Medical marijuana is legal in 23 states. Nine more states—including Pennsylvania—have medical marijuana legislation pending. The legal marijuana industry is big and growing rapidly; it is projected to generate annual revenues of over $8 billion by 2019. Given this rapid growth, many entrepreneurs are exploring entering the market. These would-be marijuana growers, processors or distributors quickly learn, however, that the legal marijuana industry poses unusual challenges. Some of these challenges are discussed in this article.

Legal Marijuana is Illegal

Perhaps the oddest aspect of operating a marijuana business sanctioned under state law is that the business is nonetheless illegal under federal law. The federal government classifies marijuana as a Schedule I controlled substance, meaning it has a high propensity for abuse and no medical use. As a result, marijuana is illegal under the federal Controlled Substances Act (CSA). Even in states that have legalized medical marijuana, its cultivation, production, distribution, sale and possession are federal crimes. The U.S. Supreme Court has ruled that the federal government has the right to regulate and criminalize marijuana, even for medical purposes. Therefore, federal law criminalizing marijuana pre-empts state laws legalizing it.

In 2013, U.S. Deputy Attorney General James M. Cole issued a memorandum to guide federal prosecutors on how to exercise their discretion in federal marijuana enforcement. It states that U.S. Department of Justice resources should not focus on prosecution of marijuana-related activity unless the activity affects certain enumerated priorities, such as preventing marijuana-based revenue from going to criminal enterprises, gangs and cartels. In states where medical marijuana is legal and where strong and effective regulatory and enforcement systems for the cultivation, distribution, sale and possession of marijuana have been established, the Cole memo instructs that marijuana activities that comply with state regulations are less likely to affect the enumerated priorities. Primary enforcement in those situations should therefore be left to state and local authorities. Although not stated, state and local authorities cannot prosecute marijuana-related activities that are legal under that state's law.

For law-abiding participants in the legal marijuana industry, the Cole memo provides substantial comfort that federal authorities will leave them alone. But that comfort may be limited. First, the Cole memo is administrative guidance and not a regulation or law, it specifically provides that it cannot be used as a defense against prosecution, and the DOJ has expressly reserved the right to prosecute marijuana activity anywhere. The Cole memo guidance, moreover, can be changed by a new attorney general, whether under President Obama or a new president. Similarly, the DOJ could determine that a particular state's regulatory and enforcement systems were flawed, and take aggressive action against even state-compliant marijuana activity in those states.