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Should Marijuana Stocks Fear Supreme Court Nominee Neil Gorsuch?

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It’s been a whirlwind week-and-a-half since Donald Trump took office. In his first 10-1/2 days, Trump has issued more executive orders and proclamations than any other modern-day president. Last night, the trend of action continued, with the American public privy to another long-awaited decision from the Trump administration: the nomination of Neil Gorsuch to the Supreme Court.

This nomination is obviously a big deal with a vacancy needing to be filled since the passing of former Justice Antonin Scalia in Feb. 2016. Having a ninth Justice added to the highest court in the land should resolve the possibility of any voting stalemates, and it could wind up shaping policy in America for years or decades to come.

While there are a number of big issues and industries that could be impacted by the Gorsuch nomination (should he be confirmed), the marijuana industry and marijuana stocks have to be wondering how this nomination could impact them.

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Marijuana and marijuana stocks at a crossroads?

In recent years, the cannabis industry has been scorching hot. Last year alone, five new states approved medical pot for legal use, while the number of recreation-legal weed states doubled to eight from four. Without Arizona, where a recreational marijuana measure failed by just two percentage points, marijuana initiatives would have had a clean sweep in the November elections.

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We’ve also witnessed a discernable shift in the public’s opinion on pot. National pollster Gallup shows that the percentage of adults who want to see marijuana legalized nationwide has jumped from 25% in 1995 to an all-time high of 60% as of 2016. In terms of medical marijuana, a 2015 CBS News poll found that 84% of respondents wanted to see it legalized.

However, these figures mean nothing if the Trump administration limits or removes some of the freedoms that have been bestowed upon the marijuana industry. The Obama administration took a hands-off approach to state-level regulation of the cannabis industry despite the fact the federal government maintains a schedule 1 status on the drug. Schedule 1 drugs, by definition, have no medical benefits and are illegal. The big question going forward is whether that hands-off approach will persist if Jeff Sessions, an ardent opponent to marijuana’s legalization, is confirmed as America’s next attorney general, and Gorsuch, widely viewed as a judge with conservative views, is confirmed to the Supreme Court.

What we know about Gorsuch and legalized marijuana

The unfortunate answers for marijuana stocks and in the industry is that we don’t know a whole lot, despite the fact that Gorsuch served as a federal judge in the Denver-based 10th Circuit Court of Appeals and actually oversaw a pot dispensary case in 2015.

The case in question involved Colorado dispensary Total Health Concepts, which wound up having to pay federal income taxes on previously taken business deductions. U.S. Tax Code 280E is a thorn in the side to nearly all dispensaries and marijuana stocks since it disallows businesses that primary sell illegal substances (which includes marijuana) from taking normal business tax deduction. Total Health Concepts’ argument was that it shouldn’t have to disclose the nature of its business due to the potential to self-incriminate, as reported by the New York Daily News.

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Gorsuch ultimately wound up denying Total Health Concepts’ motion, but not without laying into the Obama administration for allowing a confusing double-standard to exist. On one hand, Gorsuch argued,

Later in the case document, Gorsuch points out that,

This doesn’t exactly tell us one way or another how Gorsuch will side, but there’s clearly some discontent on his part about the confusing nature of the federal approach to federal cannabis enforcement.

Marijuana stocks remain in limbo

For the time being, the long-term outlook for marijuana stocks remains somewhat in limbo.

If Jeff Sessions (assuming confirmation) holds true to his word during his confirmation hearings and uphold the views of President Trump when it comes to federal marijuana policy, then pot stocks may do just fine. Trump has previously advocated legalizing medical marijuana at the federal level but leaving recreational marijuana up to state choice and regulation.

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But, Trump’s cannabis ideology could have a hard time getting through a conservative and Republican-led Congress. Of the 22 states that haven’t legalized medical marijuana, many are Republican-led states. Additionally, Sessions is a longtime marijuana legalization opponent, and it may be difficult for him to maintain a hands-off federal approach to a drug he clearly opposes.

What’s likely for marijuana stocks is more of the status quo. This means a continuation of being unable to take normal business tax deductions, as well as having little to no access to basic banking services. Since banks ultimately answer to the federal government, working with pot shops could be construed by the federal government as money laundering. This connect-the-dots scenario and the mixed message today’s federal marijuana laws are sendingare probably going to keep most financial institutions firmly on the sidelines, forcing pot businesses to deal with cash, which is a security concern and growth inhibitor.

While there’s nothing to signal that marijuana stocks are doomed if Gorsuch is confirmed, there’s still no clear catalyst to suggest things will be better, either.

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Will Gorsuch's conservative background put the kibosh on cannabis' expansion?

