This is anticipated to also result in the swift repeal of, or at least substantially call into question the continued effectiveness of, certain FinCEN Guidance (defined and further discussed below), which provided a pathway for banks to furnish account and other financial services to state-legal cannabis companies.

It is noteworthy that, at this time, certain budgetary protections known as the Rohrabacher-Farr Amendment are still in place (but are set to expire, along with the current spending bill, on January 19, 2018), preventing the use of federal funds to enforce the CSA with regard to state-compliant medical cannabis companies. Thus, any initial enforcement in the wake of the new approach will likely be focused on adult-use recreational cannabis. It is important to note, however, that under the new DOJ approach, state-compliant medical cannabis companies are no longer protected despite their best efforts to operate in full compliance with the Ogden-Cole Memos, and a repeal of the Rohrabacher-Farr Amendment would fully expose such companies to federal prosecution under the CSA (at the discretion of the applicable U.S. Attorney).

Federal Law Generally

The U.S. Supreme Court ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that the federal government has the power to regulate and criminalize cannabis, even for medical purposes. Inasmuch as the federal government has opted to exercise such power, federal law criminalizing the use of marijuana preempts state laws that legalize its use for medicinal and recreational purposes. Under the CSA and the Comprehensive Drug Abuse Prevention Act of 1970 (“CDAPA”), cannabis is a Schedule I controlled substance, and the use and sale of cannabis is illegal under federal law.

Notwithstanding the foregoing, the DOJ under the Obama administration promulgated certain policies to allow state-legal cannabis companies to operate without the fear of federal enforcement, provided certain conditions were met. In an effort to provide guidance to federal law enforcement, the DOJ issued Guidance Regarding Marijuana Enforcement to all U.S. Attorneys in a memorandum from Deputy Attorney General David Ogden dated October 19, 2009; in a memorandum from Deputy Attorney General James Cole dated June 29, 2011; and in a memorandum from Deputy Attorney General James Cole dated August 29, 2013 (collectively, the “Ogden-Cole Memos”). Each memorandum provided that the DOJ was committed to the enforcement of the CSA, but that the DOJ was also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way.

The August 29, 2013, memorandum provided updated guidance to federal prosecutors concerning cannabis enforcement in light of state laws legalizing medical and recreational adult-use cannabis possession in small amounts.

The Ogden-Cole Memos set forth certain enforcement priorities as being important to the federal government, including:

• Distribution of cannabis to children
• Revenue from the sale of cannabis going to criminals
• Diversion of medical cannabis from states where it is legal to states where it is not
• Using state-authorized cannabis activity as a pretext for other illegal drug activity
• Preventing violence in the cultivation and distribution of cannabis
• Preventing drugged driving
• Growing cannabis on federal property
• Preventing possession or use of cannabis on federal property

FinCEN Guidance Called into Question

On February 14, 2014, in conjunction with DOJ policies set forth in the Ogden-Cole Memos, the U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks clarifying Bank Secrecy Act expectations for financial institutions seeking to provide services to cannabis-related business (“FinCEN Guidance”). While the FinCEN Guidance made clear that it did not alter in any way DOJ’s authority to enforce federal law, it placed enhanced due diligence obligations on banks transacting with cannabis-related businesses, and offered a pathway for banks to provide financial services to such businesses. Specifically, banks have an obligation to report suspected criminal conduct perpetrated against or through the institution, including drug-related and money laundering offenses, through the filing of “Suspicious Activity Reports” or “SARs.” The FinCEN Guidance created a split regime in which banks would file “Marijuana Limited” SARs for marijuana-related activity that is legal under state law and does not trigger any of the above Ogden-Cole enforcement priorities; and file “Marijuana Priority” SARs for activity that either is illegal under state law, or triggered one of the above priorities.

As made clear in the FinCEN Guidance, the Treasury Department was basing its guidance on the priorities outlined in the Ogden-Cole Memos, in order to better align financial institutions’ reporting obligations with federal drug enforcement policy. With the rescission of the Ogden-Cole Memos, and the apparent wholesale delegation of drug enforcement discretion to the local U.S. Attorneys, financial institutions may no longer be able to rely on the FinCEN Guidance, and the distinction between lower and higher priority SARs for marijuana-related businesses. Or at least such distinctions may now be irrelevant to federal regulators’ responses. We note, however, that the rescission of the DOJ memos, and any effect that such will have on the FinCEN Guidance, will only impact banks that serve so-called “touch-the-plant” companies, that is, companies that are directly involved in the growing, harvesting, cultivating, refining, and distribution of marijuana in states where such activity is legal. It will not impact banks that are serving customers that are operating in violation of state and federal law, nor will it impact banks that serve customers that only tangentially intersect the marijuana industry, such as an accountant, attorney, or publisher, who happens to have state-licensed marijuana businesses as clients. In determining whether and to what degree to continue to serve clients that are involved in the marijuana industry, banks will need to review their policies and procedures, and risk tolerances, and consult with experienced regulatory counsel knowledgeable as to banking, cannabis law, and federal enforcement policy, in order to structure a workable compliance regime.

In the coming days and weeks, Reed Smith will offer additional thoughts on how this new policy affects various industries and areas of the law. In the meantime, if you have any questions or concerns, or need help addressing the impact of this new directive on your business, please contact one or more of the authors of this alert. The Reed Smith Cannabis Law Team has attorneys across the country and across practice groups who can provide counsel and insight regarding the various issues that may arise as a result of today’s memo.

Client Alert 2018-005