The complexities of legalizing cannabis

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With Gov. Andrew Cuomo’s blessing and Democrats in control of the Assembly and Senate, legislation to legalize adult recreational use of marijuana in New York looks to be on a glide path. But there could be bumps in the road.

Questions that must be answered before recreational pot is sold legally in the state include who will be allowed to sell it, how it will be taxed and regulated, and how the state will square its legalization with a federal government that classes marijuana as more dangerous than some prescription opioids.

In a turnabout that made him one of only 10 U.S. governors to score a B grade in the National Organization for the Reform of Marijuana Laws’ recent gubernatorial scorecard, Cuomo pivoted 180 degrees away from the position he had taken as recently as 2014 when he questioned the wisdom of legalizing marijuana even for medical use, calling the substance “too dangerous” and “a gateway drug.” The same year, Cuomo agreed to start a medical cannabis program. New York was one of the most restrictive among the 23 states that had such programs at the time.

Paving the way

Only four tightly regulated outlets for the entire state were allowed to dispense product that could be used to treat only a short list of conditions and could not be smoked. The state has since upped the number of legal medical marijuana dispensers to 10. There are currently some two dozen medical marijuana dispensaries and another dozen are on the way.The Rochester area currently houses a medical cannabis manufacturing facility and a dispensary, both run by Columbia Care. Another medical marijuana supplier, Fiorello Pharmaceuticals, which does business as FP Wellness, plans a second Monroe County dispensary.

Last month, Cuomo enthusiastically touted advancing to recreational marijuana use in the state, calling on New Yorkers to “legalize the adult use of recreational marijuana once and for all.” He framed the move as needed to address an inequitable criminal justice system that has “for too long targeted the African-American and minority communities.”

A few weeks later, in his Jan. 15 State of the State and state budget address Cuomo answered his own call, proposing that the state legalize pot this year. Adding financial incentive to justice, he cited a state study estimating that marijuana sales could add $300 million to $435 million to state coffers.

Paving the way for the governor’s legalization drive, was a state Department of Health assessment released last July that, among other observations and predictions, noted if New York does not allow and regulate adult recreational marijuana use, it would see an estimated $100 million a year flow to neighboring states where New York pot smokers can legally buy the drug.

Cuomo did not dwell long on his legalization proposal in his State of the State message, but he did outline a few key details of a cannabis bill he plans to soon transmit to the Legislature. Among them:

  • Regulation of the state’s marijuana market would be under a new agency that would oversee the state’s medical and recreational programs, the Office of Cannabis Management;
  • Sales to persons under 21 would not be allowed;
  • As with so-called dry counties in some states that ban alcoholic beverages, counties and large cities that don’t want pot sold in their precincts would be allowed to opt out;
  • Records of people convicted of past criminal marijuana offenses would sealed; and
  • Minority communities that have been disproportionately affected by marijuana-related criminal convictions would be given a leg up in profiting from the legal cannabis market.

Further details are in a bill that had yet to be transmitted to the Legislature, when I spoke with Assemblymember Richard Gottfried last week. Gottfried, a Manhattan Democrat, is the longtime Health Committee chair and an advocate of full legalization.

Cuomo consulted with him and other key legislators often as the governor was working up the cannabis proposal, Gottfried says, so he believes he has a fair picture of how the state’s establishment of a recreational marijuana program promises to play out.

Still Gottfried concedes, “it’s 900 pages long and I haven’t read it.”

The mostly positive Health Department assessment could have some clues to what the governor’s bill might contain. Citing moves made by states like Colorado, Washington and Oregon to walk back taxes they initially priced too high, it suggests, for example, taxing marijuana at a 7 percent to 10 percent rate.

“Price point is crucial, because if it is too high, consumers will not transition from the unregulated market to the regulated market,” the assessment states.

Waiting to see

Whatever the specifics of the governor’s bill, expect there to be debate in the Legislature that could alter key features, Gottfried warns. He for one opposes the municipal opt-out provision and plans to argue for striking it.

I asked City Hall whether it would look to go along with legal pot or opt out.

“Until legislation is formally introduced at the state level,” wrote the city’s director of communications Justin Roj in an email, “it is premature to speculate on the impacts of recreational marijuana on the city. We will certainly review any legislation that is introduced, research its impacts and respond accordingly.”

