Medical Marijuana Business Regulatory Landscape in Rhode Island and Other States, 0615 RIBJ, 63 RI Bar J., No. 6, Pg. 11

Author:David M. DiSegna, Esq. Pannone Lopes Devereaux & West LLC. Bruce H. Tobey, Esq. Pannone Lopes Devereaux & West LLC.
 
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Medical Marijuana Business Regulatory Landscape in Rhode Island and Other States

Vol. 63 No. 6 Pg. 11

Rhode Island Bar Journal

June, 2015

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 May, 2015

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 David M. DiSegna, Esq. Pannone Lopes Devereaux & West LLC.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Bruce H. Tobey, Esq. Pannone Lopes Devereaux & West LLC.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In 2006, the Edward O. Hawkins and Thomas C. Slater Medical Marijuana Act became law, making Rhode Island the tenth state to legalize medical marijuana in some capacity. Since then, there has been a significant increase in the number of states legalizing the sale and use of medical marijuana through legislation or some form of ballot initiative. Currently, twenty-three states permit the sale and use of medical marijuana, and this trend of legalization is continuing. In the most recent election, there were ballot measures in four jurisdictions for the legalization of marijuana for either medical or recreational use. Oregon's, Washington D.C.'s and Alaska's ballot measures were passed by voters. Florida's measure was just two percentage points short of reaching the requisite 60% approval needed for passage of a state constitution amendment.1 Additionally, the federal government took an enormous step in this same direction with the passage of the latest Continuing Appropriations Act, signed into law by President Obama on December 16, 2014. That act prohibits the United States Department of Justice (DOJ) from using funds to prevent states from implementing their own laws authorizing "the use, distribution, possession, or cultivation of medical marijuana."2

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0This increase in legalization has created enormous business opportunities for entrepreneurs seeking to capitalize on the newly-established legal marijuana market by opening cultivation and dispensary operations to grow and sell cannabis. In addition to the burgeoning market for cultivation and retail sale of cannabis itself, the legalization of medical marijuana has fueled the growth of many ancillary businesses supporting the marijuana industry, including: facility security and armed or protected transportation services; financing; laboratory product testing; software systems for inventory recordkeeping and seed-to-sale tracking of product; and manufacturing of cultivation supplies (such as lamps, air exchange systems, and oil extractors), drug delivery devices, and secure packaging.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0However, the growth of these ancillary businesses is not fueled just by legalization of medical marijuana in and of itself. Instead, much of this growth is the result of statutory and regulatory requirements placed on the medical marijuana industry to ensure safety of patients and staff and to protect against product diversion into the black market. On a related note, enabling statutes and regulations can, in some cases, create enormous barriers to entry into the medical marijuana business due to compliance costs.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0These regulations vary greatly from jurisdiction to jurisdiction, ranging from the largely unregulated states, where there are few restrictions on the growing and selling of medical marijuana, to the hyper-regulated states where the costs required to operate in full compliance with state regulations prevent many from entering the market. This article explores the regulatory landscape of the medical marijuana industry in Rhode Island and nearby Massachusetts, as well as Illinois, a relative new-comer to the medical cannabis arena. However, to fully understand the existing regulatory variations, one must first appreciate the role the federal government has played in the medical marijuana industry and how the DOJ has influenced state regulators.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Federal Influence on States

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Despite the recent trend toward legalization of medical marijuana, and the new prohibition on the use of DOJ funds to prevent states from implementing medical marijuana laws, marijuana still remains a Schedule I controlled substance under the federal Controlled Substances Act, 21 U.S.C. § 801 et seq. (CSA).3 Thus, under Section 841 of the CSA, it is unlawful "to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense" marijuana.4

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0With cultivation, dispensing and possession of marijuana becoming legal in so many states, yet remaining unlawful under the CSA, it became unclear to federal law enforcement officials and prosecutors how, and even whether, they should proceed with enforcement of the CSA in states with legalized marijuana. Thus, the DOJ provided guidance regarding enforcement, investigation and prosecution of marijuana-related offenses through the issuance of a sequence of memoranda aimed at articulating the DOJ's enforcement priorities. The guidance set forth in these memoranda influenced state regulators to draft regulations avoiding federal interference with the newly-legalized marijuana industry in their states. Despite the fact that the DOJ is now prohibited from using funds to prevent states from implementing their own medical marijuana laws, the regulations issued to comply with the DOJ memoranda remain in full force and effect.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The first of the DOJ memoranda (the Ogden Memo) was issued on October 19, 2009 by Deputy Attorney General David W. Ogden. Although the Ogden Memo made clear the DOJ "[wa]s committed to the enforcement of the Controlled Substances Act in all States, " it went on to explain that, to make "efficient and rational use of its limited investigative and prosecutorial resources, " the DOJ needed to establish priorities for its use of those limited resources.5 The Ogden Memo stated that the DOJ should focus its efforts on "commercial enterprises that unlawfully market and sell marijuana for profit" and not "on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana, " such as those "with cancer or other serious illnesses who use marijuana as part of a recommended treatment regimen..., or those caregivers...who provide such individuals with marijuana"6

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Ogden Memo set forth the DOJ's investigative and prosecutorial priorities by delineating several factors to be used by United States Attorneys and law enforcement officials. The Ogden Memo instructed that efforts should focus on: preventing marijuana-related activities involving unlawful possession or use of firearms; violence; sales to minors; activities inconsistent with state or local laws; illegal possession or sale of other controlled substances; or activities with ties to other criminal enterprises.7Thus, the Ogden Memo appeared as an indication to those in the medical marijuana business that, if they operated within the parameters established by their respective states, then the long-arm of the law would not be inclined to reach into their operations.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0However, on June 29, 2011, Deputy Attorney General James M. Cole issued another memorandum (the First Cole Memo) clarifying the policy annunciated almost two years earlier in the Ogden Memo.8 The First Cole Memo made clear t hat when the Ogden Memo spoke of focusing efforts away from "caregivers" it was describing "individuals providing care to individuals with cancer or other serious illnesses, not commercial operations cultivating, selling or distributing marijuana."9 Thus, under the First Cole Memo, anyone "in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate [d] such activities, " was subject to full federal investigation and prosecution "regardless of state law"10

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Despite the somewhat harsh language of the First Cole Memo, the DOJ reversed course two years later, when Cole issued another memorandum (the Second Cole Memo).11 This time, the DOJ declared it would defer to state and local agencies to enforce marijuana-related offenses and would only focus its efforts on preventing certain harms similar to those described in the Ogden Memo.12

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Second Cole Memo noted the guidance provided therein was made under the expectation that states with legalized 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."13 The Second Cole Memo emphasized a state regulatory system "must not only contain robust controls and procedures on paper; it must also be effective in practice.''14Thus, where such robust regulatory schemes exist, it is state enforcement of those regulations that should be used to address marijuana-related activity, not DOJ enforcement of federal law.15 The Second Cole Memo also effectively repealed the previous DOJ policy focusing enforcement efforts on large commercial operations "regardless of state law"16

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonetheless, the Second Cole Memo did caution, "[i]f 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 prosecution."17 Thus, from the standpoint of those in the marijuana business, compliance with a robust state regulatory scheme provided the best chance of avoiding...

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