Virginia Senate Passes Anti-Stop, Sniff, and Search Bill

If the bill passes, Virginia police will no longer be able to use an alleged smell of cannabis as a reason to search a vehicle.

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Going Cali sober: why drink when you can smoke?

Is going Cali sober just a cannabis trend or is it the lifestyle change you've been waiting for?

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The cannabis industry in a time of crisis

Striving for safety for our friends in the midst of a pandemic

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Are rosin vape carts going to take over the market? You better hope so.

CAMP's award-winning solvent-less rosin carts are here to blow your mind

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House of Representatives Plans September Vote On Marijuana Decriminalization Bill

The U.S. House of Representatives is planning a September vote on a bill that would decriminalize marijuana at…

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Governor of Nebraska Publicly Condemns Medical Cannabis During Press Conference

Nebraska voters might decide the fate of medical cannabis in November...but the governor had some choice words to say on the matter.

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The Winners of the Cannabis Cup Colorado: People’s Choice 2020

Congratulations to the winners of the Cannabis Cup Colorado: People's Choice 2020!

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(Meaningless?) Federal Vote on Marijuana Legalization is on the Horizon

I’ve been practicing corporate, transactional, and regulatory law in the marijuana industry for going on 10 years now. I’ve never understood exactly why folks get excited about, or even remotely interested, when various lifetime politicians in Congress push bills on the federal legalization/rescheduling of marijuana. Why? Because these bills notoriously go nowhere (for a number of what seem to be purely political reasons) and will continue to go nowhere, in my opinion, where marijuana (while extremely popular with most Americans and obviously with certain entire states) is still too politically hot to trust out-of-touch members of Congress to do anything meaningful about it, and especially now given that the nation’s priorities seem to revolve around dealing with COVID-19 (and rightly so).

The House’s planned floor vote in early September around the most recent federal marijuana legalization measure (the Marijuana Opportunity Reinvestment and Expungement Act (“MORE Act” (see the House version here, which was introduced last year)) is no different. While I’m glad to see members of Congress continue to try to chip away at the continued (failed) War on Drugs regarding cannabis, I’m honestly tired of seeing the fanfare attendant with these legalization bills. At the same time, my interest in these things is usually peaked when looking at what members of Congress are willing to push when it comes to nationwide legalization.

Yes, this upcoming vote is still significant and historic because neither chamber of Congress has ever voted on completely removing marijuana from the federal Controlled Substances Act (and the MORE Act is a bipartisan bill, too), but we all know where this is going–the Democratic-controlled House will likely pass the bill and the GOP-controlled Senate will very likely ignore it or shut it down. I also can’t ignore the fact that the bill’s Senate sponsor is Senator (and democratic vice president nominee) Kamala Harris who admittedly has a terrible record on prosecuting marijuana crimes from when she was the Attorney General of the State of California and is now in the past two and a half years miraculously behind supporting marijuana legalization culminating in a presidential election year. Pretty convenient.

What exactly would the MORE Act do? It completely removes marijuana from the federal Controlled Substances Act, decriminalizing/descheduling it altogether and eliminating criminal penalties for everyone in the commercial chain of production, distribution, and sales (which would also mean that the banking access woes and draconian impact of IRC 280E would also be over). Right now, marijuana is a schedule 1 controlled substance and illegal under federal law, making its home on Schedule I next to LSD and heroine. The Act would also expunge marijuana criminal records dating back to May 1, 1971 because it’s retroactive. The Bureau of Labor Statistics is also charged under the Act with collecting and compiling a variety of data on marijuana businesses and their owners. The Act creates the Opportunity Trust Fund with various earmarks to the Attorney General and the Small Business Administration (SBA) (with the SBA allocations meant to support the Marijuana Opportunity Reinvestment and Expungement Act of 2019). A federal tax would also be imposed on marijuana products “manufactured in or imported into the United States . . . equal to 5 percent of the price for which sold.” Importantly, while the Act empowers the Feds to engage in rulemaking for a federal regulatory framework, states would still be in control of licensing, oversight, and enforcement within their borders (very similar to alcohol).

The MORE Act establishes the Cannabis Justice Office, which is mainly charged with “establish[ing] and carry[ing] out a grant program, known as the ‘Community Reinvestment Grant Program’, to provide eligible entities with funds to administer services for individuals most adversely impacted by the War on Drugs, including (1) job training; (2) reentry services; (3) legal aid for civil and criminal cases, including expungement of cannabis convictions; (4) literacy programs; (5) youth recreation or mentoring programs; and (6) health education programs.” The Act also sets up the Cannabis Opportunity Program via the SBA to ” to provide any eligible State or locality funds to make loans . . . to assist small business concerns owned and controlled by socially and economically disadvantaged individuals . . . that operate in the cannabis industry.” The SBA will also create the “’Equitable Licensing Grant Program’, to provide any eligible State of locality funds to develop and implement equitable cannabis licensing programs that minimize barriers to cannabis licensing and employment for individuals most adversely impacted by the War on Drugs, provided that each grantee includes in its cannabis licensing program at least four of the following: (A) A waiver of cannabis license application fees for individuals who have had an income below 250 percent of the Federal Poverty Level for at least 5 of the past 10 years who are first-time applicants; (B) A prohibition on the denial of a cannabis license based on a conviction for a cannabis offense that took place prior to State legalization of cannabis or the date of enactment of [the] Act, as appropriate; (C) A prohibition on criminal conviction restrictions for licensing except with respect to a conviction related to owning and operating a business; (D) A prohibition on cannabis license holders engaging in suspicionless cannabis drug testing of their prospective or current employees, except with respect to drug testing for safety-sensitive positions . . . (E) The establishment of a cannabis licensing board that is reflective of the racial, ethnic, economic, and gender composition of the State or locality, to serve as an oversight body of the equitable licensing program.”

The MORE Act also bars the SBA from providing loans and other financial relief to cannabis businesses and ancillary cannabis businesses (which is a significantly positive development given the current treatment of cannabis and cannabis ancillary businesses by the SBA during COVID-19), and it would also eliminate the penalties and consequences to and for foreigners looking to participate or invest in the industry (which has been a significant headache under the status quo).

The MORE Act would do some amazing things for the cannabis industry in the U.S., which is now a robust industry driving state and local tax revenue while boosting and sustaining job creation (note that cannabis overall is considered an “essential business” during this pandemic). The problem here is not really anything written in the MORE Act–it’s a common sense bill that mirrors what’s already happening in most states around local legalization; it’s the fact that Congressional inside baseball and national politics continue to stymie federal legalization and there’s no end in sight on that front given the current (deep) division between democrats and republicans over what to prioritize for Americans.

So, I’m not holding my breath over the passage of the MORE Act. I’m sure one day I will eventually believe that one of these federal measures will actually pass, but it’s not going to be this September.

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Is Transporting Hemp Really Worth the Risk?

When the 2018 Farm Bill was inked, one of the biggest perceived wins was a provision prohibiting states from interfering with interstate transport or shipment of hemp. It turns out that this protection was for a long time meaningless. Many hemp transporters today face just as much risk when transporting hemp as they did before the 2018 Farm Bill was signed—and in some cases, even more risk.

In this post, I’ll walk through exactly how we got into the current mess we are in and why transporting hemp can be such a massive risk—even though hemp is technically federally legal (or at least no longer a controlled substance).

