On May 24, the US Attorney for the District of Colorado announced the arrest of 42 individuals as a result of a joint state-federal investigation targeting “black market” marijuana. According to an official press release, the investigation began in the summer of 2016 and involved searches at more than 250 locations, resulting in the seizure of more than 80,000 marijuana plants and 4,500 finished marijuana products. The grow areas were located primarily in sealed basements of newer homes in fairly upscale neighborhoods. The growers often used large air filters and vented air late at night to remove the smell of marijuana and to avoid detection by neighbors. Some of the growers bypassed electrical meters to decrease the amount of electricity billed, making it more difficult for law enforcement to rely on electrical use data in order to identify possible marijuana growers. In addition to individual criminal prosecutions, the case also involves federal asset forfeiture actions against the following property:

  • 41 homes
  • 2,160,776.89 in U.S. currency
  • 25 vehicles
  • 3 jewelry items

This case serves as a valuable reminder that despite the general trends towards legalization, the Farm Bill’s de-scheduling of hemp, and Attorney General Barr’s de facto resuscitation of the Cole Memorandum, enforcement has not gone away, even in states at the forefront of legalization efforts.  To the contrary, such states may become the focus of heightened federal scrutiny, given that they can be used to mask production destined for states where marijuana is still illegal.  Indeed, two of the Cole Memorandum priorities focus on abuse of permissive state laws — “preventing the diversion of marijuana from states where it is legal under state law in some form to other states” and “preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity.”  Therefore, it is essential for anyone seeking to enter the cannabis business in a legal manner to conduct thorough due diligence on all business partners to ensure that they have proper state licenses and are not taking advantage of those licenses to engage in any form of unauthorized activity.

Author

Tom Firestone is Co-Chair of the firm's North American Government Enforcement practice and is a member of the Firm's Global Compliance & Investigations Steering Committee. He represents clients in matters involving anti-corruption and the US Foreign Corrupt Practices Act (FCPA), internal investigations and transactional due diligence. He is also a member of the firm's Cannabis Review Committee and has advised clients on compliance issues related to cannabis.