Page 7 2. Preventing revenue from the sale of mariju- ana from going to criminal enterprises, gangs, and cartels; 3. Preventing the diversion of marijuana from states where it is legal to other states; and 4. Preventing state-authorized marijuana ac- tivity from being used as a pretext for the traf- ficking of other illegal drugs or other illegal activity. With these enforcement principles, actors who are complying with the CUA and other similar medical exceptions have not been the target of enforcement by federal prosecutors. How- ever, that is subject to change under the current administration. Attorney General Jeff Sessions expressed his views in a May 2017 letter to Congress, in which he stated that any limitation on the Depart- ment of Justice’s ability to combat drugs is a threat to American lives.14 In Attor- ney General Sessions’s view, this includes prosecuting actors who are abiding by the laws of their states with regards to cannabis. Another limitation, to which Attorney General Sessions referred, is known as the Rohrabacher- Blumenauer amendment.15 Essentially, this sec- tion of the appropriations bill prohibits the Jus- tice Department from using federal funding to interfere with, or otherwise prosecute actors who are compliant with state medical cannabis pro- grams. The amendments were adopted in 2003 and have been renewed every year, most recently in 2017. The Rohrabacher-Blumenauer amendment was challenged by the Department of Justice in Unit- ed States v. McIntosh. In McIntosh, five defend- ants were indicted for having cannabis stores and a cultivation facility in Los Angeles. The Ninth Circuit held that the appropriations rider was clear in its plain meaning. The DOJ cannot allocate federal funds to pursue prosecution of actors who are compliant with state cannabis laws.16 However, McIntosh only applies to the following permitted medical use states in the Ninth Circuit: California, Washington, Oregon, (Continued from page 6) Arizona, Alaska, Hawaii, Nevada, and Mon- tana. Currently, 21 other states and the Dis- trict of Columbia have permitted medical use of cannabis. The Ninth Circuit ruling, though likely persuasive to other circuits, is current- ly not binding on any of these other states or D.C. Cannabidiol (CBD) Status: One current controversy is over the status of cannabidiol (CBD). There has been long- running uncertainty as to whether CBD products containing below a threshold amount of THC are subject to federal prose- cution.17 This may have arisen out of confu- sion between products made from industrial hemp low in CBD (some of which have been chemically processed to increase CBD levels and have been some- what misleadingly marketed as CBD oil) and actual CBD oil de- rived from cannabis leaves and flowers. CBD products gained popu- larity in recent years following me- dia coverage of its benefits for medi- cal conditions such as childhood epi- lepsy.18 On December 14, 2016, the DEA released an update to the Federal Reg- ister clarifying that extracts including CBD were still subject to Federal Schedule I sta- tus.19 Unlike THC, CBD is not listed sepa- rately under Schedule I, but it nonetheless remains federally prohibited pursuant to the latest guidance by the DEA. Operating as Not-For-Profit Entity: Canna- bis Collectives A Cannabis Collective operates very differ- ently than a traditional non-profit 501(c)(3) entity. The collective is subject to stringent taxes and, per Section 280E of the Internal Revenue Code, is unable to make certain de- ductions like necessary and ordinary busi- ness expenses, but can deduct costs of goods sold (COGS).20 This is because deducting COGS is how you arrive at gross income ra- ther than considering it as a deduction. The collective cannot make a profit from the sale of the flower, instead income is in the form of donations from patients. The collective must (Continued on page 21) Intersection of Federal and State Cannabis Law Spring/Summer 2017 “[A]ny limitation on the Department of Justice’s ability to combat drugs is a threat to American lives.”