The biggest problem with the 2018 Farm Bill’s blanket prohibition on interference with interstate transport is that for a long time, it didn’t actually exist. As we wrote back in early 2019, the prohibition on interference ONLY applied to hemp cultivated under the 2018 Farm Bill. The US Department of Agriculture (USDA) didn’t create hemp regulations until late 2019 and only approved its first hemp plans at the very end of 2019, so the protections on interstate transport arguably didn’t kick in until the first harvests by cultivators operating under those plans.

One hemp company made the argument in 2019 that its hemp biomass confiscated by the Idaho State Police shouldn’t have been confiscated in light of the 2018 Farm Bill’s transportation-interference prohibition, but that didn’t sway the court. In its order, the court seized upon the fact that the hemp was produced prior to USDA-approved hemp plans:

[T]he hemp that was seized in Idaho could not possibly meet that standard because no “plans” to regulate the production of industrial hemp under the 2018 Farm Act have either been approved (by the federal government as to Oregon, as pertinent here) or created and promulgated by the United States Department of Agriculture for the federal government (to apply in the absence of an approved state or tribal plan).

To be fair, the USDA did issue an opinion in mid-2019 that stated that states/tribes could not prohibit the interstate transport of hemp produced under the 2014 Farm Bill. However, this (1) did not offer any help for hemp cultivated in states with hemp programs that were inconsistent with the 2014 Farm Bill, and (2) is only guidance and was not legally binding on any court or law enforcement agency. In fact, people still continued to get stopped and arrested for the simple act of driving with hemp.

In summary, until states had hemp plans approved and hemp was cultivated under those plans, which essentially did not happen until 2020, transporters really had no additional protections than they had previously.

In the wake of the 2018 Farm Bill, it was extremely commonplace for hemp transporters to be arrested for transporting hemp. Our hemp attorneys have seen this happen countless times. Many state law enforcement agencies simply mistook hemp for an illegal controlled substance. Here’s a good example: New York law enforcement apparently arrested and charged a person transporting hemp that they thought was illegal cannabis (apparently the company is now suing).

In cases like this, it could take law enforcement a significant time to figure out that what they just confiscated was actually hemp—while the biomass has a definite shelf life. People can sit in jail for no reason and have unnecessary arrest records. Driver employees can be pulled off the road and vehicles impounded. All for what?

Things can be even worse for companies transporting biomass. Take this example: ABC Transport buys legal hemp biomass with a passing certificate of analysis (COA) in one state to transport legally to another state. During transport, the hemp is exposed to too much heat, and the delta-9 THC levels increase. If those levels increase too much, then hemp becomes “marijuana” and the transporter is now a federal criminal. They are also subject to prosecution under state law since no state allows interstate transport (even states with full-scale legalization).

From the arresting law enforcement agency’s point of view, a passing COA is meaningless if the actual THC content isn’t consistent with the COA. The transporter can have the most robust written contracts imaginable with their suppliers to indemnify them against these kinds of losses, but all the indemnity in the world won’t keep someone out of jail.

To make matters even worse, DEA’s interim hemp rule (you can read about it here and here) makes things even worse. The rule states that any derivative of lawful hemp that contains more than .3% THC is itself illegal, even if the source hemp had less than .3% THC. Here’s our summary of why that is such a problem:

In order to extract cannabinoids from hemp, hemp plant material must go through an extraction process. This extraction process almost certainly results in a temporary increase in Delta-9 THC. As cannabinoids are isolated it is nearly impossible to control the levels of delta-9 THC from increasing through that process. This means that under the DEA’s interim rule, the processor would be in possession of a schedule I substance, even if the processor dilutes the end product down to the requisite level of 0.3% delta-9 THC or destroys any delta-9 THC by product.

If a hemp transporter transports non-finished oil that’s been extracted but for any reason has THC in excess of .3%, then that transporter is now subject to arrest and prosecution. In many states, this kind of oil is not independently tested so transporters may not have any idea whether what they are transporting contains. And here too, all the indemnification in the world won’t keep someone out of jail.

The bottom line is that until the DEA, USDA, federal Food and Drug Administration, and state law enforcement agencies figure out what to do about hemp—and don’t hold your breath that this will happen any time soon—hemp transporters and their employees face monumental risks. There are many things they can do to reduce those risks, but the government seems intent on stripping away any existing protections.

To add yet another layer of complexity, states that are implementing hemp programs may impose vastly different requirements on hemp transporters. For example, some states require transporters to obtain permits to transport hemp (more red tape!). Where I practice, California, the Department of Food and Agriculture notes:

California Food and Agricultural Code Section 81006(d)(11) requires registrants to provide an original copy of the laboratory test report to each person transporting hemp including hemp fiber, oil, cake, seed, or any component of the seed.

Additionally, the California Department of Motor Vehicles (DMV) and law enforcement may have additional requirements that may apply to transporting hemp. For information regarding any additional requirements that may apply to any proposed industrial hemp transporation, contact the applicable city, county and/or state officials, including the California Highway Patrol and the DMV.

All of this means that on top of the many possible liabilities that hemp transporters and their employees face, hemp transporters must constantly monitor state (and even local!) laws, regulations, and policies everywhere they go. This will undoubtedly create significantly higher costs for hemp distributors who want to comply with laws. It really does not have to be this way for a product that is theoretically lawful.

We will be sure to continue writing on this topic, so stay tuned to the Canna Law Blog.

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Cannabis Trademark Litigation: Veritas Farms Files a Motion to Dismiss Against Veritas Fine Cannabis

Last month, my colleague Alison Malsbury reported on the trademark infringement lawsuit filed by Colorado-based Veritas Fine Cannabis (“VFC”) against Florida-based Veritas Farms. In her post covering the initiation of the lawsuit, Alison explains why the current legal landscape forces plaintiffs in such cases to rely on a two-part strategy of obtaining 1) state trademark registrations for cannabis product that usually don’t apply in the defendant’s state, and 2) federal trademark registrations that protect ancillary goods and services nationwide. VFC had also alleged that Veritas Farms’ cannabis goods fall within VFC’s “zone of natural expansion” – an argument that is quite common but not quite so successful. This week, Veritas Farms filed a Motion to Dismiss on this premise, arguing that VFC admitted in its own pleadings that it does not actually possess the common law federal trademarks it seeks to enforce.

As a refresher, in order to state a claim for trademark infringement under the Lanham Act, the plaintiff must show:

1. The plaintiff has a protectable interest in the mark;
2. The defendant has used “an identical or similar mark” in commerce; and
3. The defendant’s use is likely to confuse consumers.

1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1238 (10th Cir. 2013) (citations omitted). A similar showing is required to state a claim for unfair competition under the Lanham Act and state law unfair competition. Cleary Bldg. Corp. v. Dame, 674 F.Supp.2d 1257, 1269-70 (D. Colo. 2009).