Jesse Sleezer, Monroe County’s director of communications, did not respond to my request for comment.

Cuomo predicted in his State of the State speech that full Democratic control of all the levers of New York’s government would presage easy passage of his agenda including full legalization of recreational marijuana.

Still, Republican lawmakers, many of whom previously voted it down, can be expected to argue against legalization and some Democrats could join them.

In a poll of the local state delegation taken by WHEC-TV10 last June, area Republican Assembly representatives Brian Kolb of Ontario County, Stephen Hawley of Orleans County and Peter Lawrence of Greece all said they would vote against recreational legalization. GOP senators vowing to vote no included Michael Razenhofer, a Buffalo lawmaker whose district stretches to Monroe County; Patrick Gallivan, whose district covers parts of Erie, Wyoming, Livingston and Monroe counties; and Pamela Helming, who represents parts of Wayne, Monroe, Schuyler, Cayuga and Tompkins counties.

Legalization opponents cite studies that have linked marijuana use to increased crime, schizophrenia and higher instances of motor vehicle accidents. Supporters note that any studies linking marijuana use to such ills are observational and thus do not definitively establish that marijuana use caused the problem.

The Health Department assessment takes the position that if there are causative links between pot and such ills, a regulated market will give authorities more ability to address those problems.

In the case of motor vehicle accidents, “subject matter experts noted that the dangers of driving under the influence of alcohol are worse than the dangers of driving under the influence of marijuana,”the Health Department report concludes. However, it also notes that unlike blood alcohol tests, tests that show a driver to have used marijuana cannot determine whether that driver was high when the test was administered.

Keeping a close eye on the push for recreational marijuana legalization are the state’s authorized medical marijuana sellers.

Members of the New York Medical Cannabis Industry Association, a trade group that represents seven of the state’s 10 medical marijuana sellers, strongly recommend that recreational pot be sold in stores attached to medical dispensaries, spokesman John Schiumo says.

While Schiumo concedes that setting up the state’s retail market in such a way would financially benefit existing New York medical sellers. But a more important point, he argues, is that buyers like his own mother, a woman in her 80s with arthritis who has never used marijuana but might be tempted to if it were legally available, would be able to easily seek advice from professionals on staff at the co-located retail store’s attached medical dispensary.

An association position paper predicts that separating sales of medicinal and recreational marijuana would mean higher prices for medical cannabis patients and would tempt many to self-medicate with possible ill effects.

The bottom line for the state’s medical marijuana sellers could be the bottom line. If recreational sales are allowed at non-medical sites, competition could drive medical sellers out of business, Schiumo says.

A boon for some

Alcoholic beverage distributors are also eying a market that the state estimates would reach annual gross sales of somewhere $1.7 billion to $3.5 billion.

Florida-based Southern Glazer’s Wine & Spirits is New York’s largest liquor distributor. Asked what its interest in the New York recreational cannabis market might be, Barkley Stuart, the company’s executive vice president for government affairs, responded with this statement:

We support a state’s right to establish a legal, well-regulated, adult-use cannabis marketplace. We believe the federal government should respect the right of states to legalize cannabis if they adopt cannabis market regulations that meet a framework similar to that governing beverage alcohol, including regulations that set age restrictions on buyers, taxation, and separation of three-tiers similar to the beverage alcohol distribution model, as well as license and regulate the supply chain of cannabis, including growers, distributors, retailers and testing laboratories.”

Victor-based Constellation Brands Inc., a producer and international distributor of a number of well-known alcoholic beverage brands, spent $4 billion last fall to acquire a 37 percent stake the Canada-based cannabis firm, Canopy Growth Corp. Constellation officials did not respond to my query as to what the firm’s interest might be.

A cannabis oil thought to have medical uses can be extracted from hemp and Canopy has considerable expertise in the extraction process. (Photo credit: Canopy Growth)

Last week, Canopy announced plans to build a $100 million to $150 million hemp-processing industrial park in the Southern Tier. But until the U.S. government reverses its Schedule I classification of cannabis as a dangerous drug, Canopy plans only to produce products like hemp cloth at the Southern Tier facility, abstaining from manufacture of any medical or recreational drug.

