Marijuana sellers undeterred by threat of federal prosecution

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The number of Americans who are in favor of legalizing marijuana continues to increase. A new Pew Research Survey says 6 out of 10 Americans now support the measure.
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DENVER — Defiant marijuana entrepreneurs and investors are shrugging off threats of heightened federal prosecution and placing their faith in state lawmakers and a growing belief their industry is too big and popular to shut down.

Attorney General Jeff Sessions sowed confusion into the legal cannabis industry Thursday when he rescinded a series of Obama-era legal memos that had widely been interpreted as giving state-licensed marijuana businesses a pass from federal prosecutors.

But after their initial shock, cannabis entrepreneurs reminded themselves their industry had been — and remains — entirely illegal at the federal level, and forged ahead with growth plans.

“We’re tired of living in fear,” said Jessica Lilga, who runs a marijuana-distribution company in Oakland, Calif. “I’m not afraid. And I’m pushing forward.”

Colorado, which legalized marijuana in 2014, has about 35,000 people working in the legal marijuana industry, which generated more than $226 million in state-level taxes last year. California, which launched sales Jan. 1, could generate $300 million to $500 million in marijuana taxes this year, cannabis analytics firm New Frontier Data estimates.  

Those numbers are likely to grow. Marijuana entrepreneurs are betting big on the future of their industry, pouring hundreds of millions of dollars into greenhouses and lighting systems, and renting processing warehouses and retail space to sell pot to eager customers.

Lilga said California has invested too much time and energy into its legal marijuana marketplace, which opened Monday, to be deterred by some politicians in far-off Washington, D.C. California, like other states where voters approved recreational pot, has created a comprehensive framework to track and tax every marijuana plant grown and sold under its new law, and ordered cannabis business owners to pay tens of thousands of dollars for licenses.

“You’re either all in or you’re all out. And I’m all in,” Lilga said. “I just can’t believe they’d put me in jail. We’re too far along in the social acceptance scale.”

A recent Gallup poll found 64% of Americans support making marijuana legal for adults. Lawmakers from both parties have thrown their support behind legalization and decriminalization. And court victories have bolstered the cause.

Eight states, including California and Colorado, have legalized recreational marijuana and 30 states have approved some form of medical cannabis. 

Taken together, industry experts say that puts the Sessions and the federal government on the wrong side of history. Marijuana remains a Schedule 1 controlled substance and entirely illegal at the federal level.

More: Justice Department cracks down on legal marijuana with rollback of Obama policy

“Those fighting to maintain marijuana prohibition will soon find themselves on the same side of history as those who supported alcohol prohibition,” said Mason Tvert, a longtime marijuana activist who helped pass Colorado’s first-in-the-nation law.

“Most Americans are ready to move forward, and a growing number of states are now treating marijuana similarly to alcohol,” Tvert said. “Those who don’t move forward are destined to be left behind.”

Since its inception, the industry had operated in a gray space between what their states allow and what the federal government doesn’t. Entrepreneurs and investors who opted into the industry accepted that it came with a higher level of risk that other businesses.

Even with the Justice Department’s new attitude, most industry experts say there’s little risk for operators of a licenses marijuana dispensary that sells medical marijuana to an ailing customer. More at risk are the growers and distributors who could run afoul of federal drug-trafficking laws meant to target Mexican drug cartels or criminal organizations.

Lilga, the California distributor, believes the state will defend the industry it has taken so long to build. 

“I’m too busy to trying to comply with state of California regulations to even care what the federal government says. I’m not going to be deterred by fear mongering,” Lilga said. “When you wipe away with the stigma, we’re working hand-in-hand with our government to create a functioning system. And we believe California has our back.”

Additional protection may come from an even more powerful place: Another branch of the federal government.

Congress has already prohibited federal agents from targeting state-licensed medical marijuana businesses, and lawmakers are now considering a plan to expand that protection to recreational marijuana companies.

“I think we are optimistic, although that being said, we’ve taken a pretty cautious approach,” said Patrick Moen, the general counsel of Seattle-based cannabis investment firm Privateer Holdings.

Moen said initial industry reaction to Thursday’s announcement by Sessions was “knee-jerk, approaching panic.” The small number of publicly traded marijuana stocks dropped sharply on Thursday but began recovering Friday.

Investors still like the industry. Privateer has raised more than $150 million in the past six years for marijuana investment worldwide, Moen said. Among Privateer’s major investors is Silicon Valley venture capitalist Peter Thiel, the PayPal founder and early Facebook investor. But much of that money has gone to Canada because its legal and regulatory structure appears more stable than the United States, he said.

In addition to the harsh new federal attitude, unique challenges remain.

Most major U.S.-based banks still refuse to handle cannabis business over fears they could also face federal prosecution for violating drug-trafficking and money laundering laws. While that’s been good for security contractors and armored car services, it’s slowed institutional investment. And it means marijuana business owners can’t access the same loans and lines of credit that other more traditional industries use to expand their businesses.

Industry expert Matt Karnes of GreenWave Advisors said he thinks Thursday’s announcement will give banks even more room for caution, while confusion about the federal priorities will keep some investors away. Still, Karnes said he expects the overall impact to be small, and possibly even rebound against Sessions and President Donald Trump.

Thursday’s announcement was met by strong bipartisan criticism across the country, from attorneys general and governors to members of Congress worried about the impact on jobs and states’ rights. Colorado Sen. Cory Gardner, a Republican, even threatened to indefinitely delay new Justice Department appointments.

“This aggressive attempt by Mr. Sessions to move the country backward may in fact act as a catalyst to accelerate the timeline for federal changes,” Karnes said.

 

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