The interesting argument here surrounds element 1 – whether VFC even has a protectable interest in its alleged common law trademarks. Here, Veritas Farms argues that VFC fails to state a claim because it only claims to own two unregistered common law trademarks (that cover the entire United States) for a “V Design Mark” and a “VERITAS” mark that “provide[s] information about cannabis and cannabis products.” However, Veritas Farms argues, the trademark use is:

• Incidental to the sale of VFC’s goods. This is a legitimate argument as “Providing general information or instructions as to the purpose and uses of applicant’s goods is merely incidental to the sale of goods, not a separate informational service,” and thus not eligible for trademark protection. Trademark Manual of Examining Procedure, October 2018 § 1301.01(b)(v).
• Not used in interstate commerce because VFC only conducts business in Colorado. This is where the “natural zone of expansion” argument may fall – because VFC argued that Veritas Farms’ CBD products are federally illegal, it cannot turn around rely on a legally prohibited expansion to support its claim of trademark infringement.
• On a website that is merely advertising material. This is also a legitimate argument – “[A] web page that merely provides information about the goods, but does not provide a means of ordering them, is viewed as promotional material, which is not acceptable to show trademark use on goods. … There must be a means of ordering the goods directly from the applicant’s web page, such as a telephone number for placing orders or an online ordering process. Trademark Manual of Examining Procedure, October 2018 § 904.03(i) (citations omitted).

Veritas Farms goes on to argue that VFC also generally fails to sufficiently allege elements 2 and 3. We’ll keep an eye on this docket and report back, because how the Court rules on Veritas Farm’s Motion to Dismiss will be another great indicator as to whether cannabis companies may actually be able to protect their intellectual property rights through these multi-faceted strategies.

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Study Shows Cannabis Could Help Reduce Diabetes Risk in Hepatitis C Patients

Patients with Hepatitis C have an increased risk of developing diabetes. Can cannabis help prevent that?

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California’s Toughest and Worst Cannabis Rules

California’s three cannabis agencies–the Bureau of Cannabis Control (BCC), California Department of Food and Agriculture (CDFA), and California Department of Public Health (CDPH)–aggressively regulate every aspect of the state’s licensed cannabis industry. Most of the agencies’ rules make sense or have some justifiable purpose. Today, I want to talk about some of the rules that create the biggest headaches for cannabis licensees in the Golden State. This list is by no means exhaustive, but we have seen a lot of stakeholders struggle with compliance with each of them.

#1 Post-Approval Ownership Changes

The California cannabis agencies have detailed regulations requiring disclosures of changes of “owners” and “financial interest holders”. What makes these rules problematic is that the agencies require disclosures after the changes take place (unlike many municipalities which require pre-approval). These rules, in my opinion, are some of the worst and can make cannabis transactions extremely difficult to draft.

For example, say a company wants to buy 50% of the shares of a licensed cannabis entity. That company will have to acquire those shares before being disclosed to the cannabis agencies. Problematically, there’s always a risk that the agencies could come back and refuse to approve the acquisition. From the buyer’s point of view, this is incredibly risky because if the change is denied, the money the buyer paid could be gone.

These rules lead to all kinds of transactions–everything from granting security interests to paying nominal fees prior to regulatory approvals–and create unnecessary risks and complications for M&A transactions or investments. It would have been so much simpler to simply allow licensees to submit requests before ownership changes occurred.

#2 Hours of Operation

BCC rule 5403 only allows retailers to sell or deliver cannabis between 6 AM and 10 PM. Rule 5415(d) further states that delivery begins when a driver leaves the premises and ends when they return, shortening that window since drivers need to be back before 10 PM. In many cases, cities restrict this window even further. This is one of the less defensible rules of the BCC. There’s no good reason to cut sales off arbitrarily at 10 PM when alcohol can continue to be sold well after that time. All this rule does is steer people who want to purchase cannabis after hours to the illicit market.

#3 Branded Merchandise Limitations

Licensed retailers are permitted to sell certain branded merchandise, but the BCC maintains that retailers can’t sell other licensees’ branded merchandise. I have been told that the rationale for the rule was to prohibit the sale of merch from unlicensed brands, but this doesn’t seem to be the best approach. Per the BCC’s guidance, branded merch is treated like advertisement and must identify the licensee responsible for the ad. With this in mind, the BCC could have easily allowed retailers to sell merch of other licensed companies. This rule just makes it that much harder for smaller or lesser-known brands to get their name out there.

#4 Prohibition of Drive-Thru Sales

BCC rule 5025 prohibits drive-in or drive-through sales, except for a limited number of businesses who qualified before June 2018. It’s become painfully obvious over the last few months how beneficial drive-through sales could have been with COVID-19. To be fair, the BCC has relaxed some rules to allow curbside pickups upon certain requests, it seems like the prohibition on drive-through sales needs some serious revisiting, even for a post-COVID world.

#5 Distributor Packaging/Labeling Restrictions

BCC rule 5303 allows retailers to package, label, and re-package/re-label cannabis and pre-rolls, but not manufactured products. Previous emergency rules had allowed distributors to package and label manufactured goods in certain circumstances, but this was removed from the rules. This created a lot of confusion when the rule was implemented without any grace period, and still leads to difficulties from time to time. Distributors who learn that a packaged manufactured product has incorrect labeling have much more limited options today and can’t simply fix the issue themselves.

#6 Hemp Bans

CDPH rule 40175(c) bans the use of hemp or CBD in cannabis products. The rule states: “A manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” While the rule doesn’t say that it bans hemp on its face, in its final statement of reasons, CDPH explained:

Cannabis products may contain CBD derived from cannabis. Proposition 64 specifically excluded industrial hemp and its derivatives from the cannabis regulatory structure. Consequently, using cannabinoids acquired from outside of the regulated structure presents a risk of inversion of illicit cannabis product into the legal market and threatens the integrity of the track-and-trace system. In order to protect the highly regulated nature of the cannabis market, all cannabinoids must be acquired from licensed sources.

The CDPH’s rationale no longer holds any weight. Shortly after the rules were adopted, the state implemented a hemp cultivation plan, and many others have followed suit. If the CDPH is concerned that lawfully cultivated hemp is not tested per the same standards as cannabis, that concern is of no moment because the finished product would still ultimately need to be tested before going to market. There is no real reason to continue to prohibit the use of hemp-derived cannabinoids.

#7 Protracted Licensing

This last one isn’t a rule, but rather the absence of a rule and something that could have been better handled by California’s cannabis statute, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). MAUCRSA requires applicants to secure local approval as a condition to getting a state license. Businesses had to go through long local permitting processes prior to submitting a state license. Some cities provide conditional approval that allow applicants to go get a state license partway through the local process, but this still requires waiting potentially months to even apply for a state license (all the while expending huge amounts of resources on rent and other expenses). Historically, this added a lot of time onto the process, though the state has gotten much faster in issuing licenses. In hindsight (and for any states considering licensing in the future), allowing licensees to apply on a dual track at once would have saved a lot of time.

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This new compound in CBD products can help with sleep, anxiety, and focus

CBD producers are starting to add L-theanine, a compound commonly found in green and black teas, to their products. Learn about its wellness benefits and how it works well with CBD.

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Study Finds Medical Cannabis Improves Seniors’ Quality Of Life

Another study in support of seniors who use cannabis has been published.

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Is microdosing the key to work-from-home happiness?

Microdosing is an effective way to introduce small amounts of cannabis into your lifestyle. Work from home is the perfect time to do it.

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Cannabis life advice from Ngaio Bealum: Edibles safety, and strain-specific edibles

Start low. Go slow. Don’t take 1,000 mg and board a plane.

