The cash seizure falls into a gray legal area involving establishments that are legal in one state but not legal in other states or at the federal level.
Legal experts are scratching their heads over a case that implicates a murky area of the law governing when legal marijuana businesses can be prosecuted in states where marijuana is still not legal.
The case involves the seizure of cash generated by Kansas City medical marijuana dispensaries, which are legal in Missouri, as that cash was being transported through Kansas, where medical marijuana is not legal.
“I have never seen a U.S. Attorney act against what is purportedly legal marijuana,” said Lynn Ciani, chief risk officer and general counsel of Numerica Credit Union in Spokane, Washington, which serves some 300 cannabis businesses.
According to federal court records, a van operated by Empyreal Logistics, a cash transport company, was stopped on Interstate 70 in May for an unspecified traffic violation by a Dickinson County, Kansas, sheriff’s deputy.
The driver explained to the deputy that she was headed to Kansas City to collect proceeds from Missouri marijuana dispensaries and transport them to a credit union in Colorado.
Surveillance the next day by the Drug Enforcement Administration showed the driver stopping at and entering various marijuana dispensaries in Kansas City. When the driver headed back west and reached Dickinson County, the same sheriff’s deputy stopped the Ford Transit van once again.
This time the deputy seized the contents of the van — five bags containing $165,620. Later, a drug-sniffing dog alerted authorities to traces of marijuana on the currency.
Three months later, the U.S. Attorney’s office in Kansas brought a civil forfeiture action in federal court, arguing the seized cash was traceable to sales that violated the federal Controlled Substances Act.
Civil forfeiture cases allow the government to seize property that isn’t reachable through criminal forfeiture proceedings. Common examples are property of criminals residing outside the United States, including terrorists and fugitives.
But it’s not clear why the government went after the property in this case, since it seems to fall into a nebulous, gray zone of the law that involves establishments that are legal in one state but not legal in other states or at the federal level. Despite a growing number of states that have legalized medical or recreational marijuana, cannabis is still classified as a Schedule I drug under the federal Controlled Substances Act.
Danielle Thomas, a spokesperson for the U.S. Attorney’s office in Kansas, declined to comment on the case, saying the U.S. Attorney doesn’t address ongoing litigation.
Attorneys for Empyreal Logistics, who are trying to recover the money, did not return calls seeking comment on the case, which was first reported by the Topeka Capital-Journal.
But in court documents, they wrote: “There is no evidence that the Subject Currency was furnished or intended to be furnished in exchange for an unlawful controlled substance in violation of the Controlled Substances Act. … Said currency was derived from lawful activity.”
A gray zone
Jan Douglass, an attorney with Denver-based Cantafio Nagel & Song, which represents marijuana businesses, said the case is perplexing because it does not involve the seizure of marijuana but rather the seizure of proceeds from the sale of marijuana.
“So you’re prohibiting the transport of legitimate funds that were acquired in one state — and we’re not talking products here but the results of a legal, reportable, taxable transaction that’s being seized by another state,” Douglass said.
“So when I hear stuff like this, it’s a little frustrating because you’re like, ‘Are you kidding?’”
During the Obama administration, the Department of Justice issued a memorandum stating that federal prosecutors would not enforce the federal prohibition against marijuana in states that had legalized it. But the Trump administration’s first attorney general, Jeff Sessions, rescinded that memorandum. And while Merrick Garland, the current attorney general, has said he would reinstitute some version of the Obama-era memorandum, it’s not clear that has happened yet.
Part of the problem for marijuana dispensaries in Missouri is that, because the drug is not legal at the federal level, banks that operate across multiple states are prohibited from working with cannabis companies. A proposed law known as the SAFE Banking Act would change that by prohibiting regulators from penalizing banks for doing business with cannabis companies. The bill, which has strong bipartisan support, overwhelmingly passed the House earlier this year but is still awaiting passage in the Senate.
Although it’s not known which Kansas City dispensaries the seized money came from, presumably they weren’t able to, or chose not to, establish relationships with local financial institutions, explaining why they were sending the money to a credit union in Colorado.
MoCann Trade, Missouri’s main cannabis industry trade group, has urged Missouri’s senators to support the SAFE Banking Act, noting that most banks now refuse to do business not only with cannabis companies but with their service providers as well.
Banking problems
Bianca Sullivan, co-owner with her husband of Fresh Green Dispensary, which operates medical marijuana stores in Waldo and Lee’s Summit, said Fresh Green for a while had no banking relationship after the bank it initially did business with backed out.
That proved problematic, she said, because two of the manufacturers Fresh Green did business with wouldn’t take cash or demanded an extravagant amount of money to handle cash.
Fresh Green has since established a relationship with another local bank, but Sullivan, who is also an attorney, said she doesn’t know how dispensaries without a banking relationship manage to handle their affairs.
Because Fresh Green has a local bank, Sullivan said she wasn’t that concerned with how the case brought by the U.S. Attorney in Kansas might affect Fresh Green. But she said that she was concerned by the lengths the Drug Enforcement Administration went to track the movements of the Empyreal Logistics van.
“That’s the only thing which makes me think there’s more to this story than we know,” Sullivan said. “… Because I find it odd that they would actually spend time and money surveilling a van in Missouri, even if they knew it was coming across Kansas illegally, although they obviously had the right to do that.”
Ben Stelter-Embry, a Kansas City attorney who recently won a case challenging Missouri’s residency requirement for ownership in Missouri medical marijuana companies, said he was concerned that if authorities can seize the proceeds of legal, taxable dispensaries, there’s no reason they can’t seize the assets of attorneys who represent such clients.
He called the case “deeply troubling” and noted that lots of area lawyers are licensed and have offices in both Missouri and Kansas. In Missouri, they’re exempt from prosecution for representing medical marijuana businesses but they have no such exemption in Kansas.
“So would their personal assets become subject to civil forfeiture by the U.S. Attorney’s office in Kansas if their bank is located in the state of Kansas?” Stelter-Embry asked.
An attorney who asked for anonymity because he represents marijuana dispensaries that may be affected by the case, said, “It’s a warning, I guess, to everybody licensed in the marijuana business in states where the sale of marijuana is legal, or who does business with those licensed marijuana businesses, that the U.S. Attorney in Kansas may seize any cash in your physical possession while in Kansas that is derived from that business, because the sale of marijuana for any use is illegal both from a state and federal perspective in Kansas.”
Meanwhile, a federal magistrate judge last month determined there was probable cause that the money seized in Dickinson County was the product of illegal drug sales. The judge ordered the U.S. Marshal to seize the money.
A scheduling conference in the case has been set for Jan. 4.
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