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You can’t sue, marijuana is illegal, federal judge tells Michigan cannabis business

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View our Fair Use Policy: here By Gus Burns

KALAMAZOO, MI -- Whether Michigan violated the rights of a marijuana business with a massive 2021 recall is beside the point, a federal court ruled this week.

“Federal law considers marijuana to be contraband for any purpose,” U.S. District Judge Paul Maloney wrote in his July 31 order, dismissing a lawsuit filed by Viridis laboratories against the the Michigan Cannabis Regulatory Agency (CRA)

Michigan, it appears, has a thriving, state-sanctioned contraband market. In June, nearly 700 licensed marijuana stores sold almost $260 million worth of cannabis products throughout the state, on pace to surpass $3 billion annually.

Viridis Laboratories, which operates labs licensed in Bay City and Lansing to test commercial marijuana for consumers, verified the safety of a large portion of that product.

The business’s public problems with the CRA began in November 2021 when the licensing agency issued a recall on nearly $230 million worth of marijuana tested by Viridis. At the time, the CRA claimed the labs’ results were faulty, inaccurate or unreliable, impacting a huge swath of marijuana in the market. Viridis in court filings said it held as much as a 70% market share on all testing and felt the CRA was trying to “level the playing field.”

Viridis filed a lawsuit against four CRA employees that made its way to the U.S. District Court for the Western District of Michigan.

Viridis claims the recall violated its right to due process under the U.S. Constitution, since the CRA blocked sales of marijuana without an opportunity to challenge the allegations in court.

Except, the federal judge said, constitutional protections don’t apply illegal entities.

“While the state of Michigan may recognize and protect these interests, federal law does not,” U.S. Magistrate Judge Phillip J. Green wrote in a recommendation relied upon in the final dismissal. “The license which the state of Michigan issued to (Viridis) authorizes (it) to perform testing on a product which the United States has prohibited and characterized as illegal contraband ...

“While there may exist a general right to engage in the profession of one’s choice, the court cannot simply ignore the fact that (Viridis’) profession centers on a product which the United States has outlawed.”

Despite the majority of U.S. states legalizing regulated, licensed marijuana since 1970 the plant has been listed as a schedule I drug under Controlled Substances Act. Under the federal legal definition, that means marijuana has no accepted medical use and is highly addictive.

“Our Supreme Court has held that the (Controlled Substance Act) designates marijuana as contraband for any purpose,” Mahoney wrote. “And the Controlled Substances Act states ‘all controlled substances which have been manufactured, distributed, dispensed, or acquired in violation of this subchapter’ are “subject to forfeiture to the United States and no property right shall exist in them.’”

The fact that marijuana remains illegal in the eyes of the federal government has led to confusion and a widening gap between state and federal laws.

Many large banks won’t do business with marijuana companies due to connections with the Federal Reserve. A package of federal laws known as the Secure and Fair Enforcement (SAFE) Banking Act hoped to clear the way for more lenders to mingle with the marijuana industry, but the bills have lingered in the Legislature since 2021.

Federal tax rules that don’t recognize marijuana business activity make filing complex and federal bankruptcy protections don’t exist for marijuana businesses.

Without access to traditional banking the cannabis industry is left as a ripe target for criminals. Any legal business should have fair access to our banking institutions for the security of their own business and employees as well as public safety. — Dana Nessel (@dananessel) August 2, 2023

Attorney General Dana Nessel’s office wouldn’t comment on the Viridis matter but she has supported federal reform of marijuana laws,

“Without access to traditional banking the cannabis industry is left as a ripe target for criminals,” Michigan Attorney General Dana Nessel posted to Twitter Wednesday. “Any legal business should have fair access to our banking institutions for the security of their own business and employees as well as public safety.

Criminal enforcement by the federal government is, however, on the decline, although marijuana seizures are increasing with the volume of marijuana produced. According to statistical date released by the DEA, agents sized 2.8 million plants and made 5,632 arrests in 2018, versus to 5.6 million plants seized and 5,061 arrests in 2022, nationwide. In Michigan over the same time frame, the number of seized plants decreased from 13,735 to 2,740 and arrests plummeted from 146 to 26.

The DEA’s Cannabis Eradication and Suppression Program “exclusively targets” traffickers involved with cultivation, the agency website says.

Rick Thompson, a Michigan marijuana advocate for nearly 15 years and the former director of the National Organization for the Reform of Marijuana Laws (NORML) of Michigan, said he doesn’t foresee the legal conundrum being solved any time soon.

Thompson feels the Viridis lawsuit filed against specific CRA employees was “malicious” and “not based on any legal footing,” but said the court’s reasoning for dismissing the case illustrates broader problems within the world of marijuana legalization and regulation.

“I find it amazingly convenient that the same federal restriction that prevents our industry from seeking bankruptcy protection also prevents Viridis from being able to make any constitutional claims against the Cannabis Regulatory Agency,” he said. “This is just another example of the the dichotomy that exists between state law and federal law that’s been used by federal prosecutors to their advantage against cannabis industry people for a very long time.”

Thompson, who recently resigned his post with NORML Michigan due to a diagnosis of state 4 colon cancer, also serves on an consumer advisory board to the CRA.

He said federal politicians don’t appear ready to reform marijuana laws, which may require rescheduling or de-scheduling marijuana as a controlled substance.

“We’ll have to wait for the results of the 2024 election before we can even have a hope that any of these issues will come to some kind of a conclusion,” Thompson said. “And it certainly looks like 2024 is going to end up with another divided House and Senate.

“In my mind, we are at least another three years away from any kind of a federal solution.”

While the Virids lawsuit was dismissed, the lab is still litigating various complaints involving the CRA in state administrative courts.


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