Hemp and marijuana are varieties of the same plant, cannabis sativa. But hemp contains only trace amounts of the chemical that produces pot’s psychoactive effects. A cannabis oil thought to have medical uses can be extracted from hemp and Canopy has considerable expertise in the extraction process. Canopy’s decision to enter the U.S. market came shortly after the enactment of the most recent U.S. farm bill, which for the first time since it was criminalized in 1970 made hemp a legal crop for U.S. farmers, Still, full federal decriminalization of cannabis does not seem to be likely to occur soon.

Before his recent ouster, former U.S. Attorney General Jeff Sessions had vowed to start rigorously enforcing the federal ban, reversing the Obama administration’s policy of non-interference with 31 states that have so far legalized medical cannabis and the 10 that now allow recreational marijuana.

The Trump administration’s nominee to replace Sessions, William Barr, has indicated that he would return to the Obama era don’t ask, don’t tell policy, but would not be inclined to favor full federal legalization.

The federal government’s insistence on keeping the Schedule I classification for cannabis will be the single biggest bugaboo for the state, predicts William Easton, a Rochester criminal defense attorney whom NORML lists as the go-to lawyer for defendants accused of marijuana violations in the Rochester area.

For states that legalize cannabis, says Easton, the DEA’s Schedule I classification creates a catch-22: Because the designation decrees as a matter of law that marijuana has no valid use, it cannot be tested in controlled experiments that would determine its medical usefulness or lack of it and pro-or-con arguments as to its positive or ill effects cannot be settled.

Easton, who says his primary focus in criminal defense is on constitutional questions, is currently pursuing a casein federal court in Rochester that he hopes will take marijuana off the DEA’s Schedule I list. After two years of arguments the case, U.S. District Judge Elizabeth Wolford in 2016 handed down a ruling against him, but Easton says he is still weighing a possible appeal.

The federal government’s insistence on classifying marijuana as one of the most dangerous drugs “is like prohibition but it’s worse,” maintains Easton, referring to the country’s ill-starred 14-year ban on alcohol nearly a century ago.

While the U.S. was able to end the country’s nationwide alcohol ban with a 1933 constitutional amendment that simultaneously made drinking legal in every state, the piecemeal legalization of cannabis by individual states leaves key questions unanswered and unanswerable.

Gottfried agrees on at least one score: Federally chartered banks cannot take deposits or process credit card transactions from cannabis industry firms. That feature makes dealing with receipts unwieldy for such businesses.

“I guess they have to have really big safes,” Gottfried says.

Some members of the medical cannabis industry association have possibly devised a way around that dilemma, says spokesman Schiumo, who declined to elaborate.

State-chartered banks might be able to legally deal in cannabis cash, Gottfried speculates, but says he has no firsthand knowledge of the situation.

A perhaps more serious effect of the federal ban is that marijuana sellers make less money and that as a result the state would realize substantially less revenue. The reason? Cannabis-related enterprises’ business expenses are not deductible on federal tax returns.

“You can’t count an illegal activity as a legitimate expense,” Gottfried notes.

Still, such problems will be resolved in the end, he believes. A tipping point has been reached and further debate will eventually come down to not if but when and how to fully legalize cannabis.

“I think the debate is over,” Gottfried asserts. “Cannabis is now not about hippies. It’s about capitalism and that changes everything.”

A question of classification

To Bill Easton, it seems like a straightforward proposition in logic:

Federal law classes marijuana as an illegal drug. Not just any illegal drug, but as a Schedule I substance, a category that supposedly includes only the most highly addictive drugs and specifies that drugs so classed must have no accepted medical use.

At last count, Easton reasons, 31 states including New York have instituted medical marijuana programs. So, since marijuana has accepted medical uses, its Schedule I classification must be thrown out.

Unfortunately for Easton, a Rochester criminal defense attorney and partner of Easton Thompson Kaseperek Schiffren LLP, legal and common sense logic do not necessarily move on the same track. That may be more unfortunate for his clients, a pair of California brothers facing possible long prison terms on money laundering and marijuana distribution charges.

