Legality of Cannabis in Massachusetts
While Massachusetts has a comprehensive regulatory system for adult-use cannabis, it remains illegal under the federal Controlled Substances Act. There's currently no funding for federal prosecution of state-compliant medical cannabis operations.
Massachusetts Regulatory SchemeIn Massachusetts, adult use and medical cannabis are regulated by the Cannabis Control Commission. They drafted the regulations pursuant to Massachusetts General Laws Chapter 94G, and they process the applicants, and award licenses. The Massachusetts system is ground-breaking in that it explicitly offers preferential treatment to license applicants and neighborhoods that have suffered under the war on drugs.
Local ControlLocal municipalities have a huge degree of influence over planned facilities. In addition of an outright ban, they can regulate zoning and set other usage restrictions. A Host Community Agreement is required for the Cannabis Control Commission to award a license. Communities have used this requirement to leverage "voluntary" pay-outs beyond the 3% local tax and 3% community impact fee allowed under the statute. The legality of such payouts is dubious under the plain language of 94G.
Federal EnforcementPossession and sale of cannabis remain illegal under federal law. Violators can face prison, fines and civil forfeiture of property. Under the Obama administration, the Department of Justice identified areas of priority for enforcement of cannabis law. Former Attorney General Sessions rescinded that guidance memo, but individual United States Attorneys have outlined similar priorities. Cannabis operations involved with organized crime, money laundering, interstate trafficking, sale to children, use of federal land, and facilitating operating under the influence, are potential priority targets.
There is currently no funding for the Department of Justice to conduct prosecution of state-compliant facilities engaged in medical-only operations. This is a temporary measure and is subject to the whims of congressional appropriators.
The current administration includes some serious cannabis antagonists. Most notable among them is Vice President Pence. While there has been no discernible uptick in enforcement against state-compliant cannabis operations under Trump, the Administration has an inter-agency task force to step up the rhetorical war on cannabis.
Likely Future NationallyWhile many see federal legalization as inevitable, the short-term priority for reformers is more modest. It is enshrining in law that states can set their own cannabis policies and that the federal government will not interfere. Current bipartisan legislation known as "Warren-Gardener" would move the needle significantly. Many smaller state-compliant cannabis operators actually fear that outright federal legalization would put them at the mercy of corporate raiders and endless litigation. Accordingly, some in the industry want the law to remain fuzzy.
Banking and TaxesIt is a myth that no bank will touch a cannabis company. However, the ones that do, charge significant fees to do so. Many cannabis companies are taking advantage of credit unions, non-bank financial institutions, and even distributed ledger block-chain technology.
In addition to the required reporting of large cash transactions, IRS Code section 280E is the most significant tax issue for cannabis companies. Because taxpayers involved in the illegal drug trade cannot make the typical deductions, tax management can be a huge challenge. Some small state-regulated businesses report paying an effective tax rate of 80% due to 280E. Yet with many such taxpayers fearing IRS audit more than criminal prosecution, they take the hit. There are workarounds and ways to limit the damage of 280E, but it remains a thorn in the side of cannabis businesses. It's also one that they cannot afford to ignore.