Mississippi Attorney General and Secretary of State Support Medical Cannabis

Mississippi residents voted in favor of medical cannabis. But certain officials are fighting against it.

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Mexico Cannabis Trademarks: Register Them NOW!

In a recent blog post we considered the evolving situation concerning the registrability of cannabis trademarks in Brazil. Today we turn our attention to Mexico.

As a starting point, it is important to remember that cannabis legalization efforts are considerably more advanced in Mexico than in Brazil. The Mexican legislature is in the midst of considering a legalization bill, which the Senate has already approved. Medical use is legal and recreational use is accepted de facto, thanks to Supreme Court precedent. This is a great time to mention that our Mexico-based cannabis attorney, Adrián Cisneros Aguilar, tracks these issues closely on this blog.

Information provided by one of the largest medical cannabis providers in Mexico confirms there is no absolute bar on registration of cannabis-related trademarks—as there was in the past. The company in question has been able to register ten cannabis-related trademarks. While the Mexican Institute for Industrial Property (IMPI) did raise objections during the application process, these were solved by making changes to the wordmark or design in question. The problems were with similarity, rather than with the trademarks’ connection to cannabis.

At the same time, we know IMPI has rejected some applications for cannabis-related trademarks, on the grounds that they run afoul of the Federal Law on the Protection of Industrial Property. According to Article 12 of that law, no trademark will be granted “when its contents or form are contrary to public order or contravene any legal provision.” The problem is that cannabis is not entirely legal in Mexico: Yes, the Supreme Court has held the prohibition on personal use is unconstitutional, but the law remains on the books. At least in the view of some examiners, trademarks with terms such as term cannabis or marihuana promote the use of what remains an illegal drug in Mexico. “As long as cannabis remains in a grey area,” Cisneros Aguilar explains, IMPI “will be free to interpret and apply Article 12.”

As of December 29, 2020, a total of 210 applications to register trademarks and commercial phrases (avisos comerciales) containing the term cannabis had been received by IMPI. Of these, only 27 have been granted so far, with 21 corresponding to the same commercial phrase—EMBRACING CANNABIS FOR LIFE—registered in numerous classes, in both English and Spanish. (It is worth mentioning that applications grew by about 5% in a two-week period in December 2020.)

No application for the term marihuana has been approved, despite seven applications having been filed. Curiously, seven trademarks with the term marijuana (out of a total of 12 applications) have been registered, though none to identify cannabis itself (products covered include adult diapers, rubber gloves, and alcoholic beverages).

The term sativa has fared better, with more than a dozen registrations. Botanists and linguists might suggest this reflects a proper understanding of the word’s meaning in Latin (“cultivated”), but at least one of the marks prominently features a cannabis leaf. This suggest examiners are approving the applications in full knowledge of the term’s connection to the cannabis plant.

It should not be assumed that all applications that have not been approved have been or will be rejected. Trademark applications take time, more so in the midst of a pandemic. Moreover, there are several reasons that could explain the failure of some applications, irrespective of the fact the trademark is related to cannabis. Marks could face genericity or similarity issues: It is not hard to see how a device mark representing a cannabis leaf could look a lot like other registrants’ marks; using MARIHUANA to describe cannabis is the textbook definition of a generic mark. Other applications may have been abandoned by registrants in the face of challenges by IMPI, as often happens in other jurisdictions, especially when the applicants are not experienced businesspersons.

Only two of the registered trademarks containing the term cannabis—both belonging to Canada’s Aphria Inc.—actually describe cannabis products. Of the remaining four, one is for a magazine covering the cannabis industry and three belong to what appears to be a financial services company offering services to cannabis entrepreneurs. While admittedly the sample size is very small, this may indicate that IMPI looks more favorably at trademarks covering products or services related to cannabis, as opposed to cannabis products themselves. That said, the two Aphria registrations stand as examples of trademarks for cannabis products that were approved by IMPI.

The approval of the new cannabis law and the regulations for medical use should bring an end to the application of Article 12 on the basis of a mark’s relationship to cannabis (although it is possible that some prudish examiners will look extra hard for technical deficiencies). We can expect that the publication of both statutes will set in motion a dramatic increase in the number of applications for trademark-related applications. In fact, applications are already picking up, as mentioned above. With this in mind, now may be the time to file applications, to beat the rush at least a little bit.

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New Jersey Gov. Phil Murphy Wants Last-Minute Changes To Cannabis Legalization Bills

The governor's last-minute demands may delay the enactment of cannabis legalization in New Jersey.

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Arguments Filed in South Dakota Cannabis Suit

South Dakota voters demonstrated support for legal cannabis. But the fight isn't over yet.

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Hemp Litigation: Does Qualified Immunity Protect Law Enforcement Who Wrongly Destroy Hemp?

Earlier this fall, several news outlets reported on a lawsuit alleging that federal and state law enforcement agencies in California wrongfully destroyed a hemp grow worth more than $3 million. (See here, and here). The case, Agro Dynamics, LLC v. DEA, et al., was filed in the federal district court for the Southern District of California. Along with the DEA, the defendants include San Diego County and various federal and state law enforcement personnel, whom the plaintiffs seek to hold personally liable for the destruction of the hemp.

Recently, San Diego County and its officers filed a motion to dismiss the lawsuit as against them, in part under the doctrine of qualified immunity. Before discussing qualified immunity, a brief review of the allegations will be helpful.

Plaintiff alleges that it obtained a registration from the County for the legal cultivation of hemp in August 2019, several months after enactment of the 2018 Farm Bill. Relying on its permit, Plaintiff expended considerable time and effort to plant approximately 3,000 hemp plants, that according to laboratory testing had THC content of less than .3%.

In September 2019, a DEA agent conducted aerial reconnaissance in support of marijuana eradication operations and observed what he believed to be growing marijuana. In fact, the agent observed plaintiff’s hemp grow, comprised of immature non-flowering plants. The next day, armed with the aerial reconnaissance and the affidavit of the agent who stated he observed a marijuana grow based on its appearance and odor, the DEA obtained and executed a search warrant on Plaintiff’s property.

The tenant informed the officers that it had a legal registration issuance from San Diego County to grow hemp. But the officers nonetheless seized and destroyed the 3,000 plants, without doing any testing, and causing over $3 million in damages. The lawsuit against the DEA, County, and the officers involved followed.

Qualified immunity (“QI”) has been the subject of considerable discussion in the last year in connection with the Black Lives Matter movement. (See here, judge asks whether the doctrine belongs in the “dustbin”; here, doctrine is a “flash point”; and here, ABA discussion). For readers unfamiliar with the doctrine, the QI issue in Agro Dynamics is the same issue discussed in the linked articles. In brief, QI is a kind of legal immunity from suit. QI protects government officials, like the DEA officers and County officers, from being sued (and thus from being held liable for damages) in lawsuits alleging that an official violated a plaintiff’s rights. The doctrine permits such lawsuits only when officials violated a “clearly established” statutory or constitutional right. In determining whether a right was “clearly established,” courts consider whether a hypothetical reasonable official would have known that his conduct violated the plaintiff’s rights.

Agro Dynamics shows how QI works when in contexts other than civil rights. Plaintiff contend it has a clearly established right under the Fourth Amendment to be free from unreasonable searches and seizures. Plaintiff alleges the defendants intentionally and willfully violated this right by:

1. failing to ascertain the legal status of industrial hemp cultivation at the premises,
2. not heeding the tenant’s advisement that the plants growing were industrial hemp, not marijuana,
3. disregarding the tenant’s offer of proof that the plants were not marijuana, and
4. seizing and destroying the hemp plants.

