Arkansas Issue 6: Navigating the Weeds of State-Legal Medical Marijuana

By Andrew King

This article provides an overview of the Arkansas Medical Marijuana Amendment of 2016, discusses federal policy regarding enforcement of marijuana laws, and outlines risks that attorneys may face in advising marijuana businesses.

n the 2016 general election, Arkansas voters approved the Arkansas Medical Marijuana Amendment of 2016, otherwise Iknown as “Issue 6.”1 Now that Arkansas joined 29 other states and the District of Columbia in making medical marijuana legal at the local level, lawyers, state agencies, and the General Assembly must grapple with a multitude of issues that arise for a new industry that is still defined as a crime under federal law.2 This article outlines some of the issues that Arkansas attorneys should consider when advising clients regarding Arkansas’ legal- ization of medical marijuana.

Overview of Issue 6 Andrew King is a partner at Kutak Rock Issue 6 is an amendment to the Arkansas Constitution that LLP in Little Rock. His practice includes permits patients with qualifying medical conditions3 to obtain, business litigation and representation of possess, and use up to 2.5 ounces of usable marijuana every two financial institutions. weeks.4 Qualifying patients and their designated caregivers must

18 The Arkansas Lawyer www.arkbar.com obtain registry identification cards from the Arkansas Department of Health after submit- “The year 2017 will see major developments in medical ting an application with a physician’s written certification that the patient has a qualifying marijuana law and policy, both in Arkansas and nation- medical condition.5 The amendment protects patients and their physicians from criminal li- wide. Significant challenges lie ahead for the General ability and risks to employment, eviction, and Assembly, state agencies, and attorneys who may advise the professional licensure if they comply with the amendment, at least at the state level.6 emerging medical marijuana industry.” With a registry card, a qualifying patient may obtain marijuana from a licensed dis- pensary.7 A five-member Medical Marijuana administration that could drastically modify barred from the sort of prosecution that was Commission is created to determine the federal marijuana enforcement policy. To dismissed in McIntosh. qualifications for dispensary and cultivation understand the interplay of federal and state facility licenses and award licenses.8 Dispen- marijuana laws, it is important to recognize Banking and Security Challenges for Cul- saries may grow or possess up to 50 mature the two federal policies that have permitted tivators and Dispensaries marijuana plants at one time, and otherwise state-legal marijuana to exist without inter- Even after the smoke clears on the Trump must purchase marijuana for resale from a ference from federal agencies: administration’s medical marijuana policies, licensed cultivation facility.9 A cultivation •The Justice Department’s Ogden Memo- licensed marijuana growers, dispensaries, and facility can grow as much marijuana as “rea- randum19 and Cole Memoranda,20 which set their business partners are sure to face sig- sonably necessary to meet the demands and a policy of declining to prosecute individuals nificant operational challenges beyond com- needs of qualifying patients” as determined who are in clear and unambiguous compli- plying with Arkansas laws and regulations. by the commission.10 ance with state laws permitting the use of The most prominent challenge is banking. News reports suggest that interest in ob- marijuana; and Credit card companies and most debit card taining licenses is strong.11 The commission •The Rohrabacher Amendment,21 which networks will not handle marijuana transac- must begin accepting applications by July 1, prohibits the use of federal funds to super- tions, which means that dispensaries often 2017.12 At the time of application, applicants sede state law in states that have legalized deal with large amounts of cash. There are and 60% of their investors must have resided medical marijuana. few banks or credit unions that will deposit in Arkansas for the previous seven years.13 The Ogden and Cole Memoranda reflect funds from marijuana growers or dispen- The application must give a proposed address an executive policy that “it is likely not an saries out of concern for violating federal for the dispensary or cultivation facility, and efficient use of federal resources to focus en- anti-money-laundering laws. The result is a certify that the location complies with zon- forcement efforts on individuals with cancer precarious situation in which many marijua- ing regulations for pharmacies and is a speci- or other serious illnesses who use marijuana na businesses must possess and secure large fied distance from schools, churches, and day as part of a recommended treatment regimen amounts of cash, surely an attractive target cares.14 The commission may issue between consistent with applicable state law, or their for crimes of opportunity. Nor can they use 20 and 40 dispensary licenses, with a maxi- caregivers.”22 The Rohrabacher Amendment firearms to protect themselves, because it is mum of four per county.15 It may issue four is a legislative expression of the same policy still illegal to possess a firearm at the same to eight cultivation facility licenses.16 judgment, but is set to expire on April 28, time as marijuana.27 By May 8, 2017, the Commission, De- 2017, unless reauthorized by Congress.23 In The Justice Department and Treasury partment of Health, and Alcoholic Beverage a 2016 case, United States v. McIntosh, the Department’s Financial Crimes Enforce- Control Division must adopt regulations Ninth Circuit relied on the Rohrabacher ment Network (FinCEN) has made efforts carry out the Amendment. The General Amendment to require the dismissal of fed- to alleviate these public safety concerns by Assembly may amend any portion of the eral criminal indictments against marijuana issuing guidance for how financial institu- Amendment by a two-thirds vote of both growers and sellers who had complied with tions can provide services to marijuana busi- chambers, except for the criminal liability California law.24 nesses. FinCEN advises banks to look out protections for qualifying patients and lim- A blunt assessment of these federal policies for red flags associated with the illicit drug its on numbers of licenses.17 Legislators have must recognize that the new Attorney General trade, perform due diligence when deciding already modified amendment to extend the could eliminate the Ogden and Cole Memo- whether to take on a customer in the state- time for the Commission to adopt regula- randa with the stroke of a pen to revise the Jus- legal marijuana business, and file marijuana- tions and accept applications.18 tice Department’s discretionary enforcement specific Suspicious Activity Reports (SARs) priorities in opposition to state-legal mari- in a format corresponding to the Justice De- Federal Uncertainty Casts Haze juana. And the Rohrabacher Amendment— partment’s enforcement priorities.28 Again, While the Arkansas General Assembly and which passed the House of Representatives by this guidance does not change the law and state agencies scramble to create a regula- a vote of 242 to 186 in June 201525—does could be erased by the new administration. tory framework for medical marijuana, at not include Arkansas among the 39 states to In Colorado and Washington, there are the federal level, a marijuana-tolerant ex- which it applies.26 Consequently, the United enough banks and credit unions that have ecutive branch has been replaced by a new States attorneys in Arkansas would not be followed this guidance that some marijuana

