While he was celebrating the end of a massive year for his cannabis-focused company Terra Tech, Derek Peterson was also scrambling to cope with some bad news.
His Newport Beach business had raised close to $20 million in capital to produce and sell marijuana products across the country, tripled the number of people it employs and applauded as Californians voted to legalize recreational marijuana in 2016. But Peterson also learned that the company managing payroll and health benefits for Terra Tech was abruptly dropping them Dec. 31 because they no longer wanted to support the cannabis industry.
“The decision came out of nowhere,” he said. “We have almost 200 employees that spent their holiday season stressed about the possibility of not having their health benefits available in the new year, let alone a reliable pay schedule.”
It was disheartening, he said. But it was also nothing new, with many of the victories he’s experienced dampened by setbacks stemming from the federal government’s unwavering position on marijuana and the stigma it creates.
Federal law still classifies cannabis as a Schedule I narcotic, a category reserved for drugs such as heroin that are said to be highly addictive and have no medical value.
There’s been no movement to ease that stance even though polls show a record-high number of Americans now believe marijuana should be legal, 28 states permit medical marijuana and eight more plus Washington, D.C. allow recreational use.
Expectation that Californians legalizing cannabis with Proposition 64 might serve as a tipping point for federal change began to fade once Republicans gained control of both branches of government and President Donald Trump chose staunch marijuana opponent Jeff Sessions for Attorney General.
The ongoing conflict with federal law can impact everything from housing to healthcare for individuals who opt to take advantage of state policies allowing them to medicate or recreate with cannabis, according to Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, or NORML.
The conflict also means Californians and residents of other legal weed states who want to operate businesses in the industry face problems with banking, taxes and more.
“It’s a serious hindrance,” said John Hudak, a senior fellow with the Brookings Institution who specializes in marijuana policy. “It creates a scenario in which companies are able to get up and running but not operate like a normal business does.”
Here are nine ways the federal status of marijuana is impacting both everyday cannabis consumers and people attempting to work in the industry, no matter what their state law says.
Since employment in the United States is largely “at-will,” companies can choose to fire workers over marijuana consumption regardless of state or federal laws. And Prop. 64 explicitly states that California employers remain free to penalize workers who test positive for marijuana use, even if there’s no indication they were actually high on the job.
But national laws mean federal agencies don’t have a choice: Their employees can’t consume marijuana, even in their off-hours. And neither can many categories of workers who are in federally regulated fields, such as people who work in the transportation or healthcare industries.
“While the cultural and legal status of marijuana has changed dramatically,” Armentano said, “marijuana testing policies in the workplace haven’t evolved.”
The conflict can also create ethical dilemmas for professionals. Doctors worry about losing licenses to practice medicine if they recommend medical marijuana. And attorneys who advise cannabis businesses in compliance with state laws fear they’ll be disbarred since they aren’t allowed to help clients break federal law.
No one who is in Section 8 or other federally-subsidized housing is allowed to use marijuana.
“From a federal perspective, marijuana continues to be illegal. And so its use in federally assisted housing is also considered to be illegal,” said Brian Sullivan, spokesman for the U.S. Department of Housing and Urban Development.
How those rules are actually carried out is left up to local housing authorities, Sullivan said.
Suzie Ruelas, housing manager for the Baldwin Park Housing Authority, said her agency doesn’t drug test or ask residents when they apply for housing assistance whether they use marijuana. But if someone files a complaint or if one of her agents sees evidence of cannabis use during a home inspection, it can become a disqualifying factor.
Renters who don’t get federal subsidies can still face eviction even if they’re consuming or growing marijuana in compliance with Prop. 64 if their lease prohibits “illicit” drugs, according to San Diego employment and business lawyer Christina Semmer.
“Of course, pro-marijuana tenants would argue that marijuana is legal under California law,” Semmer said. “But landlords can still point to the fact that marijuana is illegal under federal law.”
As an open cannabis consumer, life and dating coach Molly Peckler of Venice Beach said she had to do lots of research to find an insurance company that would take her on without charging her hefty premiums similar to ones faced by tobacco smokers – even though no research suggests cannabis consumption poses equal health risks.
When Peterson applied for a $5 million personal life insurance policy last summer, he was worried he’d be denied coverage following prerequisite blood tests, since he uses medical cannabis for pain associated with a surfing accident years ago.
But before he could even take the tests, Mutual of Omaha sent him a letter saying they couldn’t offer him a policy because they can’t accept premium payments from anyone “associated with the marijuana industry.” A spokesman for the company declined to elaborate.
Other open cannabis consumers and entrepreneurs have reported issues in getting liability and property insurance for their businesses, health insurance and auto insurance.