The Plaintiff also attacks the ground for the warrant and the affidavit of the DEA agent who conducted aerial reconnaissance, as improper, alleging the agent had no reason to suspect the plants were marijuana and not hemp based solely on their appearance and odor.

San Diego County contends the claims against it must be dismissed. According to the County, a rights-violation claim of this kind must allege a “policy, custom, or practice that was the moving force behind the constitutional violations.” Absent such allegations, says the County, a municipality cannot be held liable for violating a person’s constitutional rights.

The County’s officers contend the claim must be dismissed under the doctrine of QI. The officers recite the two-step analysis described above: First, was the law governing the official’s conduct clearly established? Second, under that law, could a reasonable officer have believed the conduct was lawful? The officers argue that no “reasonable deputy” would have “doubted the validity of the search warrant” or the contents of the DEA agent’s affidavit. Consequently, say the officers, the claim that they violated the plaintiff’s constitutional right to be free from unreasonable searches and seizures must be dismissed as a matter of law.

The court has yet to rule.

This is case we are keeping on eye on. If law enforcement may obtain a warrant solely on aerial reconnaissance and an officer’s affidavit stating that what he observed “looked and smelled” like marijuana, and if officers and the government are exempt from liability, then hemp producers run the risk of the crop destruction with no recourse.

In our view, probable cause for a warrant should not exist simply because a police officer states he observed what “looks and smells” like marijuana. Typically, neither hemp plants nor hemp flower are easily distinguishable from marijuana by the naked eye (or naked nose). Indeed, one of law enforcement’s chief complaints about smokable hemp, legal in many states where marijuana remains illegal under state law, is that officers cannot reasonably distinguish between the two. Here, it seems that no one even tried.

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Saint Regis Mohawk Tribe and Cannabis Company Form Partnership

MMJ BioPharma Cultivation plans to develop 20 acres of tribal land into a cannabis grow.

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Illinois Judge Rules Against Craft Cannabis Growers Seeking Immediate Licenses

The craft grower licenses were supposed to be awarded by July 1 of this year to comply with state law.

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New Jersey Cannabis Legalization Bill Stalls

Legal adult-use cannabis in New Jersey has hit a roadblock.

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Oregon Cannabis: State of the State

Here we are at the end of 2020 (thank goodness!), which means it’s time for the fifth annual “State of the State” post on Oregon cannabis. The year 2020 was remarkable for the Oregon cannabis industry, mostly due to COVID and its effects, including record sales on the THC side. But there were also key regulatory changes, raging wildfires and other unforeseen developments to recall as we take stock on a tumultuous year, and look ahead to 2021.

Oregon passed the $1 billion sales mark

This happened sometime in late November, according to data provided by the Oregon Liquor Control Commission (OLCC), which was widely picked up in the press. To put that number in perspective, 2019 sales through the same period were $726 million, which puts the state at a 40% gain year-over-year. And it’s not like Oregon was coming off a slow stretch, either: 2019 saw retail sales rise 24.1% over 2108; and 2018 saw a 29.1% increase over 2017.

There are likely a multitude of factors driving the outsized 2020 increase. The big one is probably COVID and its related effects, including federal stimulus checks, enhanced unemployment benefits, work from home, more free time, etc. Another factor could be gains made by the regulated market at the expense of the unregulated market. Smaller, macroeconomic factors may also be contributing, like general state population growth. But overall, it seems that people simply love cannabis in Oregon.

It’s still a very competitive environment

Just because retail sales are high, does not mean everyone is crushing it. There are so many operators. Today, Oregon is up to 719 licensed retailers (versus 664 a year ago; an 8% increase), with 200 more in the pipeline. If you estimate an average of 700 retailers active throughout 2020, you wind up at $1.1 billion in sales, or $1.57 million in average annual sales per store. That’s pretty good, but you’ve obviously got low stores and high stores. We’ve seen plenty of both.

Cannabis production remains high but relatively static with 1,177 licensees (there were 1,152 at this time last year). Numbers for processors, wholesalers and labs also have remained relatively static. I expect that to change somewhat in 2021– in tandem with OLCC’s new streamlined licensing process, the agency recently shook loose an avalanche of inchoate and stalled applications, going back to the infamous 2018 pause on application acceptance.

Related to all of this, wholesale prices are again trending downward and retail pricing tends to follow. That’s somewhat typical for the end of the year, when: 1) dispensaries tend to demand and hold less inventory for tax considerations related to Internal Revenue Code § 280E, and 2) a crush of outdoor flower makes its way through the supply chain. There is also a wild card at play in 2020– the effect of the Oregon wildfires. These horrible fires were devastating to many farms, but could have the ultimate effect of nudging prices up a bit heading into 2021.

The secondary license market will change

Buying and selling Oregon cannabis businesses can be an exercise in patience. For the last few years, we’ve seen the regulatory approval timeline float between 5 and 9 months, which is an eternity for buyers and sellers. Recently, with streamlined licensing, we’ve seen changes-in-ownership come in as quickly as two months, and we expect to see new license applications processed on an accelerated timeframe too. Our prediction is that for every class of license outside of production, buyers will be less willing to pay a premium to sellers for the license interest itself in 2021.

Production is different, of course. Senate Bill 218 is still in effect, which means that OLCC does not accept new applications for marijuana production licenses. The only way to receive one of these licenses is to find a willing seller, and we do not expect to see much change in the $125K to $175K these sellers often demand. I’d like to be wrong here.

Overall, we are still running a lot of Oregon cannabis M&A deals (including with real estate), and I’ll be interested to see if that years-long trend continues in 2021. My guess is that it will, even if the focus is more on brands and non-“license” assets.

Regulatory Dynamics

We saw some big changes in 2020. The first area of movement relates to OLCC rule changes. Aside from all of the COVID- and wildfire-related changes, key changes here are: 1) the soon-to-be permanent rules on streamlined licensing; 2) the recently enacted ban on certain vape additives, coupled with new ingredient disclosure requirements; and probably 3) the “fix it or ticket” approach to certain rule violations.

I’d like to say this is the end of program tweaks and refinement, but honestly it feels like we will be writing about new OLCC marijuana rules 20 years from now. It just seems to be the nature of the beast. There will also be indirect local effects as more states come online and federal prohibition ends at some point. More immediately, the Oregon legislature may also get back into cannabis policy here in few months, starting with a hard look at a $100 million social equity bill.

The second, more captivating regulatory dynamic at play in 2020 has been an industry groundswell advocating for enforcement reform. The Oregon Cannabis Association has shown strong leadership here, arguing that licensed cannabis businesses “deserve to be treated like businesses to be regulated, not criminals to be caught.” As a law firm that represents many licensees in revocation proceedings, we agree that too often agency inspectors (many of whom have law enforcement backgrounds) have been over-zealous and unfair; and the general process too heavy-handed. Most businesses simply do not have the funds or the wherewithal to fight administrative allegations. So while “fix it or ticket” was a good start, it will be interesting to see what 2021 brings.

Hemp

Hemp is hard to figure. Last year was brutal: seed prices dropped from $1.00 to $0.10, basically overnight. And though far less Oregon hemp was planted in both 2019 and 2020 than initially permitted each year, biomass pricing is still at $2.50 or less per pound, versus $40 or $45 just two years ago. The situation in Oregon is similar to what is happening all around the country. This means–sort of unfortunately–that our hemp-CBD litigators were busy again this year.

