- INTRODUCTION
Medical marijuana use is now legal in a majority of the states.[1] Recreational marijuana use is now legal in California as well as eight other states.[2] Nonetheless, recreational and medical marijuana use remains illegal under federal law.[3] This creates numerous issues for those involved in the marijuana industry,[4] and has been considered one of the most important federalism disputes of this generation.[5]
California enacted the Compassionate Use Act and Adult Use of Marijuana Act which legalized marijuana use for medical and recreational purposes respectively. This change in state law moves marijuana organizations into the white-collar crime realm because the organizations are legally licensed and registered as businesses under state laws.
The federal government, however, classifies marijuana as a Schedule I drug which outlaws its use or possession, along with heroin, methamphetamine, and others. This causes a problem where state-legal marijuana businesses that are licensed to grow and sell marijuana in California are operating in violation of federal laws on several grounds, such as money laundering, tax evasion, and currency transaction reporting with the anti-structuring laws. This paper addresses the issues faced by marijuana organizations that are legally registered and licensed under state law to engage in the respective business activities that are necessary or are needed, therefore, making them ‘state-legal businesses’.
This paper does not address the ‘street crimes’ of possession, possession with the intent to sell, and sales of marijuana. Any individual who engages in such activity is in direct violation of federal law; although it appears, the federal government has not made it a priority to prosecute these crimes in states where marijuana has been legalized.[6] Nevertheless, state-legal businesses are violating federal white-collar crime laws such as money laundering, tax evasion, and currency transaction reporting anti-structuring laws, due to the conflict in marijuana laws between state and federal governments. This conflict creates grave implications for any individuals or entities who own, manage, or work for such state-legal businesses involved in the marijuana industry. Such a drastic conflict between state and federal law cannot continue.
White-collar crime was initially thought of as “crime committed by a person of respectability and high social status in the course of his occupation”[7] and “crimes committed by organizations such as corporations”.[8] This definition has been broadened to include any crimes that are not: “(1) crimes of violence, (2) narcotics offenses, (3) organized crime cases, (4) national policy crimes, and (5) common theft crimes and vice crimes”. [9] Furthermore, it has been said that, “[c]orporate or business crime is economic in nature, and can be considered a subset of white-collar criminal activity”.[10]
The state-legal marijuana businesses this paper will be discussing fall under the corporate crime umbrella because they are crimes committed 1) by businesses and, 2) for economic purposes. States allow marijuana businesses to register with the state an obtain licenses to grow, sell, and manufacture marijuana, and such businesses operate to turn a profit. These businesses therefore, by definition, fall under the white-collar crime umbrella.
Consider, for example, a group of three California businesspeople who learn that marijuana is now legal for recreational use in California and that the state is issuing licenses to grow and sell marijuana. They form a corporation, incorporated in California named ‘Mary-Mart’, they each invest money for starting the business, they then apply for and are granted a license to distribute marijuana. The business people on behalf of the corporation lease a store front, hire employees, purchase the product (marijuana), and open their business. The employees hired are like normal store clerks, they assist customers in selecting and purchasing the products, they make minimum wage and are high school graduates but no education beyond that. The corporation also hires an office manager who has a degree in business management, to handle the back office such as payroll, buying product and businesses items, paying the bills, and handling the daily revenues.
Which of these individuals – the businesspeople who started the business, the store clerks, the officer manager, or the corporation itself – can be prosecuted with white-collar criminal charges? Under current federal white-collar crime statues all of them could face substantial criminal punishments.
The obvious solution to this issue is for Congress to remove marijuana from the controlled substance act so it does not conflict with state laws. Unfortunately, this seems unlikely at this time,[11] as a majority of the states still outlaw recreational marijuana, and some of the states still prohibit it’s use for medical purposes. Congress, must then create an exception to the money laundering statute for state-legal marijuana businesses, which allows them to conduct their businesses without violating the federal money laundering statute.
First, this article examines the history of how marijuana has gone from outlawed across the nation both on the federal and state level, to legal for medical purposes in 30+ states, and legal for recreational purposes in 8 states.
Second, this article discusses how most marijuana businesses are forced to deal in all cash because banks will not provide the businesses banking services. Transacting in only cash is due to the fact that marijuana is still federally illegal, and banks fear criminal prosecution from providing state-legal marijuana businesses with banking.
Next, this article discusses the federal white-collar crimes that state-legal marijuana businesses and employees face, due in large part to the fact marijuana businesses deal in all cash. Federal money laundering, tax evasion, and anti-structuring laws are violated by many state-legal marijuana businesses because marijuana is federally illegal.
