A Stark Reminder for Companies Involved in Cannabis Industry: Noncompliance with State Law Could Lead to Federal Prosecution

In a recent decision, United States v. Gilmore, the U.S. Court of Appeals for the Ninth Circuit reinforced the importance of complying with drug laws for doing business in the Cannabis industry. In Gilmore, hunters provided a tip to local authorities on a cannabis grow site in El Dorado County, California. Upon executing a warrant, the officers seized over 100 cannabis plants and detained three men. One of the men claimed he rented the property with the intent to cultivate medical cannabis legally under California state law. Nevertheless, the authorities obtained an indictment charging the men with manufacturing cannabis plants due to the grow site being located on federal land.

Since 2015, Congress has barred the Department of Justice (DOJ) from using appropriated funds “to prevent [certain States, including California] from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” See Consolidated and Further Continuing Appropriations Act § 538 (“§ 538”). Although one defendant plead guilty, the other two defendants claimed that § 538 prevented the DOJ from prosecuting them since medical cannabis cultivation is legal under California state law. The Ninth Circuit rejected the defendants’ argument on the premise that “nothing in California law purports to authorize the cultivation of marijuana on federal land.”

As a result, the DOJ’s enforcement of federal laws on federal land does not prevent California from otherwise implementing its medical cannabis regime. The Ninth Circuit held that because § 538 does not apply to offenses committed on federal land, state law defenses are irrelevant. Also irrelevant, is whether the defendants knew the grow site was on federal land since the government is not required to prove such knowledge to convict under 21 U.S.C. §§ 841 and 846.

For New Jersey businesses involved or invested in the cannabis industry, Gilmore stands as a reminder that operations must comply with both federal and state law. New Jersey businesses should be concerned with doing their due diligence before utilizing any property on federal land or subject to federal laws. Overlooking to do so may not only be bad for business but could lead to criminal penalties.

Special thanks to Leo D. Bronshteyn, Summer Associate, for his contributions to this article.