What’s causing this market depression? One big issue is all of the leftover biomass from 2019, estimated at 68,000 tons. Due to this glut, we have several clients who harvested only flower this fall, leaving biomass to rot in the fields. Aside from this oversupply issue, there are also myriad growing pains associated with a new industry, including lack of infrastructure, lack of buyers at every level, and lack of expertise by rookie farmers. Underpinning all of this, the ongoing policy morass arising from 2018 Farm Bill confusion has been brutal.

Oregon probably isn’t doing itself any favors with its total THC testing regime, or with its recent limitations on import and export of hemp and hemp products. We do like that the Oregon Department of Agriculture (ODA) recently withdrew its hemp plan submitted to the U.S. Department of Agriculture, and we believe that the ODA is otherwise invested in seeing local industry succeed. But more federal housekeeping is critical, on everything from controlled substance definitions to regulation of CBD in food and beverages.

In our view, U.S. hemp will be an enormous industry one day, on par with corn and soybeans. The international hemp trade will be bigger still, and Oregon will be a key player in all of this. But we aren’t there yet.

__

For previous posts in this series, check out the following:

• Oregon Cannabis: State of the State (2019)
• Oregon Cannabis: State of the State (2018)
• Oregon Cannabis: State of the State (2017)
• Oregon Cannabis: State of the State (2016)

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Spike In Fatal Car Crashes in Kansas City, MO Leads Police To Point The Finger At Pot

Police officials acknowledge that there are myriad other factors that can be blamed.

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Most Germans Still Oppose Cannabis Legalization

German voters are still not convinced that legalizing cannabis would be beneficial for the country.

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2020’s Cannabis Cup winners, and where to buy them

Shop the best of the legalization states.

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Another Win for Religious Use of Psychedelics: New Hampshire v. Mack

We’ve written a lot recently about the law concerning the religious use of psychedelics (see here and here). This is an incredibly broad area of the law that is still developing. Our focus has generally been on the federal laws and decisions affecting religious use of psychedelics, though today we turn our attention to an important new state decision.

On December 22, 2020, the New Hampshire Supreme Court decided a case that is very significant for the religious use of psychedelics (the opinion is here). In that case, a person had been convicted of possession of psilocybin and appealed his conviction all the way to the state supreme court on the grounds that the trial court should have dismissed the case given his religious use of the substance. The court noted that the defendant was a member of the Oratory of Mystical Sacraments branch of the Oklevueha Native American Church, which church had specific rules regarding the taking of psilocybin to prevent things like public intoxication or driving while intoxicated.

Notably, the defendant only pursued state law challenges to his conviction. New Hampshire’s state constitution (which the court recognized has broader protections than the federal Constitution) contains a right to practice religious beliefs so long as they do not “disturb the peace”, and the decision turned on whether the defendant’s practice disturbed the peace.

The court began by noting that the defendant had the right to hold whatever religious beliefs he chose, and that it was not the court’s job to decide whether they are theologically true. As an aside, this an interesting position and one that I argued elsewhere that the Drug Enforcement Administration (DEA) should stick to in its decisions on people seeking religious exemptions. See Griffen Thorne, How the DEA is Interfering with Religious Use of Psychedelics, JURIST – Professional Commentary, October 12, 2020. So, the court accepted that the defendant’s religious belief was sincere and moved onto whether his practice disturbed the public peace.

The court’s analysis was lengthy and analyzed decisions from New Hampshire, other states, and even federal decisions, and ultimately concluded that the trial court erred in dismissing the case. Citing cases like the U.S. Supreme Court case of Gonzales v. O Centro, which we discussed here, the court noted that where there is a religious practice that violates a generally applicable law (i.e., a criminal law that prohibits the use of psychedelics), a balancing test must be employed. The petitioner must first establish that the law substantially burdens its religious practice, and the government then has the burden to show that its action is necessary to achieve a compelling government interest and is narrowly tailored to do so. So, the supreme court held that the trial court erred in not applying such a test.

What does this mean for the defendant? His case is not done. The state supreme court remanded the case for further consideration by the state trial court, which must now take more evidence and consider the foregoing balancing test. In all likelihood, prosecutors will continue with the case and argue that even under a balancing test, they are still right (for what it’s worth, the federal government lost on such arguments in the Gonzales case, which the New Hampshire supreme court noted was factually similar to this case). It’s still possible that the defendant could be convicted, but this case certainly gives him better grounds to fight it.

What does this decision mean for religious use generally? Unfortunately, it is fairly limited. The decision doesn’t affect federal law, and I’ve explained that it can be extremely difficult to deal with the DEA on this point. While the decision is binding on courts in New Hampshire, it has no effect on laws in other states. That said, part of the decision analyzed a Massachusetts decision and noted that Massachusetts had a substantially similar provision in its state constitution. Therefore, this decision provides persuasive guidance to any state court in a state with similar constitutional provisions.

While the decision is fairly limited, it again reflects shifting attitudes towards both religious freedom and the use of psychedelics. We will continue to post on this topic, so please stay tuned to the Canna Law Blog.

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The FDA Objects to the Sale and Marketing of Nasal, Ophthalmic and Inhalable CBD Products

On December 22, the Food and Drug Administration (the “FDA”) issued new warning letters to five companies that illegally sold and marketed unapproved CBD products, which the companies claimed could prevent, diagnose, mitigate, treat or cure various medical conditions.

This latest round of enforcement actions was triggered by specific concerns with the manner in which many of these CBD products were administered, namely through nasal, ophthalmic and inhalation routes.

The five recipients of these warning letters are:

1. Bee Delightful, a Texas company, that claimed its “Canna Bees Rescue Blend,” a blend of honey and CBD, has the potential to reduce chronic pain, inflammation, depression and anxiety, to name a few. But what most likely triggered the FDA to target this company were claims that this blend of honey and CBD could help fight “the invisible enemies out there.” The FDA has repeatedly explained that it is focusing on companies selling fraudulent COVID-19 products, which it deems to be major threats to public health.
2. G & L Wellness, LLC, a Wisconsin company, that sells and markets eye drops for pets and humans, which it both marketed as a “multi-symptom eye-care solution.”
3. New Leaf Pharmaceuticals, LLC, a Connecticut company, that advertised CBD nasal sprays that the FDA described as “especially concerning from a public health perspective” because of their rapid absorption into the blood stream. Moreover, New Leaf Pharmaceuticals made egregious medical claims about its products, including their ability to reduce the risk of artery blockage and combat tumor and cancer cells.
4. NextL3vel Service Group, LLC dba This Stuff Is Good For You, a Nevada-based company, that sells and markets CBD pet shampoo, dog treat as well as CBD tinctures, eye drops and vapes for human consumption. Like in the New Leaf Pharmaceuticals warning letter, the FDA took issue with the fact that the company was making claims that target vulnerable populations. In this case, one of NextL3vel Service Group’s social media featured a graphic showing a young child next to the message “CBD FOR CHILDREN ADD/ADHD.”
5. Wellness Biosciences Rx, another Texas company, that sells a CBD inhaler and CBD topicals. The FDA took particular issue with the metered inhaler “because the ingredients and potential impurities in oral inhalation sprays may trigger laryngospasm and bronchospasm and may be toxic to the tissues in the upper or lower airways.”

This latest round of warning letters was issued less than a week after the Federal Trade Commission (the “FTC”) imposed monetary sanctions on six CBD companies for making similar misleading health claims. However, unlike the FTC warning letters, the FDA letters did not impose fines; instead, they demanded that the companies address the violations with written correction plans within 15 business days.