The post Cannabis life advice from Ngaio Bealum: Edibles safety, and strain-specific edibles appeared first on Leafly.

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Nebraska MMJ Initiative Faces Legal Challenge Ahead of November Ballot

Nebraska voters seem to want medical marijuana...but will a legal battle prevent them from voting on it?

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Medical Marijuana Patients In Florida Can Now Access Edibles

Four years after medical cannabis was legalized, Florida patients can now enjoy their meds in an edible form.

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Hemp Insurance Litigation: Oregon Federal Court Rules Insurer Has No Duty to Defend or Indemnify Hemp Farmer for Plant Loss

Insurance is a key part of any business, including cannabis businesses. As Jonathan Bench has explained:

Insurance in the cannabis industry is big business, and business owners need to know what policies are available and what those policies cover. Why? Because in insurance policies, like all other business contracts (e.g. leases), the risk of a business venture is divided between the contracting parties. Your insurance policies are contracts where you pay your insurer to take some of the risk of your business venture away from you – for a fee, of course.

Among the most important aspects of an insurance policy are the circumstances in which it requires an insurer to defend and indemnify the policyholder from a lawsuit by a third party. Disagreements between the insured and insurer may result in lawsuits between the insured and insurer, often over enormous sums of money.  The lawsuits typically arise from a simple set of facts: (1) the insured is sued or threatened with a lawsuit, (2) the insured notifies its insurer (“tenders the claim”) and asks for defense and indemnity, (3) the insurer informs the insurer of its coverage position, i.e. that it will not defend or indemnify, or that it will defend but with a reservation of rights, (4) the insured disputes the coverage position and cannot reach a resolution with its insurer, and (5) the insurer or insured files an action for declaratory judgment asking a court to rule whether the insurer has a duty to defend and indemnify.

These kinds of lawsuits—typically referred to as “coverage actions,” require a close reading of the insurance policy and relevant case law alongside the complaint filed against the insured. The resolution of a coverage dispute may drastically effect settlement and may result in financial ruin for an insured whose claim is deemed outside the insurer’s duty to defend and indemnify.

Last summer I wrote about a multi-million lawsuit filed by Big Bush Farms against Boones Ferry Berry Farms arising out of a hemp production contract. Briefly, Boones agreed to plant, grow, dry, and harvest 27,000 plants for Big Bush. Boones agreed to pay all costs relating to the grow and Big Bush agreed to pay $25/lb for all the hemp harvested from the 27,000 plants, plus a bonus of $1/lb for every 2% CBD oil content over 10%. Payment for the crop was due at several intervals on or after the delivery of the crop. Big Bush alleges that Boones harvested 108,000 lbs of dried biomass which tested at 14.5% cannabidiol (“CBD”) oil content. Boones apparently delivered only around 4,200 lbs of the crop even though Big Bush had prepaid $150,000. Big Bush claims that Boones failed to deliver the remaining 103,747 lbs of hemp and failed to deliver other hemp grown pursuant to an oral agreement.

Last fall, I noted that American Family Insurance had filed a lawsuit in the federal district court of Oregon seeking a declaration from the court that it has no duty to extend to a defense to Boones Berry Ferry Farms, LLC and others (together “Boones”). The gist of the federal lawsuit is that American Family contends the claims against the insureds in the underlying state-court lawsuit do not give rise to a duty to defend or indemnify. Although the state-court lawsuit continues, the federal district court recently ruled in favor of American Family on the coverage question when it affirmed the report and recommendation of a federal magistrate.

Let’s take a look at this coverage dispute. Whether an insurance provider has a duty to defend is a question of law, typically determined by analyzing the insurance contract and the complaint. In most states, where a complaint is unclear but may be reasonably interpreted to include an incident within coverage, then the insurer has a duty to defend. Here, the Policy provided that American Family would provide a defense and pay damages because of “property damage” caused by a covered “occurrence.” The Policy defines “property damage” as “physical injury to tangible property. This includes loss of use.” The Policy further provided that property damage does not mean physical injury to “marijuana or cannabis plants, or any equipment or material used to grow, harvest, or cultivate marijuana or cannabis plants, even if legal in your state.”

American Family argued, among other things, that the complaint against Boones failed to allege “property damage” as defined by the complaint. American Family reasoned that the only property described in the complaint was “industrial hemp,” which is a product of “cannabis plants” and excluded from the definition of “property damage.” Thus, said American Family, there was no duty to defend because there was no property damage under the Policy.

Boones countered that the complaint did not allege physical damage to cannabis plants but rather harm from the “loss of use of tangible property” in the way of deprivation of the possession of industrial hemp. Boones contended that because the first part of the Policy defines property damage as including “loss of use,” American Family had a duty to defend.

The magistrate was not persuaded by Boones:

The Court reviews the Policy “presuming that words have their plain, ordinary meanings.” The Policy states that: “‘Property damage’ means ‘physical injury’ to tangible property. This includes loss of use.”. Under the plain language, “property damage” is “physical injury.” Given that the two are synonymous under the Policy, “[t]his” refers to both “property damage” and “physical injury” and both include “loss of use.” The Policy further provides: “Property Damage does not mean physical injury to . . . cannabis plants[.]

Because the Policy expressly excludes physical injury to cannabis plants, the Policy excludes “loss of use” of cannabis plants.

Consequently, the magistrate ruled that American Family had no duty to provide Boones a defense in the state-court lawsuit. Boones sought review of the ruling by the district court.

The district court agreed with the magistrate. Boones argued that the policy was ambiguous and must be interpreted in their favor. (This is an argument made by nearly every insured). The court disagreed. Although Oregon interprets insurance contracts against the insurer, said the court, Boones was not entitled to the benefit of that rule unless an ambiguity remained at the end of a three-step analysis. Under Oregon law, a court must:

(1) examine the text of the policy to determine whether it is ambiguous, that is, whether it is susceptible to more than one plausible interpretation (2) examine the disputed terms in the broader context of the policy as a whole; and (3) only if ambiguity remains, construe the policy against the drafter.

Boones, ruled the court, did not clear the first step of the analysis because the Policy plainly excluded coverage for loss of use of cannabis plants. So Boones has to carry on in the state-court lawsuit without any expectation that its insurer will pay for its defense or indemnify it from a damages award. And the plaintiffs in the state court cannot count on reaching into the pockets of the insurance company.

We expect coverage lawsuits involving hemp to become more commonplace, just as they are in other industries. My advice to hemp business owners is threefold:

1. Make sure you have insurance and that you understand what loss(es) the insurance is intended to cover.
2. Notify of your insurer (and your coverage lawyer) of any potential claim as the failure to do so can often result in a denial of cover.
3. Retain an experienced coverage lawyer to review the policy and the insurance company’s coverage position and don’t wait long to do it. Your lawyer may convince the insurance company to change its position and save you thousands in defense costs and damages. In the best case scenario, you may not need a coverage action at all.

For more on cannabis insurance, check out the following:

• Anatomy of a Cannabis Insurance Policy, Part 1: The Basics
• Anatomy of a Cannabis Insurance Policy: Exclusions
• Cannabis Business Basics: Liability Insurance is a Non-Negotiable Priority
• Cannabis and Insurance Litigation
• Yes, Washington, You Really Need Cannabis Business Insurance

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Study Shows Cannabis Could Help People Quit IV Opiate Use

Cannabis may be a viable treatment for opioid addiction, according to a new study.

