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How the government could crack down on legal marijuana: James Cole



employee holds marijuana while posing in a photo illustration at
a dispensary in Ottawa, Ontario, Canada, June 20,


  • Legal marijuana
    is one of the
    industries in the US, except the federal
    government considers it an illegal drug.
  • According to James Cole, a former top Justice
    official, it’s in the federal government’s power
    to crack down on legal marijuana businesses — but it’s
    not likely
  • Cole outlined three ways the Justice Department could
    rein in the marijuana industry in an interview with Business

Legal marijuana is one of the
industries in the US. It generates hundreds
of millions in tax revenue in states where selling
the drug is legal
, and it’s expected to become a a $32
billion global market in the next four years.

It’s also considered an illegal substance by the federal
government — and it’s subject
to the whims
of President Trump’s administration and his
deeply conservative,
attorney general, Jeff Sessions. 

In January of this year, Sessions
the Cole Memorandum, an Obama-era policy that
directs the Justice Department to keep its hands off state-legal
marijuana enterprises, provided those businesses comply with
state laws, pay proper taxes, don’t sell to minors, and don’t
divert marijuana to the black market, among other enforcement

Despite the federal government’s stance, the marijuana industry
is booming, giving rise to
high-end retail stores
biotech startups
, and a bumper crop of
private equity
venture capital
, and
hedge funds
. Vivien Azer, an analyst at New York
City-based investment bank Cowen, predicts the industry could
$75 billion
in sales by 2030 — more than the soda industry —
if it’s legalized nationwide.

There is perhaps no one better to discuss how the Justice
Department could impact the nascent marijuana industry than James
Cole, the author of the memo
and a Justice Department veteran who served as the deputy
attorney general from 2010 to 2015.

We talked to Cole about what a
theoretical crackdown on state-legal marijuana businesses could
look like, and what the Justice Department’s enforcement
priorities may look like moving forward. 

legal marijuana statesSamantha Lee/ Business Insider

What revoking the Cole Memo means 

Cole’s tenure in the Justice
Department has turned him into a unlikely authority on the legal
marijuana industry. Now a lawyer in private practice — he’s
a partner at the Washington D.C.-based Sidley Austin — he also
advises marijuana industry clients and speaks at
marijuana industry conferences
, though he wouldn’t name any
of the companies he works with.

What has happened with the
revocation of the Cole memo is that the Justice Department has
now put the discretion into the hands of each individual us
attorney to decide what to do,” Cole told Business Insider in an

While Cole said attorneys in
states with legal marijuana are the ones who “are going to
confront the issue most directly,” zealous prosecutors in other
states could still try to find jurisdiction over a marijuana
business that touches their state in some fashion.

Prosecutors have an enormous amount of discretion as to whether
or not to pursue a case, and they make decisions based on “what
will really contribute to public safety,” Cole said. 

james cole
US Deputy Attorney General James Cole answers questions during
the Senate Intelligence Committee hearing on the House-passed
Foreign Intelligence Surveillance Act reform bill while on
Capitol Hill in Washington, June 5, 2014.

REUTERS/Larry Downing

“It’s well-known that you can’t
prosecute every violation of a criminal statute in the US
Attorney’s office. There just aren’t the resources to do that,”
Cole said.

While the initial revocation of the Cole Memo sent a jolt of fear
through the industry — public cannabis companies saw their stocks

 — so far, the Justice Department hasn’t made
any moves to crack down.

The department’s stance also hasn’t stopped companies like
Tilray, which recently became the first marijuana cultivator to

hold an initial public offering
on the Nasdaq stock exchange.

All the while, a number of dedicated, marijuana-specific firms
are capitalizing on the federal government’s murky approach to
legalization — which is keeping the
bigger, institutional players
like pension funds and private
equity giants at bay for now.  

It may in fact be that the
what’s laid out in the Cole memo continues to be the standard by
which prosecutors tend to judge these cases even though it’s not
official,” Cole said. 

What a Justice Department crackdown could look

While the Justice Department
hasn’t yet directed the Drug Enforcement Administration to arrest
dispensary owners and marijuana investors, “there’s any number of
ways you could see this happen if they decided that they wanted
to try and choke off the marijuana business as a legitimate
enterprise,” Cole said.

The Justice Department could, for
example, crack down by making an example of a marijuana business
that’s fully compliant with state laws. 

They could make the point that
we don’t care about state law. We only care about the Controlled
Substances Act, under federal law. You violated, you’re in
trouble,” Cole said. 

The second thing the Justice
Department could do — and perhaps the most likely track,
according to a number of cannabis industry lawyers Business
Insider has
previously spoken too
— is to prosecute a business that’s
“marginally in or out of compliance with state law,” or has
broken the law by selling to minors, failing to pay taxes, or
shipping their product across state lines. 

The marijuana business is
booming in the US — but the Justice Department holds all the


The third avenue the Justice
Department could take would be to crack down on
ancillary businesses
, which don’t touch the plant directly
but rather provide software and services; scientific testing and
growing equipment; and capital to the industry. 

These ancillary businesses are
generally regarded as the least risky way to get involved in the
marijuana industry, but they aren’t immune to

Going after the ancillary
businesses and investors could “start to choke off whatever
supplies the industry may have,” Cole said. 

There are a
number of bills
floating around Congress seeking to rectify
the conflict between state and federal laws on marijuana.

One of those bills — the
bipartisan STATES Act — would explicitly protect state-legal
marijuana from Justice Department interference, without
legalizing or rescheduling marijuana at the federal

Trump himself indicated that he
support the bill
after a conversation with co-sponsor Cory
Gardner, who is facing a tough Senatorial re-election bid in

Until then, Andrew Kline, a
former federal prosecutor and now head of the National
Association of Cannabis Businesses,
previously told
Business Insider he advises those in the
marijuana industry to “be diligent.”

“You have to be willing and
able to go above and beyond what state laws require,” Kline

Read more cannabis industry coverage here:

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