In the agency’s press announcement, Dr. Amy Abernethy, FDA Principal Deputy Commissioner, declared that the FDA will continue to issue warning letters until the agency changes its policy and that the FDA “remain[s] focused on exploring potential pathways for CBD products to be lawfully marketed while also educating the public about these outstanding questions of CBD’s safety.” In addition, Dr. Abernethy explained that the FDA “will continue to monitor and take action, as needed, against companies that unlawfully market their products — prioritizing those that pose the greatest risk of harm to the public.”

This latest round of warning letters should come as no surprise as they squarely align with the enforcement actions taken by the FDA for the past two years (read more on this issue here and here). However, these letters should remind CBD companies that making unlawful medical claims is risky because they may lead to further and more significant headaches, including litigation and major fines and penalties. In addition, FDA warning letters may result in state law consumer protection claims based on prohibiting unfair and deceptive trade practices, claims under the Lanham Act for false and misleading advertising, consumer and shareholder actions relating to CBD (think of Curaleaf Inc. and CannaRegs) and even personal injury claims.

So, as we have repeatedly explained on this blog, CBD companies should refrain from making ANY medical claims about their products, directly or otherwise. This is the ONLY way to shield themselves from enforcement actions and other legal headaches.

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FTC Cracking Down and Issuing Fines for Deceptive Claims by CBD Companies

On December 17, the FTC issued a press release announcing its first law enforcement crackdown on deceptive claims in the growing market for cannabidiol (CBD) products. According to the press release, a number of “companies made unsupported claims that their oils, balms, gummies, coffee, and other goods could treat serious diseases such as cancer and diabetes.” We’ve written extensively about the FDA’s role in preventing CBD companies from making health claims about their products, and covered the overlap between the FDA and FTC’s enforcement roles here.

The federal Food, Drug & Cosmetic Act (“FDCA”) provides the FDA with regulatory authority over product labeling and seeks to ensure that consumer products (foods, dietary supplements, cosmetics, tobacco products and drugs) are not misbranded, meaning that the labels do not contain false and misleading statements. The role of the FTC under the Federal Trade Commission Act (“FTC Act”), however, is to regulate “advertising” to protect the public from unfair and deceptive claims.

The overlap is apparent, but the distinction between packaging/labeling and advertising is not always clear. Some courts have expanded the authority of both the FDA and FTC by interpreting “labeling” to include products sold on the Internet, especially where the products are purchased directly from a website. This has led the two agencies to increased collaboration in regulating the advertising of food and dietary supplement products and has blurred the line between where each agency’s authority ends and the other’s begins.

In this particular enforcement instance, the FTC announced it is taking action against six sellers of CBD-containing products for allegedly making a number of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others. In addition to requiring each of the companies to immediately cease making these unsupported health claims, the companies will be required to pay monetary judgments to the agency. The orders settling the FTC’s complaints “bar the respondents from similar deceptive advertising in the future, and require that they have scientific evidence to support any health claims they make for CBD and other products.”

According to Andrew Smith, Director of the FTC’s Bureau of Consumer Protection:

The six settlements announced today send a clear message to the burgeoning CBD industry: Don’t make spurious health claims that are unsupported by medical science. Otherwise, don’t be surprised if you hear from the FTC. In particular, this crackdown against CBD companies is attempting to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and via social media.

The six offenders in this crackdown are as follows:

1. Bionatrol Health, LLC, based out of Utah, sold CBD oil and claimed, without substantiation, that their product was “safe for all users, treats pain better than prescription medications like OxyContin, and prevents and treats age-related cognitive decline and chronic pain.”
2. Epichouse LLC (First Class Herbalist CBD), also based out of Utah, sold a variety of CBD products on its website. Epichouse “promoted CBD as safe for all users, able to treat pain better than prescription medications such as OxyContin, and able to prevent a wide range of serious conditions, including cancer, diabetes, and heart disease.”
3. CBD Meds, Inc., based out of Winchester, California, advertised CBD oil on their website and on YouTube. Winchester “made a number of false or unsubstantiated claims, including that CBD effectively treats, prevents, or mitigates serious diseases and conditions like artery blockage, cancer, glaucoma, autism, and schizophrenia, among many others.”
4. HempmeCBD (EasyButter, LLC), sold a variety of CBD products and “claimed its CBD products could treat or cure serious ailments like cancer-related symptoms, substance abuse, and AIDS.”
5. Reef Industries, Inc., based out of California, sold CBD products via its website and Twitter, and made unsubstantiated claims that “CBD can prevent, cure, mitigate, or treat diseases and serious health conditions, including Alzheimer’s disease, arthritis, autoimmune disease, and irritable bowel syndrome.
6. Steve’s Distributing, LLC (Steve’s Goods) sold a variety of CBD and CBG goods through its website and social media, and claimed that the products “are effective alternatives to prescription medications and treat a wide range of diseases and serious health conditions, including Alzheimer’s disease, cancer, and diabetes.

We expect enforcement of this nature from both the FTC and FDA to be a major theme in the coming year, and urge all companies selling these types of products to consult with an attorney to ensure that your advertising and labeling comply with all applicable laws.

If you have questions about what you can or cannot say with respect to a cannabis product, whether on a label, on social media or on any other platform, or if you have questions about how, where or to whom these products can be bought or sold, contact our team of regulatory and hemp CBD attorneys.

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Happy Holidays from Canna Law Blog!

Wishing all of our readers, along with friends and families, the very best this holiday season.

Whether you celebrate Hanukkah, Christmas, Kwanzaa, Winter Solstice, Festivus, or something else, we hope you can kick back and enjoy this wonderful time of the year.

Happy holidays!

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Rhode Island Receives 45 Applications For 6 Medical Marijuana Dispensary Licenses

There are six openings for new medical marijuana businesses in Rhode Island. 45 companies are competing for them.

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Pennsylvania Nonprofit Focusing on Cannabis Conviction Pardons

Two organizations are trying to make cannabis pardon applications more easily accessible.

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British Virgin Islands Cannabis: Trouble in Paradise

According to the UK government, “the BVI [British Virgin Islands] is a separate legal jurisdiction to the United Kingdom and has its own laws.” This being the case, one would think that a medical cannabis bill passed unanimously by the BVI’s legislature would have no problem becoming law. However, the territory’s governor—a British civil servant appointed by the Queen—has not yet assented to the Cannabis Licensing Act 2020, despite its approval by the legislature in June 2020. Assent is also being withheld to a separate bill to decriminalize possession of small amounts of cannabis.

If approved, the Act would allow possession of medical cannabis by adults. Depending on the amount, a different regulatory framework would apply. For possession of between one and 50 grams, a self-declaration form would suffice, while medical approval would be necessary for quantities exceeding that range. Possession of one gram or less would essentially be unregulated. Visitors to the BVI would be able to possess cannabis under these conditions, a nod to the BVI’s tourist industry. The Act also envisions a more permissive framework for CBD.

While under the BVI Constitution the governor has the power to deny assent to bills (in his role as the Queen’s representative), this power is not wielded lightly. According to the speaker of the local legislature, “in modern times, the monarch, governor-generals, or governors always assent to a bill passed by the People’s House, on the advice of the government of the day, as the royal assent is considered a formality.” According to the speaker, the last time royal assent was denied in the UK was in 1708.

On December 10, Governor Augustus Jaspert explained that he “may only assent to a bill if it is fully compliant with international regulations,” such as the 1961 Single Convention on Narcotic Drugs. For this reason, the Act has received “extensive line-by-line scrutiny in the UK,” to ensure compliance with the country’s international obligations. Jasper added that, as a precondition to assent, the BVI and UK governments must enter into an MOU to transfer relevant powers from the Home Office in London (analogous to the DOJ in the United States) to a new BVI Cannabis Licensing Authority.

