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The U.S. Court of Appeals for the Ninth Circuit on Thursday breathed new life into the defense of former Morro Bay marijuana dispensary owner Charles Lynch, sending his case back to a trial court to determine if his business was operating legally under California law before he was prosecuted and convicted on drug charges.

That compliance finding will be key. If a judge decides Lynch's Central Coast Compassionate Caregivers was operating legally under state laws, his prosecution could be hampered by a federal appropriations rider that bars federal prosecutors from spending tax money pursuing state-legal medical marijuana operations.

“If Lynch was not compliant with state law, he is not covered by the rider and is subject to the penalties of his conviction,” wrote Judge John Rogers of the Sixth Circuit, who was sitting by designation. “Should the district court resolve the state-law-compliance issue in Lynch's favor, the court may then rule in the first instance on the legal issues that such a determination would raise.”

The 2-1 ruling was by no means a complete victory for Lynch. Rogers and Ninth Circuit Judge Jay Bybee affirmed Lynch's conviction and rejected his arguments that U.S. District Judge George Wu of the Central District of California improperly barred potentially exculpatory evidence from his trial. The panel also found that Lynch should be sentenced to a five-year mandatory minimum prison term if his conviction stands on remand. Wu had sentenced Lynch to one year.

In dissent, Judge Paul Watford said Wu went too far in warning jurors not to engage in jury nullification. Watford said the case should have been remanded to the district court for a new trial.

“At least in cases like this one, where nullification was an obvious possibility given the popularity of medical marijuana in California, I don't see how the government could ever prove that a court's unduly coercive anti-nullification instruction had no effect on the outcome,” Watford wrote.

The majority opinion marks the latest twist in the prosecution of Lynch, who has become an icon in the medical marijuana industry and a symbol of the state-federal tension over legal marijuana. Lynch opened Compassionate Caregivers in 2006—he says he was officially welcomed by the Morro Bay Chamber of Commerce—and obtained a conditional use permit from the city that year to add a plant nursery to the dispensary site.

In March 2007, deputy sheriffs and agents from the U.S. Drug Enforcement Administration served search warrants at the dispensary and Lynch's home. Compassionate Caregivers closed in May 2007 and two months later Lynch was arrested and charged with five federal counts related to marijuana distribution and sales to minors.

Lynch's legal plight attracted national media attention and support from two California congressmen who were among the earliest supporters of the original federal appropriations rider, Democrat Sam Farr—now retired from Congress—and Republican Dana Rohrabacher. State Senate Democrats also submitted a friend-of-the-court brief backing Lynch.

California voters approved medical marijuana use in 1996 through the Compassionate Use Act. Seven years later, the state enacted the Medical Marijuana Protection Act, creating a user-identification card system. Federal agencies continued to crack down on sellers and users, however, for violations of federal drug laws.

The ruling in United States v. Lynch is posted below:

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