While the growth of the cannabis industry has been overshadowed by other booming fields such as the realm of cryptocurrencies that have taken the world by storm over the course of the past year, its rise and attractiveness to potential investors at this point in time has never been higher. The cannabis industry has made strides as a whole to transform into an area of legitimate business; one which analysts believe may have its biggest year ever in 2018. Considering a variety of factors, most notably countries such as Canada expected to legalize the use of recreational marijuana at some point in the coming year, experts have predicted that the value of the legal cannabis industry in the U.S. has the potential to grow to $50 billion within the next decade. The cannabis industry is currently worth slightly south of $7 billion in annual sales, however the above prediction factors in the potential earnings that are likely to come from those transitioning from illegal “black markets” to the legal market as the scope of legality continues to expand. To date, twenty-nine states and the District of Columbia have legalized the use of medical marijuana, and six states including California and Colorado have legalized the use of recreational marijuana, while many states and even individual cities continue working to decriminalize the possession of small amounts of the substance.
Yet as this industry continues to evolve at such a rapid pace, the issues surrounding this budding business remain quite complex, with a new, potentially debilitating complication emerging in just the last week. One of the more notable administrative policies brought about during the tenure of former U.S. President Barack Obama eased the enforcement of federal marijuana laws in states that had legalized the drug. This policy, announced in late 2013, stated that the government “would not obstruct states that legalized marijuana, on the condition the drug was regulated so as not to hinder key federal enforcement priorities. This included preventing the drug from being distributed to minors, preventing its movement to other states, and preventing it from being used as a cover for the trafficking of other drugs” (Shaw, 2018). On January 4th however, U.S. Attorney General Jeff Sessions announced his decision to rescind the Obama-era policy that ultimately led to the extreme growth of the cannabis industry in the United States, now allowing federal prosecutors to once again bring forth criminal cases against marijuana manufacturers and distributors effective immediately. The old guidance deemed unnecessary, Sessions’ latest memo targets the mainstream marijuana industry, creating a wide degree of uncertainty on the effect the move will have on the six states where recreational cannabis use is legal in particular, and the cannabis industry altogether. Sessions criticism of cannabis advocacy has been well publicized in recent years, as he has correlated the rise in violence seen across the U.S. to the increased use of the substance. Sessions has also pointed to the fact that legalization in certain states such as Colorado has also impacted surrounding areas, leading to increased trafficking and its associated factors (i.e. substance abuse and crime) in states such as Nebraska and Oklahoma.
The timing of the announcement is also interesting in that it comes less than a week after the state of California’s highly-anticipated launch of the world’s largest regulated market for recreational marijuana, and the decision has drawn a significant amount of backlash from politicians, advocates for legalization, and the general public of these respective states in the days since. In an effort to protect states rights, it has been reported that Colorado Senator Cory Gardner has taken it upon himself to address the concerns of many, as he is expected to meet with the Attorney General in the coming week. This coming shortly after Gardner threatened to hold up Department of Justice nominations over Sessions’ decision. Gardner has also stated “he is working with a bipartisan group of senators on a plan to block the Department of Justice from using federal funds to enforce federal marijuana laws that contradict state laws” (Levy, 2018).
The decision to reverse policy has also caused problems for financial institutions in states where the drug is currently legal. The Reuters article “U.S. Justice Department blindsided banking agency on pot policy flip”, cited in BSA News Now on January 11th, 2018, discusses how Sessions announcement has “caused confusion among banks about how to do business with marijuana growers, processors and distributors without running afoul of federal money laundering laws” (Lynch, 2018). Making matters worse, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department that helps combat domestic and international financial crimes and terror financing, received no warning of Sessions’ announcement in advance. This has handcuffed the bureau in their ability to provide answers to financial institutions and lawmakers who continue to flood FinCEN’s phone lines with report filing and enforcement questions. Current FinCEN guidance relies heavily on the recently rescinded “Cole memo”, stating that banks must continue to file reports on suspicious/questionable transactions, and allows these institutions to maintain watch over their cannabis customers to see if they are remaining compliant with relevant state laws. It remains to be seen how this guidance will be impacted in the weeks to come.
For more information on the impact of legalization of medical marijuana on the financial industry, visit the link below to download Global RADAR’s comprehensive guide to cannabis and compliance, written by Global RADAR CEO Dominic Suszek.
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