How Cuomo's Pot Law Peer Pressures Corporate America Into the Weed Business

NEW YORK (TheStreet) -- New York Gov. Andrew Cuomo's executive action to legalize limited distribution of medical marijuana may signal corporate America's entrance into the pot conversation.

While many commentators have debated the political motivations behind Cuomo's sudden shift on the issue, attorneys say the governor's support of hospitals as dispensaries makes New York's case unique.

"This could be the entrance of corporate America in the medical marijuana field, because [marijuana dispensaries] are generally across the country mom and pop shops," Jacob Rahavi, an attorney practicing in Washington D.C., said in a phone interview. "These are the first multi-million dollar businesses to get involved."

Colorado, which has gained national attention for allowing recreational sale of marijuana since the beginning of 2014, is one such example of a state where families and small businesses run many of the dispensaries.

That a select group of up to 20 hospitals would distribute cannabis for medicinal use is significant because it means these corporations, which are far more likely to operate with in-house legal counsel, probably have considered the repercussions.

One such repercussion, said Washington D.C.-based attorney Robert Ziff, is that the federal government could still prosecute these hospitals, despite the fact that New York state law mandated by executive action would allow for it.

"That sort of enhances the regulatory problem because the hospitals are obviously vastly more regulated by the federal government than, say, a private marijuana dispensary," Ziff said in a phone interview. "A marijuana dispensary in California or Colorado, whether it's being done for medical purposes or for personal use, these institutions are not being regulated by the federal government because they're illegal."

The White House states on its Web site that the Barack Obama administration opposes legalization of marijuana because it would increase the availability and use of illicit drugs; however, the Justice Department in August said it would not challenge laws legalizing the drug on state ballot initiatives so long as states remained committed to very strict rules concerning distribution.

Rahavi and Ziff, who published a brief through American University about regulation of medical marijuana, said that the for-profit and non-profit dispensaries in places like Colorado and California understand that at any moment the federal government can come in and shut down operations and arrest the people running these establishments.

Cases in which the federal officials would shutter an operation, though, often occur when they believe there is abuse of the law. For example, Colorado state law limits residents to purchase one ounce of cannabis for recreational use. A dispensary that ignores that law and sells more than the state-mandated limit may attract the attention of the federal government. This, Rahavi and Ziff said, was one of the problems California encountered years ago when it implemented marijuana legalization laws.

Corporate-run hospitals likely would encounter the same legal pressures, leaving some to wonder why these companies would risk hurting other profitable arms of their business.

TheStreet reached out to the U.S. Attorney's Office for the Northern District of New York and the U.S. Attorney's Office for the Southern District of New York to ask if the Cuomo administration had preemptively discussed the prospects of an executive action that would permit hospitals in the state to distribute medical marijuana for strict cases. Both offices declined to comment for this story.

TheStreet contacted Gov. Cuomo's office, which did not respond to repeated requests for comment as to whether the governor or members of his administration approached the U.S. Attorney's offices throughout New York about the executive action.

But the U.S. Attorney's office may have no incentive to weigh in publicly on this issue.

"If the office says that they wont pursue prosecutions, then they look soft on crime. If they say they will pursue prosecutions, then they're starting a fight with the governor," Greg Magarian, a Constitutional law professor at Washington University in St. Louis, wrote in an email. "Either way, what they end up doing will probably depend on policy determinations higher up in the Justice Department."

This could dissuade the government from intervening with hospitals that act as dispensaries. But heavily regulated hospitals could be the most trustworthy medical marijuana dispensaries.

Cuomo said in his State of the States speech on Jan. 9 that the program would help to manage pain and treatment of cancer and other serious illnesses. This suggests that the executive action explicitly outline the cases in which the hospitals could prescribe medicinal use. Hospitals are familiar with tight oversight to prescribing prescription drugs.

Who would supply the hospitals and how the suppliers would acquire cannabis remains unknown.

This leaves the state and Cuomo to question what are the economic and political benefits.

The reality is that the progress made on pot legalization is only a recent phenomenon, and it has left researchers with little empirical research to publish definitive conclusions.

"When we started researching this stuff a couple years ago, we were pretty surprised that next to nothing had been done on economic outcomes, or socio-economic outcomes," Mark Anderson, a health economist at Montana State University, said in a phone interview from Bozeman, Montana.

Anderson pointed to the fact that state legislatures didn't begin to pass these laws until the late 1990s as reason for why there is little research.

Cuomo, who many political analysts believe will run for the Democratic nomination in 2016, may have announced this executive action to gain some points as a progressive, but the entrance of hospitals as dispensaries may become the bigger news story. Imagine, multi-million or multi-billion dollar market cap companies distributing an illegal drug for medicinal use.

Maybe it's the move that triggers a nation-wide pot revolution.

-- Written by Joe Deaux in New York.

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