Some of Jasper’s comments on the issue suggest he has personal concerns about both proposed cannabis bills (“I would not be doing my duty if I didn’t consider them fully”). Given the governor’s background, strong views regarding cannabis use would not be surprising. According to the BVI government, Jaspert “served in the UK Home Office as a Deputy Director, leading local policing and improving the public’s confidence in the police and the Government’s strategies to reduce harm from the misuse of alcohol and illegal drugs from 2007-2009. During this time, he also served as a Magistrate in a criminal court in South West London.”

This all said, Jasper’s recent statement made it sound as if it is not really his call, pointing to concerns back home. Moreover, it may be the case that his hesitation regarding the bill is due to flak from Home Office mandarins, rather than personal views about cannabis.

For Virgin Islanders, this would be cold comfort: Either way, people for whom they did not vote are holding up legislation approved by their elected representatives. It would also mean the problems for the measure would not end with Jaspert’s departure at the end of this year. And hostility to cannabis legalization in London would bode ill for efforts in other British territories, such as a recently introduced bill in Bermuda (which would legalize recreational use).

Understandably, Virgin Islanders are not reacting well to the governor’s unprecedented holdup. The legislature’s speaker has characterized the denial of assent as an “insult,” adding that the legislature should have the power “to override an unelected governor when he refuses to assent to a bill.” For his part, BVI Premier Andrew Fahie said, “We were proactive and diligent that all the measures in the bill met what the United Nations stated and beyond so we are not in violation. And we kept saying that all the time. There is no legal violation so we couldn’t understand why it was not being assented to,” adding he hopes “this is not something done to stall” the legislation. In any case, the delay in assent to the Act is leading to a loss of interest by investors, according to Fahie.

Having grown up in a neighboring Caribbean island that has had its own issues with outside powers (Puerto Rico), the story of the BVI’s cannabis bill has a sadly familiar ring. It would be hyperbole to evoke colonialism: The Act was passed by an elected legislature and the discontent over the denial of assent highlights how rare such interventions are. It is true the BVI’s status as a British territory places limits on what it can do, but the territory would presumably be free to follow the example of other Caribbean islands who obtained independence from the UK. Yet the legacies of the Caribbean’s complicated past still echo.

If this is somehow lost on Jaspert or the UK government, it surely is not on Virgin Islanders. Whoever is at fault for the holdup of the Act—the governor, London, or both—should heed the words of a statesman from another Caribbean nation, who said, “the people of this great little democracy have spoken in a most dignified and eloquent manner [and] the voice of the people, is the voice of God.”

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Poll Looks At Cannabis Gifting And Use During The Holidays

A new poll indicates that more people are replacing booze with bud this holiday season.

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Congress Restores Student Financial Aid Eligibility For Those With Drug Convictions

Congress is pushing to overturn a draconian policy that was enacted in 1998.

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Recent Study Indicates Cannabis May Reduce Fentanyl Exposure For Recovering Addicts

A recently published study about treating opioid addiction seems to look favorably upon cannabis.

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28 cannabis predictions for 2021

Just slightly better than a coin toss! Yikes. That’s how well Leafly News predicted the future, as written in 2020. For obvious reasons, everyone’s best-laid plans got swept into history’s junk drawer—next to lawn darts, and those Easter Island statues. Our most accurate 2020 predictions were both pessimistic and optimistic. The sclerotic US Senate stymying […]

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Report Shows Expansion of Medical Cannabis Fuels the Economy

Cannabis has the potential to promote not only physical health, but economic health.

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Study on Female Rats Indicates Cannabis Use Helps with Stress Reactivity

A recent study had some interesting results when it came to lab rats, stress, and cannabis.

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Mexico Cannabis Legalization is Postponed (And That’s OK)

As I recently reported on this blog, last November the Mexican Senate approved an amended Cannabis Law bill. That bill was sent to the Lower Chamber for discussion and approval. The Lower Chamber duly received the bill on November 24 and has already held public hearings with various stakeholders in the country, which we have been following closely. It really did seem Congress would do its part on cannabis legalization.

We were rather disappointed when we learned about the recent Lower Chamber’s decision to defer discussion of the Cannabis Law to next year and officially ask the Mexican Supreme Court for an extension of the previous December 15 deadline to implement legalization. We were even more disappointed when we learned on December 10 the Supreme Court had granted the extension to April 2021 (the end of the Congress’s Spring Debate Session), citing COVID and “giving Congress due time to exercise its powers”.

The implication of these delays is that discussion will be very close to 2021 congressional elections, which might mean–as was correctly pointed out in Marijuana Business Daily–that “that not only could distract lower house legislators, but it also means some deputies will want to avoid the risk of supporting controversial issues”. Let us not forget that, as any quick glimpse on Mexican media will attest, after decades of prohibition, a vast majority of the average Mexican population is not a big supporter of legalization.

Official reasons for the deferment aside (which to us are not plausible, anyway), timelines and market projections have been moved, not to mention the image of uncertainty Mexico projects on economic agents and markets alike. Nevertheless, we at Harris Bricken think this situation may be a blessing in disguise. Below are five reasons why.

First, we do not foresee substantial changes to what was sent by the Senate, whereas debate in the Lower Chamber still promises to revolve around amendments and new proposals to be included in the bill. Even though we cannot overlook proposals that might pose concern (for example, creating a Government organ that would not only develop policies and write rules, but also act as the sole buyer of cannabis supplies and finished products), we cannot be sure of what will happen until actual debate takes place in the Lower Chamber.

Also, once the Lower Chamber discusses and approves the bill it will go back to the Senate which will debate and readjust the said modifications for passing, so anything like the “single payer” proposal could still get knocked down. The passed version will then be sent to the Executive Power, which can either veto or order publication in the Federation Official Gazette for entry into force. We do not expect such veto power to be exercised.

Second, the Cannabis Law itself will be under discussion in the Lower Chamber. We have mentioned before that this law will regulate adult and industrial hemp uses, as well as associated research. Medical use will be provided for in the Medical Regulations. These regulations are expected to come out at the same time the Cannabis Law does, but are not a matter of congressional approval and certainly have not elicited the same level of controversy as the corresponding adult use statute. In fact, we have heard that a draft has been ready for months now (indeed, it should have been published since last September, per another Supreme Court mandate); and, in any case, medical use has been legal since the 2017 amendments to the general health law.

Third, and related to the point immediately above, the longer it takes Congress to legalize cannabis, the longer it stays unregulated and so the more time companies have to apply for licenses. As we mentioned here, it is expected that the Cannabis Law will provide that any administrative or judicial remedy filed before it enters into force will be processed and resolved pursuant to the law applicable at the moment of filing. Same criterion applies for medical use, and indeed licenses can be applied for as we write this. Remember that medical use is already legal (albeit unregulated), which is not the case with adult use, other than for self-cultivation/self-consumption. The real advantage for any company of applying earlier is that it could potentially obtain a less restrictive license that allows it to do more, whereas application would involve fewer requirements than those we expect to see once the Medical Regulations enter into force.

Fourth, given that discussion on the Cannabis Law will be postponed, it is possible that the Mexican government decides to publish the medical regulations earlier and separately. But regardless of when publication takes place, businesses revolving around medical use will be positioned to enter and establish themselves way earlier than their adult use counterparts. Contrary to what we reported will happen under the Cannabis Law, and with the exception of those related to growing, licenses/permits for medical use will be open for application the day after the Medical Regulations enter into force. There is already demand in Mexico for medical products, so much so that one of the reasons for legalization is to grant patients access to cannabis-based drugs and treatment they need.

