The website Weedmaps bills itself as “a community where businesses and consumers can search and discover cannabis products, become educated on all things cannabis, review cannabis businesses and connect with other like-minded users,” but is more succinctly described as Yelp for pot. Users can search for and review cannabis dispensaries, brands, strains, delivery services, and a host of other cannabis or cannabis-related products and services in states in which cannabis has been legalized for medical or recreational use. A user located in Los Angeles could see listings for around 100 area storefronts, and ads for “deals nearby” on cannabis flower, extract, edibles, and other products.
In February of this year, the California Bureau of Cannabis Control (“CBCC”) sent a letter to Weedmaps.com alleging that the website was “engaging in activity that violates state cannabis laws.”1 The CBCC claimed Weedmaps was hosting advertisements “from persons offering cannabis and cannabis products for sale that are not licensed to conduct commercial cannabis activity,” and was therefore “aiding and abetting in violations of state cannabis laws.”2 It demanded that Weedmaps “cease all activity that violates state cannabis laws” or face “criminal and administrative penalties, as well as civil penalties for each violation.”3
Weedmaps’ open-letter response was refreshingly bold: Weedmaps stated it was “committed to doing its part to improve the state of local licensing and compliance among unlicensed business operators,” but also that it “is a technology company and an interactive computer service which is subject to certain federally preemptive protections under Section 230 of the Communications Act and is also not a Licensee subject to the Bureau’s purview pursuant to MAUCRSA or State regulations.”4
And that, as they say, was that. Section 230 provides website owners a robust defense against state civil and criminal liability when they host or publish third-party content, like advertisements from cannabis-related businesses.5 The CBCC is “having internal discussions about what the appropriate next steps are.”6 And Weedmaps continues to host ads for licensed and unlicensed cannabis dispensaries in states in which cannabis is legal for medical or recreational use.
What is more interesting is that the federal government doesn’t seem to have taken an interest. Because cannabis remains illegal under federal law,7 and Section 230 explicitly does not “impair the enforcement of . . . any other Federal criminal statute.”8 In January of this year, Attorney General Jeff Sessions rescinded an Obama-era policy which had de-prioritized federal prosecution of those involved in the cannabis industry in states which had legalized medical or recreational cannabis.9 Even under the Obama-era policy, Weedmaps might still be exposing itself to federal prosecution because it is not “demonstrably in compliance with [California’s] strong and effective . . . regulatory system”—a factor that weighed against federal prosecution.10
As more states legalize cannabis for medical or recreational use, it can sometimes seem like the federal government treat state-legal cannabis like your local police treat jaywalking: It might be illegal, but they’ve got bigger things to worry about and your friends do it all the time without getting in trouble. But even your scoff-law friends would tell you not to jaywalk in front of Officer Friendly, and certainly not to flip him off while you’re doing it. Loosely speaking, the same advice applies to online businesses which are considering publishing advertisements for cannabis-related businesses.
A. A Thicket of Federal Prohibitions on Advertising
If nature abhors a vacuum, Congress abhors any space not yet filled with federal laws. It should be no surprise, then, that there at least four separate federal prohibitions against cannabis advertising. The Controlled Substances Act (“CSA”) prohibits the unauthorized use of the internet to “deliver, distribute, or dispense a controlled substance,” such as cannabis, and aiding and abetting the unauthorized use of the internet to do so.11 It prohibits the knowing or intentional use of a “communication facility” to commit, cause, or facilitate the commission of a felony violation of the CSA, which includes manufacturing, distributing, or dispensing a controlled substance.12 It prohibits “plac[ing] in any newspaper, magazine, handbill, or other publications, any written advertisement knowing that it has the purpose of seeking or offering illegally to receive, buy, or distribute” a controlled substance.13 And the CSA prohibits “knowingly or intentionally us[ing] the Internet, or caus[ing] the Internet to be used, to advertise the sale of, or to offer to sell, distribute, or dispense” controlled substances.