Fourth, this article analyzes several possible constitutional grounds that could be argued to invalidate the federal marijuana prohibition, but these would likely fail. The Supreme Court must address societal changes, but it is unlikely at this time that the court is ready to remove marijuana from the controlled substance act.
This article then explores possible legalization options Congress could implement. Using the existing framework in place for the sale and regulation of alcohol or pharmaceuticals, Congress could easily add marijuana into one of these models.
Lastly, this paper argues that the only logical solution to the problem state-legal marijuana businesses face, at this time, is for Congress to carve out a temporary exception to the money laundering statute for marijuana businesses that are operating lawfully under state laws. A temporary exception for 5-10 years will allow a time period for society to accept the legalization of marijuana.
- BRIEF HISTORY OF MARIJUANA LEGALIZATION
In 1970, under their implied power to regulate interstate commerce Congress passed the Controlled Substance Act (CSA).[12] In the CSA Congress made the finding that, “[t]he illegal importation, manufacture, distribution, and possession and improper use of controlled substances have a substantial and detrimental effect on the health and general welfare of the American people.” The CSA categorized substances into five schedules.
The requirements for a substance to be classified under Schedule I are: “(A) The drug or other substance has a high potential for abuse. (B) The drug or other substance has no currently accepted medical use in treatment in the United States. (C) There is a lack of accepted safety for use of the drug or other substance under medical supervision.” A Schedule I drug cannot even be prescribed by a doctor or physician, but drugs Scheduled II-V can be. Marijuana and its derivatives are classified under Schedule I.
For several decades after the CSA was enacted, the law on marijuana in the United States remained quite consistent. Marijuana was outlawed at the federal and state level across the nation. The war on drugs waged by President Richard Nixon was in full force.
Until on November 5, 1996, California voters passed an initiative which legalized the use of medical marijuana, namely the Compassionate Use Act – Proposition 215, now codified at Health and Safety Code section 11362.5. The purpose of the Compassionate Use Act is, “[t]o ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes.”[13] The Compassionate Use Act was and remains very broad, allowing marijuana use to treat “cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief”[14] (emphasis added); and the possession of up to eight ounces of dried marijuana and six mature plants or twelve immature plants for such treatment.
California was the first state to legalize medical marijuana, since then more than 35 States have enacted some type of legislation legalizing or decriminalizing the use of marijuana for medical purposes.[15]
Twenty years later, on November 8, 2016, California voters passed the Adult Use of Marijuana Act which legalized the recreational use of marijuana for adults over 21 years of age. Currently, Alaska, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont, and Washington all also have legalized recreational marijuana. Recreational marijuana laws vary from state to state, but all allow some type of possession and use of marijuana not conditioned upon medical necessity.[16] As codified under California Health and Safety Code Section 11362.1, an adult in California, 21 years and older, may possess up to one ounce of marijuana or grow up to six marijuana plants for recreational use. Furthermore, California is granting licenses for the cultivation, retail, distribution, and manufacture of marijuana.[17]
III. CASH ONLY BUSINESS
Before examining the federal white-collar criminal laws implicated in the state legal marijuana industry, it is important to note that most state-legal marijuana businesses must deal in cash only. As one legal scholar has stated, “It is well documented that marijuana-related entities in states where marijuana is legal have difficulty obtaining banking services.”[18] Another stated, “one cutting-edge area of commerce where cash is still king – the marijuana business.”[19]
Banks are reluctant to provide banking services for marijuana businesses because marijuana is classified as a Schedule I drug under federal law. By providing banking services a bank is indirectly assisting the business in the cultivation or distribution of marijuana which implicates the bank as a conspirator, aider and abettor, or accessory. Consequently, banks are unwilling to provide banking services to marijuana businesses, and many banks are even unwilling to provide banking services to marijuana-related businesses that don’t deal directly with marijuana.[20] Financial institutions are also largely concerned (rightfully so) about violating federal money laundering statutes. “Federally insured banks can’t handle the proceeds of marijuana businesses[21] without violating anti-money laundering laws, so those businesses have to find alternatives to manage their finances.”
These concerns leave state-legal marijuana businesses to deal in cash, something that is not ideal for any businesses in the year 2018. Despite the practical problems associated with pure cash dealings, state-legal marijuana businesses face more serious concerns such as violating specific federal money laundering laws.
- FEDERAL WHITE-COLLAR CRIMES IMPLICATED IN THE STATE-LEGAL MARIJUANA INDUSTRY
- Money Laundering
Money laundering is the most prolific and problematic white-collar crime that state-legal marijuana businesses face. “In layman’s terms ‘money laundering’ is taking the proceeds of illegal activity and making them appear to derive from a lawful source.”[22]
The primary money laundering statutes under federal law are codified at 18 U.S.C. sections 1956 and 1957. These statutes broadly criminalize the use of money derived from underlying criminal activity. This becomes a problem for marijuana businesses because marijuana under federal law is illegal. State-legal marijuana businesses are then automatically operating in violation of these statutes when using money earned from their business. Money laundering penalties can be hefty and carry a maximum sentence of 20 years in prison and a fine of $500,000.
