July 24, 2014

Legal Landscape and Guidance for Companies Involved in Marijuana Activity

Holland & Knight Alert
Michael J. Werner | William F. Gould


  • Many states now permit the use of marijuana for medical or recreational purposes and the federal government has revised certain enforcement policies related to marijuana-related crimes.
  • The possession, use, manufacture, and sale of marijuana remains illegal under federal law, creating a complex marketplace for marijuana-related businesses.

The FDA has been conducting an analysis of marijuana at the request of the U.S. Drug Enforcement Administration (DEA), with the possible outcome of changing its status as a Schedule I drug under the federal Controlled Substances Act, according to Douglas Throckmorton, deputy director for Regulatory Programs in the U.S. Food and Drug Administration's (FDA) Center for Drug Evaluation and Research, during recent testimony before the U.S. House Committee on Oversight and Government Reform's Government Operations Subcommittee.1 With this latest development, the FDA has once again brought the regulatory and legal status of the drug into the news.

The laws governing marijuana are currently in flux, as federal and state laws often contain contradictory rules. While many states have taken action to allow for the lawful manufacturing and use of marijuana in certain circumstances, the use, manufacturing, distribution and possession of marijuana remain illegal under federal law. To aid the increasing numbers of businesses and individuals expressing interest in learning about how marijuana is regulated, the time has come for a thorough analysis of current law.2

State Laws

State rules vary widely on marijuana use. For example, possessing an ounce of marijuana is a criminal act in many states, but 23 states and the District of Columbia allow marijuana use for medical purposes. Two of them even allow recreational use.3

Moreover, two additional states currently have initiatives relating to marijuana on their ballots for the November 4, 2014 election. Alaska's ballot initiative calls for legalizing up to one ounce of marijuana (and six plants) and will legalize the use, possession and manufacturing of marijuana paraphernalia. Likewise, Florida citizens will vote on an initiative that would allow for the cultivation, purchase, possession and use of marijuana to treat medical conditions when recommended by a licensed physician. Oregon, Oklahoma and the District of Columbia are also considering ballot initiatives.

Federal Law: FDA Regulation

In his testimony, Dr. Throckmorton reiterated the FDA's position that it has not approved marijuana as a safe and effective drug for any indication. However, the FDA has approved one drug containing a synthetic version of a substance that is present in the marijuana plant,4 as well as a drug containing a synthetic substance not present in marijuana but which acts similarly to compounds in marijuana.5

Additionally, FDA guidance indicates that the agency is aware of the medical use of marijuana to treat disease.6 In its guidance, FDA also notes that – as with other drugs that are not approved by the FDA – the agency works closely with the medical and patient communities as well as other federal agencies when necessary to allow access to experimental treatments through current expanded access provisions described in the FDA's statute and regulations. The FDA's expanded access provisions are designed to facilitate the availability of investigational products to patients with serious diseases or conditions when there is no comparable or satisfactory alternative therapy available. Through this process, a drug manufacturer recently announced that it has made a drug composed of cannabinoids – chemical compounds that are active in marijuana – available to patients.7

The FDA notes that manufacturers seeking approval for products containing marijuana ingredients would have to undergo the same review as other products, a demonstration of safety and efficacy through adequate and well-controlled clinical trials performed under an approved Investigational New Drug (IND) application. The FDA has publicly stated that it supports scientifically valid research conducted under an IND application and believes it is the best way to determine what patients could benefit when using drugs derived from marijuana.8

According to the FDA, these clinical trials could conceivably lead to the development of safe and effective marijuana-based medical treatment products. The FDA pledges to continue to facilitate the work of companies interested in appropriately bringing such products to market. To that end, the FDA has published special guidance regarding the process for researchers looking to perform human subject research with marijuana.9 According to this guidance, the FDA is one of three agencies – along with the National Institute on Drug Abuse (NIDA) and the DEA – involved in such research.