Easton, turned down in a bid to get the brothers off of the marijuana beef by striking pot’s Schedule I status in a June 2016 ruling by federal Magistrate Judge Jonathan Feldman and again six months later by U.S. District Judge Elizabeth Wolford, says he is still weighing an appeal to the Second Circuit Court of Appeals.

The case dates to 2014. The siblings, Alexander and Charles Green, were charged along with a group of Rochester-area residents—Michael Amalfi Jr., Michael Marciano, Peter Wilk and Christopher Alvino—with being members of a drug-trafficking ring.

Because Amalfi at the time ran a well-known Brighton restaurant, the case drew some local attention. Amalfi and the other local defendants entered guilty pleas. Only the Green bothers are still fighting the marijuana distribution charge.

There is no dispute over the facts of the case. The Green brothers don’t claim that they were not distributing marijuana and have not disputed the amount that federal officials charge them with selling.

While not disputing the facts, the defense Easton offers attacks marijuana’s Schedule I classification, arguing that because marijuana is misclassified, the Greens are deprived of equal protection under the law as guaranteed by the U.S. Constitution’s 10th Amendment.

Easton’s continued frustration with the case stems largely from the fact that he believes he so far has not had a chance to fully argue what seems to him to be the heart of the matter: that the federal government’s and Drug Enforcement Administration’s insistence on maintaining marijuana’s Schedule I status defies common sense.

Schedule I is one several categories created under the Controlled Substances Act, a 1970 federal law setting out a basis for regulating dangerous drugs. The drug schedules list—compiled by the DEA—goes in ascending order with Schedule V, including drugs the DEA and Food and Drug Administration rate as least harmful drugs. Schedule I including those the agencies sees as most harmful. To make the Schedule I list, drugs are supposed to have high potential for abuse, have no accepted medical use and be unsafe to take even under supervision by a physician.

Joining marijuana on the Schedule I list are heroin; MDMA, the popular club drug known as ecstasy; LSD; and a number of other drugs. Drugs on the Schedule II list of supposedly less dangerous drugs include the opioids OxyContin and fentanyl, which are widely blamed for tens of thousands of deaths in what officials and others are calling a nationwide epidemic of opioid abuse,

In pretrial maneuvering before Feldman, Easton filed briefs stating his theory and argued the case in a court. At the time, 23 states had medical marijuana programs. In the pretrial filings and oral argument, Easton was asking that Feldman hold a further hearing at which he could consider more detailed arguments for and against the premise that marijuana should not be classed as a Schedule I drug.

Feldman said no.

His decision in part was based on the DEA’s then recently announced plan to reschedule marijuana.

In the intervening two years, Easton notes, the DEA has made no such move. To the contrary, within weeks of Feldman’s ruling, the agency issued a statement saying that it would not reschedule marijuana.

Turned down by Feldman, Easton appealed to Wolford, the judge, who if a full trial were to be held, would ultimately preside.

“Judge Feldman’s report and recommendation was clearly erroneous and contrary to law in denying the Greens an evidentiary hearing,” Easton and co-counsel Buffalo attorney James Harrington wrote in a brief presented to Wolford.

Though they had laid out “a fact-specific challenge to the constitutionality of the DEA’s scheduling of marijuana … Judge Feldman has deprived (the Greens) of the opportunity to develop a record to support their claim,” the Green brothers’ attorneys added.

Wolford also said no.

Citing previous court decisions, she concluded that the Green brothers’ case had not met the standard for a 10th Amendment challenge.

Neither the growing number of states choosing to legalize medical marijuana nor the medical and scientific evidence supporting such moves that Easton and Harrington presented matter, Wolford concluded.

“Even if there is a legitimate medical purpose associated with marijuana … there are numerous conceivable health and public safety grounds that could justify Congress’s and the DEA’s continued regulation of marijuana as a Schedule I substance. Under no reasonable view of the facts could it be concluded that it is irrational for Congress to continue to regulate marijuana as it has or for the DEA to continue to adhere to a Schedule I classification for marijuana,” she wrote.

Perhaps not.

Still, wrote Feldman, quoting his own observation at an earlier court session, the current disjunction between federal and state marijuana laws poses “a troubling question … why isn’t the federal government prosecuting the Governor of New York for a marijuana distribution conspiracy?”

—Will Astor

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