There are several types of money laundering, and arguably the most notable is concealment money laundering under 18 U.S.C. section 1956(a)(1)(B)(i). This section of the statute outlaws financial transactions in which the defendant knows the transaction is designed in whole or in part to disguise, conceal, or hide the source of the money.
State-legal marijuana businesses and their employees likely face more significant problems with other sections of the statute, assuming the business is not deliberately purchasing boats, jewelry, or property in attempts to conceal the cash profits of the business.
The real issue for state-legal marijuana businesses lies in 18 U.S.C. section 1956(a)(1)(A)(i); which outlaws financial transactions that promote the carrying on of specified unlawful activity. Unfortunately for marijuana businesses, the sale of marijuana is a specified unlawful activity under 18 U.S.C. section 1956.[23] Therefore, any financial transaction engaged in for the benefit of the business would subject the person who conducted the transaction to prosecution.
Secondly, 18 U.S.C. section 1957 poses serious implications for marijuana businesses. This federal statute does not require that the monetary transaction be done to conceal or promote the business in any way, shape or form – it merely requires that a monetary transaction greater than $10,000 take place, where the money had been derived from an unlawful activity. In essence, this statute criminalizes any monetary transaction of over $10,000 a state-legal marijuana business engages in, because under federal law the money received by such businesses is an unlawful activity. 18 U.S.C. section 1957, “makes it a 10-year felony simply to spend (or conduct any financial transaction) with more than $10,000 in criminally derived proceeds.”[24]
This is exactly what occurred in People v. Skytte.[25] Skytte was a California state criminal case where the defendant was charged with possession of marijuana with the intent to sell, and money laundering, in 2011 (before recreational marijuana was legal).[26] Both charges were brought under state law. However, the money laundering statute in California is identical to the federal money laundering law, except the threshold amount is $5,000, not $10,000.[27] In Skytte, the jury acquitted the defendant on the possession with intent to sell charge because the defendant proved that his marijuana business was legal under state law for medical purposes and met an exception to the Compassionate Use Act.[28] It was a grow cooperative, where several individuals who use medical marijuana join together to grow their marijuana and pay someone to do it.
Nonetheless, the jury found the defendant guilty of the money laundering charge because federal law made his medical marijuana business illegal, and he deposited the cash from the business into the bank.[29] The money laundering charge was upheld on appeal because there is no exception to the money laundering law; and the law only requires the money be derived from illegal activity, and technically the activity is illegal under the federal law.[30]
United States v Corchado-Peralta[31] and United States v Brown[32] both set precedent that would help in the defense of employees working at a state legal marijuana business, but it would remain an uphill battle for any employees charged under 18 U.S.C. sections 1956 and 1957 to defeat such criminal charges.
In Corchado, a wife was charged with money laundering because her husband was a drug dealer.[33] Her husband would give her money to spend, to pay bills, and buy things such as cars, boats and real estate.[34] The Court of Appeals reversed the money laundering conviction because the wife had no intention or knowledge that the spending of the money was to conceal or disguise the nature, location, source, or ownership of the money derived from unlawful activity.[35]
In Brown, the defendant, a car dealership owner, was charged with promotion money laundering.[36] Part of the car dealership was legitimate, but part of the business was defrauding customers and lenders.[37] The money from this fraudulent activity was then used to run the car dealership, which in turn committed more fraud but also conducted legitimate business.[38] The Court of Appeals reversed the defendant’s money laundering conviction, holding that the defendant must have had the intent to promote the carrying on of unlawful activity and the money transaction had to have been to promote specified unlawful activity.[39]
These two cases seem to set precedent that would be helpful to defend an employee who is unaware of the criminal implications of the marijuana’s business. If the employee believes the money transaction they are making is not to conceal proceeds of unlawful activity and the money is simply being used to run the business such as, to buy products and to pay bills, under these cases, the defendant would likely not be guilty of money laundering.
- Tax Crimes
Tax evasion under 26 U.S.C. section 7201 and filing false tax returns under 26 U.S.C. section 7206 are two additional white-collar crimes under which state-legal marijuana businesses may face prosecution. Tax evasion can carry punishments of up to 5 years in prison per violation, or for corporations a $500,000 fine; and filing false tax returns penalties are a maximum prison term of three years and fines up to $500,000 for corporations.