Vol. 52 No. 1/Winter 2017 The Arkansas Lawyer 19 dispensaries can accept debit cards using an ment in conduct that is a federal crime carries 10. Ark. Med. Marijuana Amend. § 8(m) independent debit card network.29 with it a broad array of liability concerns.32 (4)(i). For example, in Colorado, anti-marijuana 11. See, e.g., John Moritz, Rx-marijuana Ethical Concerns groups targeted marijuana dispensaries, their growers in Arkansas to be merit-selected, Given the numerous legal developments landlords, banks, and accountants with fed- Arkansas Democrat-Gazette, Dec. 23, that are bound to happen at both the state eral civil RICO lawsuits.33 An attorney who 2016 at 1B; Bart Schaneman, New Market: and federal levels, medical marijuana is a new seeks to advise medical marijuana businesses Smooth rollout expected for Arkansas MMJ in- industry in which there are significant risks should enter the engagement with clear eyes dustry, Marijuana Business Daily, Dec. 7, and opportunities for investors. At the state about all the risks involved. 2016, https://mjbizdaily.com/new-market- level, the industry will be highly regulated. It arkansas-mmj-attract-state-patients/. is unlawful under federal law but may be tol- Conclusion 12. Ark. Med. Marijuana Amend. § 8(g)(1) erated to some degree. Few situations call out Arkansas voters have enacted an ambitious (revised by Act 4 of 2017). more clearly for the wise counsel of trained regime for medical marijuana at a time when 13. Ark. Med. Marijuana Amend. § 8(c). lawyers. But can a lawyer ethically advise a federal marijuana policy is at a crossroads. 14. Ark. Med. Marijuana Amend. §§ 8(g) client who sets out to violate federal criminal The year 2017 will see major developments (2), 14(a). laws? in medical marijuana law and policy, both in 15. Ark. Med. Marijuana Amend. § 8(h), Arkansas Rule of Professional Conduct Arkansas and nationwide. Significant chal- (i). 1.2(d) provides a clear, but discouraging an- lenges lie ahead for the General Assembly, 16. Ark. Med. Marijuana Amend. § 8(j). swer: state agencies, and attorneys who may advise The Commission initially voted to issue five the emerging medical marijuana industry. cultivation facility licenses. John Moritz, Rx- A lawyer shall not counsel a client to marijuana growers in Arkansas to be merit- engage, or assist a client, in conduct Endnotes: selected, Arkansas Democrat-Gazette, that the lawyer knows is criminal or 1. The Arkansas Medical Marijuana Dec. 23, 2016 at 1B. fraudulent, but a lawyer may discuss Amendment of 2016, Ark. Const. amend. 17. Ark. Med. Marijuana Amend. § 23; the legal consequences of any pro- ____ (adopted Nov. 8, 2016), available at Ark. Const. art. 5, § 1. posed course of conduct with a client http://www.healthy.arkansas.gov/Docu- 18. Act 4 of 2017 (revising deadlines for and may counsel or assist a client to ments/The%20Arkansas%20Medical%20 regulations and applications); see also An- make a good faith effort to determine Marijuana%20Amendment%20of%20 drew DeMillo, Arkansas Lawmakers Weigh the validity, scope, meaning or appli- 2016.pdf (hereinafter “Ark. Med. Mari- Launch Delay, Taxes for Medical Marijuana, cation of the law. juana Amend.”). Associated Press, Nov. 18, 2016, available 2. 