Specifically, researchers must work with each of these agencies for the following purposes:

  • National Institute on Drug Abuse (NIDA): to obtain marijuana for research.
  • One important source of research-grade marijuana for scientific study is through the NIDA drug supply program. The NIDA is the designated agency responsible for overseeing the cultivation of marijuana for medicinal research. As such, the NIDA contracts with the University of Mississippi to grow marijuana for use in research studies. Investigational marijuana products with varying strengths (or potencies) are also available.
  • Food and Drug Administration (FDA): to review an investigational new drug (IND) application. 
  • As with other botanical drug products, researchers need to work with the FDA and submit an IND application to conduct clinical research that can lead to an approved new drug, and this includes research using materials from plants such as marijuana. The IND describes the clinical plan and ensures that patients in trials will be protected.
  • Drug Enforcement Administration (DEA): to obtain an investigator registration and site licensure to conduct studies using marijuana. 
  • As a Schedule I controlled substance under the Controlled Substances Act (CSA), marijuana use in a clinical trial requires special licensure and registration requirements for the investigator and the site where the study will be conducted.

Federal Law: Controlled Substances Act and other Criminal Statutes

Federal prosecutors have a wide variety of legal tools related to marijuana, from the prohibited possession of the drug to sophisticated conspiracy and racketeering laws.10 Although they will use these tools in appropriate circumstances, marijuana is not a prosecution priority for any of the U.S. Attorneys’ Offices. Thus, even before the current legal and regulatory landscape developed, federal law enforcement has historically exercised prosecutorial discretion regarding which crimes would be adopted for federal prosecution. These decisions may have been driven by local policy or the perceived impact on crime by the use and sale of marijuana. Last year, the Justice Department revised its marijuana enforcement policy, based on a memorandum prepared by Deputy Attorney General James Cole that set forth the federal government's new policy.11 According to the Cole memo, "Congress has determined that marijuana is a dangerous drug and that the illegal sale and distribution of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs and cartels." However, the memo also outlined the Justice Department's specific enforcement policies, including the prevention of the following:

  • distribution of marijuana to minors
  • revenue from the sale of marijuana going to criminal enterprises, gangs and cartels
  • diversion of marijuana from states where it is legal under state law in some form to other states
  • state authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or illegal activity
  • driving under the influence and the exacerbation of other adverse public health consequences associated with marijuana use
  • marijuana possession or use on federal property

The memo concludes that state and local law enforcement retain significant authority to regulate marijuana and that agency policy "rests on the expectation that states and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory and enforcement systems that will address the threats those states could pose to public safety, public health, and other law enforcement interests."12

Earlier this year, the Treasury Department adopted the policies set forth in the Cole memo through guidance that discussed its approach to marijuana-related businesses, including those that provide financial services to marijuana-related businesses, which have been exceptionally hesitant to do business with the expanding marijuana industry.13 The Treasury's guidance reiterates Cole's assertion that illegal marijuana distribution and sale contributes greatly to criminal activity.14 However, it goes on to clarify that "the decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution," in addition to considerations outlined in the guidance.15

Companies' Legal Exposure

Importantly, none of the federal government's recent positions in its approach to enforcing marijuana-related laws alters existing federal law that prohibits the possession, use, manufacture and sale of marijuana everywhere in the United States. Thus, references to "legal" marijuana for medical or recreational use do not speak to federal criminal law but only to the relatively recent changes made to state criminal codes. Congress does not seem poised to alter the federal criminal law in this area, and the DEA, among other federal agencies, appears to oppose any liberalization of the federal drug laws.

