In Part I of our “Understanding Washington Initiative 502” (“I-502”) series, we described how I-502’s licensing regime is scheduled to go into effect late next year. There is no question that I-502 legalizes possession of certain amounts of marijuana under Washington law, and the state licensing structure aimed at regulating the production, distribution, and retail sale of marijuana reflects this fact. But as a Schedule I drug subject to the federal Controlled Substances Act (“Act”), possession and sale of marijuana remains illegal under federal law. I-502 does not change this basic fact, regardless of whether the Washington State Liquor Control Board succeeds in establishing the rigorous regulatory regime envisioned by I-502. 

I-502 intends to establish a well-regulated market that will allow Washington state to tax a commodity that had been pushed into the underground economy. Achieving that goal depends on capital investments in the regulated marijuana market in Washington State. But will investors be willing to fund a marijuana start-up if federal law diverges significantly from state law – particularly when federal law includes criminal sanctions? That will depend on the federal government’s response to states like Washington and Colorado that have chosen to de-criminalize marijuana.

The federal government has not yet explained how it plans to react to I-502. Jenny Durkan, the U.S. Attorney for the Western District of Washington (the most senior federal law enforcement official in the federal district encompassing Seattle) issued a statement on December 5, 2012, noting that the U.S. Department of Justice (“DOJ”) “is reviewing the legalization initiatives recently passed in Colorado and Washington State” and that the DOJ’s “responsibility to enforce the Controlled Substances Act remains unchanged.” She warned that regardless of I-502, “growing, selling or possessing any amount of marijuana remains illegal under federal law.” The New York Times reported on December 6 that the Obama Administration “has been holding high-level meetings since the election to debate the response of federal law enforcement agencies to the decriminalization efforts.” Although some officials are pushing for a harsh response, such a reaction might come with a hefty political price.

The Administration’s response starts with a political decision. Should it enforce federal law on this issue or not? If it decides to suspend enforcement of federal law, Washington state law will govern the issue – at least until the Administration changes its policy or the Administration itself is changed.

If it decides to enforce federal law, what are its options? Federal prosecutors cannot enforce every act that constitutes a federal crime; there simply is not enough time or money to do so. Historically, the federal government has relied on cooperation from state and local law enforcement to prosecute smaller marijuana cases under state law. After I-502, that option no longer exists in Washington State. Instead, as Charlie Savage of The New York Times points out, the federal government has a number of options to choose from as it balances the federal interest in enforcing the Congressionally enacted Controlled Substances Act against the political reality that Washington voters approved I-502 by a significant majority. These options assume that the federal government’s goal is to obtain a federal court ruling that federal law trumps I-502 or, at a minimum, to overturn the initiative.

First, federal prosecutors could adopt a non-confrontational strategy focused on assuming the role played by local law enforcement prior to I-502’s enactment. Federal prosecutors would file charges against relatively insignificant marijuana users and wait for the criminal defendant to assert his or her right to possess and/or purchase marijuana under I-502. The federal authorities would then seek to obtain a court order ruling that federal law governs the issue regardless of contrary state law. 

Second, the DOJ could proactively seek declaratory and injunctive relief from a federal judge, asking for a ruling that clearly states that I-502 is preempted by federal law and a judicial order preventing the State of Washington from establishing its regulatory and tax program.

Third, the federal government could threaten to withhold federal grants to Washington State unless the state legislature overturned I-502. This tactic could be used in conjunction with the first two options.

The ball is in the Administration’s court, but it is unclear exactly what the White House plans to do. I-502 authorizes a significant new market under Washington law—much larger than the existing Washington State medical marijuana market. A state fiscal analysis estimates that 363,000 consumers will use 85 metric tons of marijuana per year. The sale of those goods could generate as much as $560 million each year in taxes for the State of Washington. It is hard to imagine that the federal government will allow such a market to flourish when participation in the market plainly violates federal law. 

In a sense, however, preemption is almost a side issue. The federal government always has the power to prosecute federal violations, regardless of Washington state law. And this threat could introduce enough uncertainty into the market so that significant investment is deterred and the market never comes to fruition. Whatever the Administration’s decision, one thing is certain. Now that I-502 is the law in Washington State, its legal challenges have only begun.