Lack of US Federal Regulation Creates Legal Limbo for Canadian Cannabis Industry

Across the globe, it seems like country after country is taking a look at their cannabis laws and developing new approaches.  Such approaches invariably acknowledge, implicitly or explicitly, the negative impact of years of prohibitionist policy, including an illicit market and access by minors.  While each jurisdiction tackles their own legal systems in their own way, it is reasonable for one to start to feel like there is some momentum building towards global acceptance of cannabis, even if some jurisdictions are limiting themselves to medical cannabis only, rather than expanding further into adult recreational uses.

The greatest challenge to this sense of momentum at the moment is, without question, the current legislative reality in the United States.  Ten states and Washington D.C. have legalized adult-use recreational cannabis. 33 states have legalized medical cannabis[1].  Other states, such as New Jersey, are considering legalizing adult-use cannabis. While all of this would reasonably suggest a building momentum in the US, this notion is counteracted by the evolving but ever-present overhang of a federal prohibition.

The starkest example in recent memory was the reversal in early 2018 by then-Attorney General Jeff Sessions of the Cole memo, an Obama-era document that had provided guidance to federal prosecutors around the prosecution of businesses in states where cannabis is legal. In the memo supporting the reversal, Sessions was quoted as saying "It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission."  This reversal was felt by many as a rejection of the will of the people, with the tide clearly seeming to turn in favour of cannabis legalization. James Cole, the deputy Attorney General who was the author of the Cole memo, noted that the memo was the proper direction for the government in light of the significant activity at the state level in favour of legalization.

The US situation may be correcting course, as other states continue to consider cannabis legislation and with a significant milestone developing in Congress. This milestone is the sponsoring of legislation, the Secure and Fair Enforcement (SAFE) Banking Act of 2019, which would give banks that serve the cannabis industry protection from federal scrutiny. The absence of such legislation has significantly limited the ability of legal cannabis companies to deposit their revenues in banks, leaving many to operate on a cash basis, which has inherent risk.  While the devil is certainly in the details in terms of how this will benefit the US cannabis industry, it offers a significant cue that cannabis is further down the road in terms of mainstream acceptance.

On the international stage, the World Health Organization has recommended changes to the Single Convention on Narcotic Drugs of 1961, an international treaty aimed to combat drug abuse. The WHO subcommittee, the Expert Committee on Drug Dependence, has recommended that cannabis be deleted from the most restrictive Schedule IV of the convention, and instead be maintained under the less restrictive Schedule I[2].  While the vote was delayed from the planned date of March 7, it is expected to be rescheduled. Regardless of the outcome of the vote, this move by the WHO also signals a growing momentum towards normalization of cannabis and legalization of at least medical uses.

Despite these positive trends, the fact remains that the cannabis industry still finds itself in somewhat of a state of limbo, as these regulatory matters weave their way through state legislatures, federal legislatures, and international bodies. This is particularly felt by legal jurisdictions in the US and Canada, who are trying to balance newly found rights under cannabis legalization legislation with practices by businesses and governments tied to the remaining presence of prohibitionist policy.

For example, as we posted a few weeks ago, that a US based software provider banned Cannabis At Work from their service because they received legal advice that they could “be viewed as aiding and abetting those companies in violating some or all of those laws”.[3] This is an odd comment considering the fact that, using a plain language analysis, the facts in question do not support a conclusion of aiding and abetting.  First of all, there must be a criminal act committed by the principal, in this case Cannabis At Work. As Cannabis At Work is operating exclusively within Canada, we have not committed a criminal act that has the ability to be aided and abetted.  Further, to be found to have committed aiding and abetting, the defendant must be shown to have willfully associated themselves with the crime being committed. This therefore arguably fails on these two points. Further, there is a logic that should recognize that a software provider would not be held liable for the actions of people using their software.  Arguably many criminal organizations may track their proceeds of crime in Microsoft Excel. Should Microsoft be concerned?

And perhaps there is no more significant impact of this phenomenon for cannabis companies right now than their difficulty in maintaining a social media presence.  Whether we are talking about cultivators of cannabis or ancillary services, like an HR service, companies are having a hard time maintaining their social media presence on sites like Facebook and Instagram.  Arguably these companies have policies that are hostile to the Cannabis industry despite legalization in Canada and other legal jurisdictions,[4] with sites being removed for violating Facebook’s community standards for promoting/encouraging drug use. Facebook and Instagram have been aggressive, uneven and random in their approach[5] - especially unfair for companies that do not sell cannabis products in any way.

So, while it is exciting to see so much activity around the world, we are currently in this strange phase where it feels like there is an inevitable global acceptance of cannabis – but we just aren’t there yet. In the meantime, navigating the approaches by different jurisdictions and the companies within them will continue to be a challenge.  Hopefully it is a challenge that will be short-lived.

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