To navigate this increasingly complex landscape of state and federal policy and law, a business or person should use caution if contemplating entrance into the marijuana business in the United States. First, read the Justice and Treasury guidance materials carefully and conform all conduct to the letter and spirit of those documents. Second, make sure you understand applicable FDA regulations. Third, secure legal advice prior to undertaking any marijuana-related conduct, as not all state bars regulating attorneys have permitted attorneys to provide advice to clients wanting to engage in conduct that violates federal law. Lastly, establish a compliance program that assures – to the extent possible – that all partners in the business follow the applicable laws, including FDA rules as well as the advice listed in the Justice and Treasury documents.16

Criminal law is exceptionally dynamic in this area, and all market participants must understand that regime change in the White House or the Justice Department could quickly alter the legal landscape for marijuana. This could expose conduct that the federal government is currently choosing to leave unfettered and may be subject to federal prosecution. Careful monitoring of all future Justice Department and FDA pronouncements is critical to anyone whose role may be affected by new developments in the marijuana trade.

As noted, the FDA has described the process for legally performing medical research using marijuana in public documents. Recent statements from the DEA have indicated an interest by that agency and the FDA to shift marijuana from a Schedule I drug to Schedule II. This would clearly change and likely reduce the risk equation for companies, though there would still be restrictions on the manufacturing, distribution, dispensing and use of the product. As for now, however, companies involved in marijuana activity face legal risks, even in states where it has been deemed "legal." Criminal liability could still be applied to companies under violation of the Controlled Substances Act or other federal criminal statutes.



1Testimony of Douglas C. Throckmorton, M.D before the Subcommittee on Government Operations Committee on Oversight and Government Reform, June 20, 2014.

2 American Bar Association rules regarding an attorney's ability to counsel clients in these matters conflict. For example, while American Bar Association Model Rule of Professional Conduct 1.2(d) states "a lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent," some state bar associations authorize attorneys to advise clients about the legality of possible behavior under relevant state and federal law. For example, Connecticut Informal Opinion 2013-02 states in part that "lawyers may advise clients of the requirements of the Connecticut Palliative Use of Marijuana Act. Lawyers may not assist clients in conduct that is in violation of federal criminal law." 

3 The 23 states currently allowing marijuana use for medical purposes are: Arizona, Alaska, California, Colorado, Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington. Both Colorado and Washington currently allow recreational marijuana use.

4Marinol is intended to address loss of appetite associated with weight loss in patients with AIDS. Additional information is available at http://www.marinol.com/.

5 Cesamet is an antiemetic intended to relieve chemotherapy induced nausea and vomiting. Additional information is available at http://www.cesamet.com/.

6 See FDA, FDA and Marijuana, available at http://www.fda.gov/drugs/developmentapprovalprocess/ucm401879.htm (accessed July 21, 2014).

7 Press Release, GW Pharmaceuticals, GW Pharmaceuticals Receives Orphan Drug Designation by FDA for Epidiolex in Treatment of Lennox-Gastaut Syndrome (Feb. 28, 2014), available at http://www.gwpharm.com/Epidiolex.aspx.

8 See FDA and Marijuana, supra note 6.

9 See FDA, Marijuana Research with Human Subjects, available at http://www.fda.gov/Drugs/DevelopmentApprovalProcess/ucm401891.htm (accessed July 21, 2014).

10 See 21 U.S.C. §844 (establishing penalties for simple possession); 18 U.S.C. §§1961-68 (codifying the Racketeer Influenced and Corrupt Practices Act, Pub. L. 91-452, 84 Stat. 922 (1970)).

11 See Press Release, U.S. Department of Justice, Justice Department Announced Update to Marijuana Enforcement Policy (Aug. 29, 2013), available at http://www.justice.gov/opa/pr/2013/August/13-opa-974.html; see also Memorandum from James Cole, Deputy Attorney General to all U.S. Attorneys regarding marijuana enforcement (Aug. 29, 2013), available at http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf.

12 James Cole Memorandum, supra note 12, at 4.

13 U.S. Department of the Treasury, Financial Crimes Enforcement Network, BSA Expectations Regarding Marijuana-Related Businesses (Feb. 14, 2014), available at http://www.fincen.gov/news_room/nr/pdf/20140214.pdf.

14 Id. at 2.

15 See id. at 3-7.

16 Any attorney practicing in this area should consult their local ethics rules, state court rulings, state bar association, and other appropriate sources to ensure that he or she is complying with relevant ethics rules.

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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