21 U.S.C. §§ 802, 812, 844. at http://www.stuttgartdailyleader.com/ A straightforward reading is that a lawyer 3. Ark. Med. Marijuana Amend. § 2(13). news/20161118/arkansas-lawmakers-weigh- would violate this rule by advising a client The list of qualifying conditions includes launch-delay-taxes-for-medical-pot. who wants to open a dispensary or cultiva- cancer, glaucoma, HIV, AIDS, hepatitis 19. David W. Ogden, Memorandum, tion facility in compliance with Issue 6.30 If C, amyotrophic lateral sclerosis (ALS), Investigations and Prosecutions in States so, new entrants into this new industry will Tourette’s syndrome, Crohn’s disease, ulcer- Authorizing the Medical Use of Marijuana, be deprived of counsel to help them navigate ative colitis, post-traumatic stress disorder, U.S. Department of Justice Office of a murky and fluid legal terrain. severe arthritis, fibromyalgia, and Alzheim- the Deputy Attorney General (Oct. 19, When Colorado passed marijuana legal- er’s disease. The Arkansas Department of 2009), available at https://www.justice.gov/ ization through a state constitutional amend- Health may expand the list of qualifying sites/default/files/opa/legacy/2009/10/19/ ment in 2012, the Colorado Supreme Court medical conditions through a petition pro- medical-marijuana.pdf. issued a revised comment to its version of cess. Ark. Med. Marijuana Amend. 20. James M. Cole, Memorandum, Guid- Rule 1.2(d) permitting lawyers to advise §§ 2(13)(C), 4(c). ance Regarding Marijuana Related Financial their clients regarding the validity, scope, and 4. Ark. Med. Marijuana Amend. §§ 3(a), Crimes, U.S. Department of Justice Of- meaning of the constitutional amendment.31 10(b)(8). fice of the Deputy Attorney General At a recent House of Delegates meeting, 5. Ark. Med. Marijuana Amend. §§ 2(19), (Feb. 14, 2014), available at https://www. the Arkansas Bar Association has encour- 5(a); Act 5 of 2017 (eliminating require- justice.gov/sites/default/files/usao-wdwa/ aged the Arkansas Supreme Court to follow ment that physician certify that benefits of legacy/2014/02/14/DAG%20Memo%20 suit. The proposal is sensible and necessary marijuana outweigh risks). -%20Guidance%20Regarding%20 to ensure that medical marijuana businesses 6. Ark. Med. Marijuana Amend. § 3. Marijuana%20Related%20Financial%20 can operate in an above-board manner that 7. Ark. Med. Marijuana Amend. § 8(m)(1). Crimes%202%2014%2014%20(2).pdf; fully complies with Issue 6 and coming state 8. Ark. Med. Marijuana Amend. § 19. As James M. Cole, Memorandum, Guidance regulations. of the date of this writing, the five-member Regarding the Ogden Memo in Jurisdictions Unfortunately, adjustments to Rule 1.2(d) commission is appointed and has held Seeking to Authorize Marijuana for Medical do not eliminate the risks that an attorney several meetings. Use, U.S. Department of Justice Of- must consider when advising marijuana-pos- 9. Ark. Med. Marijuana Amend. § 8(m) fice of the Deputy Attorney Gen- sessing individuals and entities. Any involve- (3)-(4). eral (Jun. 29, 2011), available at https://