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New Data Shows Significant Increase In Failed Workplace Drug Screenings

Quest reported that cannabis “continues to top the list of the most commonly detected illicit substances across all workforce categories."

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Warsaw Zoo Treating Grieving Elephant With CBD

The loss of an elder herd member has triggered stress and grief in an elephant living in a zoo in Warsaw. Specialists are going to try to treat her with CBD.

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Raising Cannabis Funds and Staying Out of Jail: Asking Yourself the Right Questions

If you have spent much time around the world of private capital raising, then you know that there are only two avenues for a company that wants to bring on investors. Either you register your capital offering (equity, debt, or some hybrid) or you find a state or federal filing exemption that you can qualify for. In this second post of an ongoing series focusing on cannabis securities, we’re taking a first look at the world of state and federal filing exemptions.

Your Governing Securities Regulators Matter. The federal Securities Exchange Commission (“SEC”) and each state’s securities board, commission, or department has jurisdiction over public and private placement of securities. Their jurisdiction depends on where the company raising investment funds (the “Issuer”) is located, who or what is investing, where the prospective investors live (or where the investing entity is based), and what amount is being invested. To drive this issue home, I always ask my Issuer companies:

• What type of securities do you intend on offering?
• What percentage of the company’s equity will that entail on a fully-diluted basis? (or if it’s a debt offering, what percentage of the company’s total debt will that comprise?)
• How much total capital do you intend to raise?
• What type of investors are you targeting?
• How many interested investors do you have so far?
• Where do your prospective investors live?
• Do you intend to cap any single investor at a specific dollar amount?
• What have you promised your prospective investors at this point? (I always hope the answer to this is, “Nothing,” because that is the only correct answer, ever!)

What are the State and Federal Regulators Trying to Do? In lay person’s terms, each of the securities regulators has authority to decide whether the Issuer and the securities offering are safe for investors. The state and federal securities laws and regulations are designed to force Issuers to play by the rules so that prospective investors and their financial or legal advisers can help them see at a glance whether the Issuer is conducting a fraudulent or at least negligent securities offering. Those are the first set of red flags to avoid.

The laws and regulations are in place to protect unsophisticated (related term: non-accredited) investors from investing in an extremely speculative venture that may lose their entire investment. Even honest Issuers with sound business plans that engage in a proper securities offering can lose money. Many do. That is why prospective investors hire financial and legal advisers to help them review all of the related offering documents in search of the second set of red flags.

The Big Four Problem States. It is easy to get bogged down in the lingo. Either you “register” your offering at the federal or state level or you qualify for an “exemption” from registration. Qualifying for an exemption generally means you still need to file a “notice” filing with the applicable securities regulators. This is not the same as “registration” under securities law lingo.

A private placement of securities by a Washington Issuer to only investors living in Washington is treated differently from that Issuer seeking investments from Washington and Oregon. And it is treated very differently if the Issuer is seeking investors from all 50 states or even from one of the “Big Four” most populous states: California, Texas, Florida, or New York. These states have extremely robust “long-arm” statutes that layer additional requirements onto Issuers beyond those in most other states.

Financial Thresholds and Limited Offerings. As a general rule, when you are raising funds from only a few investors and up to a limited dollar amount, you can probably find an applicable exemption from registration, regardless of whether your prospective investors are accredited, sophisticated, or Jed Clampett (though in reality, Jed Clampett would have qualified as an accredited investor).

The financial threshold will depend both on the Issuer’s home state, as well as the home states of the investors. Many states have exemptions that are geared toward helping startup companies in cannabis and other industries so that they can get through some early seed rounds of investing without breaking the bank.

And many of these regulations are self-operative or self-executing up to a certain dollar amount or up to a certain number of investors. That means that even if an Issuer issues securities without realizing they have done so, their actions may fall under a safe harbor provision enacted to protect companies in that type of scenario, which is unusual given the laws’ general focus on protecting investors.

For instance, a “limited offering” in Utah means an offering made to not more than 15 purchasers in the state during any 12 consecutive months and in an amount that does not exceed $1MM. There are other criteria, as well, such as the Issuer cannot have used general solicitation or advertising or given any commission or compensation to any person other than a broker-dealer or a licensed securities agent.

Keep in mind that these safe harbor provisions will never shield a company or its primary personnel from fraudulent activities. In the next post we will continue on this thread regarding how an Issuer can qualify to take advantage of federal and state exemptions from securities registrations.

For more reading, check out:

• Did You Just Issue Cannabis Securities? Top 10 “Go to Jail” Scenarios
• Cannabis Startups 101: Securities Compliance
• Oregon Cannabis Securities: Raising Money Right
• Utah Cannabis Investment Fraud: Know Your Securities Laws
• Cannabis Securities Litigation: Don’t Expect to Put One Past the SEC
• Ask a Pot Lawyer: Can I Invest in Weed?

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The Great Dutch Cannabis Experiment Morphs On

Cannabis reform is an evolving discussion in the land of the Coffee Shop, and the domestic industry is clearly pivoting for a new decade.

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Vermont Considers Expanding Cannabis Expungements

Vermont is looking to move forward in the realm of cannabis justice.

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Back to school: COVID-19 boosts cannabis college enrollment

Heading back to school? Ever thought about giving cannabis college a try? You wouldn't be the only one.

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Medical Cannabis Testing Lab In Oklahoma Under Investigation

Oklahoma City-based F.A.S.T. Laboratories is facing an inquiry over false lab results.

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Pennsylvania Governor Calls For Cannabis Legalization

Governor Tom Wolf is urging the Pennsylvania legislature to legalize adult-use cannabis for the good of the state.

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Pennsylvania governor calls for marijuana legalization to boost economic recovery

Gov. Tom Wolf puts recreational legalization at the top of his autumn 2020 legislative agenda.

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Here Comes the First Approved Ecstasy (MDMA) Drug

Last week, the Multidisciplinary Association for Psychedelics Studies (MAPS) made a very big announcement: it had raised $30 million to complete its promising study of MDMA (ecstasy; molly) for treating post-traumatic stress disorder (PTSD). The Food and Drug Administration (FDA) already has granted MAPS “breakthrough therapy” approval based on earlier trials. With its recent cash infusion, MAPS will now move into Phase III trials. That’s where its scientists will evaluate how MDMA works in comparison with existing medications for PTSD (Prozac, Zoloft, Paxil, etc.) MAPS anticipates good results, including FDA approval as early as 2022.

If you’ve followed the story of psychedelic drugs in the U.S., then you know about MAPS: the nonprofit has been around since 1986. The outfit actually began in response to the Drug Enforcement Administration (DEA) scheduling MDMA, more or less, which happened on an “emergency” basis in 1985 (you can view MAPS’ impressive archive and play-by-play on all of that here). Prior to MDMA coming under federal control, it was commonly administered in psychiatric and counseling studies. The drug caught DEA’s ire when recreational use proliferated. Fortunately, by criminalizing MDMA, DEA was able to stamp out its use entirely, as it did with cannabis and other hazardous schedule I drugs.

