Reflecting possible relaxation of federal enforcement policy, a memo from Department of Treasury office to financial institutions spells out “due diligence” steps to take in dealing with pot-related businesses; possible road map for marijuana advertising?

As legalized marijuana sale and use spreads across the country, there may be some good news for broadcasters. Two recent announcements by federal agencies suggest possible relaxation of the federal government’s previously stern attitude toward pot. That could encourage some broadcasters who have thus far sat on the sidelines, declining weed-related advertising, to reconsider.

But heads up – the recent announcements do not directly address the issue of marijuana advertising, and they stop short of giving it the green light.

The legal status of marijuana in American society is actively evolving. While the Feds continue to treat it as a Schedule I drug under the Controlled Substances Act – and, therefore, among the worst of the worst drugs – nearly half the states have permitted the sale of marijuana for medical uses.  And more recently, Colorado and Washington have legalized it for recreational use.

The potential dollar value of the burgeoning marijuana industry is huge. Colorado is reportedly projecting more than $578 million in combined wholesale and retail grass sales just this year, and some have projected nationwide sales of pot to reach $2.3 billion in the same time period (with combined recreational and medical sales). With those kinds of numbers, the advertising dollars likely to be thrown off should be equally impressive.

But as we have previously reported (before the Colorado and Washington legalizations), the divergent governmental views on the legality of pot generally have cast a haze over things, effectively nipping the weed-advertising market in the bud. That’s particularly so for broadcasters because the feds are in charge of issuing broadcast licenses.

Back in 2009 the Department of Justice announced an enforcement policy relative to marijuana that hinted at possible relaxation. But within two years the tide seemed to have turned, as a number of U.S. Attorneys made threatening noises emphasizing the narrowness of any perceived relaxation. (One U.S. Attorney was quoted as saying that “[n]ot only is [marijuana advertising] not appropriate . . . it’s against the law.” Talk about a buzzkill.) With increased legalization, though, things now seem to be rolling in the other direction.

Specifically, an office of the Department of the Treasury has released a memo giving guidance to banks that want to provide services to marijuana-related businesses. It appears that the Treasury Department (through its Financial Crimes Enforcement Network (FinCEN)) recognizes that, as the marijuana market achieves legitimacy, the market will need access to the same basic financial services available to others. Federal policies that discourage the provision of such services could frustrate the growth of a legitimate market.

So FinCEN has advised financial institutions that if they do decide to deal with marijuana-related businesses, they should exercise due diligence. Examples of such diligence include:

  1. verifying with the appropriate state authorities whether the business is duly licensed and registered;
  2. reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
  3. requesting from state licensing and enforcement authorities available information about the business and related parties;
  4. developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
  5. ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  6. ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
  7. refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

FinCEN assures financial institutions that they may reasonably rely on information obtained from state authorities.

The memo does not expressly say that dealing with dealers is okay with the feds – but by laying out what amount to best practices, it seems to be suggesting that the federal government is prepared to live with such dealings as long as appropriate precautions are exercised.

The memo also does not address advertising-related issues. But if federally-regulated financial institutions are getting a nearly-green light as far as marijuana-related transactions are concerned, it’s difficult to see why the same should not apply to broadcast advertising as long as the same precautions are taken.

The FinCEN memo was released simultaneously with a memo from the Deputy Attorney General of the U.S. providing all U.S. Attorneys “Guidance Regarding Marijuana Related Financial Crimes”. According to the Deputy AG, “the Department is committed to using its limited investigative and prosecutorial resources to address the most significant marijuana related-cases.” Translation: DoJ doesn’t have the money or time to go after every single pot-related transaction, so it’s going to focus only on the most serious offenses.

The DoJ memo sticks to the established script about how marijuana is still a “dangerous drug” illegal under federal law. It reiterates the eight priorities that are the focus of the Department’s efforts to enforce the Controlled Substances Act. Those priorities are aimed at preventing:

  • The distribution of marijuana to minors;
  • Revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
  • The diversion of marijuana from states where it is legal under state law in some form to other states;
  • State-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Violence and the use of firearms in the cultivation and distribution of marijuana;
  • Drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • The growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  • Marijuana possession or use on federal property.

Before a broadcaster decides to sell spots to pot-related businesses, it would be a good idea to double- and triple-check that there is no chance that such sales could be seen to undermine any of those priorities.

Anyone contemplating selling time for marijuana-related advertisements should also be alert to any local laws relative to such ads. Under Colorado law, for example, recreational marijuana shops can’t advertise on television and radio unless they can establish that no more than 30 percent of the targeted audience is under the age of 21.

The bottom line? Broadcasters should continue touse caution before running radio or TV ads for marijuana dispensaries. The DoJ is still bound by federal law that provides that the sale of pot is very much illegal, so strict enforcement remains a possibility. But the FinCEN memo provides at least a suggestion that strict enforcement is on its way out the door, if it hasn’t already left the building. And, assuming that FinCEN isn’t just blowing smoke, the due diligence measures spelled out in its memo provide a convenient guide for minimizing, if not eliminating, risk of federal prosecution.