20 The Arkansas Lawyer www.arkbar.com key-federal-marijuana-protection-extended- through-april/. 24. United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016). 25. United States House of Representatives, Final Vote Results for Roll Call 283 (Jun. 3, 2015) available at http://clerk.house.gov/ evs/2015/roll283.xml. All four of Arkansas’ representatives voted against the amend- ment. 26. United States Congress, Text of House Amendment 748 (113th Cong.), available at https://www.congress.gov/ amendment/113th-congress/house-amend- ment/748/text. 27. See Wilson v. Lynch, 835 F.3d 1083 (9th Cir. 2016) (affirming denial of firearm purchase by medical marijuana user under federal Gun Control Act). 28. United States Department of the Trea- sury Financial Crimes Enforcement Net- work (FinCEN), Guidance, BSA Expecta- tions Regarding Marijuana-Related Businesses Superheroes Wanted (Feb. 14, 2014), available at https://www. fincen.gov/sites/default/files/shared/FIN- McMath Woods seeks a partner or associate with at least fi ve years litigation 2014-G001.pdf. experience. If you want to use your legal superpowers to help the injured and 29. CanPayDebit.com, About Us, https:// oppressed, please send your resume to [email protected]. All inquiries www.canpaydebit.com/about-us/. will be treated confi dentially. Come help us work to change the world. 30. See David L. Hudson Jr., Not So Fast: Lawyers advising clients on marijuana laws may run afoul of ethics rules even in states where the drug is legal, ABA Journal, Jan. 1, 2017 at 24, available at http:// www.abajournal.com/magazine/article/ marijuana_legal_ethics_rules/; Eli Wald et al., Representing Clients in the Marijuana Industry: Navigating State and Federal Rules, 44 Colo. Law. 61 (Aug. 2015). 31. Lorelei Laird, Do ethics rules allow lawyers to advise clients on new laws legal- izing marijuana?, ABA Journal, June 2014 available at http://www.abajournal.com/ magazine/article/do_ethics_rules_allow_ John Coulter Carter C. Stein Sam Ledbetter James Bruce McMath Phillip H. McMath Neil Chamberlin Charles Harrison Will Bond lawyers_to_advise_ clients_on_new_mari- juana_laws. www.McMathLaw.com | 711 West 3rd, Little Rock, AR 72201 | 501.396.5400 www.facebook.com/McMathWoods, www.twitter.com/McMathWoods 32. See Sam Kamin & Eli Wald, Marijuana www.linkedin.com/company/mcmath-woods-p-a- Lawyers: Outlaws or Crusaders?, 91 Or. L. Rev. 869 (2013). 33. Ricardo Baca, Anti-pot racketeering suit settles, opens door for future RICO claims, Denver Post, Dec. 30, 2015, available at www.justice.gov/sites/default/files/oip/ 22. James M. Cole, Memorandum, Guid- http://www.denverpost.com/2015/12/30/ legacy/2014/07/23/dag-guidance-2011-for- ance Regarding the Ogden Memo in Jurisdic- anti-pot-racketeering-suit-settles-opens- medical-marijuana-use.pdf. tions Seeking to Authorize Marijuana for door-for-future-rico-claims/.  21. United States Congress, Text of Medical Use, U.S. Department of Justice House Amendment 748 (113th Cong.), Office of the Deputy Attorney Gen- available at https://www.congress.gov/ eral (Jun. 29, 2011). amendment/113th-congress/house-amend- 23. Key federal marijuana protection extended ment/748/text. through April, Marijuana Business Daily, Dec. 12, 2016, https://mjbizdaily.com/

22 The Arkansas Lawyer www.arkbar.com