Just kidding! MDMA is still pretty popular and enjoyed by millions of casual users, despite its prohibited status. And the record shows that scientists testified extensively and adamantly in opposition of DEA’s emergency land grab in the spring of 1985. This opposition includes DEA’s advising agency, the Department of Health and Human Services (HHS), highlighting the discrepancy between DEA’s proposal and the FDA-approved marketing of amphetamines. Still, DEA pressed forward and MDMA became a schedule I drug amid the Reagan era panic.

What happened next is very impressive. Rick Doblin founded MAPS as a “nonprofit psychedelic pharmaceutical company” for the express purpose of studying MDMA, as well as cannabis and other schedule I drugs. And MAPS began a decades-long odyssey requiring perseverance, scientific fortitude and administrative dexterity.

The first MAPS study on MDMA was a 1994 Phase I drug trial (Phase I trials study the safety but not the efficacy of a proposed drug in humans). After that study and several others showed MDMA was safe, MAPS funded and launched six, Phase II studies in 2000. The Phase II trials examined whether MDMA actually worked to treat PTSD in conjunction with traditional talk therapy. An analysis of all six Phase II trials found that over 50% of the participants who received MDMA no longer met the diagnostic criteria for PTSD. (In the control group, about a quarter saw the same result.)

FDA was sufficiently impressed to grant breakthrough therapy status in 2017. MAPS then began laying the groundwork for the Phase III study, including this fundraising round. As to the $30 million, it seems like the timing was finally right: psychedelics are a very hot ticket right now in the drug development world, and Doblin et al. were able to raise funds from a series of high profile investors. (For an overview of this phenomenon, including what is going on with new drug therapies from MDMA to psilocybin to ketamine, check out our recent webinar here).

We were excited to see the MAPS announcement last week, and we will continue to track the nonprofit’s efforts as it moves toward drug approval. We also expect a continued escalation in public support not just for these types of efforts, but for ongoing campaigns to decriminalize psychedelic drugs at state and local levels. It finally feels like all of this is changing, and changing fast.

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Study Finds Cannabis Use After Work Hours Doesn’t Affect Job Performance

A new study shows that using cannabis outside of work doesn't negatively affect how one does their job.

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‘It rained fire’: A California cannabis grower’s hellish wildfire fight

'You can't rebuild if you try to fight this fire and die,' says one NorCal grower who nearly lost his life last week.

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Minnesota’s White Earth Nation Legalizes Medical Cannabis

Because they are a sovereign nation, the tribe will determine their own cannabis laws, independent from the state of Minnesota.

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DEA Interim Final Rule: What Is “Synthetically Derived THC”?

On Friday, the Drug Enforcement Administration (“DEA”) released an Interim Final Rule (the “Rule”) that, as we discussed, threatens the hemp industry by treating partially processed hemp extract not intended for consumption (also known as “intermediary hemp”) as a Schedule I controlled substance. This is hugely problematic because intermediary hemp is an essential and necessary component of the industry.

In addition, the Rule addresses the legality of “synthetically derived tetrahydrocannabinols,” which could also impact the hemp industry. Specifically, the Rule provides that:

For tetrahydrocannabinols that are naturally occurring constituents of the plant material, Cannabis sativa L., any material that contains 0.3% or less of D9 -THC by dry weight is not controlled, unless specifically controlled elsewhere under the CSA. Conversely, for tetrahydrocannabinols that are naturally occurring constituents of Cannabis sativa L., any such material that contains greater than 0.3% of D9 -THC by dry weight remains a controlled substance in schedule I. The [2018 Farm Bill] does not impact the control status of synthetically derived tetrahydrocannabinols (for Controlled Substance Code Number 7370) because the statutory definition of “hemp” is limited to materials that are derived from the plant Cannabis sativa L. For synthetically derived tetrahydrocannabinols, the concentration of D9 -THC is not a determining factor in whether the material is a controlled substance. All synthetically derived tetrahydrocannabinols remain schedule I controlled substances.
(Emphasis added).

Neither the Rule nor Federal law, including the federal Controlled Substances Act (the “CSA”), expressly define “synthetically derived tetrahydrocannabinols.” However, some of the DEA regulations address the issue of “synthetic THC” in the context of (1) “synthetic marijuana,” also known as “Spice” or “K2,” which is listed under Section 812(c)(d) of the CSA; and (2) the schedule I listing of “Tetrahydrocannabinol” (“THC”), under Section 812(c)(c)(17) of the CSA.

In the context of “synthetic marijuana,” which the DEA describes as a “synthetic version of THC,” “synthetic THC” refers to a mixture of plant material sprayed with synthetic psychoactive chemicals. In a 2017 Resource Guide, the DEA further explains that “[s]ynthetic cannabinoids are not organic, but are chemical compounds created in a laboratory.” (Emphasis added).

In the context of the schedule I listing of “Tetrahydrocannabinol,” the DEA revised its regulations in 2003 to specify that the term refers to both “natural” and “synthetic” THC; however, the agency’s clarification did not touch on the actual meaning of “synthetic.”

Therefore, based on the information found in the DEA regulations and publications, it appears the agency refers to the ordinary meaning of “synthetic,” which the Merriam-Webster Online Dictionary defines as a substance “relating to, or produced by chemical or biochemical synthesis.” As a result, this definition suggests that the Rule, specifically the text in bold above, may extend to hemp-derived THC cannabinoids with a Delta-9 THC concentration that does not exceed 0.3%.

This, in turn, would mean that the hottest cannabinoid currently found on the U.S. market, Delta-8 THC, would probably be treated as a schedule I controlled substance by the DEA. This is because Delta-8 THC, which is not expressed in sufficient concentrations in most hemp cultivars to make its extraction economically viable, is produced through a chemical reaction initiation by a catalyst that converts hemp-derived CBD (“Hemp CBD”). As such, Delta-8 THC would be a “synthetically derived THC” substance, in accordance with the Rule.

Although such interpretation of the Rule would suggest a total disregard of the 2018 Farm Bill, which legalized hemp, including hemp derivatives (a “derivative” is defined as “a substance that can be made from another substances”), it is also fairly clear that the 2018 Farm Bill did not intend to legalize any form of cannabis that gets users high. And that is where the provisions regarding Delta-9 THC come in.

Moreover, given the similarities between Delta-8 THC and Delta-9 THC’s chemical structures, molecular formula and molecular weight, their psychoactive effects, and the DEA’s position on and its historical control of all forms of THC, the Rule only confirms what many of us expected: that hemp-derived cannabinoids with psychoactive effects, even if less potent than those of Delta-9 THC, would be deemed unlawful by federal enforcement groups.

Ultimately, the Rule and the issues raised in this blog post reveal that lingering confusion and statutory ambiguities should be addressed by Congress or by the courts before the DEA gets to adopt such regulations.

Consequently, hemp stakeholders should comment on the Rule through October 20 and reach out to their elected officials to help them understand the importance of these issues and the need to clarify the legality of all hemp-derived substances, including hemp-derived THC cannabinoids produced through a chemical synthesis, to help the hemp industry follow its course and succeed.

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Watch Out! The DEA Just Passed a BAD Interim Rule Impacting Hemp CBD and Other Cannabinoids

On August 20, 2020, the Drug Enforcement Administration (DEA) issued an interim rule on hemp, hemp-derived CBD (Hemp CBD) and other hemp-derived cannabinoids.

