructed violators to cease the sale and distribution of marijuana or face criminal prosecution and asset forfeiture. However, the Cole Memo halted the sending of these letters.

Since the Cole Memo has been revoked, federal prosecutors can resume sending these letters to marijuana businesses flouting state marijuana laws, even when their actions are not egregious enough to warrant criminal prosecution.

A sign of Relief on the Pot Industry During Joe Biden’s Regime

Since Joe Biden has been elected as the new United States president, there are some rays of hope on the issue concerning commercial marijuana and asset forfeiture. One of the most promising changes in this industry is the pave the way for cannabis banking reforms. This gives relief to U.S multistate operators that have struggled to access banking services due to financial institutions’ fear of the risk of asset forfeiture levied on them for providing financial services to customers flouting marijuana laws.

Another potential move that Joe Biden would make is the reinstatement of Cole’s Memo version, released during the Obama regime. Biden had pledged to reschedule marijuana from Schedule 1 to Schedule 2, although it would not achieve many of the changes that he seeks to advocate.

Rescheduling marijuana might seem a well-intentioned move, but it would allow the Food and Drug Administration to impose stricter regulations on the pot industry than the current federal and state laws. For instance, it might require thorough clinical trials to prove that marijuana can treat specific ailments like glaucoma. The FDA can also choose to oversee the manufacture, packaging, cultivation, and distribution of cannabis and impose stricter measures. 

Only time will tell if Biden will make significant progress in bringing relief to the pot industry. However, it appears that federal cannabis policies can loosen if deliberated on as time goes by. 

Find an Asset Forfeiture Attorney Near Me

As much as you can try to mitigate the risk of asset forfeiture related to your marijuana businesses, the need to seek legal counsel is crucial. You need to respond to warning letters, civil asset forfeiture, and criminal charges related to your business timely and comprehensively. With the thin line between federal and state marijuana laws, having an asset forfeiture attorney by your side is your best option.

At the Asset Forfeiture Attorney, we dedicate our efforts and resources to fight for you while giving little or no consideration to your marijuana-related violations. Call us today at 888-571-5590 for a thorough evaluation of your marijuana violation claim, and let us devise viable solutions to solve your problems. We offer our services in California and across the United States.