Northern District ruling is a gift for California cannabis operators

The shadow of the Trump administration looms large over California’s cannabis industry, even as the state prepares to begin issuing commercial licenses in January. For cannabis operators, it means preparing applications to meet local and state regulations while under the constant threat of federal enforcement. For cannabis attorneys, it means reading the federal tea leaves as often as reading statute as we chart a course forward for clients.

Medical cannabis operators got a gift from the federal courts earlier this month, in United States v. Pisarski, 14-CR-00278-RS-1 (N.D. Cal. Aug. 8, 2017), when Judge Richard Seeborg of the Northern District of California issued a temporary stay of the criminal prosecution of two medical marijuana growers from Humboldt County based upon the seminal case of United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016).

The ruling is enormously important as it appears to provide solid grounds to enjoin similar federal prosecution of medical marijuana offenses by defendants who can establish, by a preponderance of evidence, that they have strictly complied with laws in states that have robust medical cannabis regulations.

In McIntosh, the 9th U.S. Circuit Court of Appeals reversed and remanded the lower courts’ denial of injunctions brought in 10 consolidated criminal cases against individuals for possession and cultivation of medical marijuana in light of an appropriations bill known as the Rohrabacher rider. Originally enacted in December 2014, the Rohrabacher rider is an omnibus appropriations bill which precludes the use of any federal funds to prevent states from implementing state laws that authorize the use, distribution, possession or cultivation of medical marijuana.

Relying upon the Rohrabacher rider and the U.S. Constitution’s appropriations clause, McIntosh held that the Department of Justice is prohibited from spending federal funds to prosecute individuals who have engaged in conduct which fully complies with applicable state medical marijuana laws. Upon remand, the 9th Circuit instructed the lower courts to hold evidentiary hearings to determine whether the defendants had engaged in conduct which strictly complied with state medical marijuana laws.

Unlike McIntosh, both of the Pisarski defendants had pleaded guilty to conspiracy to manufacture and distribute marijuana and were awaiting sentencing at time the injunctions were sought. While consistent with McIntosh’s holding that strict compliance with state medical marijuana laws may inhibit federal prosecution, Pisarski appears to present a paradox in which a defendant could have previously pleaded guilty to a federal crime but whose sentencing could still otherwise be enjoined based upon strict compliance with state law. In this sense, Pisarski gives teeth to McIntosh, and provides a vigorous defense to the prosecution of medical marijuana offenses despite the current federal prohibition.

Following McIntosh’s instruction that a preliminary hearing be held to determine compliance with state laws, Judge Seeborg considered the parties’ evidence, including the fact that the defendants had been found with 327 marijuana plants, $416,125 in cash, several gold bars, and firearms, among other things. The defendants had also submitted declarations which attested to the fact that they possessed physicians’ recommendations that they use medical marijuana and that the defendants had not profited from the plants that had been the subject of the raid. On this basis, the court concluded that “to the extent any of the yield of [the defendants’] 327 marijuana plants would have been sold, it would have been sold to a collective on a not-for-profit basis” for reimbursement only.

Noting that the case law offers little guidance with respect to the collective cultivation defense provided by the MPAA, Judge Seeborg reasoned that “it would seem the best approach to determining the applicability of the collective cultivation defense in the case of a defendant charged with possession for sale would be to require of the defendant a showing proportional to the imminence and definiteness of the alleged sale.” Judge Seeborg added that while a defendant is required to show that sales of marijuana complied with the MPAA, in the case of a speculative prospective sale, “the defendant must show only that, by the time of such sale, he could ensure compliance.”

While the government argued that the presence of large amounts of cash and gold bars established that future sales would have been for profit, the court rejected this argument. Instead, the court reasoned, “the presence of those assets is wholly consistent with [defendants] having been reimbursed for past sales, especially given that marijuana transactions – even those legal under state law — are often made in cash because banks are unwilling to help facilitate the business” and concluded that “the presence of cash, precious metals, and weapons is equally consistent with the operation of a rural, cash-intensive enterprise.” While noting that the defendants’ evidence was “suboptimal”, the court held that such evidence was “nonetheless sufficient to demonstrate, by a preponderance of the evidence, that their conduct strictly complied” with California medical marijuana laws and granted the defendants’ motion.

While Pisarski provides a solid win for the cannabis bar, the case may soon be tested by whether Congress decides to renew the Rohrabacher rider for yet another term, as the appropriations bill is up for reconsideration next month. So far, the rider has already passed through a Senate subcommittee and appears to be on the way to being renewed yet again. In California, a $7 billion industry is watching and waiting.

Anne S. Kelson also contributed to this article.