According to the DEA, “[t]he interim final rule merely conforms DEA’s regulations to the statutory amendments to the [Controlled Substances Act (CSA)] that have already taken effect, and it does not add additional requirements to the regulations.”

If you’re in the hemp derivative business, trust the DEA at your own peril. While it is true that the 2018 Farm Bill did legalize hemp, hemp derivatives, hemp extracts, and cannabinoids in hemp, it did not explicitly cover hemp processing. I recently wrote about this regulatory gap and you can see it on an infographic here.

The regulatory gap that skips over hemp processing is relevant to understand the danger of the DEA’s interim rule and how it is inconsistent with the 2018 Farm Bill.

The 2018 Farm Bill defines hemp as the plant Cannabis Sativa L. with a delta-9 THC concentration of not more than 0.3 percent on a dry weight basis. The 2018 Farm Bill also defines hemp to include all derivatives, extracts, and cannabinoids of hemp. It is undeniable that the hemp plant and hemp derivatives, extracts, and cannabinoids are no longer controlled substances. It would then logically follow that it is legal to process the hemp plant into legal derivatives, extracts, and cannabinoids. The DEA’s interim rule however, does not take that into account.

Here is the dangerous language from the DEA’s interim rule:

[The 2018 Farm Bill limits] the definition of marihuana to only include cannabis or cannabis-derived material that contain more than 0.3% delta-9-tetrahydrocannabinol (also known as Δ⁹-THC) on a dry weight basis. Thus, to fall within the current CSA definition of  marihuana, cannabis and cannabis-derived material must both fall within the pre-[2018 Farm Bill] CSA definition of marihuana and contain more than 0.3 percent Δ⁹-THC on a dry weight basis. Pursuant to the [2018 Farm Bill], unless specifically controlled elsewhere under the CSA, any material previously controlled under Controlled Substance Code Number 7360 (marihuana) or under Controlled Substance Code Number 7350 (marihuana extract), that contains 0.3% or less of Δ⁹-THC on a dry weight basis—i.e., “hemp” as that term defined under the [2018 Farm Bill]—is not controlled. Conversely, any such material that contains greater than 0.3% of Δ⁹-THC on a dry weight basis remains controlled in schedule I.

In order to extract cannabinoids from hemp, hemp plant material must go through an extraction process. This extraction process almost certainly results in a temporary increase in Delta-9 THC. As cannabinoids are isolated it is nearly impossible to control the levels of delta-9 THC from increasing through that process. This means that under the DEA’s interim rule, the processor would be in possession of a schedule I substance, even if the processor dilutes the end product down to the requisite level of 0.3% delta-9 THC or destroys any delta-9 THC by product.

To be clear, the DEA is not just saying that an end product cannot contain more than 0.3% delta-9 THC. It takes a bad-faith reading of the 2018 Farm Bill to assert that THC-rich products derived from hemp are no longer a controlled substance. And if the DEA were only saying that end-use products could not contain more than 0.3% delta-9 THC, that would be fairly uncontroversial. The 2018 Farm Bill clearly indicates that it is not removing intoxicating delta-9 THC from the CSA after all.

But here is the issue: the 2018 Farm Bill does account for hemp derivatives, extracts, and cannabinoids. It follows that the legislative intent was not to make processing hemp into extracts, derivatives, and cannabinoids a violation of the CSA. The DEA has either unintentionally or deliberately failed to account for this nuance and it could have a major chilling effect on the Hemp CBD industry or the fast-growing delta-8 THC market. I’ll let you decide whether the DEA is ignorant or nefarious, but I believe that this is an intentional move by the DEA to maintain its authority over cannabis. To be fair I also think the DEA should be disbanded so maybe I am biased.

Regardless of the intent behind the rule, it does create real criminal risk for anyone who processes hemp. If you are concerned about this you can submit comments to the DEA until October 20, 2020 at http://www.regulations.gov/. The interim rule is effective as of August 21, so it is currently the law of the land despite still being open for comment.

We will continue to monitor for any enforcement actions taken by the DEA and will continue to write about the DEA’s rule and its impact on the hemp industry, including Hemp CBD and hemp-derived delta-8 THC.

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TCPA Claims: Will the Supreme Court Come to the Rescue?

After we discussed TCPA claims in our last webinar, we received a few follow-up questions relating to the somewhat recent Supreme Court decision in Barr v. American Ass’n of Political Consultants (“Political Consultants”) and its impact on TCPA claims going forward. Here’s the deal:

Political Consultants is not really going to have an effect on the TCPA lawsuits that are currently rocking the cannabis industry. (See my recent posts on the topic, here and here.) In Political Consultants, one narrow issue before the Supreme Court was whether the government-debt exception to the TCPA’s “automated call” restriction violated the First Amendment – and if it did violate, whether the appropriate remedy would be to invalidate the call restriction completely.

The Supreme Court could have decided this inquiry in its entirety, but it instead severed the government-debt exception from the remainder of the statute in its analysis and narrowly decided that only the government-debt exception violates the First Amendment. Because the Supreme Court left the call restriction otherwise intact, Political Consultants is not going to have any impact on the cannabis industry: the government-debt exception isn’t at issue in any of the pending cases around the country.

There is still hope for some – a lesser known case, Facebook, Inc. v. Duguid (“Duguid”), is also currently before the Supreme Court on the issue of whether the definition of an ATDS “encompasses any device that can ‘store’ and ‘automatically dial’ telephone numbers, even if the device does not ‘us[e] a random or sequential number generator.’” Currently, the Circuits are split on this issue – the Third, Seventh, and Eleventh Circuits read the TCPA to apply only to devices with the capacity to generate random or sequential telephone numbers and dial those numbers. The Ninth and Second Circuits have held that “the statutory definition of ATDS is not limited to devices with the capacity to call numbers produced by a ‘random or sequential number generator, but also includes devices with the capacity to dial stored numbers automatically.” Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1052 (9th Cir. 2018).

What does this mean? In cases where the plaintiff only asserts that the defendant made phone calls or sent texts from lists of customer data, rather than through randomly generated numbers, Duguid could completely gut the value of those claims.

Due to the pendency of Duguid, a notable trend in TCPA litigation is the defendant’s filing of a motion to “stay” – a mechanism by which a case can be paused for a definite (or indefinite) period of time. Courts have generally held that stay requests are reasonable where a Supreme Court decision expected in the following term could moot some or all issues in the case. Other courts have denied a stay outright, but chose to limit the parties’ discovery to issues that would not be mooted by a forthcoming decision.

Defendants in these TCPA claims would do well to evaluate whether requesting a stay makes sense under the specific facts of their case. This move might ultimately be nothing more than kicking the can down the road, but it may help a ton given the uncertain economic situation most are facing.

What does all of this mean of readers? If you are a cannabis business working with a marketing company or other vendor on “direct contact” outreach, don’t hesitate to give us a call to ensure that you are on the right side of the law here. Alternatively, if you have been on the receiving end of any automated dial or text campaigns, please email me at jihee@harrisbricken.com to share your experience and discuss whether taking action could be warranted.

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Making CBD products from scratch is easier than you think

With one wellness company selling its unadorned in-house extracts, it’s simpler than ever to DIY your CBD

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Cannabis Litigation: Will the Supreme Court Hear the Litigation to De- or Re-schedule Marijuana?

