January 22, 2018

The Massachusetts pot industry anxious after threats of federal crackdown

Cultivate Holdings in November opened the first – and currently only – Worcester County medical marijuana dispensary in Leicester.

Marijuana companies can begin applying for Massachusetts recreational licenses in April and open stores in July, but federal changes this month indicating a shift toward a strict application of federal drug law law – which still hold the substance just as illegal and dangerous as heroin – are threatening to derail the budding industry.

That threat came on Jan. 4 when U.S. Attorney General Jeff Sessions rescinded a trio of memos from former Obama Administration Deputy Attorney General James Cole directing federal law enforcement not interfere with the marijuana industry in states where it has been legalized.

That includes Massachusetts, where medical pot has been legal since 2012 and recreational pot since December 2016. At least 100 companies were expected to open up recreational stores this year once the application window opened, said Jim Borghesani, who led the legalization movement in 2016.

"Everybody is nervous and anxious," Borghesani said. "I don't think anybody is panicking."

So even as Massachusetts regulators finalize their work to legitimize the marijuana industry – which is expected to grow to more than $1.1 billion by 2020, according to Washington, D.C. analytics company New Frontier Data – players on the ground in the Bay State are anxious about running afoul of federal drug enforcement officials.

Rattled nerves

Following Sessions' actions, the U.S. Attorney for Massachusetts, Andrew Lelling, did little to calm down the industry when he refused to say participants in state-level marijuana trade wouldn't be charged with federal crimes.

"Deciding, in advance, to immunize a certain category of actors from federal prosecution would be to effectively amend the laws Congress has already passed, and that I will not do," Lelling said in a prepared statement released on Jan. 8. "The kind of categorical relief sought by those engaged in state-level marijuana legalization efforts can only come from the legislative process."

Since that statement was put out, nearly all of the marijuana businesses contacted for this story – with the exception of two facilities in Leicester and Worcester – refused to comment on the record, citing an unwillingness to challenge the federal government.

Shortley after Lelling's statement, Florida-based Merchant Services Consulting Group, a credit and deibt card processing company, informed medical marijuana businesses it would cease working with dispensaries. This caused Massachusetts medical marijuana companies to switch to cash-only operations until Merchant Services Consulting Group resumed operations after less than a week of being offline.

Banking has long been an issue in states with legal marijuana operations, as banks risk losing their federal insurance if they do business with companies the federal government considers illegal.

Jon Barooshian, an attorney with law firm Bowditch & Dewey who represents marijuana businesses in Massachusetts and elsewhere in the country, said these announcements have poured gasoline onto the smoldering anxieties of marijuana executives.

"Everybody was always a little bit nervous," he said. "Now, I think everybody's a lot nervous."

Pushing forward

The state-run Cannabis Control Commission is promising to continue its work of developing regulations for the recreational industry.

Sam Barber, president of Cultivate Holdings, which operates a medical marijuana dispensary in Leicester – the only in Worcester County – said the state's soon-to-be finalized regulations on recreational marijuana should help quell concerns in the industry.

Barber and his company are taking a wait-and-see approach to the fledgling industry and he maintains he has not yet decided if the company will expand to recreational marijuana.

The Cannabis Control Commission regulations will ensure companies are adhering to the law was approved by Massachusetts voters in November 2016, which should protect the industry from prosecution, Barber said.

Despite these assurances from state officials, the complexity with selling a product the federal government views as illegal poses challenges, he said.

"It's something that people in the industry tend to not get used to, but it does happen often," he said.

Kris Krane, co-founder of 4Front Ventures, which controls a license to operate a medical marijuana grow site and dispensary under construction in Worcester, said Sessions' efforts haven't changed the company's plans just yet.

Krane credited the company's resolve to the Rohrabacher-Farr amendment, a 2014 federal budget rider preventing the federal government from cracking down on the medical cannabis industry.Sessions is petitioning to have the law removed.

"We expect it will remain in place," Krane said.

Getting legal federally

Sessions' stance on marijuana may have the opposite effect, Krane said.

"It's really galvanized a lot of folks in D.C., particularly Republicans, who had been quiet on the issue to now call for some sort of fix," Krane said, citing Colorado GOP Senator Cory Gardner vowing to be a thorn in Sessions' side.

That fix could include extending medical marijuana protections to recreational, or removing marijuana from the classification of harmful drugs.

"There's a realistic possibility that this happens," Krane said.

Public support is behind legal cannabis, according to the Pew Research Center, which said in January 61 percent of the American public favors legalization vs. to 37 percent opposed.

Barooshian, the Bowditch attorney, likened the political climate surrounding marijuana to Prohibition, when public support and the lure of tax dollars produced legislative action to allow for the sale of alcohol again.

"If the demand is there, it's going to get filled," Barooshian said. "It can get filled legally, or we're going to go back to the days of Al Capone."


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