Under federal tax law, a business operating in violation of federal drug laws must nonetheless pay income tax, but cannot deduct expenses before calculating taxable income other than the cost of obtaining the goods for sale.[40] If a state-legal businesses fails to pay taxes on all of its income, without making deductions for expenses such as rent, employee payroll, utilities, and other business costs, they would be committing tax evasion and filing a false tax return.
The fact that state-legal marijuana businesses are forced to deal in cash only makes paying the proper taxes even more difficult. Despite the fact that these businesses must pay more taxes than other businesses, they aren’t able to track their revenues and expenditures electronically which makes calculating taxes more difficult. These businesses also can’t use payroll companies to pay their employees. Such businesses withhold the proper taxes from each paycheck to pay the taxes. Even if a state-legal was attempting to pay the full taxes required under the law, calculated the amount and accounting for the taxes would be extremely difficult because they deal in cash only.
- Currency Transaction Reporting and Cash Reporting Anti-Structuring
Under the currency transaction and cash reporting laws, codified at 31 U.S.C. § 5315, a financial institution that is involved in a transaction that involves more than $10,000 in U.S. currency must file a required Form 8300 (CTR report) with the IRS. Furthermore, under the anti-structuring laws, codified at 31 U.S.C. section 5324, anyone who causes a financial institution to not file a CTR report by structuring the transactions in amounts under $10,000 faces a five-year maximum.
As discussed above, state-legal marijuana businesses are forced to primarily deal in all cash because banks refuse to provide banking services in fear of prosecution for money laundering. The currency reporting statute was broadened in 1984 when Congress applied the statute to all persons engaged in a trade or business. Therefore, marijuana businesses doing business with each other are required to submit and complete a Form 8300 to the IRS whenever involved in a transaction over $10,000. Assume our fictitious marijuana business, Mary-Mart, is growing rapidly and places a large order to a marijuana cultivator for $20,000 worth of product –marijuana. Of course, Mary-Mart who is an all-cash business, due to the fact that banks refuse to provide banking services to them, pays in cash for this product purchase. The marijuana cultivator who sold the product is required, by federal law to report this transaction to the IRS, and failure to do so is criminal.
Assuming they are now experiencing profits because of the rapid growth in the marijuana industry, the anti-structuring law creates real problems for the three businesspeople who started Mary-Mart. All of their earnings are in cash, and if they wish to deposit more than $10,000 into the bank, it will be reported to the IRS. If they instead deposit small amounts of cash regularly, they will be violating anti-structuring laws.
This is precisely what happened in United States v Macpherson.[41] In Macpherson, a New York police officer supplemented his salary with rental income from various real estate properties.[42] Over a four-month period he deposited this cash into the bank using of 32 transactions, structured so no transaction exceeded the $10,000 limit.[43] Despite the fact the money came from a legal source – renting his real estate properties – he was found guilty of 31 U.S.C. section 5324, the anti-structuring law and the conviction was upheld on appeal.[44]
A conviction under the federal anti-structuring law does not require that the money is derived from illegal activity. This statute, could therefore, easily be used to prosecute individuals involved in a state-legal marijuana business.
- POSSIBLE SOLUTIONS
The federal money laundering laws posit the gravest danger for state-legal marijuana businesses, and the individuals that are working or investing in the industry. The reason for this is because, using any money derived from a marijuana business is per se illegal, and constitutes money laundering. The federal government has not prevented individuals from creating state-legal marijuana businesses and operating those businesses. In addition to that, the federal government has stood by idly, not taking any measures to protect these businesses while at the same time not enforcing the federal marijuana prohibition.
This conflict between state and federal law can no longer continue. There are three possible solutions to this issue: 1) the Supreme Court can rule the marijuana prohibition unconstitutional, 2) congress can act to legalize marijuana by rescheduling it under the CSA or removing it from the CSA all together, or 3) Congress can carve out a temporary solution to the money laundering statute for state-legal marijuana businesses.
- POSSIBLE CONSTITUTIONAL ARGUMENTS
- Due Process
The due process clause of the U.S. Constitution provides: “No person shall … be deprived of life, liberty, or property, without due process of law.” The Supreme court has held that some liberties are so essential that they are fundamental rights and the government cannot infringe them unless strict scrutiny is met: the government’s action must be necessary to achieve a compelling purpose. The right to make medical care decisions[45] and the right to earn a living[46] could be considered fundamental rights. These two fundamental rights are implicated in situations involving the use and sale of marijuana.
An individual may wish to use marijuana for medical purposes, but that is outlawed by federal law. An individual may wish to work for a state-legal business, but that too is outlawed. Marijuana has been shown to have numerous health and medical benefits,[47] but federal law prohibits an individual to benefit from them. The state-legal marijuana industry is estimated to top 20 billion dollars in 2021,[48] yet the federal government outlaws individuals from earning a living in this industry.