Fifth, as the Mexican Federal Commission on Regulatory Improvement noted in its recommendations to the draft Medical Regulations, Mexico has competitive advantages over other more developed economies when it comes to the development and manufacturing of pharmaceutical products. This is due to both overregulation in those economies and a cheaper local labor force. Proximity to the two largest cannabis markets in the world (the United States and Canada) cannot be underrated, either. This reality should prompt foreign companies to seek partnerships with prospective Mexican companies and investors in the process of obtaining cannabis licenses, acquiring land, and taking related steps to allow them to secure their spot in the value chain links they need. This dynamic also paves the way for mutually beneficial transfer of technology and know-how.

Bottom Line: postponement of legalization is not necessarily a setback. Apply NOW and if in line with your business plans, focus on hemp and medical use. That will definitely give you a head start in the Mexican cannabis market. Contact us to get ahead of the crowd!

For more on cannabis in Mexico, please make sure to check the following:

• Top Misconceptions About Cannabis in Mexico: Part 1
• Mexican Cannabis: Legalization is Happening! Are you Ready?
• Big Ideas: Apply for Your Mexico Cannabis License NOW
• Hemp in Mexico: Start Today!
• Cannabis is Coming! The Latest on Colombia and Mexico
• Mexican Cannabis: The New Legal Landscape
• México:Viene La Legalización de Cannabis. Y Usted…¿¿Se Lanza Ahora?? 
• ¿Emprendimientos de Cáñamo Industrial en México? ¡Comienca Ya!

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Lawmakers Block D.C. from Using Stimulus Funds to Implement Legal Pot Market

Page 647 of the stimulus bill assures that any funds from the deal won’t be going to push any cannabis causes in D.C.

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Cook County Prosecutor Kim Foxx Calls For Expungement Of Convictions For Pot Sales

Cook County, Illinois may see further reforms in the criminal justice system.

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California’s new senator once did a PSA with Cheech Marin

Padilla implemented legalization, including licensing and trademarking.

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DEA Faces Lawsuit From Scientists Looking to Study Cannabis

Scientists are pushing back against the government's restrictions on cannabis research.

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Marijuana sales data reveal Americans bought 67% more weed to survive 2020

It's the pandemic effect: Consumers spent nearly $18 billion on cannabis in 2020, a 67% increase over 2019.

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Cannabis Patents: Which Type is Right for You?

It’s been a little while since we’ve talked about patent protection on the blog, but a recent consultation reminded me a primer on the different types of patents potentially available could be beneficial. Here in the United States, there are three broad categories of patents, all of which are governed by the Patent Act (or more formally, Title 35 of the United States Code). I’ll cover each below.

Plant patent

At its base, a plant patent protects a new plant created by a person. It can be granted to anyone who:

invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state. 35 U.S.C. § 161.

This is the arguably easier patent to obtain (the application only requires a description “as complete as is reasonably possible”), but it offers limited practical protection. In a case for patent infringement, the patent holder would have to show that the defendant asexually reproduced the plant or, without using seeds. Without direct evidence of theft through eyewitness testimony or something similar, proof of infringement can be difficult.

Utility patent

A utility patent covers “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. Utility patents offer protection for both sexually and asexually reproduced cannabis plants, as well as other formulations made from that plant. This is why it is the most common type of patent granted – in or around 2016, the USPTO estimated that up to 90% of issued patents were utility patents.

The application process is much more involved – there is a much more thorough written description requirement and a new “enablement requirement” – the plan must enable others “skilled in the art” to make and use the plant. There is also the “markedly different characteristics analysis,” where the applicant has to show that the plant is not simply a natural product – the substance have “markedly different characteristics” from what’s found in nature.

Design patent

A design patent covers “any new, original and ornamental design for an article of manufacture.” 35 U.S.C. § 171. Where a utility patent protects the way something is used and works, a design patent protects the way something looks. This is largely inapplicable to the needs of the industry.

While patent protection has been generally available for some time now, we’ve covered why patent protection has limitations in this post — when dealing with cannabis patents, courts might find that the illegality doctrine requires them to turn away from infringement claims because the patent-holder “would be asking a federal court to protect its illegal enterprise from the unlawful competition posed by another illegal enterprise.”

The good news is that in the first patent infringement case ever filed (which we covered extensively here, here, here, here, and here), there was no mention of the illegality doctrine at all (at least, during its relatively short pendency). Regardless of the shortcomings, we always encourage our clients to protect their intellectual property to the greatest extent possible – if you’re looking for cannabis patent protection, our intellectual property team is ready to help.

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Leafly staff picks: the strains that got us through 2020

Leafly Staff loves nothing more than to stay connected with the plant. Learn about our favorite strains of 2020 and how they changed our year for the better!

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Leafly staff picks: the strains that got us through 2020

Leafly Staff loves nothing more than to stay connected with the plant. Learn about our favorite strains of 2020 and how they changed our year for the better!

The post Leafly staff picks: the strains that got us through 2020 appeared first on Leafly.

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Study Finds One-Third Of Canadian Cancer Patients Use Cannabis

According to a recently published study, more Canadians with cancer are using cannabis than in previous years.

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Leafly staff picks: the strains that got us through 2020

Leafly Staff loves nothing more than to stay connected with the plant. Learn about our favorite strains of 2020 and how they changed our year for the better!

The post Leafly staff picks: the strains that got us through 2020 appeared first on Leafly.

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Australia is Getting Over-the-Counter CBD in 2021…But Not Much

Starting next year, Australians will be able to access CBD

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How Select fixed the unpredictability of edibles with nanoemulsion

With cutting-edge nano-emulsion, Select offers a discreet, gentle alternative to the traditional edible.

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The Latest on Arizona Cannabis: State Webinar Summary, Our Comments, Next Steps

On December 17, 2020, the Arizona Department of Health Services (“Department”) held an open meeting to take comments on the proposed state cannabis regulations. In this post, we share some of the comments made by the participants and some of the answers provided by the Department. The Department stated that the purpose of the meeting was not to take questions (although, in some cases, they did answer questions), but rather to just allow interested parties to provide comments on the proposed regulations.

Early Applicants in Counties with Fewer than 2 Medical Dispensaries

There was a robust discussion regarding early applicants for counties that have less than two medical marijuana (“MMJ”) dispensaries. According to the Department, there are currently eight counties in Arizona that have fewer than 2 MMJ dispensaries – the Department will provide a list of those counties before the early applicant period begins (which is set for January 19, 2021). Thus, there should be opportunities to procure an adult-use license in those counties.

Several commentators suggested that given the high application fee, that applicants should be scored and rated. Under the law, the Department will accept applications until March 9, 2021 for early applicants. Any entity that submits a complete and compliant application, along with the application fee, by March 9, 2021, will be entitled to enter a random selection process for those counties with fewer than 2 MMJ dispensaries (assuming there are more applicants than allotted licenses).

Of particular importance, the Department said the application fee (which is currently set at $25,000) is non-refundable. Click HERE for more information regarding applications and licensing fees. If an entity submits a complete and compliant application but is not selected by the Department to be a licensee, then for future drawings or open applicant periods, that entity will need to submit a new application.

The Department will also release an electronic form that localities can complete for zoning approval acknowledgment. When counting the number of establishments in a county, for purposes of the early applicant period, the Department stated it would only count medical marijuana dispensaries (and not cultivation or other related licensees).

