On January 4, 2018, U.S. Attorney General Jeff Sessions opened the new year by rescinding previous Obama-administration guidance with respect to the enforcement of federal cannabis legislation in the United States. In particular, Mr. Sessions repealed three federal memoranda, including a 2013 memorandum written by the then Deputy Attorney General James Cole (the “Cole Memorandum”), that together adopted a policy of federal non-interference with the laws of cannabis-friendly states. The Cole Memorandum, by discouraging the enforcement of contradictory federal law in states where the use of cannabis was permitted, signified a considerable shift from the U.S. government’s historical position of advocating for the strict enforcement of federal legislation prohibiting cannabis.
The action taken by Jeff Sessions last week effectively moves federal policy away from the previous hands-off approach adopted by the Obama administration (the “Repeal”). As a result, U.S. federal prosecutors now have the discretion to determine whether or not to prosecute cannabis-related violations of U.S. federal law on a case-by-case basis, regardless of whether the use or distribution of cannabis is in compliance with state law. The rules governing cannabis in the United States have long been ambiguous and a source of tension, and it remains unknown how federal law will be enforced under Mr. Sessions. This change in policy has created further uncertainty within the American cannabis industry, has raised new challenges for Canadian securities regulators and appears to have adversely impacted the valuations of some of Canada’s largest cannabis companies, at least temporarily. While the announcement does not specifically engage Canadian law, it may have broad implications for Canadian suppliers of cannabis and cannabis products to the United States, for Canadian investors in American cannabis enterprises, and for Canadian cannabis businesses and financial institutions, among others, with a nexus to the United States.
For Canadian cannabis licensees, the Repeal carries the potential for both negative and positive consequences. On the one hand, it may limit the sale of Canadian cannabis products, be it finished products or raw materials, into one of the world's largest markets. On the other hand, Canadian cannabis licensees are now poised to be the primary North American exporters of cannabis and cannabis products. In the end, the Repeal may assist in solidifying the position of Canadian cannabis licensees as “the” leaders in the cannabis sector, be it for medicinal or recreational purposes.
The larger questions for most publicly listed Canadian cannabis licensees, and those aspiring to undertake public offerings, are whether the Repeal will result in the imposition of further requirements by Canadian securities regulators and what impact such requirements might have on the market value of shares of Canadian companies operating in the cannabis sector.