Marijuana Advertising: Don't Get Fooled Again

Scott R. Flick

Posted February 19, 2014

By Scott R. Flick

It's been three years since I first wrote about marijuana advertising here at CommLawCenter. Despite a head-spinning number of developments since then, including the legalization of recreational marijuana in Washington and Colorado, the answer to the question of whether broadcast stations can accept marijuana advertising is no clearer today than it was then. Since all forms of marijuana use are prohibited by the federal government, and broadcasters rely on federal licenses to operate, millions of dollars of ad revenue hang in the balance.

While steadfastly maintaining that marijuana is an illegal and dangerous drug, the federal government's enthusiasm for prosecuting marijuana-related activities that are legal under state law has waxed and waned over the years. Call it the federal freeze/thaw cycle, because the only certainty so far has been that every thaw is inevitably followed by a federal freeze.

The last thaw was in 2009, when the Department of Justice issued a memorandum indicating it was not particularly interested in pursuing medical marijuana sales that complied with state law. A number of broadcasters took this to mean that the federal government would be okay with advertising medical marijuana, and started accepting the ads. In the dark early days of the recession, marijuana ad sales kept afloat many stations that were otherwise starving for ad revenue.

You can track what happened afterward in posts here at CommLawCenter. In May 2011, I wrote about the DOJ sending threatening letters to states that were then considering enacting medical marijuana laws. Those letters went so far as to threaten state employees with civil and criminal prosecution if they participated in implementing that state's medical marijuana law. At that point, most broadcasters that had been taking the ads stopped, waiting for the federal government, and perhaps the FCC itself, to provide clarification as to whether accepting marijuana ads threatened broadcast license renewals (or worse).

In the fall of 2011, I noted that the last bank in Colorado openly servicing medical marijuana businesses in that state closed those accounts, deciding that it wasn't worth the risk. That post also noted that the DOJ had sent letters to the landlords of marijuana dispensaries threatening prosecution, including the threat to confiscate buildings and the rent received from the dispensaries. A week later, a U.S. Attorney in California raised the specter of prosecuting radio and TV stations for airing medical marijuana ads. While nothing further came from that threat, it certainly rattled media that had accepted marijuana advertising. The federal government had once again put marijuana advertising into the deep freeze.

I was reminded of this cycle last week when media stories declared another federal thaw regarding the sale of marijuana. This past Friday, FinCEN (Financial Crimes Enforcement Network), a part of the Department of Treasury, announced a set of guidelines for banks "that clarifies customer due diligence expectations and reporting requirements for financial institutions seeking to provide services to marijuana businesses. The guidance provides that financial institutions can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity."

The response was predictable. Advocates of marijuana legalization hailed the action as proof that the federal government had come around on the issue. Arguably adding support to this view was a memo dated the same day from the Deputy Attorney General of the U.S. to all U.S. Attorneys appearing to accept state-approved marijuana sales, and prioritizing other types of marijuana offenses for prosecution. Specifically, U.S. Attorneys were advised to focus their resources on:

  • Preventing the distribution of marijuana to minors;
  • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  • Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  • Preventing marijuana possession or use on federal property.

Understandably, federally-chartered banks were less enthusiastic about the announcement, noting that federal law still bans the sale of marijuana, and that there was little reason for a bank to stick its neck out to service such accounts until that changes. Of course, it also didn't help that the DOJ memo was titled "Guidance Regarding Marijuana Related Financial Crimes" and that it was chock full of caveats like:

This memorandum does not alter in any way the Department's authority to enforce federal law, including federal laws relating to marijuana, regardless of state law. Neither the guidance herein nor any state or local law provides a legal defense to a violation of federal law, including any civil or criminal violation of the [Controlled Substances Act], the money laundering and unlicensed money transmitter statutes, or the [Bank Secrecy Act], including the obligation of financial institutions to conduct customer due diligence. Even in jurisdictions with strong and effective regulatory systems, evidence that particular conduct of a person or entity threatens federal priorities will subject that person or entity to federal enforcement action, based on the circumstances.

It is worth noting that the 2009 DOJ memo originally seen as relaxing the federal prohibition on medical marijuana was also structured as a "DOJ priorities" memo, and the list of priorities in 2009 is in many ways similar to the 2014 list above. Banks and broadcasters can therefore be forgiven for wondering how long it will be before federal winds change direction, and the next freeze commences.

Of course, even in the absence of another shift in federal attitude, last week's memos offer dim prospects for marijuana advertising getting the "all clear" signal. First, the FinCEN guidelines make clear that banks will be prosecuted if they fail to do adequate due diligence on their marijuana-funded accounts: "FinCEN expects financial institutions to perform thorough customer due diligence on marijuana businesses and file reports that highlight information that is particularly valuable to law enforcement." Presumably, broadcasters would also be expected to perform due diligence on their advertisers to make sure that those enterprises are entirely legal under state law and are not diverting marijuana to states where it is illegal, distributing it to minors, funding criminal enterprises, etc. If that sounds daunting, particularly where the stakes for the broadcaster are criminal and civil prosecution, you begin to appreciate why we are a long way from federal approval of marijuana advertising.

There is also a more fundamental reason why broadcasters should be hesitant to draw much from last week's federal memos. FinCEN connects the two memos with the following language:

[These guidelines will] promote greater financial transparency in the marijuana industry and mitigate the dangers associated with conducting an all-cash business. The guidance also helps financial institutions file reports that contain information important to law enforcement. Law enforcement will now have greater insight into marijuana business activity generally, and will be able to focus on activity that presents high-priority concerns.

In other words, having the finances out in the open has numerous public benefits, such as preventing violent robberies of businesses previously forced to operate on an all-cash basis, ensuring the appropriate taxes are paid, and allowing the DOJ to detect crimes, particularly those listed in the DOJ memo as high priority offenses. In contrast, the primary purpose of advertising marijuana is to increase marijuana sales, a result it seems clear the federal government has no interest in promoting.

Complicating the issue even further is the fact that states legalizing marijuana may not be too enthusiastic about it being advertised either. Colorado restricts ads for recreational marijuana unless there is reliable evidence that no more than 30 percent of the target audience is reasonably expected to be under the age of 21. Last week, High Times and Westword filed a lawsuit challenging that state restriction. The interesting twist? The lawsuit was filed in federal court.

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