Social Equity Opportunity Program 

While several commenters asked about the new Social Equity Opportunity Program (“SEOP”), the Department has not released those rules yet and it does not seem like a priority in the near term as the Department is pushing to get ready for the early applicants. One commenter suggested that SEOP licensees should be for only for local (Arizona) residents, minorities, and others that have been disenfranchised by prior marijuana laws. The Department will take that comment (and all other comments) under consideration as it updates the proposed regulations.

Residency Requirement for Owners

Other commenters requested that the Department make Arizona residency a requirement for all owners. However, I pointed out that because the statutes allow public companies to be licensees, the Arizona residency requirement would be untenable (I actually incorrectly said the “proposed regulations” instead of the statutes). How could the Department enforce such a regulation for the open markets? It would be completely antithetical to the concept of publicly traded companies and how they operate. Among other issues, every trade to an out-of-state owner would somehow have to be stopped in advance. I don’t believe that can be operationalized by the public markets or the companies that are traded on the markets.

Miscellaneous Discussion

One commenter asked if the rules were modeled on other state rules. The Department said that the rules are intended to comply with Proposition 207, which is now the law in Arizona. The rules will be finalized by sometime in mid-January 2021. Moreover, according to the Department, the Arizona legislature will likewise have a chance to review and comment on the proposed rules.

The Department stated that all applications will be in electronic format but that they will not release the new applications now because the regulations are not final yet. But the Department promised to release the new applications as soon as possible (and obviously prior to January 19, 2021). The Department further noted that future rules will have more information on dispensary operations and administrative requirements. One commenter asked if the Department would hold mandatory trainings for owners and employees, like other states require. Also, two commenters requested that the Department have better coordination with cities and towns.

As we previously reported (HERE) there are caps in place for the overall number of adult-use dispensaries in Arizona, which is one dispensary for every 10 registered pharmacies in Arizona (HERE to see the statutes that include the full criteria for the cap). I asked the Department if it had this information, and if so, whether they would share it with the public. I have searched for this information but have only found one report from 2013 that discusses the overall number of pharmacies in Arizona. The Department said that anyone who wants to know can call the Arizona State Board of Pharmacy.

Concluding Remarks and Next Steps

The Department’s meeting was very informative, and any comments made today or on-line (if timely made) will be considered by the Department as they continue to update the proposed regulations. Anyone interested in procuring an adult-use license would be wise to review the proposed regulations, any updated proposed regulations, and any other information provided by the Department. Likewise, if you have comments about the proposed regulations or the new proposed regulations that will be released in the future, you should take the time to submit such comments to the Department.

The Department will hold another public comment period in early January 2021, like the one held on December 17, 2020. Also, the Department will release a new draft of the proposed regulations in the very near term. It was obvious that the Department is listening closely to comments made and received by interested parties. How those comments impact the next set of proposed regulations is yet to be seen.

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How to use CBD for sleep, anxiety, and focus

We all have different self-care needs—here’s how to choose the right gummy for you.

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I Am an International Cannabis Company. Do I Need a U.S. Corporation or LLC to Do Business?

I work with international cannabis companies outside the U.S. and regularly field inquiries from others who want to enter the U.S. market or are already selling into the U.S. market through an intermediary like a broker or a sales agent. In the United States, there are four main ways to enter the market to do business, all of which have different pros and cons.

Before I dig into those, I need to flag the issue of U.S. immigration for non-U.S. citizens who are somehow involved or thinking about getting involved in a U.S. cannabis marijuana business, whether from their home country or while you are in the U.S. My colleague Akshat Divatia wrote a cautionary blog post discussing how involvement could cause foreign individuals to have significant problems with USCIS (U.S. Citizenship and Immigration Services) and USCBP (U.S. Customs and Border Protection). In that post, Akshat wrote:

Even a foreign national who has never consumed marijuana could be declared inadmissible under the INA [Immigration and Nationality Act] based on his or her involvement in a [U.S.] legal cannabis [marijuana] business, either as ‘a knowing aider, abettor, assister, conspirator, or colluder with others’ or ‘an illicit trafficker’ of a controlled substance.

In short, if you are a non-U.S. citizen and think you want to get involved in any way in a state-legal U.S marijuana business, and if you have any plans on entering the U.S., you should consult with an immigration attorney before you come to the U.S.

If after considering the immigration implications for non-U.S. individuals you have then made the determination that you want your non-U.S. cannabis company to enter the U.S. market, these are the primary methods to do so:

1.     Sell from Abroad.

For companies that are not prepared to enter the U.S. market with an established presence but want to test the market appetite for their products, you can sell from abroad through a broker, agent, distributor, or online marketplace. None of these activities should require you to establish a U.S. business entity, though you will still need to deal with many other aspects of doing business.

These include the logistics of getting your product through U.S. customs and to your customers, receiving payments, paying some U.S. taxes, and paying your intermediaries. You must also ensure you have strong contracts in place to protect your business interests and that you are both compliant with U.S. cannabis laws and regulations, which vary extremely from state to state.

2.     Register a Branch Office.

If you have determined that you would like to have some kind of U.S. presence but you are not prepared to set up a U.S. entity, then you can start by registering your existing foreign company in a U.S. state. Most U.S. states provide you this option, which is generally referred to as establishing a “branch office.” In U.S. legal terms, you will qualify your foreign company to do business in one or more U.S. states.

Initial registration fees vary state-by-state (usually less than USD 500), and all states require you to designate a registered agent in their state and pay an annual fee (usually less than USD 300) to remain in good standing. Along with this annual fee you will need to submit additional company information, which varies from state to state. Some states, like Delaware, only require minimal information, such as your Delaware registered agent’s name and address. Other states, like Washington, require disclosure of at least some of a company’s owners, directors, and officers, which Washington refers to as “governing persons.”

It is uncommon for a U.S. state to require disclosure of underlying owners of a business. The IRS (Internal Revenue Service) collects this information when it issues your company a U.S. TIN (tax identification number) but does not routinely share the information regarding owners with U.S. states. If you do not need a U.S. bank account and do not need to register with any state taxing authority, then you generally will not need to obtain a TIN.

3.     Form a U.S. Company Taxed as a Passthrough Entity.

If you have determined that you need or want to form a U.S. company rather than only qualify your foreign company to do business in the U.S., then you need to decide what type of tax nexus you want to have with the U.S. or how much you want to expose your U.S. company’s foreign owners to IRS scrutiny.

With some exceptions, you can decide how your foreign company is taxed at the U.S. federal level. If you form a U.S. company and check the box on the IRS form to be taxed as a passthrough entity (a wholly owned subsidiary for a single owner or a partnership for an entity owned by a partnership or LLC (limited liability company)), then the foreign parent owner(s) will be responsible for all of the tax obligations resulting from the U.S. company.

As above in registering your foreign company in the U.S., if you form a U.S. company you still need to decide which state(s) to register in. You will choose a single U.S. state as your primary registration and then qualify your U.S. company to do business in other U.S. states as needed.

4.     Form a U.S. Company Taxed as a C Corporation.

If you have determined that you need or want a U.S. company but you do not want to expose its parent company or owners to U.S. tax obligations, then you will want to form a U.S. entity (partnership, corporation, or LLC) and choose to have it taxed as a C corporation.

Most of the foreign companies I work with would rather deal with a C corporation’s double taxation (on corporate profits and shareholder distributions) than expose their owners to the IRS. This is especially true in the cannabis industry where the IRS is more likely to audit even law-abiding hemp companies that have no involvement in marijuana, which remains illegal as a controlled substance under U.S. federal law.

