Could “No Action” Letters from the DOJ (and other Federal Agencies) Help State-Licensed Marijuana Suppliers Overcome Some Obstacles They Now Face?
Tom Firestone (Baker McKenzie) has an intriguing post over at the firm’s Global Cannabis Compliance Blog: DOJ No-Action Letters for the Marijuana Industry? In it, he suggests that the DOJ and other key federal agencies (such as the SEC and FinCen) could issue “No Action” letters to state licensed marijuana suppliers and the third parties who deal with them. The letters would reassure firms that the agency will not bring enforcement actions against them for violations of federal law so long as they comply with state marijuana law. Firestone suggests that these letters would thereby “reward legitimate actors, undermine bad actors, and support local tax bases.”
Here are some key excerpts from Firestone’s post, which I encourage you to read in full at the link provided above:
“Various federal agencies with enforcement power including DOJ, the SEC, FinCEN, OFAC and the Consumer Finance Protection Bureau (CFPB) have advisory opinion or “no action” letter procedures to help businesses understand whether a proposed course of action may result in an enforcement action. In some cases, these procedures are statutorily mandated. In others, they are simply a matter of agency policy. But the rationale is always the same—to support well-intentioned businesses in heavily regulated markets by providing them with clarity about enforcement priorities.”
Drawing upon examples drawn from other areas of law (including the Foreign Corrupt Practices Act (FCPA)), Firestone explains how the process would work for marijuana companies and the third parties that deal with them:
“[A] company could be required to provide all the details of a proposed investment or transaction, together with an explanation as to why it complies with all relevant state laws and does not implicate any [federal enforcement priorities. . . . If DOJ is satisfied, it could provide a statement that the transaction does not implicate any current DOJ enforcement priorities. . . .
Consistent with existing precedent, the process would not require a statement that the proposed action is legal. Rather, it would only require DOJ to state that the proposed transaction does not implicate current enforcement priorities and is therefore unlikely to result in an enforcement action.”
This is an intriguing idea. Although Firestone does not elaborate much upon the benefits such letters might bestow on recipients, I could imagine a “No Action” letter from the DOJ reducing down some of the obstacles state-licensed marijuana suppliers now face due to federal law. For example, a marijuana business could use a “No Action” letter it received to help convince a landlord to lease it property or a bank to provide it with financial services. The landlord or bank might be further encouraged to serve the marijuana business if they could get their own “No Action” letters from the DOJ.
More intriguing still, Firestone explains that the DOJ and other federal agencies would not need passage of new congressional legislation to start issuing such letters. He notes examples where the DOJ has issued letters on its own initiative. Given the slow pace of marijuana reform proposals in Congress (discussed in my previous post on the President’s (lack of) power) to legal marijuana through Executive Action here), any proposal bypasses Congress is likely to appeal to reformers.
Via email, I raised two questions with Firestone, to which he was kind enough to offer some tentative responses (which I’ll paraphrase here, with his permission).
1) Is there any precedent under which an agency has issued a no-action letter to a company that’s clearly violating federal law?
Most of the examples Firestone cites in his post concern scenarios where a company is uncertain whether a proposed course of action would violate federal law. In that situation, I can see why a federal agency might issue a “No Action” letter: It doesn’t want the company to forego some beneficial activity because of a potentially erroneous (and overly aggressive) view about what a statute prohibits. So I could imagine the DOJ writing a letter like this:
“It’s not clear whether donating $100,000 to a charity run by the third-cousin of the President of Bolivia violates the Foreign Corrupt Practices Act. But we recognize the value in supporting charity and we don’t want legal uncertainty to deter you from making your contribution. Therefore, rest assured, we won’t prosecute under the FCPA you for making this donation.”
But it’s another thing to ask an agency to look the other way – and to acknowledge doing so openly – when it’s clear that the company would be violating federal law. For example, I just can’t imagine the DOJ writing a letter like this:
“What you propose doing – giving the President of Bolivia $100,000 cash for exclusive access to valuable oil drilling rights in Bolivia – clearly violates the Foreign Corrupt Practices Act. But rest assured, we, we won’t prosecute you under the FCPA for making this bribe.”