In short: you can’t use the internet to sell cannabis or help someone else sell cannabis; you can’t use a communication facility—like the internet—to sell cannabis or help someone else sell cannabis; you can’t place an ad to sell your own cannabis; and you can’t use the internet to advertise that you sell cannabis.
Beyond the CSA, other federal laws arguably prohibit publishing cannabis ads in exchange for money. It’s a federal crime to engage in a financial transaction involving the proceeds of a CSA violation, if the transaction is intended to promote the violation.14 If a transaction involves moving funds across the U.S. border, it’s enough to “intend to promote” a CSA violation, whether or not the transaction involves proceeds of the violation.15 It’s a federal crime to engage in a transaction involving more than $10,000 knowing the money is from a CSA violation, whether or not you intend to promote it.16 It’s also a federal crime to travel interstate or overseas, or to engage in interstate or foreign commerce with the intent to distribute the proceeds of or promote a CSA violation. And anyone who “aids and abets” another person to commit a federal crime—including a CSA violation17—can be punished as if she committed the crime herself.18
By listing these provisions, we are not suggesting that they apply to all advertising for cannabis-related businesses. There are persuasive arguments that they don’t. For example, the Supreme Court has indicated that the CSA’s prohibition on the use of a “communication facility” is aimed at those who “coordinat[e] illegal drug operations,"19 which should exclude those who publish ads for a third-party.20 Likewise, aiding and abetting liability requires the intent to facilitate the entire underlying crime, but intending to profit from publishing ads for a cannabis business is not the same as intending to facilitate the cannabis business’ sale of cannabis.21 Although the CSA prohibits “placing” an advertisement for the sale or distribution of cannabis, it does not define what “place” means.22 And the provisions on advertising and internet advertising explicitly exclude material which “advocates a position or practice, and does not attempt to propose or facilitate an actual transaction."23
Uncertainty is of little help to those who might want to sell advertising services to cannabis businesses, but who definitely want to avoid federal prison. If “the life of the law is experience,"24 then our experience of the federal government’s application of these laws may provide some hope. There are a multitude of media outlets publishing ads for cannabis businesses, and we are not aware of any prosecutions of such outlets. In the one case interpreting the CSA’s prohibition on advertising applied to print media, the court found that the publication of third-party advertisements was not a CSA violation, because the Act “expressly excludes from its scope a party’s mere advertisement or ‘promotion’ of controlled substances and drug paraphernalia."25
There are also no cases interpreting the CSA’s prohibition on the use of the internet to advertise the sale of cannabis in brick-and-mortar state-legal dispensaries, but at least one court has suggested that web hosts which act as “intermediaries,” publishing advertisements to connect the advertiser with potential customers, cannot be liable for the content of the advertisements:
A web host, like a delivery service or phone company, is an intermediary and normally is indifferent to the content of what it transmits. Even entities that know the information’s content do not become liable for the sponsor’s deeds. Does a newspaper that carries an advertisement for “escort services” or “massage parlors” aid and abet the crime of prostitution, if it turns out that some (or many) of the advertisers make money from that activity? How about Verizon, which furnishes pagers and cell phones to drug dealers and thus facilitates their business? GTE does not want to encourage the surreptitious interception of oral communications, nor did it profit from the sale of the tapes. It does profit from the sale of server space and bandwidth, but these are lawful commodities whose uses overwhelmingly are socially productive. That web hosting services likewise may be used to carry out illegal activities does not justify condemning their provision whenever a given customer turns out to be crooked.26
Of course, there are reasons to be cautious. At least one U.S. Attorney has claimed that newspapers, radio stations, and other media outlets that published advertisements for state-legal medical cannabis dispensaries are violating federal law.27 The United States Postal Service has taken the position that periodicals containing advertisements for cannabis businesses are “nonmailable” because the ads violate the CSA, without clarifying whether the violation is by the periodical publishing the ad or only the business placing it.28 And in 2011, Google agreed to forfeit $500 million in advertising revenue from Canadian online pharmacies that were targeting consumers inside the United States with ads for illegal pharmaceutical sales.29 The Department of Justice alleged that Google had “allow[ed] online Canadian pharmacies to place advertisements through its AdWords program targeting consumers in the United States” and that Google specifically assisted the pharmacies in “optimizing their AdWords advertisements, and improving the effectiveness of their websites."30 Although the matter was pursued as a civil forfeiture and resolved by agreement without a court ruling on the strength of the government’s case, it suggests that the government could take a broader view of “placing” an advertisement or “facilitat[ing]” a sale, notwithstanding the absence of case law supporting these interpretations.