We are expecting significant changes in the way cannabis businesses are treated by the federal government, though those conversations and rallying cries always seem to emerge in election years and then recede without significant developments. Regardless, we will work to keep international companies informed to ensure you can enter the U.S. market on your own terms.

For more reading on international cannabis, check out:

• International Cannabis Continues to Look to the U.S. Market
• International Cannabis: Guidance for Companies Entering the U.S. Market, Part 1
• International Cannabis: Guidance for Companies Entering the U.S. Market, Part 2 – Taxation
• International Cannabis: Guidance for Companies Entering the U.S. Market, Part 3 – State Governance
• International Cannabis: Guidance for Companies Entering the U.S. Market, Part 4 – Geography Matters
• What’s Going on in International Cannabis: Voices from South America and Asia
• The International Cannabis Trade (webinar)
• What to Consider Before Entering the European CBD Market
• Hemp CBD Across Europe: Spain
• Oregon Welcomes Chinese Hemp Researchers: That’s Good and Bad for International Hemp Business
• International Cannabis: Breaking the Law, Staying Honest
• Foreign Direct Investment (FDI) from China in U.S. Cannabis Businesses
• Will China Really Buy More U.S. Hemp? There is No Guarantee
• USMCA and Cannabis Trade
• How to Export Medical Cannabis Internationally
• International Cannabis: Selling Worldwide
• U.S. Cannabis and International Trade: Never the Twain Shall Meet?
• Should You Import Hemp to the United States?
• Cannabis and International Trade: Don’t Ignore the U.S.–China Trade War
• Cannabis, Tariffs and Vaping Imports from China

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What Do Prohibitionists Really Hope to Accomplish?

Federal cannabis legalization will happen. It is no longer a matter of “if”, but of “when”. Recently, the House of Representatives advanced the MORE Act (Marijuana Opportunity and Expungement Act), which puts cannabis one step closer to federal decriminalization (more on that here). While it’s unlikely that the MORE Act will advance past the Senate absent a “blue wave” in Georgia’s runoff elections, the House’s passing of the MORE Act signals a major change in perception and attitudes towards legalization of cannabis.

Even if the MORE Act doesn’t immediately pass, something else eventually will. Popular opinion clearly favors it and eventually, politicians will listen to their constituents. It was recently reported that 68% of Americans favor cannabis legalization. Nearly all U.S. states have legalized or decriminalized cannabis in one form or another, and all statewide cannabis ballot measures succeeded in the recent election.

Despite the clear fact that people in the U.S. want cannabis to be legal and want people to stop being thrown in jail for consuming cannabis, it may come as a surprise that there are still groups that actively are working to keep up the old status quo of prohibition (I won’t name specific groups here, but any reader is familiar with a few).

With cannabis legalization being so popular, the continued existence of prohibitionist groups begs the question: what do they really hope to accomplish? Do they think that states will really just walk back entire regulated industries and shutter newly minted agencies that have been created for the sole purpose of supporting the industries? Do they really support cutting off income for the hundreds of thousands of people employed by the industry? (It has been reported that there are more than a quarter of a million people employed in the state-legal cannabis industry in the United States.) Do they even care that people are still being jailed, subject to forfeiture, and having civil liberties violated?

It seems as if such groups would be better off by focusing resources on advocating for things like better youth education, access to treatment for people who need or want it, or other similar things that don’t result in criminal penalties. But simply advocating for a return to prohibition won’t go far. Prohibitionist groups must know that they will lose this battle.

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DEA Hit With ANOTHER Lawsuit From Scientists Seeking to Research Cannabis

On December 3, 2020, MAPS (the Multidisciplinary Association for Psychedelic Studies) issued a press release regarding a lawsuit filed against the DEA and the Attorney General to “compel issuance of licenses to manufacture marijuana for clinical trials and potential FDA approval.” We have written about MAPS and its 35 years of advocacy and engagement with DEA before, and we are big fans of the nonprofit.

The announcement of this lawsuit comes on the heels of the United Nations Commission for Narcotic Drugs (CND) voting to accept the World Health Organization’s (WHO) recommendation to remove cannabis and cannabis resin for medicinal purposes from Schedule IV of the 1961 Single Convention on Narcotic Drugs. The U.S. had already confirmed it would support the WHO recommendation and published a statement about its rationale for the vote:

The vote of the United States to remove cannabis and cannabis resin from Schedule IV of the Single Convention while retaining them in Schedule I is consistent with the science demonstrating that while a safe and effective cannabis-derived therapeutic has been developed, cannabis itself continues to pose significant risks to public health and should continue to be controlled under the international drug control conventions. Further, this action has the potential to stimulate global research into the therapeutic potential and public health effects of cannabis, and to attract additional investigators to the field, including those who may have been deterred by the Schedule IV status of cannabis. [Emphasis added]

In MAPS’ announcement of the lawsuit, it points out that “[e]fforts to conduct meaningful research into cannabis medicines have been blocked for decades; the continued obstruction is causing suffering for people with serious conditions,” which indicates the timeliness of this lawsuit in relation to the CND’s recent vote. According to MAPS and the lawsuit, the DEA has failed to process more than thirty outstanding applications to develop cannabis for research purposes for more than four years despite administrative guidance. The press release outlines the nature of the lawsuit as follows:

Nearly 20 years after Dr. Lyle Craker of the University of Massachusetts – Amherst first applied for a license to develop a consistent, reliable pharmaceutical cannabis product to address the needs of patients with serious illnesses. Despite broad public support for legal, regulated access to medical marijuana, as well as new DEA policy pronouncements and an opinion by the U.S. Department of Justice that the Agency refused to publicly disclose, the DEA has continued to prevent the processing of license applications in violation of the Administrative Procedures Act and contravention of its own administrative guidance. Dr. Craker, supported by the Multidisciplinary Association for Psychedelic Studies (MAPS), has filed a lawsuit in the U.S. District Court in Massachusetts to compel the Drug Enforcement Administration (DEA) to end their delay and process marijuana producer and manufacturer license applications thereby allowing sanctioned scientific research toward a viable medical cannabis pharmaceutical product to proceed.

Under the Controlled Substances Act (CSA), manufacturers of all Schedule I controlled substances, including marijuana, must be licensed by the DEA. Currently, and since 1968, the only federal license issued to provide cannabis for clinical research purposes belongs to the University of Mississippi and is supervised by the National Institute on Drug Abuse (NIDA). According to the lawsuit, and widely discussed opinion throughout the industry, the marijuana provided by the University of Mississippi and NIDA is unfit for clinical research due to “poor quality, unstable supply, and limited variability that in no way emulates the types of cannabis currently available through either state-regulated markets or informal markets where regulated supply is unavailable.” In addition, this limited, poor quality supply of marijuana is only for permitted use in research and not in commercial sales, meaning it cannot be used in FDA-regulated Phase 3 studies which must be conducted with the exact drug, manufactured under Good Manufacturing Processes, that would be marketed.

The goal in compelling the DEA to process these outstanding license applications is to allow for additional research into the potential medical benefits and uses of marijuana – something that in the U.S. has undeniably become an issue with bi-partisan support, yet remains mindbogglingly difficult to achieve through government channels. The results of the November election approving cannabis legalization measures across the board in the U.S., coupled with the CND’s vote to remove medicinal cannabis from Schedule IV, indicates that the time is nigh for the DEA to cooperate in ensuring that medical marijuana research can move forward. Finally.

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