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Warning to Cannabis Companies: Your Goods Or Sale Proceeds May be Seized When Crossing State Lines

By: Mira Baylson, Meghan Stoppel, and Gianna Puccinelli

A recent lawsuit highlights the underlying conflicts between neighboring state laws that cannabis companies, and companies operating peripherally to cannabis companies, must consider.  Key among them is:  how do I protect my right to operate in my state when the states around me do not recognize my business as legal?  It also highlights additional questions such as whether state law enforcement officials, including state attorneys general, must consider a neighboring state’s law(s) when attempting to apply their own to cannabis companies.

On January 14, 2022, a Colorado-based armored car company, Empyreal Logistics, filed a lawsuit in the United States District Court for the Central District of California alleging that law enforcement officers in Kansas and California had wrongfully seized Empyreal’s cargo: the cash proceeds from marijuana dispensaries.  At least in the case of the Kansas seizures, although the marijuana dispensaries were operating legally in Missouri, their home state, Empyreal was stopped and its proceeds seized while transporting the dispensaries’ proceeds through Kansas, where marijuana is illegal.

Driver Stopped, Subsequently Intercepted And Cash Seized

Founded in Denver, Colorado in 2018, Empyreal offers cash collection and transport services to state-licensed medical cannabis businesses in numerous states.  Empyreal alleges that, while traveling through Dickinson County, Kansas, an Empyreal vehicle was stopped by a local sheriff’s deputy.  Responding to questions by the deputy, the Empyreal driver stated that he was traveling to Kansas City, Missouri, to pick up cash proceeds from state-licensed medical cannabis dispensaries and transport them for deposit in another state.  Although the driver was released without a citation, the complaint alleges that the driver was surveilled by the U.S. Drug Enforcement Administration the next morning, when he went to the Kansas City medical cannabis dispensaries to pick up their cash proceeds.  Empyreal alleges that, later that day, the same deputy stopped the Empyreal vehicle without cause and seized $165,620 in cash proceeds, which were the subject of a September 3, 2021 civil forfeiture complaint filed in the United States District Court for the District of Kansas.

A Cautionary Tale For Cannabis Companies

Empyreal’s complaint reads as a cautionary tale for cannabis companies and others in the cannabis space.  Absent cannabis legislation (or even guidance) at the federal level, legal cannabis companies risk being subject to inhospitable legal environments when crossing state lines, including the risk of limited due process rights when deprived of money or property.  Empyreal’s allegations, though, highlight additional questions beyond the potentially illegal seizure of cannabis property, such as whether state law enforcement officials, including state AGs, must consider a neighboring state’s law(s) when attempting to apply their own to cannabis companies.  Should state law enforcement coordinate with federal law enforcement as is alleged by Empyreal when a company is acting in accord with the laws of another state?  One thing is certain: until the federal government weighs in on the legality of cannabis, companies are right to be concerned that the current patchwork of state laws could potentially deprive them of property or profit.

State AGs Shape Both Policy And Enforcement

When analyzing the risks posed by varying state laws, cannabis companies should bear in mind the role played by state AGs.  Depending on the state, the AG may have an outsize role in shaping cannabis policy through both criminal prosecutions and the creation, or defense, of other state laws, such as civil forfeiture statutes.  In certain states, for example, AGs have original criminal jurisdiction, or at a minimum, the ability to accept criminal referrals from local prosecutors. In other states, AGs have very little criminal jurisdiction.  Yet, regardless of the AG’s ability to control criminal prosecutions of cannabis-related activity, most state AGs can be called upon to interpret the application of both their civil and criminal statutes, when requested to do so by local law enforcement or other state actors.  Thus, whether the AG is interpreting the bounds of the state’s civil forfeiture statute, or the intersection of two very different state laws regarding the legality of cannabis, the AG’s position can, and often does, influence the actions taken by state and federal law enforcement in that state.

For example, in Kansas, AG Derek Schmidt recently released an opinion declaring Delta-8 illegal to possess or sell in Kansas.  The AG’s opinion is propelling some Kansas law enforcement officials to step up prosecution over both the possession and selling of Delta-8, despite serious concerns being raised by some regarding the AG’s legal analysis.  Could the AG’s opinion embolden law enforcement officers to take additional action similar to the action alleged by Empyreal?  In an election year with over 30 State AG races nationwide, cannabis-adjacent companies need to stay abreast of the candidates’ positions on marijuana and the cannabis industry in and outside of their own state so as to minimize risk to their property and profit.