Considering the years of federal prison time that a person could face if she was convicted of four CSA violations (or even one), it’s a wonder that anyone is willing to publish ads for cannabis dispensaries. Yet ads abound in independent newspapers, on billboards, and online. Why? Consider this: the CSA also prohibits selling cannabis, but thousands of highly visible, well-advertised, and popular stores distribute cannabis in broad daylight in a growing number of states. Store owners have determined that the risk of federal prosecution isn’t significant enough to forego a valuable business opportunity. Likewise, many non-cannabis businesses have decided that the risks of doing business with cannabis-related businesses do not outweigh the value of participating in a lucrative and growing market. For these businesses, the most sensible question is not whether there is some risk—there is—but how they can minimize it.
B. Best Practices
For a business which has decided to publish ads for cannabis businesses, there are a number of steps that would minimize the risk of receiving a call from a federal prosecutor or a visit from your local DEA agent. The first of these is recognizing that overlapping state and federal jurisdiction, and conflicting state and federal law enforcement priorities in the area, create substantial risk. Whether and how state and federal laws apply is necessarily fact-dependent, and deciding whether to move forward requires review of the specific facts at play and the application of federal and state law to those facts. That said, there are general principles that apply in most cases.
1. Follow State Law (and Require that Customers Do Too)
Although the federal government may enforce federal drug laws anywhere in the United States, the overwhelming majority of drug crime enforcement is done by state and local authorities,31 and the federal government depends on those agencies to refer federal offenses for prosecution. To avoid attracting the attention of federal law enforcement, publishers should start by not incurring the wrath of their state and local governments.
It should go without saying, but publishers should only accept ads from cannabis businesses operating in states in which cannabis is legal. Even then, publishers should require that any cannabis-business certify its compliance with state and local laws. In states which have legalized cannabis, publishers should be aware of any state or local restrictions on cannabis advertising, as well as any regulations applicable to advertising generally.32 Likewise, publishers should avoid targeting minors, including by refusing to run ads in publications or websites aimed at youth demographics.
2. Flat Fee Pricing
Because the federal laws that might apply to cannabis advertising generally require the intent to facilitate an underlying transaction, publishers should avoid payment models which align their incentives to sell ads with a cannabis businesses incentive to sell cannabis. In other words: stick to flat fee pricing. Accepting equity in exchange for services makes the publisher a part owner of a federally-illegal business, but even royalties or commissions tied to the cannabis businesses sales of cannabis could create the appearance that the publisher intends for those increased sales. Although we think that is a far cry from the specific intent to facilitate the underlying CSA violation, sticking to flat fee pricing minimizes any perception that the publisher is profiting from actual sales.
3. Advertise Businesses, Not Products
To the extent possible, publishers should draw a line between advertising cannabis businesses and advertising cannabis transactions. The CSA’s specific prohibitions on advertising do not apply to material which “does not attempt to propose or facilitate an actual transaction” (for publications generally) or which “includes pricing information without attempting to facilitate an actual transaction” (for internet ads).33 A motivated prosecutor might contend that ads which include prices for specific products—“$12 grams of Aunt Mary’s Kush Kookies” or “4/20 Special – Two for One Pre-Rolls”—as referring to a specific, albeit inchoate, transaction in cannabis in a way that simply advertising the name and location of a cannabis business does not.
