US Attorney General Jeff Sessions has just issued a memorandum (AG Memo) rescinding prior US Department of Justice (DOJ) guidance on the federal prosecution of marijuana offenses, including the 2013 “Cole Memorandum” (Cole Memo) and subsequent guidance regarding marijuana-related financial crimes (Financial Crimes Memo). The Cole Memo, among other things, expressly acknowledged the legalization of marijuana in several states for medical and recreational purposes and directed federal prosecutors to focus their enforcement priorities and resources on activities that align with current DOJ enforcement priorities. In turn, these priorities emphasized the prevention of marijuana-related activities posing the most significant threats to public safety and welfare (such as preventing the sale of marijuana to minors, or preventing marijuana sales from benefiting criminal enterprises). The Cole Memo in substance encouraged federal prosecutors to take a “hands-off” approach on the prosecution of “low level” marijuana-related offenses in those states that have legalized in some form the possession or use of marijuana for medical or recreational purposes. The subsequent Financial Crimes Memo carried forward the Cole Memo principles to the prosecution of banks and other financial institutions participating in marijuana-related banking and financial activities.

The AG Memo upends the existing status quo by rescinding the Cole Memo and the Financial Crimes Memo, and other post-2009 guidance on the prosecution of marijuana-related offenses, and reverting to longstanding guidance contained in the DOJ’s U.S. Attorneys’ Manual (Manual) (specifically, chapter 9-27.000). This earlier guidance directs federal prosecutors “deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”

Although the Cole Memo and the Financial Crimes Memo were viewed as “cold comfort” by most financial institutions considering doing business with the marijuana industry, they did provide some level of reassurance to financial institutions involved with marijuana-related interests in states that have legalized the use of marijuana. This guidance did encourage some financial institutions to explore ways to provide banking and asset management services to marijuana businesses, and to persons with portfolios that consisted of securities of or cash compensation from marijuana businesses, although the risk of dealing in funds derived from the sale of marijuana, which has been illegal under federal law, continued to be a significant deterrent.

Whatever reassurance was provided by the Cole Memo and the Financial Crimes Memo, however, is now gone: financial institutions now face an even more uncertain and confusing enforcement landscape as it relates to servicing the marijuana industry, where federal prosecutors in different jurisdictions have broad discretion in determining, consistent with the Manual, which federal crimes to prosecute. With a few exceptions, the financial services industry has been reluctant to venture into the marijuana industry business, and the rescission of the Cole Memo and the Financial Crimes Memo, among others, can only increase that reluctance.

We have observed that congressional action to legalize or decriminalize the use of marijuana would provide the level of assurance that most financial institutions would need to service the marijuana industry. With the issuance of the AG Memo, it becomes that much clearer that it is up to Congress to decide whether to address the federal law enforcement status of marijuana usage. Notwithstanding some bipartisan congressional objection to the AG Memo, the likelihood of Congress taking positive action on the marijuana use issue appears slight at the present time. And, by not acting at all on this issue, Congress in effect is deciding the issue, and not in favor of the marijuana industry and its financial services providers.