Last summer I wrote about a ruling by the Second Circuit concerning a lawsuit filed by five persons challenging marijuana’s status as a schedule I drug under the Controlled Substances Act (“CSA”). The lawsuit asked the federal courts to rule that marijuana’s status as a schedule I drug is unconstitutional under the Due Process Clause of the Fifth Amendment, the Right to Travel, and the Commerce Clause.

Although the Second Circuit expressed considerable skepticism of the drug scheduling regime, the court held that before plaintiffs could seek relief in federal court, they must first file a de-scheduling petition with the DEA. The Second Circuit gave plaintiffs six months to file such petition, noting that a failure to do so would result in the court affirming the lower court’s dismissal of the case. In January 2020, the plaintiffs informed the court they did not intend file a petition and the case was dismissed.

As reported in Marijuana Moment, in July the plaintiffs filed a petition for a writ of certiorai with the Supreme Court challenging the Second Circuit’s ruling (the “Petition”). The Petition asks the Court to take up three questions:

1. Can Congress, consistent with the Due Process Clause of the Fifth Amendment to the U.S. Constitution, criminalize medical cannabis without exception, even for patients who require its daily administration to live?
2. Given the three requirements for designation as a Schedule I drug under the CSA (21 U.S.C. §812(b)(1)), is the classification of cannabis so irrational that it violates the Due Process Clause of the Fifth Amendment to the U.S. Constitution?
3. Can Congress, consistent with the Due Process Clause of the Fifth Amendment to the U.S. Constitution, require persons aggrieved by the classification of a substance under the CSA to submit to an administrative review process that cannot, as a matter of law, provide the relief they seek?

At this point, readers may be asking: Why didn’t the plaintiffs file a petition with the DEA?

Likely for pragmatic and strategic reasons. On the pragmatic side, the DEA was almost certainly going to deny the petition. As we have previously explained:

A dozen times or so, private parties have filed petitions with the Drug Enforcement Administration (DEA), per CSA protocol on rescheduling. The DEA has routinely denied each petition, or declined to accept it outright. The lone exception was a petition filed by the pharmaceutical manufacturer of Marinol, to move the synthetic cannabis drug from Schedule II to Schedule III. That one was granted.”

In addition, as the plaintiffs documented before the Second Circuit, the average delay in deciding petitions to reclassify drugs under the CSA is nine (9!) years.

But didn’t the Second Circuit order the DEA to act promptly to avoid this issue? Yes. In fact, the Second Circuit decided to exercise its discretion to keep jurisdiction of the case and to take whatever action if plaintiffs seek administrative review and the DEA fails to act promptly. The court noted that “under the unusual health‐related circumstances of this case, what has counted as appropriate speed in the past may not count as appropriate speed here.” So this meant the DEA was not going to get away with taking 9 years to decide whether to de- or re-scheduled marijuana.

So what gives?

Well, the key here is that the plaintiffs are making constitutional arguments. “Administrative agencies typically do not adjudicate constitutional challenges. See Elgin v. Dep’t of Treasury, 567 U.S. 1, 29 (2012). Here, the Petition contends that “claims seeking redress for constitutional injury cannot be resolved by the DEA.” Petition at 3. In other words, the plaintiffs are saying: Look, the DEA is not an agency tasked with, or capable of, deciding whether marijuana’s status as a schedule I drug is unconstitutional. The Petition argues the DEA itself has acknowledged its lack of jurisdiction to decide such issues and that the Second Circuit’s ruling directly conflicts with a ruling by the D.C. Circuit, creating a circuit split the Supreme Court should resolve.

So will the Supreme Court hear the case?

It’s too early to tell because the government has yet to file its response, after which the justices will vote on whether or not to grant certiorari and decide the merits of the appeal. (The government’s response is due in mid-September). That said, I believe there is a fair chance the case gets taken up, even though it involves marijuana. That is because the Supreme Court, particularly its conservative members, is increasingly skeptical of the doctrines involving deference to administrative agencies.

One example of this is the principle that courts should generally defer to agencies’ interpretation of a statute that it administers (this is commonly known as the Chevron doctrine). Chevron has been under attack for years, beginning with opinions by Justice Scalia, whose torch has been picked up by Justice Gorsuch. Another example is Auer deference, which is the practice of deferring to an administrative agency’s reasonable interpretation of an ambiguous regulation that the agency promulgated. Although Auer deference recently was upheld in Kisor v. Wilkie by 5-4 vote, the opinions reflect a veering away from giving broad deference to administrative agencies.

This growing distrust of administrative agencies combined with the constitutional questions presented in the Petition may be enough to convince four justices to accept the case. We will continue to follow this fascinating and potentially game-changing litigation.

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6 strains that will prepare you to vote in November

Ready to vote this November? If not, check out 6 strains that will help you make it through election season.

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4 women in history who used cannabis for mysticism

The gift of sight comes more easily with a little help from the plant kingdom. Here are just some notable women from the past who harnessed the powers of cannabis for a higher calling.

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Will California Ever “Legalize” CBD?

It’s been a while since we’ve discussed the status of hemp-derived cannabidiol (CBD) in the Golden State, and unfortunately, it may be a while before we have finality on its legal status. The bulk of the issues that the state faces today go back more than two years and amazingly, still have not been solved.

Problems began in July 2018, when the California Department of Public Health’s Food and Drug Branch (CDPH) published FAQ document that takes the position that CBD is unlawful in California (you can read my take on the FAQ here). Ever since the FAQ was published, there have been sporadic enforcement efforts across the state and a general stunting of a potentially massive market for CBD products. It did not have to be this way and efforts were undertaken to legislate away CDPH’s authority to effectively ban the industry.

In 2019, I must have written a dozen posts on the failed Assembly Bill 228, a law that would have regulated CBD in many consumer products in California. AB-228 made it almost to the finish line but, in the face of intense opposition, failed late in 2019.

In early 2020, Assembly Member Aguiar-Curry, the same Assembly Member who introduced AB-228, introduced AB-2827. As it was introduced, AB-2827 was a bare-bones bill that was likely intended to be substantially supplemented and eventually create a pathway for regulated CBD products. However, shortly after the bill was introduced, COVID-19 emerged and the bill has basically been sitting there unattended for months.

In May 2020, the Hemp Industry Daily reported that Aguiar-Curry would be reviving the bill in August 2020, prior to the close of 2020’s legislative session. It’s now August and while Aguiar-Curry has come out vocally in support of CBD legislation (see here, for example), the state has yet to move forward with actual legislation.

2020’s legislative session will not last much longer and if the legislature does not take the matter up in short order, it may be another six months until the state sees movement on CBD. To some extent, COVID-19 is to blame for the delays, but the state has had two years to address CBD and has not been able to yet. In fact, it seems as if California may even get lapped by the famously slow FDA at this point.

We here at the Canna Law Blog are hopeful that the state will change course and get things back on track for the many, many CBD businesses and entrepreneurs across the Golden State and beyond, that want to be compliant and offer quality CBD products. Until then, the industry’s stuck in CDPH’s unnecessary, self-created limbo. Stay tuned to the Canna Law Blog for more updates on California’s CBD industry.

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