When I posed a variant of this question to Firestone, he offered that the DOJ does sometimes promise not to prosecute individuals it knows will commit non-violent crimes: Confidential Informants (CIs). After all, CIs might commit these crimes (like wire fraud) while assisting a federal investigation. I don’t think this is a perfect analogy – a state-licensed marijuana business is not directly helping the DOJ bring down some other criminal – but it does provide a close precedent for what Firestone proposes the DOJ do here.
2) Do “No Action” letters create rights? In other words, are they enforceable?
In many respects, the “No-Action” letters Firestone envisions resemble the enforcement guidance issued by the Obama Administration DOJ (the Ogden and Cole memoranda), and later rescinded by the Trump Administration DOJ.
But as I’ve explained here and in the book (pages 341-353), that earlier DOJ enforcement guidance did not actually bind the agency. It could be ignored at will by the DOJ.
I suspect that these “No Action” letters would likewise prove unenforceable by their recipients. Indeed, the text of such letters can be quite equivocal. The language of the first “No Action” letter issued by the Consumer Financial Protection Bureau is illustrative (see here). Upstart Network had sought the letter because it had doubts whether an automated model for underwriting it was developing would violate the Equal Credit Opportunity Act. CFPB issued the letter, but the language of the letter does not appear that re-assuring on close examination. For example, the letter states that,
“[CFPB] has no present intention to recommend initiation of an enforcement or supervisory action against Upstart with regard to application of the Equal Credit Opportunity Act (ECOA) . . . to Upstart’s automated model for underwriting applicants for unsecured non-revolving credit, as that model is described in the Request . . . [and] Compliance Plan.” (emphasis added)
The “No Action” letter also included a standard (and lengthy) set of disclaimers that would seem to leave the agency ample wiggle room to pursue an enforcement action. For example, one disclaimer (among many) states that “This No-Action Letter is subject to modification or revocation at any time at the discretion of Bureau staff for any reason, including that . . . the staff determines that such modification or revocation is appropriate to protect consumers or is otherwise in the public interest.”
When asked about enforceability, Firestone suggested that prosecuting a defendant who’s received a “No Action” letter might constitute entrapment by estoppel. But I’m skeptical. After all, every court that addressed this issue with respect to the Ogden / Cole memoranda concluded that the DOJ enforcement guidance did not give rise to the defense of entrapment by estoppel.
However, Firestone and I agree that an agency would be under a lot of political pressure to refrain from bringing an enforcement action after it had issues a No Action letter. Firestone also suggested that a jury might refuse to convict – or a judge might find some other grounds to dismiss a prosecution – if an agency violated the spirit of a No Action letter.
So a No Action letter could have some value to its recipient, even if the letter might not technically be enforceable in a court.
Again, go read Firestone’s post.
May 9th, 2020
“I don’t think this is a perfect analogy – a state-licensed marijuana business is not directly helping the DOJ bring down some other criminal – but it does provide a close precedent for what Firestone proposes the DOJ do here.”
I thought this part was interesting because a state-licensed marijuana business actually DOES directly help the DOJ bring down other criminals; does it not?
When we stretch the analogy to apply it to America’s underground drug trade, I think it presents a comparable rationale for the DOJ to promise not to prosecute.
May 10th, 2020
Fair point — but I think it proves too much. After all, the same logic would support a DOJ No Action letter with a violent gang that is killing members of rival gangs. After all, as long as those other gangs are breaking federal law, such killings would help the DOJ bring down other criminals.
I don’t think the idea of a No Action letter with the state-licensed marijuana industry is necessarily bad policy. I just think it would be unprecedented to issue those letters to the state licensed marijuana industry. I don’t know of any situation where the DOJ has issued a No Action letter to someone it knows is violating federal law, unless the individual promises to stop (usually at the close of an investigation).