4. Stop When You’re Told
As discussed above, the federal government has not shown any appetite for prosecuting legal businesses for providing legal services to state-legal cannabis businesses. But the federal government’s priorities regarding state-legal cannabis are shifting, and it is hard to predict whether they may take an interest in the future. A publisher’s first warning that the federal government is taking an interest in its activities is likely to be a cease and desist letter or perhaps a curious phone call. If a publisher does receive any such indication, it should seek the advice of counsel experienced in federal criminal law and the cannabis industry, and should be prepared to immediately stop the publication of such ads.
The legal cannabis industry is rapidly growing, presenting businesses which previously had little or no experience with it with incredible opportunities to expand the market for their services. Although the conflict between federal and state law creates some interesting questions for these businesses, the mere fact that cannabis is federally illegal should not dissuade businesses from exploring opportunities in the industry altogether. Ultimately, the decision about whether and how to enter the market should be made after a clear and searching analysis of the risks in conjunction with experienced counsel.
This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations. Manufacturing, cultivation, distribution and possession of cannabis remains illegal under federal law and under certain state laws, and is strictly regulated in those states which have legalized medical or recreational cannabis.
FOOTNOTES1 Letter from Lori Ajax to Doug Francis, Feb. 16, 2018 (available at https://mjbizdaily.com/wp-content/uploads/2018/03/Letter-Re-Weedmaps1.pdf) (“Ajax Letter”). California—which in 1996 was the first state to legalize the use of medical cannabis—passed the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) in June 2017. The law took effect in January of this year, and legalized the cultivation, sale, and possession of recreational or “adult use” cannabis. Any business engaged in “commercial marijuana activity”—meaning the “cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, labeling, transportation, distribution, delivery or sale of marijuana and marijuana products—must first obtain a license from a state licensing authority.” See Medicinal and Adult-Use Cannabis Regulation and Safety Act, Cal. Bus. & Prof. Code § 26032.
2 Ajax Letter
4 Letter from Doug Francis and Chris Beals to Lori Ajax, Mar. 12, 2018 (available at https://www.documentcloud.org/documents/4407347-WM-Response-to-BCC-Ajax-Exec-Dist-3-12-18.html). Section 230 provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider,” and prohibits “cause[s] of action . . . and . . . liability . . .under any State or local law that is inconsistent with this section.” 47 U.S.C. § 230(c).
5 https://arstechnica.com/tech-policy/2018/03/weedmaps-resists-californias-demand-to-halt-illegal-cannabis-ads/; https://www.law.com/therecorder/2018/03/16/weedmaps-turns-to-section-230-defense-against-regulators/. 6 https://www.law.com/therecorder/2018/03/16/weedmaps-turns-to-section-230-defense-against-regulators/.
7 See 21 U.S.C. § 841.
8 47 U.S.C. § 230(e)(1).
9 See Deputy Attorney General James Cole, Memorandum for United States Attorneys (June 29, 2011) available at http://www.justice.gov/sites/default/files/oip/legacy/2014/07/23/dag-guidance-2011-for-medical-marijuana-use.pdf; Deputy Attorney General James Cole, Memorandum for All United States Attorneys (August 29, 2013) available at http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf; Attorney General Jeffrey B. Sessions, Memorandum for All United States Attorneys (Jan. 4, 2018) available at https://www.justice.gov/opa/press-release/file/1022196/download.
11 21 U.S.C. § 341(h).
12 21 U.S.C. § 843(b). A “communication facility” is any “public and private instrumentalit[y] used or useful in the transmission of writing, signs, signals, pictures, or sounds,” and includes mail, telephone, wire, radio, and other means of communications.
13 21 U.S.C. § 843(c).
14 18 U.S.C. § 1956(a)(1)(A)(1) (“Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity . . . with the intent to promote the carrying on of specified unlawful activity” violates this section).
