On this April 20, Proposition 207 now makes cannabis legal here in Arizona. The voter initiative appeared on the November 3, 2020 Arizona general election ballot and passed with more than 60% of the vote. Prop 207 permits the legalization and taxation of recreational cannabis for adult use. And in January—only three months after the vote—the Arizona Department of Health Services started to quickly approve applications, allowing dispensaries to sell cannabis to adults 21 and older immediately in the state.
Also, in the last election, voters in Mississippi and South Dakota approved measures to regulate cannabis for medical use. However, Mississippi's measure was challenged in February 2021. Also, in February, South Dakota Circuit Judge Christina Klinger ruled that the state’s marijuana measure was unconstitutional. Her decision is being appealed as of March 31, 2021. The South Dakota Supreme Court will hear arguments on the issue later in April.
Also, New York recently was added to the list of states that have legalized marijuana. Legislation signed in March provides protections for cannabis users in the workplace, housing, family court, and in schools, colleges, and universities. The New York State Cannabis/Marijuana Regulation & Taxation Act creates the Office of Cannabis Management (OCM), which will be tasked with enforcing a comprehensive regulatory framework governing medical, adult-use cannabinoid hemp. The office will be governed by a five-member board. Three of the members will be appointed by the Governor, and one appointment will be made by each house. The OCM will be an independent office operating under the New York State Liquor Authority.
The legislation will allow people with a more extensive list of medical conditions to be allowed access to medical marijuana; increase the number of caregivers allowed per patient; and permit home cultivation of medical cannabis for patients.
In addition, the New York State Cannabis/Marijuana Regulation & Taxation Act creates a two-tier licensing structure that will provide for a large range of producers by separating those growers and processors from also owning retail stores.
The Act calls for a new cannabis tax structure that will replace a weight-based tax with a tax per milligram of THC at the distributor level with different rates depending on final product type. The wholesale excise tax will be transferred to the retail level with a 9% state excise tax. The local excise tax rate will be 4% of the retail price, and counties will get 25% of the local retail tax revenue. Seventy-five percent will go to the municipality. All cannabis taxes will be deposited in the New York state cannabis revenue fund, which covers reasonable costs to administer the program and implement the law. The Act states that any remaining funding will be split three ways: 40% to Education and to Community Grants Reinvestment Fund, with the remaining 20% to Drug Treatment and Public Education Fund.
Cities, towns, and villages have the ability to opt out of permitting adult use cannabis retail dispensaries or on-site consumption licenses by passing a local law by December 31, 2021, or nine months after the effective date of the legislation. However, they cannot opt out of adult-use legalization.
The Latest States to Approve Marijuana
The Virginia legislature passed legislation on February 27 and sent the bill to the governor for signature. The legislation was signed by Governor Ralph Northam, and beginning on July 1, 2021, those Virginians 21 and older can lawfully possess up to an ounce of marijuana in the Commonwealth.
In addition, the new law creates a Virginia Cannabis Control Authority which will promulgate regulations for the adult use of the marijuana market.
Likewise, the New Mexico legislature passed legislation in March and sent the bill to the governor for signature as of April 5, 2021. On April 12, 2021, New Mexico Governor Michelle Lujan Grisham signed into law the state’s recreational marijuana bill.
The law will take effect in June. While recent marijuana laws enacted in New York and New Jersey give employment protections for off-duty recreational marijuana users, New Mexico’s law doesn’t “prevent or infringe upon the rights of an employer to adopt and implement a written zero-tolerance policy regarding the use of cannabis products.” In fact, New Mexico’s law allows employers to take adverse employment actions for the possession or use of marijuana at work or during work hours. Moreover, the law specifically permits zero-tolerance policies that impose discipline or termination for a positive marijuana test result indicating any amount of THC. However, the new law does not restrict rights given to medical marijuana users under state law.