In order to infringe a fundamental right – such as the right to make medical decisions or to earn a living – the government is required to show there is sufficient justification for the infringement, that justification requires a compelling governmental interest. What interest does the government have in prohibiting the use and sale of marijuana? Furthermore, the means of completing that government interest/goal must be sufficiently related to the interest/goal. This requires that there be no less restrictive ways except for the law. With recent developments showing the medical benefits of marijuana[49] and the creation of thousands of jobs,[50] the government will be hard-pressed to prove that there is a compelling government interest in prohibiting marijuana. Even less likely is the government proving that the marijuana prohibition is the least restrictive way they can accomplish such goals.
Nonetheless, this seems highly unlikely at this time. Despite the possible argument, no precedent suggests such argument has any merit. Furthermore, the medical and job creation benefits from marijuana are not entirely accepted by all of society and all the states.
Secondly, the conflict between federal and state marijuana laws creates a procedural due process issue. The Fifth and the Fourteenth Amendments provide that the federal government nor states “shall deprive any person of life, liberty, or property without due process of law.” This has been interpreted to mean, by the Supreme Court, that if a person is deprived of life, liberty, or property, it must be done with due process of law. This requires the balancing of a three-part test as delineated in Mathews v Eldridge.[51] The three-part test requires the balancing of 1) the private interest, 2) the risk of error, and the probable value of additional safeguards, and 3) the government interest.[52]
Under this balancing test, we must first determine the private interest involved, which is not just the right to use marijuana recreationally. The state legalization of marijuana is creating thousands of jobs across America. The right to earn a living is a liberty afforded the people of the United States, and the federal government by outlawing marijuana, is restricting this right. Furthermore, if the government were to prosecute the Mary-Mart store clerk or office manager, that would deprive them of their jobs. The use of marijuana also has the medical aspect, and by prohibiting its use for medical purposes, the government is depriving them of their rights to make medical care decisions. These are significant private interests, and could have a great impact on the individual person losing them.
Applying this to our scenario, it becomes clear. The office manager needed a job when she started working for Mary-Mart. She saw an ad for the job online; she applied, went and interviewed. Her interview at Mary-Mart went well, and she saw the store had an official license stamped by the state of California to sell marijuana. While she was there, she also noticed a police officer walk by the store, he smiled and said hi. She was hired and filed out the proper hiring documents. She assumed, working there was allowed, as the state of California had given its stamp of approval, and the police were friendly about it. Weeks later she is arrested and charged with money laundering for “doing her job.” Even if given a full just trial in the court of law, with all such procedural safeguards, what safeguards did the office manager have in getting the job? Should she be held criminally liable when the state, the police, and the employer all tell her that it is legal?
Finally, the courts must balance the government’s interest. Here, with the now widespread use of marijuana, the government’s interest in prohibiting the use is minimal. There are proven medical uses for marijuana, tax benefits to the state governments, jobs created, and more. The government’s interest cannot be in protecting the health and welfare of its citizens. If it is not that, what is the government’s interest? The courts would find it difficult to prove that the interest of the government outweighs the private interest, and outweighs the value of additional safeguards that should be provided to such individuals who work in the marijuana industry or use the product for medical purposes. Perhaps employment paperwork such as W-2’s should contain a disclaimer that working in the industry, though state-legal, violates federal law and subjects individuals that do so to federal prosecution. Maybe medical marijuana products should have a similar warning, and doctors should advise their patients of such.
Of course, there is a low “risk of error” because: anyone prosecuted under the federal marijuana laws will be afforded a full trial in the court of law. The Supreme Court would have difficulty finding this argument compelling enough to hold that federal marijuana prohibition is unconstitutional.
- Anti-Commandeering
A recent Supreme Court case Murphy v NCAA,[53] dealt with a similar issue as the one presented in this article. In Murphy, New Jersey had passed a sports gambling law that was in direct conflict with federal law.[54] Federally, sports gambling was prohibited except in a few grandfathered states and New Jersey was not one of them.[55] Nonetheless, in 2014, New Jersey passed a law that authorized sports gambling.[56] The New Jersey law was in direct conflict with the federal law Professional and Amateur Sports Protection Act (PSPA).[57] The Supreme Court struck down the federal law as unconstitutional.[58]
Although the Supreme Court used the anti-commandeering rule to strike down the federal law – which doesn’t have much application to the state/federal marijuana conflict – it indicates a policy shift on the Supreme Court to give more power back to the states.
