Cannabis and Ballots, Part 1: Ecuador

Five Latin American nations are set to hold presidential elections in 2021, with legislative elections taking place in an additional two. Most of these contests will have implications for cannabis policy, and we will be looking at what is at stake in each vote, starting with Ecuador, which heads to the polls next Sunday, February 7 to elect a new president and legislature.

Last October, Ecuador’s agriculture department issued hemp regulations, establishing a legal framework for cannabis with THC content of less than 1.0%. Possession or use of cannabis is decriminalized, but only for amounts that do not exceed ten grams. Might a new occupant of Carondelet Palace push for further legalization, opening the door to legal recreational cannabis?

The current frontrunner is Andrés Arauz, an economist and University of Michigan alum. Arauz’ running mate, Carlos Rabascall, has said their administration would not modify the schedule that established that maximum amount. However, it is important to remember the schedule includes drugs such as ecstasy and heroin, from which the government could differentiate cannabis if necessary.

Arauz has indicated former president Rafael Correa (also a Big Ten grad, having earned a PhD at the University of Illinois) will be one of this principal advisors. It was under Correa’s watch that Ecuador decriminalized cannabis and other controlled substances (subject to the scheduled described above). However, he was lukewarm on the issue of legalization, declaring in 2014 that his government had “a thousand priorities” that were more pressing. At the same time, he warned “the current strategy against drugs and drug trafficking has been a complete failure, so we must not exclude any possibility, including legalizing some drugs.”

In addition to his rejection of the law-and-order approach, the worldly Correa (who currently lives in his wife’s native Belgium) must surely be aware of the sea change that has taken place when it comes to cannabis in the years since he left office. As for Arauz, it is hard to imagine a 36-year-old who studied in Ann Arbor (home of the Hash Bash) and Mexico City (arguably the most liberal city in Latin America) would have deep-seated hostility to cannabis. It seems clear that cannabis legalization would not be a priority for an Arauz presidency, but if a debate does open up, his response and that of his trusted advisor might be favorable.

For his part, Arauz’ main rival, Guillermo Lasso, tweeted last year that “Cultivation and distribution must be allowed for MEDICINAL USES.” While his unequivocal support for medical cannabis is encouraging, his all-caps emphasis also suggests he does not support extending legalization initiatives to recreational cannabis.

Under Ecuador’s electoral system, a second round of voting will be required if no candidate wins an outright majority in the first round (or 40% of the vote with a lead of more than 10 points over the closest rival). Most polls suggest Arauz will need to face Lasso in a runoff, but Yaku Pérez, a member of the indigenous Cañari group, remains competitive for the second spot. Pérez has placed environmental concerns at the heart of the platform, opposing extractive activities, which suggests he might be amenable to further development of an ecofriendly cannabis industry. As far as we can tell, though, Pérez has made no public statements regarding cannabis.

In all, the future of Ecuador’s hemp industry appears safe, regardless of the electoral results. Moreover, with some luck, the country might see further legalization. We will be keeping an eye on what happens on February 7 and beyond.

Stay tuned for previews of elections in:

• Chile
• Peru
• Mexico
• Argentina
• Honduras
• Nicaragua*

* Technically speaking, Nicaragua will be having an election in November, but as things stand, the ruling party will be free to disqualify opposition candidates. 

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California Cannabis Claims: Defamation

Last year, we had a mini-series on the blog that covered the five most common causes of action we were seeing in the cannabis industry (links to the series are at the bottom of this post). In follow up, we’ve been getting quite a number of consultation requests or questions from existing clients about another notorious claim that seems to be rampant lately: defamation. This week, we’ll cover the basics on defamation because it’s actually not the easy and straightforward claim you might think it is.

Introduction

At its core, defamation involves a false, unprivileged statement about an individual. Defamation is broken down into two categories – libel and slander:

• Civil Code s. 45 defines libel as “a false and unprivileged publication by writing, printing, picture, effigy or other fixed representation to the eye, which exposes any person to hatred, contempt, ridicule or obloquy, or which causes him to be shunned or avoided, or which has a tendency to injure him in his occupation.” In short, libel is written.
• Civil Code s. 46 defines slander as “a false and unprivileged publication, orally uttered, and also communications by radio or any mechanical or other means …” Slander is oral.

