By Michael H. Sampson and Gregory D. Vose

A court may refuse to enforce a contract, or a contractual provision, that contravenes public policy.  Accordingly, in the context of marijuana, more than one party looking to escape a contract – such as a lease or an insurance policy issued to a marijuana dispensary – and its obligations has argued self-servingly that, because the drug is illegal under federal law, the contract was against public policy and therefore unenforceable.  Most recently, courts have rejected that argument, recognizing that, despite federal law, public policy about marijuana – or, at least, about medical marijuana – is evolving.

On January 4, 2018, however, U.S. Attorney General Jeff Sessions issued a one-page memorandum that many worry put a halt to that evolution.  The Attorney General, though, did not unilaterally change federal public policy overnight.  To the contrary, as demonstrated by Congressional action and statements, federal public policy in this area is far from monolithic.  As such, it is likely that courts will continue to have to grapple with the effect of federal public policy on cannabis-related contracts for some time.  And, in doing so, they will need to take into account the totality of that public policy, not just the Attorney General’s January 4 memorandum.

Background

The federal Controlled Substances Acts (the “CSA”) makes it illegal for any person to “knowingly or intentionally … manufacture, distribute, or dispense, or possess with the intent to manufacture, distribute, or dispense” marijuana.

In 2013, however, Deputy U.S. Attorney General James M. Cole issued a memorandum – known as the “Cole Memorandum” – that limited the situations in which the federal government would seek to enforce the CSA as it relates to marijuana.  Acknowledging that the U.S. Department of Justice (the “DOJ”) has “limited investigative and prosecutorial resources,” the Cole Memorandum effectively limited the circumstances in which the DOJ would enforce “the CSA against marijuana-related conduct” to those circumstances which implicated “certain enforcement priorities that are particularly important to the federal government[,]” such as “[p]reventing the distribution of marijuana to minors.”

Three years later, in The Green Earth Wellness Center, LLC v. Atain Specialty Insurance Company, 163 F. Supp.3d 821 (D. Colo. 2016), the U.S. District Court for the District of Colorado cited to the Cole Memorandum when referencing “the conflicting signals that the federal government has given regarding marijuana regulation and enforcement since 2009” (footnote omitted).

In that case – involving an insurer that sought to avoid its coverage obligations for a cannabis-related loss – the court acknowledged “that the possession of marijuana for distribution purposes continues to constitute a crime” but also observed that “the nominal federal prohibition against possession of marijuana conceals a far more nuanced (and perhaps even erratic) expression of federal Policy.”  For those reasons, “and particularly in light of … a continued erosion of any clear and consistent federal public policy in this area,” that court declined the insurer’s “invitation to declare the Policy void on public policy grounds.”

The following year, the Court of Appeals of Arizona relied on Green Earth in determining that a landlord could not get out of its lease with a medical marijuana dispensary.  In Green Cross Medical, Inc. v. Gally, 395 P.3d 302 (Ariz. Ct. App. 2017), the Arizona state court rejected the landlord’s argument that the lease was illegal under the CSA, observing that (i) “federal policy as to medical marijuana has been in flux for years,” (ii) the DOJ “had instructed the U.S. Attorneys not to proceed against persons acting in compliance with state medical marijuana laws,” and (iii) there were federal budgetary constraints preventing the DOJ from “prosecut[ing] people using or distributing medical marijuana in compliance with state laws.”

Attorney General Sessions’ memorandum, however, rescinded the Cole Memorandum and other previous federal directives.  It did not, though, instruct U.S. attorneys to prosecute marijuana-related violations of the CSA.  Rather, it directed federal prosecutors to “follow the well-established principles that govern all federal prosecutions” when “deciding which marijuana activities to prosecute.”

Federal public policy is not monolithic

Attorney General Sessions’ memorandum is far from the only word on federal public policy concerning marijuana.  Most notably, perhaps, the U.S. Congress consistently has included a provision – now known as the Rohrabacher-Blumenauer Amendment – in the federal budget (and in recent continuing resolutions) mandating that “[n]one of the funds made available … to the Department of Justice may be used with respect to any of the States [that have legalized medical marijuana], to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”

Furthermore, on January 11, 2018, U.S. Representative Barbara Lee (D-CA) introduced the Restraining Excessive Federal Enforcement & Regulations of Cannabis Act of 2018.  That act, also known as the REFER Act of 2018, would prevent any federal department of agency from using any “funds made available by any Act of Congress to[,]” among other acts, “(1) prevent a State or unit of local government from implementing or maintaining its State law or regulation that authorizes the use, distribution, possession, or cultivation of cannabis; [or] (2) detain, prosecute, sentence, or initiate civil proceedings against an individual, business or property, that is involved in the cultivation, distribution, possession, dispensation, or use of cannabis, in accordance with the law or regulation of the State or unit of local government in which the individual is located.”

Additionally, even prior to Attorney General Sessions’ pronouncement, U.S. Senator Cory Booker (D-NJ) had introduced legislation to legalize marijuana nationally.

In a statement issued on January 4, 2018, U.S. Senator Cory Gardner (R-CO) also expressed that he was prepared to take action:  “Before I voted to confirm Attorney General Sessions, he assured me that marijuana would not be a priority for this Administration.  Today’s action directly contradicts what I was told, and I am prepared to take all steps necessary, including holding DOJ nominees, until the Attorney General lives up to the commitment he made to me prior to his confirmation.”

According to The Huffington Post, U.S. Senator Mark Warner (D-VA) also criticized the Attorney General’s recent directive, observing that it “‘would seem to be the absolute opposite direction of where the country’s headed and one more example of this administration being completely out of step with where both Americans are headed and, for that matter, Democratic and Republican state legislatures.’”  Indeed, 29 states and the District of Columbia have legalized medical marijuana, and eight states and the District of Columbia have legalized recreational marijuana.

Other Senators and Congressmen have voiced their disagreement with Attorney General Sessions’ memorandum as well.  For example:

• On January 4, 2018, U.S. Senator Ron Wyden (D-OR) issued a press release in which he stated: “Opening the door to go after legal marijuana businesses ignores the will of the majority of Americans and marks yet another socially unjust and economically backward scheme from this administration.  Any budget deal Congress considers in the coming days must build on current law to prevent the federal government from intruding in state-legal, voter-supported decisions.”
• In his own January 4, 2018 statement, U.S. Representative Mike Coffman (R-CO) was every bit as direct: “The decision that was made to legalize marijuana in Colorado was made by the voters of Colorado and only applies within the boundaries of our state.  Colorado had every right to legalize marijuana, and I will do everything I can to protect that right against the power of an overreaching federal government.”
• That same day, January 4, 2018, U.S. Senator Dan Sullivan (R-AK) also released a statement, warning: “Today’s action by the Department of Justice – which contradicts previous statements by the President that this is an issue best left to the states, and adds new confusion and uncertainty for numerous states and communities – could be the impetus necessary for Congress to find a permanent legislative solution for states that have chosen to regulate the production, sale and use of marijuana.”

In other words, federal public policy in this area appears to remain as nuanced, erratic, and in flux as it did prior to January 4, 2018.  Attorney General Sessions’ memorandum did not establish or decide federal public policy once and for all.  While it certainly represents a negative development for the marijuana industry, his memorandum is just one factor to be considered in determining public policy.  Other relevant considerations should include federal legislative action, federal officials’ statements, and what appears to be an unstoppable march at the state level toward legalization of at least medical marijuana.  As such, it is unlikely that the Attorney General’s January 4 pronouncement will unilaterally result in courts reflexively finding marijuana-related contracts to be void against public policy.