Some scholars have even opined that the federal marijuana prohibition violates the anti-commandeering rule from Printiz v. United States.[59] The anti-commandeering rule requires that Congress not command states to enact laws nor order state officials to administer them. “The federal government may not commandeer states by forcing them to enact laws or by requiring state officers to assist the federal government in enforcing its own laws within the state.”[60] Because the federal marijuana prohibition directly outlaws marijuana use and does not tell the states to do anything in regards to marijuana regulation, the anti-commandeering rule does not have much ability. An argument can be stretched that because it is outlawed federally, it does not allow the states to legalize it, therefore it is commandeering the states.
- Commerce clause
Congress may only act if it has express or implied power under the constitution. The Controlled Substance Act explicitly states that Congress is enacting the law under its power to regulate interstate commerce. This rationale was upheld by the Supreme Court in Gonzales v. Raich.[61] In Gonzales, two individuals were using medical marijuana as authorized under California’s Compassionate Use Act.[62] The federal Drug Enforcement Administration seized and destroyed the marijuana. The individuals then brought an action against the Attorney General and head of the DEA seeking declaratory relief prohibiting the enforcement of the CSA to medical marijuana.[63] The federal District Court denied the preliminary injunction, but the Ninth Circuit Court of Appeals reversed and granted the preliminary injunction.[64] The Ninth Circuit felt the individuals had, “demonstrated a strong likelihood of success on their claim that, as applied to them, the CSA is an unconstitutional exercise of Congress’ Commerce Clause authority.”[65]
The Ninth Circuit relied on the Supreme Court cases United States v. Lopez[66] and United States v. Morrison,[67] which held that purely local activities were beyond the scope of Congress’s power. In Lopez, Congress enacted a law that prohibited guns in school zones.[68] The Supreme Court found that law was not within Congress’s power to regulate interstate commerce.[69] In Morrision, Congress passed a law that gives a civil remedy for victims of gender-motivated violence.[70] Again, the Supreme Court held the law to be unconstitutional as it exceeded the commerce clause power.[71]
However, in Gonzales, the Supreme Court found that Congress did have the power to enact the CSA, and the CSA was a constitutional law under the commerce clause.[72] Using Wickard v. Filbrun, the Supreme Court reasoned that Congress could regulate purely intrastate activity that is not itself commercial if it concludes a failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity.[73] Furthermore, the production of a commodity meant for in-home consumption has a substantial effect on the supply and demand in the national market.[74] The Court concluded that the CSA was a valid use of Congress’s power to regulate interstate commerce.[75]
An argument can be made, as the Ninth Circuit concluded, that the activity of local medical marijuana is a localized criminal activity that is beyond the power of Congress to regulate. Unfortunately, Gonzales found different, and the doctrine of Stare Decisis would make it difficult for the Supreme Court to overrule this precedent from 2005.
- LEGALIZATION OF MARIJUANA
Marijuana can possibly be legalized under two current national frameworks, either under the alcohol model for recreational purposes or under the pharmaceutical model for medical purposes. In both instances, the framework is already in place in this country.
In 1920 the Constitution was amended to end the prohibition on alcohol. Since then alcohol has grown into a massive industry and a major contributor to the national economy. There are numerous state and federal agencies that regulate and police the distribution and use of alcohol, such as the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the Alcoholic Beverage Control (ABC).
Such agencies could be modified to include marijuana regulation, and licenses based on similar models as those already used. This would make marijuana legal across the nation for recreational purposes, as alcohol is currently. This would increase tax revenue, jobs, and the ability to regulate and control the industry. National approval of recreational marijuana is still likely too low for this to be a feasible option though and is highly unlikely at this time.
As already noted, the CSA created different Schedules of drugs. Schedules II-V can be prescribed as pharmaceuticals by doctors and physicians. Similar to alcohol regulation and policing there are numerous agencies that regulate the pharmaceutical industry from the Food and Drug Administration (FDA) to the DEA.
Marijuana could be moved from a Schedule I drug to a Schedule II or below. This change in classification would then allow businesses to grow, manufacture, and sell it, as large pharmaceutical companies do. This would eliminate the risk of violating money laundering laws for such medical marijuana companies. One scholar has proposed this would be the most effective and easiest solution to the money laundering issue marijuana businesses face.
However, this solution fails to consider the states which have legalized marijuana for recreational purposes and all the businesses and individuals that would still be subjected to the federal/state conflict. California is the world’s fifth largest economy,[76] and has legalized recreational marijuana. Leaving the citizens of California and the seven other states who have legalized recreational marijuana still in jeopardy of the same issue, this makes little sense. Particularly when such a large economy is involved, subjecting so many Americans to the issue.