While some local banks and credit unions are quietly taking on marijuana businesses, major banks and credit card companies still won’t service the industry out of fear they’ll be penalized for money laundering.
That’s created a cash industry ripe for illegal activity. And it makes it tough for companies that work in multiple states to keep funds in the regulated financial system.
California State Treasurer John Chiang in December formed a working group focused on finding ways to provide banking services for the cannabis industry.
But Armentano says states are fairly limited in what they can do to address the issue, with other legal weed states that have tried and so far failed to create an end-run around the federal banking issue.
5. MILITARY SERVICE
Despite the promise marijuana has shown in treating PTSD and chronic pain, active members of the military still can’t use cannabis without jeopardizing their positions.
“Fifty of us are dying from suicide every day,” said Roger Martin, founder of the organization Grow for Vets, which fights to make medical marijuana an option for service members. “If anybody has earned the right to decide what they want to medicate with, it’s the American heroes.”
There’s recently been progress both in giving veterans access to medical marijuana and in making it possible for people who’ve previously consumed cannabis to enlist.
The U.S. Air Force earlier this month announced prior marijuana use will no longer disqualify potential recruits. And the branch said it also won’t consider how long it’s been since consumption took place when evaluating applicants.
Veterans can no longer be denied healthcare through the Department of Veterans Affairs if they are medical cannabis users. But VA health providers still can’t recommend cannabis for any conditions.
6. GUN OWNERSHIP
Medical marijuana patients don’t have a Second Amendment right to own a gun, according to a federal appeals court decision that came down in August.
The decision came in a lawsuit filed by Nevada resident and medical marijuana card holder S. Rowan Wilson. She said a gun shop in 2011 refused to sell her a weapon for self defense, citing a federal law against selling firearms to “illegal” drug users.
The 9th U.S. Circuit Court of Appeals in its decision cited a conclusion by Congress that marijuana and other drug use “raises the risk of irrational or unpredictable behavior with which gun use should not be associated.”
The Bureau of Alcohol, Tobacco, Firearms and Explosives solidified that position earlier this month, when it added a line to a new version of the form aspiring gun owners must complete that states marijuana is still illegal under federal law.
The NRA has been silent on the issue and did not respond to a request for comment.
Cannabis consumers occasionally report difficulty accessing some medical procedures or participating in healthcare programs.
“We continue to hear of issues with regard to those who are suffering from chronic pain who are prescribed opioids then test positive for marijuana and get kicked out of their pain management programs,” Armentano said.
Same goes for pregnant mothers who use medical marijuana to cope with debilitating nausea, he said.
Cannabis consumers have also struggled for many years to be considered candidates for needed organ transplants.
California was one of the first states to address that issue, passing a bill in 2015 that made it illegal to deny transplants based solely on a patient’s marijuana use. But cannabis consumption remains a determining factor for transplant candidates in a majority of states.
8. BUSINESS SERVICES
Along with being dropped by his payroll provider, Peterson said he’s faced issues over the years in getting an attorney and a certified public accountant to service his company.
Cannabis companies also can’t advertise on many popular platforms, Peckler pointed out, including Google and Facebook – despite the fact that the first president of Facebook, Sean Parker, bankrolled much of the Prop. 64 campaign.
Other cannabis industry professionals report trouble getting landlords to give them a lease, finding air conditioning companies willing to install new systems, hiring construction companies who will build out their businesses, getting investors to sign on and more.
“There remain a good number of companies or individuals who do not want to partner with a company involved in that industry because they worry about their own hide,” Hudak said. “That creates roadblock after roadblock after roadblock. And they stem entirely out of the federal prohibition on marijuana.”
Though the federal government says marijuana is illegal, businesses still have to pay taxes to the IRS. But under a tax rule imposed during the Reagan Administration’s 1980s anti-drug war, businesses dealing in Schedule I or II substances are prohibited from writing off common expenses such as rent, utilities or advertising.
Harborside Health Center, a large Oakland dispensary, has been battling the IRS over the rule for five years, after being assessed $2.4 million for illegal deductions. A decision in that case is expected in mid-2017.
Congress could take action to reverse tax rule 280E. But in the 20 years he’s been tracking the industry, Armentano pointed out no marijuana-related bill has even made it to a vote at the subcommittee level. So, while he thinks the banking and tax policy issues are likely to be the first addressed by federal legislators, he’s not holding his breath.
“At the end of the day, the federal law has to change in a manner that comports with the rapidly changing legal and cultural status of marijuana on the state level,” Armentano said. “Until that happens, these conflicts will continue to exist.”