This is how Trump’s Supreme Court nominee has ruled on legal weed

Judge Neil Gorsuch, President Donald Trump’s nominee for the Supreme Court, hails from Colorado, and if he is ultimately confirmed by the Senate, he could end up having a significant role in deciding whether marijuana will remain legal in his state and others.

Gorsuch currently serves on the 10th Circuit Court of Appeals in Denver, and he has ruled on at least three weed-related cases in recent years. Legal experts and marijuana industry attorneys say it’s hard to say how Gorsuch might rule when the high court takes its next pot case, and it might be impossible to know for sure unless he’s quizzed about it during his confirmation hearings. In the meantime, however, his track record offers some clues.

While Gorsuch is a conservative who falls somewhere between Antonin Scalia and Clarence Thomas on the spectrum of Supreme Court ideology, Alex Kreit, director of the Center for Law & Social Justice at the Thomas Jefferson School of Law, said there aren’t any red flags in his past that indicate he would be categorically opposed legal weed.

“There isn’t anything in his record that suggests he is a hardline anti-marijuana, pro-mandatory minimum zealot in the mold of Jeff Sessions — at least not that I’ve seen,” Kreit said. “And there are at least some cases that suggest he’s willing to rule in favor of individual rights and against the government in some criminal justice cases.”

Gorsuch’s most notable marijuana decision came in December 2015 on a case that dealt with a tax dispute between a Colorado dispensary and the IRS. The dispensary owners wanted to use the Fifth Amendment’s protection against self-incrimination to keep the nature of their business secret, which would have allowed them to significantly reduce their tax bill. Gorsuch joined the three-judge panel’s ruling against them, but his opinion included language that suggested he might be sympathetic to their situation.

He cited the “mixed messages the federal government is sending these days about the distribution of marijuana,” such as a 2013 memo from the Department of Justice that says federal authorities should not prosecute individuals who abide by state marijuana laws, even though weed remains illegal federally.

“So it is that today prosecutors will almost always overlook federal marijuana distribution crimes in Colorado but the tax man never will,” Gorsuch wrote, adding that, “the government simultaneously urged the court to take seriously its claim that the petitioners are violating federal criminal law and to discount the possibility that it would enforce federal criminal law.”

James Thorburn, the attorney for the dispensary owners, said that even though Gorsuch’s ruling was unfavorable to his clients, the judge was fair and thorough. He noted that Gorsuch has “an impeccable reputation,” and said he “asks the difficult questions, but he does it in such a way that it is very conducive to being able to argue a case effectively.”

“I think that he would be open to a favorable ruling to the marijuana industry,” Thorburn said. “That doesn’t say he would actually rule in favor of the industry, but I think the door is not closed.”

Gorsuch was also involved in a 2010 case where the 10th Circuit ruled that a couple accused of selling marijuana couldn’t use the Religious Freedom Restoration Act to defend themselves because their “marijuana dealings were motivated by commercial or secular motives rather than sincere religious conviction.”

In 2013, Gorsuch wrote the majority opinion in a case where the court ruled that it was “reasonable” for a police officer to use a taser on a suspect who fled in order to avoid being arrested for illegally growing marijuana. The suspect died from a heart condition, and his parents sued, claiming that the cop used excessive force. Gorsuch noted that “illegal processing and manufacturing of marijuana may not be inherently violent crimes but, outside the medical marijuana context, they were felonies under Colorado law at the time.”

Hilary Bricken, an attorney with the Seattle-based Canna Law Group, seconded Thornburn’s assessment, saying Gorsuch seems to be “a reasonable judge” who listens closely to the lawyers who appear in his courtroom. “I wouldn’t say he’s mainstream,” she said, “but he’s somebody you can argue with.”

Referring to the tax case, Bricken said Gorsuch appears to think that marijuana policies ought to be determined by the letter of the law, not the whims of the president or the attorney general.

“He doesn’t like federal overreach, especially executive overreach,” Bricken said. “Reading between the lines, he’s saying we’re not going to change this, it’s going to have to come through Congress.”

The big question, then, is whether Gorsuch would side with states or the federal government in a dispute over legal weed. The Supreme Court has already affirmed that Congress has the power to outlaw marijuana under the Constitution’s commerce clause, and that the Department of Justice can prosecute people who violate federal law, even when states have contradictory laws on the books. That means it will likely be up to Sessions, Trump’s pick for attorney general, to determine how the new administration handles legal weed.

Kreit said it seems unlikely that the Supreme Court will revisit the issue of “preemption” — whether federal drug laws trump state rules — anytime soon. But if that happens, it would likely determine whether state-level marijuana legalization goes up in smoke.

“Preemption is by far most important constitutional question related to marijuana legalization right now,” Kreit said. “If the Supreme Court were to rule the federal law trumps state legalization laws, that could conceivably wipe out every single state marijuana legalization law in the country — including medical marijuana — in a single opinion.”

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