- TEMPORARY EXCEPTION FOR MONEY LAUNDERING STATUTE
Congress can act in a way that would not require it to make swooping changes to the CSA legalizing marijuana, yet still protecting businesses and individuals operating state-legal marijuana businesses. Congress can, and should, carve out a temporary exception to the money laundering statute, which excludes funds derived from marijuana businesses complying with state laws and regulations from unlawful activities that underlie the money laundering statute.
Although neither society nor Congress are prepared to fully act on legalizing marijuana, a 5 to 10 year temporary exception to the federal money laundering statute would have great benefits for the marijuana industry and the nation. This would eliminate the per se violation of the federal white-collar crime money laundering. Such an exception would also allow banks to provide banking services to marijuana businesses. In turn, this would decrease tax evasion and anti-structuring violations by the same businesses. It would also indirectly increase tax revenue and allow for easier state monitoring and regulation of these businesses.
At the same time, it would not force Congress to make such a substantial policy choice legalizing marijuana.
- CONCLUSION
It seems inherently unconstitutional to subject citizens to conflicting state and federal laws. Allowing a citizen the ability to get a state-issued license to grow, manufacture, or dispense marijuana but then subjecting them to violations of numerous federal laws does not seem to be “just” in any way. Yet our country faces this exact problem. This paper seeks to shed light on the conflict between the states which allow citizens and businesses to legally engage in the marijuana industry and the federal government which wishes to criminalize and punish such behavior. A business, business owner, CEO, or even a regular employee could be guilty of serious federal white-collar crimes by simply “doing their job” which is completely legal employment under state laws.
How is a person to decide what to do when it comes to choosing between having a job and breaking a federal law? An office secretary in charge of purchasing items for a business that sells marijuana could be charged for money laundering if they know the money is from the sale of marijuana.
The number of citizens now living in states which legally allow the buying and selling of marijuana either for recreational or medicinal purposes is vast. Congress must remove marijuana from the CSA so that businesses and employees working in the industry are not subject to such conflict.
The sooner Congress acts to fix the problems of money laundering which state-legal marijuana businesses face, the better. It will allow for these businesses to be better regulated by government agencies such as the IRS and the states agencies themselves. Furthermore, it will lead to an increase in taxes paid by these businesses and a decrease in criminal justice resources in an area where it is unnecessary.
The Supreme Court must respond to societal changes, just as it did in Obergefell v. Hodges,[77] and Brown v. Board of Education.[78] However, it is unlikely that the court will have the opportunity to address this issue considering the legalization of marijuana has yet to make its way to the high court, and the nation remains split on the issue. Furthermore, there is no strong constitutional argument to end the state/federal conflict. Although the framework for alcohol and pharmaceuticals already exists to distribute and regulate controlled substances, neither is feasible for national marijuana legalization at this time.
This article argues that the most practical solution to this grave issue is for Congress to carve out a 5 to 10 year temporary exception to the money laundering laws for state-legal marijuana businesses. Such an exception would allow the states and its citizens to experiment with marijuana legalization without lifting the national prohibition on marijuana until the nation is ready to do so.
– Written by Michael Royer
[1] State Medical and Recreational Marijuana Laws Chart: Overview, Practical Law Practice Note Overview 7-523-7150
[2] Id.
[3] 21 U.S.C. § 841(a)(1) (2012) (making it unlawful “to manufacture, distribute, or dispense … a controlled substance”); id. § 802(6) (defining controlled substance to include drugs in “schedule I”); id. § 812 (classifying marijuana as a schedule I drug).
[4] See, George Blum, Regulation and Effect upon Criminal and Civil Law of Legal Recreational Marijuana Exclusive of Bankruptcy Proceedings, 31 A.L.R.7th Art. 8 (Originally published in 2017); W. Michael Schuster & Jack Wroldsen, Entrepreneurship and Legal Uncertainty: Unexpected Federal Trademark Registrations for Marijuana Derivatives (2018) 55 Am. Bus. L.J. 117; Kenneth Seligson, A Job for Congress: Medical Marijuana Patients’ Fight for Second Amendment Rights (2018) 48 Golden Gate U. L. Rev. 63, 66
[5] Robert A. Mikos, On the Limits of Supremacy: Medical Marijuana and the States’ Overlooked Power to Legalize Federal Crime (2009) 62 Vand. L. Rev. 1421, 1423
[6] See, United States v. Guess (E.D. Va. 2016) 216 F.Supp.3d 689, 692; Memorandum from Atty. Gen. Holder for all heads of Department of Justice components and United States Attorneys Priorities (Aug. 12, 2013), https://www.justice.gov/sites/default/files/ag/legacy/2014/04/11/ag-memo-substantial-federal-interest.pdf.