15 18 U.S.C. § 1956(a)(2)(A).
16 18 U.S.C. § 1957(a) (“Whoever . . . knowingly engages or attempts to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity” violates this section).
17 18 U.S.C. § 1952(a).
18 18 U.S.C. § 2.
19 Abuelhawa v. United States, 556 U.S. 816, 823–24 (2009).
20 See, e.g., United States v. Dotson, 871 F.2d 1318, 1322 (6th Cir. 1989) (“[W]e now join the Third Circuit in holding that the government must prove the commission of the predicate drug offense beyond a reasonable doubt in order to sustain a conviction under section 843(b).”), opinion amended on reh’g, 895 F.2d 263 (6th Cir. 1990); United States v. Acosta-Gallardo, 656 F.3d 1109, 1121–22 (10th Cir. 2011) (“Our case law similarly requires a defendant to be complicit in an underlying drug felony for a Section 843(b) conviction to stand.”).
21 See United States v. Teffera, 985 F.2d 1082, 1086 (D.C. Cir. 1993) (quoting United States v. Raper, 676 F.2d 841, 849 (D.C. Cir. 1982); and citing United States v. Peoni, 100 F.2d 401, 402 (2d Cir. 1938) (L. Hand, J.) (aider and abettor must “associate himself with the venture, ... participate in it as in something that he wishes to bring about, ... seek by his action to make it succeed”)).
22 21 U.S.C. § 843(a)(1).
23 Id.; § 843(a)(2)(C) (excluding material which “merely advocates the use of a controlled substance or includes pricing information without attempting to facilitate an actual transaction involving a controlled substance.”).
24 Johnson v. United States, 135 S. Ct. 2551, 2560 (2015)
25 Trans-High Corp. v. Reimers, No. 2:14-CV-00279-LRS, 2015 WL 144417 (E.D. Wash. Jan. 12, 2015) (rejecting defendant’s argument that the “High Times” trademark was invalid because the magazine published third-party advertisements for the sale of drug paraphernalia and controlled substances).
26 Doe v. GTE Corp., 347 F.3d 655, 659 (7th Cir. 2003). 2
7 In 2011, Laura Duffy, then U.S. Attorney for the Southern District of California, stated: “If I own a newspaper ... or I own a TV station, and I’m going to take in your money to place these ads, I’m the person who is placing these ads, . . . I am willing to read (the law) expansively and if a court wants to more narrowly define it, that would be up to the court.” Feds to Target Newspapers, Radio for Pot Ads, SAN DIEGO UNION-TRIBUNE (Oct. 12, 2011) available at http://www.sandiegouniontribune.com/news/watchdog/sdut-feds-target-newspapers-radio-marijuana-ads-2011oct12-htmlstory.html.
28 See Letter from Postmaster General Thomas J. Marshall to Congressman Earl Blumenauer, December 15, 2015 (available at http://media.oregonlive.com/marijuana/other/2015/12/17/USPS%20Response%20on%20Marijuana%20Ads%20(1).pdf)
29 Dep’t of Justice, Google Forfeits $500 Million Generated by Online Ads & Prescription Drug Sales by Canadian Online Pharmacies (Aug. 24, 2011) (available at www.justice.gov/opa/pr/google-forfeits-500-million-generated-online-ads-prescription-drug-sales-canadian-online).
31 See Lisa N. Sacco, Drug Enforcement in the United States: History, Policy, and Trends, Congressional Research Service (Oct. 2, 2014) (available at https://fas.org/sgp/crs/misc/R43749.pdf) (“ In the United States in 2012, the U.S. Drug Enforcement Administration (DEA) arrested 30,476 suspects for federal drug offenses while state and local law enforcement arrested 1,328,457 suspects for drug offenses.”)
32 See, e.g., Retail Marijuana Rules, 1 Colo. Code. Regs. § 212-2.
33 21 U.S.C. § 843(c).