State legal cannabis companies are used to the specter of the federal government in the mirror of their life and business. If you haven't lived under a rock, you know that cannabis is still illegal nationwide. And it's no longer the case that the Drug Enforcement Administration (DEA) or the Department of Justice (DOJ) come to tear down your door and arrest you as a cannabis shop owner for open violations of the federal law on controlled substances, and prosecuted (CSA). Nowadays, life as a cannabis entrepreneur can be quite miserable due to the legal conflict between the states and the government, which leads to a lack of access to financial institutions, burdensome federal income tax obligations, no federal trademark protection, loss of assets, etc.
However, we rarely see a government agency, and the government is openly fighting for these commercial, democratic cannabis experiments (which is mainly due to the acting attorney general's hands-off approach to government legal cannabis, regardless of the scandal "Second Requests"). When these confrontations take place, it is fascinating to see how the respective governments behave and it is always instructive how the priorities of federal enforcement develop.
And that was what made the new one last week so interesting. It appears that beef has developed between the DEA, the DOJ, and the California Cannabis Control Office (BCC), which monitors and licenses the BCC for California retailers, laboratories, distributors, and suppliers. Keep in mind that a cannabis company, to justify federal attention at this point (at least according to the 2013 Cole Memo testimony and US A / G Barr's related testimony), is likely to be a fairly serious one criminal behavior must be involved that goes beyond pure cannabis trade under a government-issued license.
The basic idea of the struggle between the government and the BCC (according to the DOJ petition of July 20) is that the DEA and the DOJ want specific information about six "companies" (which is really three companies and the "alleged owner" of each company) means). who own BCC licenses. The government is undertaking a criminal investigation (for CSA violations) and the BCC refuses to provide this information.
In particular, at the end of last year, the DEA served on the BCC with an administrative subpoena (which it later withdrew and again issued an identical subpoena in January this year) requesting unedited cannabis licenses, cannabis license applications and shipping manifests for these licensees dated 1 January 2018 (when licensing began in California) through January 9, 2020. In the January summons (standard and boiler plate), the DEA wrote: “The information sought. . . is relevant and essential for a legitimate law enforcement investigation. . . ”
In response, The BCC replied (by letter) that it would not provide the requested documents because the subpoena "did not specify relevance" and requested information that was "confidential, protected, and part of upcoming license exams". The DEA then tried to persuade the BCC and the California Attorney General to cooperate and negotiate for a few months, but the BCC did not move, so the government brought the matter to BCC to enforce the subpoena.
When submitted in July, the DOJ / DEA relies primarily on compliance by the DOJ / DEA with its summonsing powers and powers to investigate the relevant procedural components under the CSA and that everything was consistent with the fourth amendment (which is "reasonable" introduces requirement based on the relevance and scope of the subpoena itself). The DOJ / DEA also uses the supremacy clause in its arguments to circumvent the application of California cannabis or data protection laws or regulations previously advertised by the BCC in its letter earlier this year.
In response to the DOJ / DEA's petition on July 29 (as first reported by Marijuana Moment with a copy of the filing), the Californian Attorney General fought back, arguing that the DEA / DOJ had proven neither the relevance nor the adequacy of the subpoena of the subject (and also revealed that the DEA / DOJ is targeting traders in this study). It is important that the BCC admits that the DEA / DOJ has met the procedural requirements and that the DEA has the necessary authority from Congress to investigate violations of the CSA accordingly.
The only (and probably best) attack by the BCC under federal law is that the DEA / DOJ was unable to demonstrate that the requested records are "relevant to the investigation" and that the DEA "did not include an explanation (in the subpoena) that describes how the preloaded records are actually relevant to the DEA investigation. “California believes the DEA must provide at least one affidavit from an investigative agent about how and why the requested records are relevant to the current criminal investigation. The position of the DEA / DOJ is that the summons on their face show the relevance of the records for the DEA investigation.
California's A / G also cited California state laws regarding confidentiality, trade secrets, and data protection laws as justifications for secrecy, but it appears to only increase these "defenses" in its role as a government agency that is required to maintain these positions independently of which to take federal law.
In this case, it is primarily a question of whether the subpoena in question is relevant at first glance without further justification by the DEA (namely by an affidavit by an investigative officer). I assume that the BCC will likely lose this fight and will eventually have to comply with the subpoena. This is because federal courts have no choice but to enforce federal administration subpoenas, unless (and this is a major exception if) “the evidence requested by the subpoena is clearly incompetent or irrelevant to the agency's legitimate purpose ”, Which is pretty low bar. On this point, the DOJ / DEA refers to solid federal case law on how“ unconditionally ”this standard of relevance is applied to administrative subpoenas. In addition, federal law does not require an affidavit or statement to be attached to a subpoena to achieve relevance.
We are certainly proud of the BCC, which defends itself and forces the DOJ / DEA through the steps to fully and fully comply with federal subpoena powers, but we do not see the Federal Court on the State of California side (but we would be happily surprised if that were the case!). From this case / investigation, some interesting things will surely emerge, and this most underlines for cannabis companies (especially in California) that the government is actually alive and well and is still watching.