Last month, the U.S. Attorney for the Southern District of California indicted a San Diego cannabis manufacturer for dumping hazardous waste in violation of federal law. The defendants are alleged to have arranged for an unlicensed garbage hauler to unlawfully dump at various locations twenty-eight 55-gallon barrels of waste ethanol used in volatile extraction of cannabis oils, a process that is permitted under state and local law with proper licenses and permits. The defendants allegedly paid the hauler in cash what amounted to about half of what it would have cost to lawfully dispose of the material. California law strictly controls hazardous waste management and disposal practices by cannabis licensees, including manufacturers such as the defendants here.
While the charged conduct described in this case is extremely serious, the most notable part of the indictment is what’s missing: any mention whatsoever of the Controlled Substances Act or other federal law pertaining to the illegality of defendants’ cannabis business. Indeed, the indictment expressly alleges that the charged defendant “was engaged in the business of extracting oils from cannabis,” and the California Department of Public Health’s online license search tool indicates that the business appeared to have both local and state approval to conduct the extraction activities. In other words, despite the parties all but stipulating to the fact that the defendant company was engaged in federally illegal cannabis activity, the federal government decided not to charge anyone for that conduct, and instead focused only on the violation of hazardous waste laws.
Federal enforcement against state-licensed cannabis operators has come a long way in the past decade, from active enforcement to the 2013 Cole Memo to its rescission and the selective enforcement actions that have followed—the instant case falling within the latter category. Likewise, federal courts have continued to refine their legal analysis when it comes to the commercial cannabis industry, finding more and more frequently that commercial contracts involving cannabis businesses will be enforced, particularly if doing so will not force a party to actively violate the Controlled Substances Act.
The current case is consistent with other federal enforcement activity (or lack thereof) against cannabis businesses in California in recent months. Even though the defendant entity apparently held state and local approvals for its cannabis manufacturing activity, it was allegedly violating the terms of those approvals by engaging in illegal dumping of hazardous waste and thereby jeopardizing the health of the community. Similar to the federal government’s team efforts with California authorities last summer to target illegal cannabis grows on public land, the current case targets alleged activity that would be illegal under any state’s law and would trigger environmental concerns, even though enforcement of hazardous waste laws against cannabis operators was not a stated concern of the Cole Memo.
So what does this case mean for cannabis operators when it comes to future federal enforcement activity? No one can say for sure, so long as commercial cannabis activity remains illegal under federal law. But from past and current observations, it seems that federal enforcement resources are largely being directed towards cannabis activity that implicates one or more Cole Memo priorities, and most notably activities that involve organized crime and environmental concerns. It does not seem that federal enforcement activity is being or will imminently be directed towards commercial cannabis operations that are in compliance with state and local law (and federal laws other than those that prohibit cannabis), hold valid permits and licenses, and are generally behaving as good members of the community. And that is very good news.