As a result of these legislative actions, recreational marijuana is legal in 17 states, D.C., and Guam. The states are Colorado, Washington, Alaska, Oregon, California, Maine, Massachusetts, Nevada, Michigan, Vermont, Illinois, Arizona, Montana, New Jersey, South Dakota, New York, and Virginia.
Plus, a total of 36 states, DC, Guam, Puerto Rico, and U.S. Virgin Islands have approved comprehensive, publicly available medical marijuana/cannabis programs.
Conflict with Federal Law
Marijuana continues to be classified at the federal level as a Schedule I drug under the Controlled Substances Act. As such, the federal government contends that cannabis has no medical use and a high potential for abuse. Therefore, cultivating, distributing and possessing marijuana is still a violation of federal drug laws.
The Drug Enforcement Administration (DEA) is tasked with enforcing federal marijuana laws, but with more states legalizing medical and recreational marijuana, the DEA has adjusted its position on cannabis industry businesses that comply with state laws. At first, the DEA pursued a number of federal enforcement actions against medical marijuana cultivators and distributors. This was upheld by the United States Supreme Court's decision in Gonzales v. Raich, which held that even businesses that were fully compliant with state regulations risked prosecution for federal offenses. However, even with the authority to prosecute these businesses, the DEA has opted not to do so.
Again, with states continuing to legalize either recreational or medical marijuana, they do so in direct conflict with federal statutes. This has obviously presented a strain in enforcement priorities between the rights of states to create their own laws and the authority of the central federal government.
That said, as seen with the DEA, the federal government has in recent years taken more of an approach of nonintervention or noninterference to marijuana prohibition enforcement in states where it is legal. The Obama administration instructed federal prosecutors in 2009 to look at not pursuing the prosecution of individuals who distributed marijuana in accordance with state medical marijuana laws.
In August 2013, the U.S. Department of Justice announced an update to their marijuana enforcement policy which stated that although marijuana remains illegal federally, the Department of Justice expected states that have legalized marijuana to create “strong, state-based enforcement efforts.... and will defer the right to challenge their legalization laws at this time.” However, the Department of Justice said that it also reserved the right to challenge states any time it felt it appropriate. And in 2018, former Attorney General Jeff Sessions issued a Marijuana Enforcement Memorandum that rescinded the Cole Memorandum (under Obama) and permitted federal prosecutors to determine the way in which to prioritize enforcement of federal marijuana laws. Specifically, Sessions instructed U.S. Attorneys to “weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”
Questions Loom for Those in the Cannabis Industry
With this conflict between federal law and statutes in a growing number of states, regulatory compliance can be a headache for entrepreneurs. While reticence has subsided somewhat, banking services for growers and dispensaries has also been an issue.
To address this, a bill to protect banks that service state-legal marijuana businesses from being penalized by federal regulators was reintroduced in the Senate last month. A third of the 100 Senators have signed on as cosponsors. This follows the refiling of the Secure and Fair Enforcement (SAFE) Banking Act in the House. That bill passed with bipartisan support as a standalone bill in 2019 and also as part of two COVID-19 relief bills. The House bill has more than 100 members listed as cosponsors.
The SAFE Banking Act would allow financial institutions to service cannabis businesses without the fear of federal penalties. That prospect kept many banks and credit unions from working with the industry. As a result, marijuana businesses were forced to operate strictly on a cash basis—making them targets of crime.
An increasing majority of Americans think that recreational marijuana should be legal. A 2019 Gallup poll found that 66% of U.S. adults think the drug should be legal, and a Pew Research Center survey and the General Social Survey conducted by NORC at the University of Chicago found similar levels of support for marijuana legalization.
If you’re a business owner or entrepreneur currently operating in the cannabis space, Fennemore’s business litigation attorneys are experienced in dispute prevention and resolution. For more information, please click here.
And for employers seeking guidance on determining marijuana in the workplace policy guidance, please consult with one of the attorneys in our employment and labor law practice group.