Marijuana

Just Say No: Top 10 Red Herrings Of The Marijuana Industry

Not everything you've read about the marijuana industry is true. Be careful out there.

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A red herring is “something that misleads or distracts from a relevant or important issue.” The marijuana industry has more than its fair share of red herrings and the below 10 deserve a call out because of their prevalence and importance:

  • Federal enforcement memoranda mean the Feds are taking it easy on the marijuana industry. I wish this were true of these memos, but it is not. Witness what the Feds recently did to the Kettle Falls Five. The Department of Justice continues to actively pursue cannabis businesses in states with loose medical marijuana laws. Most importantly, the memos do not legally mean a thing. They are meant to guide individual U.S. Attorneys regarding federal drug law enforcement in states with marijuana legislation. They cannot be used as a defense in a marijuana criminal case, and they do not represent a change in federal drug laws. Plus, federal agencies other than the Department of Justice are not bound by the DOJ enforcement memos. The IRS, the USPTO, NLRB, and the Department of Treasury, among other agencies, all established their own frameworks for dealing with the marijuana industry.
  • Marijuana reality TV shows indicate industry credibility. What reality show have you seen with the goal of making its cast look credible? Though there has been a torrent of proposals for marijuana reality TV shows, marijuana businesses should proceed carefully in this space. Legal concerns aside, reality TV shows garner high ratings because of cast drama and on-air stupidity. Is that what you want for your business? Is that going to be good for the marijuana industry? Do you really want everything you do to be made public?
  • Third-party credit card processing services are safe. Federal FinCEN guidelines have caused most banks to stay away from credit card processing for marijuana businesses. But that has not stopped some third-party processors from filling this industry gap with questionable credit card practices as a way around having to use cash. As a result, too many “credit card processing companies” (especially those based offshore) have shut down in the middle of the night and kept all of your money. Just be careful out there and do your due diligence.
  • Financial industry publications are showing strong returns for marijuana investments. No get-rich-quick scheme should be trusted and that axiom is even truer for the marijuana industry where the “Green Rush” mentality runs strong. Do your due diligence before even considering buying into a marijuana franchise or investing in a privately or publicly held marijuana business.
  • CBD oil can be shipped from a legal cannabis state to a non-legal cannabis state. Um, no. All marijuana, including marijuana-based cannabidiol is illegal under federal law, which means transporting it between states (even between two states where marijuana is legal, such as Oregon and Washington) constitutes federally illegal interstate drug trafficking. So, why then are we seeing so many advertisements on the internet saying that such-and-such company can ship CBD oil to you in the great states of Kansas or Alabama? The Drug Policy Alliance sums it up perfectly:

The CBD oils advertised online and that say they are legal to ship to non-medical cannabis states are not made from the same type of cannabis plant as the CBD products in medical cannabis states. There are three types of cannabis – indica, sativa and ruderalis. While all three produce cannabinoids such as THC and CBD, cannabis ruderalis (also referred to as hemp) does not contain them in a high enough concentration to have a therapeutic effect. Because hemp products are legal to import to the U.S. and ship from state to state (although growing the hemp plant is federally illegal), companies are taking large amounts of hemp plants and processing them harshly to try and derive enough CBD to call their oil a ‘CBD product.’

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Not to mention, CBD oil sold over the internet also warrants a strong “buyer beware” disclaimer, especially since the FDA recently sent warning letters to companies selling allegedly “cure-all” CBD oil ordering those companies to cease and desist from selling such such products.

  • California will finally legalize marijuana in 2016. Maybe. Though the majority of Californians are ready to legalize, infighting in the California cannabis industry creates a real danger that competing initiatives will cancel each other out when it comes time to vote.
  • Any and all state marijuana legalization is positive for ending the federal war on marijuana. Though I am a supporter of marijuana legalization and though I believe state-by-state legalization is working to chip away at federal prohibition, not all forms of state legalization are proving useful for the industry as a whole. Lawmakers, policy pros, and constituents need to be careful about what they put into play for marijuana laws. For example, take Ohio. Ohio’s proposed legalization initiative basically puts all marijuana production and manufacturing into the hands of a wealthy and politically connected ten-group cabal, and it is drawing criticism even from legalization proponents that Ohio will create America’s first homegrown marijuana cartel. One bad state cannabis initiative could have a significant effect on the nationwide legalization effort going forward.
  • You need a “marijuana lobbyist” to get a seat at the table with government. Retaining a lobbyist to ensure your interests are protected is often a good idea. But your lobbying reflects on you and there is always a risk of “lobbying blowback.” It is more important that your lobbyist know how government functions, and helpful lobbyists are those that are most connected in government rather than in the marijuana industry. Good lobbying is all about uniting policy makers with the lobbyist’s clients, be they industry participants or concerned citizens.
  • Publicly traded cannabis companies signify progress in the marijuana marketplace. Rapidly growing and rapidly changing industries are common prey for charlatans and the marijuana industry is no exception. Far too many fraudsters have taken shelter in over-the-counter trading of marijuana-related stocks. Though not all publicly traded marijuana companies are suspect, several of these publicly traded companies have engaged in market manipulation or pump and dump schemes. So, buyer beware.

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  • Marijuana laws are static. Though marijuana-enabling statutes seldom change, the marijuana rules stemming from those statutes change constantly. This means you should never get too comfortable with your state’s marijuana administrative rules. Because legalized marijuana is so new, many problems were either not anticipated in the regulations or were not handled properly the first time around. State agencies are constantly changing their marijuana regulations, sometimes even on an emergency basis. Stay current on the regulations that apply to you and be prepared to go with the flow if you want to survive.

Hilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at hilary@harrismoure.com.

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