New regulations don’t clear all the hurdles for pot dispensaries

Reporting from San Francisco —  California’s new medical marijuana regulations will likely reduce federal crackdowns in the state, but dispensaries will continue to have difficulty obtaining banking services and deducting business expenses, legal experts and activists said Friday.

The Obama administration has backed off major enforcement actions in states that legalize medical and recreational marijuana, but most dispensary owners still remain at risk of a possible 10-year minimum federal sentence should policies in Washington change.

“Until federal law changes, there is going to be a risk,” said Alex Kreit, a law professor who teaches and writes about drug law.

Marijuana advocacy groups said they were unconcerned about a new administration increasing federal enforcement in the future, particularly against medical marijuana.

“I really am not worried about that possibility,” said Dale Gieringer, executive director of California NORML. “The Republicans are taking a states-rights position on this.”

Activists also point to polls showing strong public support of medical cannabis.
But federal tax and banking laws will likely continue to hamper medical marijuana dispensaries, even with California’s new regulations, lawyers said.

Federal law prevents marijuana operators from deducting business expenses, which makes the cost of operations extremely high, said Kreit, who teaches at San Diego’s Thomas Jefferson School of Law.

Some banks, fearing criminal and civil liability, have refused to provide services to some dispensaries.

Kreit said he has heard that some operators establish holding companies to prevent their banks from knowing the exact nature of their business. Others avoid banks altogether, doing a cash business.

“Unless federal law changes, I don’t see a long-term solution to the banking situation,” he said. “It remains a huge problem and a huge challenge.”

The Obama administration continues to pursue some criminal and civil sanctions against marijuana operators and patients, but the number of prosecutions are declining, lawyers said.

“There have been a handful of raids in Colorado and California aimed at groups flagrantly growing marijuana and trafficking in it on an interstate basis,” Gieringer said.

While some forfeiture actions that started years ago continue to be litigated, no new cases have been filed, he said.

“We are at sort of a truce for the moment,” Gieringer said.

California’s regulation of medical marijuana also is likely to protect it from federal prosecutions, activists and lawyers agree.

The more heavily regulated the industry, “the more stable and the more access there will be,” said Christopher Brown, a spokesman for Americans for Safe Access, which advocates for medical cannabis.

Indeed, a 2013 memorandum by the U.S. Department of Justice to federal prosecutors said the government expects states that permit marijuana to regulate their laws effectively.

Priorities for federal enforcement would be cases involving violence, distribution to minors, the involvement of criminal enterprises, growing on federal lands and trafficking marijuana to states where it is illegal, the memorandum said.

“State regulation is going to be critical toward satisfying the federal government that people who are licensed are on the up and up and should not be targets for federal enforcement, “ Kreit said.

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