Federal Government Sues California Bureau of Cannabis Control for Business Records

The DEA and DOJ have requested specific information about three state-licensed cannabis operators as part of a criminal investigation, and the BCC has refused to provide the information.

prime1001 | Adobe Stock

In a court petition filed July 20, the federal government is suing the California Bureau of Cannabis Control (BCC) for cannabis business records in connection with a criminal investigation that Harris Bricken attorney Hilary Bricken says took an interesting turn after the BCC refused to provide the information.

The U.S. Drug Enforcement Administration (DEA) and Department of Justice (DOJ) served an administrative subpoena to the BCC at the end of last year, which it later withdrew and re-issued in January, requesting information about six “entities,” which includes three state-licensed cannabis businesses and each company’s owner. The information, which includes cannabis licenses, license applications and shipping manifests for the licensees from Jan. 1, 2018 through Jan. 9, 2020, will be used as part of a federal criminal investigation into alleged violations of the Controlled Substances Act (CSA).

In response to the subpoena, the BCC indicated in a letter that it would not turn over the requested documents because the subpoena doesn’t show relevance and its scope is not reasonable.

“States are free to check the feds and ensure that they’re following procedure, that everything’s constitutional,” Bricken said, adding, “I’m surprised there’s a fight over this particular subpoena, though. They just don’t have the facts, and they don’t have the law. It makes me question why the California [attorney general] is spending time and taxpayer dollars fighting off the inevitable because the bar is very clearly so low for the DEA [and] DOJ to get this information to mount a criminal investigation when the conduct is already federally illegal.”

The DEA has, for the last several months, urged the BCC and California attorney general to cooperate, to no avail, which is why the matter has landed in federal court, where the feds are asking a judge to enforce the subpoena against the BCC.

In response to the court filing, the California attorney general fought back, arguing again that the DEA and DOJ have failed to prove either the relevance or reasonableness of the subpoena and citing California state laws regarding confidentiality, trade secrets and privacy laws to justify noncompliance with the subpoena.

The BCC did not respond to a request for comment.

From Bricken’s perspective, the federal court is likely to rule in favor of the DEA and DOJ.

“I think that the federal court is going to rule pretty quickly here and probably in favor of the DEA because the bar is so low relative to their power when it comes to these investigations,” she said. “If they even remotely suspect criminal behavior that violates the Controlled Substances Act, they basically have blank check to go to whatever level they need to [in order] to explore the alleged illegality.”

While the companies involved in the dispute have not been publicly identified, Bricken says the public learns more about the true nature of the investigation every time the feds or the state submit a new court filing. She suspects that the investigation centers on distribution entities, likely based in San Diego, that are suspected of trafficking cannabis to or from Mexico.

Whatever the allegations are, she added, they must be severe for the federal government to get involved.

“If the federal government has taken this interest, there is likely some very bad behavior transpiring, which years ago would have violated the Cole Memo,” Bricken said.

The Cole Memo, of course, largely protected state-legal cannabis businesses from federal intervention, unless a lack of federal oversight undermined federal priorities such as violence and cartel activity. That is, until former U.S. Attorney General Jeff Sessions rescinded the guidance in early 2018.

Although the Cole Memo no longer exists, U.S. Attorney General William Barr has testified that he would adhere to Cole Memo priorities, she added. “That tells me anecdotally that … there’s a very high chance that [these companies have] engaged in very serious misconduct to warrant the attention of the feds, and it could go beyond the companies just getting shut down.”

If the DEA starts making arrests that lead to DOJ indictments, the executives behind these companies could face prison time and forfeiture, Bricken said.

Although there has been speculation that the investigation could be a witch hunt stemming from the recent allegations that Barr conducted unfounded antitrust investigations into cannabis mergers and acquisitions due to his personal disdain for the industry, Bricken dismisses this theory.

“I don’t think that holds water here because those agencies don’t have the same jurisdictional powers and they don’t have the same [method of  operation],” she said.

The bigger question, she added, is why the BCC is pushing back so adamantly against the subpoena.

“The bigger picture is that there’s very well-established law here over these administrative subpoenas, so why the state of California is pushing back on this one, to me, is very odd because federal law still prevails in every single category, period,” Bricken said. “To even tempt the feds or anger them over not being cooperative, at least politically, is probably not a very good idea if you want your cannabis experiment to be left alone.”

While the state certainly has the right to push back if the federal government’s conduct is completely egregious, illegal or unconstitutional, Bricken does not believe that is the case here.

“Go ahead, check the federal government,” she said. “But in my opinion, do it when it makes sense to do it, and I just don’t think it makes much sense in this one.”

For those looking on as the case plays out publicly—maybe more publicly than the DEA hoped it would, Bricken added—there are lessons to be learned.

“If I’m in another state, I’m going to look at this and reinforce the sentiment that you need to cooperate with the federal government,” she said. “It doesn’t mean that you have to be dragooned by the federal government unconstitutionally or illegally, but you’ve got to cooperate with them. That’s the politics behind the legalization of cannabis and getting them to basically remain at bay.”

The case also highlights the need for the strict enforcement of the regulatory framework that governs state-legal cannabis programs, Bricken added.

“You have to enforce your licensees,” she said. “If this is true, if the investigation is legit—which in my experience, they typically are—it’s kind of disappointing that the feds figured it out before California because these are not people who should have licenses. It would probably force me to examine, as a state regulator, how tight my rules are, how effective they are, and are we doing enough to enforce against bad actors?"

Share This Content