[7] Edwin H. Sutherland. White Collar Crime: The Uncut Version 7 (1983).
[8] Strader, Kelly and Jordan, Sandra. White Collar Crime Cases, Materials, and Problems (2015).
[9] Id.
[10] Id.
[11] Lara L. Kessler, Is the Grass Really Greener? Profits from State-Legalized Marijuana Business vs. Federal Anti-Money Laundering Rules (2017) 23 J.L. Bus. & Eth. 45
[12] 21 U.S.C. § 801
[13] Cal. Health & Safety Code § 11362.5
[14] Id.
[15] State Medical and Recreational Marijuana Laws Chart: Overview, Practical Law Practice Note Overview 7-523-7150
[16] National Conference of State Legislatures, State Medical Marijuana Laws, (4/27/2018) http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx
[17] https://cannabis.ca.gov/licensing/, California Cannabis Portal, (last visited 5/14/18)
[18] Hill, Banks, Marijuana, and Federalism (2015
[19] Kessler, Is the Grass Really Greener? Profits from State-Legalized Marijuana Business vs. Federal Anti-Money Laundering Rules (2017)
[20] Hill, Banks, Marijuana, and Federalism (2015)
[21] Kessler, Is the Grass Really Greener? Profits from State-Legalized Marijuana Business vs. Federal Anti-Money Laundering Rules (2017)
[22] Id.
[23] Id.
[24] Id.
[25] People v. Skytte (Cal. Ct. App., Nov. 23, 2015, No. C074100) 2015 WL 7428869
[26] Id. at 1-2
[27] Id. at 2
[28] Id. at 1
[29] Id. at 1
[30] Id. at 10
[31] United States v. Corchado-Peralta, 318 F,3d 255 (1st Cir. 2003).
[32] United States v. Brown, 186 F.3d 661 (5th Cir. 1999).
[33] Corchado-Peralta, 318 F.3d at 256
[34] Id.
[35] Id.
[36] Brown, 186 F.3d 662
[37] Id.
[38] Id.
[39] Id.
[40] Erwin Chemerinsky, Jolene Forman, Allen Hopper, Sam Kamin, Cooperative Federalism and Marijuana Regulation (2015) 62 UCLA L. Rev. 74, 94
[41] United States v. Macpherson, 424 F.3d 183 (2d Cir. 2005)
[42] Id.
[43] Id.
[44] Id.
[45] Cruzan v. Dir., Mo. Dep’t of Health, 497 U.S. 261
[46] Lowe v. SEC, 472 U.S. 181
[47] https://www.inverse.com/article/43799-fda-marijuana-drug-pharmaceutical-approved
[48] David W. Wensley, Amir Sadr, Space to Grow Legalization of Marijuana Presents Significant Opportunities for Property Owners Looking to Cash in on California’s Budding Cannabis Industry, L.A. Law., February 2018, at 20.
[49] https://www.inverse.com/article/43799-fda-marijuana-drug-pharmaceutical-approved
[50] Wensley, Space to Grow Legalization of Marijuana Presents Significant Opportunities for Property Owners Looking to Cash in on California’s Budding Cannabis Industry
[51] Mathews v Eldridge, 424 U.S. 319
[52] Id.
[53] Murphy v NCAA, 584 U.S. _____ (2018)
[54] Id.
[55] Id.
[56] Id.
[57] Id.
[58] Id.
[59] See, Robert A. Mikos, On the Limits of Supremacy: Medical Marijuana and the States’ Overlooked Power to Legalize Federal Crime (2009) 62 Vand. L. Rev. 1421, 1423; Erwin Chemerinsky, Jolene Forman, Allen Hopper, Sam Kamin, Cooperative Federalism and Marijuana Regulation (2015) 62 UCLA L. Rev. 74, 102
[60] Id. at 101
[61] Gonzales v. Raich, 545 U.S. 1
[62] Id.
[63] Id.
[64] Id.
[65] Raich v Ashcroft, 353 F.3d 1222 (2003)
[66] United States v. Lopez, 514 U.S. 549
[67] United States v. Morrison, 529 U.S. 598
[68] Lopez, 514 U.S. 549
[69] Id.
[70] Morrison, 529 U.S. 598
[71] Id.
[72] Gonzales, 545 U.S. 1
[73] Id.
[74] Id.
[75] Id.
[76] Associated Press, California is now the world’s fifth-largest economy, surpassing United Kingdom. May 4, 2018. http://www.latimes.com/business/la-fi-california-economy-gdp-20180504-story.html
[77] Obergefell v. Hodges, 135 S. Ct. 2584
[78] Brown v. Board of Education, 322 U.S. 1