Libel and slander are further broken down as “per se” or “per quod.” Libel per se means the written statement is defamatory on its face. Slander per se means the oral statement implicates the plaintiff with one of the following:

• Criminal activity
• Contagious, infectious or loathsome disease
• Unethical/incompetent business conduct (most relevant)
• Impotence or unchastity

Libel or slander per se are basically more egregious and implicate presumed damages. Libel or slander per quod is anything that doesn’t qualify as libel or slander per se.

Statute of Limitations

A defamation cause of action has to be brought within one year. The clock starts ticking when the statement is published – not when the plaintiff discovers it (for the most part). Publishing on a website counts!

Elements of a Defamation Claim

1. Statement: this can be in any form of communication, and the statement must be of fact, not opinion. However, be careful about this – just because you start your “opinion” with qualifying words like “apparently,” or “you might say,” doesn’t mean your statement is undoubtedly an opinion. The court will decide whether a statement is an actionable fact or an unactionable opinion.
2. About the plaintiff: the statement has to be about the plaintiff. Note: entities count as plaintiffs!
3. Publication: publication doesn’t mean the statement needs to be in a magazine or said on a popular podcast – if it is communicated to at least one person (other than the plaintiff), that counts as publication.
4. Defamatory meaning: the court determines as a matter of law whether a communication is defamatory – but in general, if it lowers plaintiff’s esteem in the community, it’s defamatory.
5. Fault: defendant failed to use reasonable care to determine the truth or falsity of the allegedly defamatory statement.
6. Causation:
   • Libel or slander per se: Statements that are defamatory per se are so serious that causation is presumed. The plaintiff does not need to prove actual injury.
   • Libel per quod: the plaintiff must prove he/she/it suffered “special damages” as a proximate result of the defamation. Special damages are defined as “all damages that plaintiff alleges and proves that he or she has suffered in respect to his or her property, business, trade, profession, or occupation, including the amounts of money the plaintiff alleges and proves he or she has expended as a result of the alleged libel …”
   • Slander per quod: the plaintiff must prove he/she/it suffered actual damage.
7. Damages

Remedies

The remedies available are a bit nebulous, and they also depend on which sub-claim is being asserted:

• Compensatory Damages: examples include harm to the plaintiff’s reputation, harm to the plaintiff’s property, business, trade, profession, expenses the plaintiff had to pay as a result of the defamation, and even emotional distress.
• Injunctive Relief: an order enjoining future publication of the defamatory statements.
• Punitive Damages: where the defendant is found of guilty of oppression, fraud or malice, punitive damages may be awarded as well.

In my next post, we’ll cover a California-specific body of law called the anti-SLAPP laws that aim to curb the amount of baseless defamation claims out there – and make the calculus of pursuing and defending them even more complicated.

Here are those links to our past mini-series:

• Breach of contract
• Breach of fiduciary duty
• Fraud
• Intentional interference with contractual relations
• Unfair competition

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Checking out the G Pen Roam portable vaporizer

Watch as we unbox the G Pen Roam all-in-one portable vaporizer and give you the download on all the goodies inside.

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Cannabis Dispensaries Linked With Drop In Opiate-Related Deaths

A new study shows a connection between cannabis storefronts and decreased deaths due to opioids.

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The Roll-up #181: Why gummies are the king of all edibles

Infused gummies: They are so fine they blow our minds. Why? And where did they come from?

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Does My International Cannabis Business Need to Register in the U.S.?

In the prior post in this series, we discussed U.S. federal and state taxation requirements for international cannabis companies. This post focuses on when a foreign company should or must register as doing business in a U.S. state, either by registering their foreign company directly in that state or by forming an affiliate or subsidiary company in that state.

Other than registration with the U.S. Internal Revenue Service (“IRS”) to fulfill U.S. tax obligations, there is no federal business registration in the U.S. because registration is done at the state level. The criteria for whether you need to register in a U.S. state depends on the laws of each state regarding when a business is considered to be “doing business” in that state. This determination is independent from whether you owe income tax or another tax based on your U.S. sales in a state.

For instance, in Washington, California, and New Jersey, only selling product through a broker or maintaining a bank account at a financial institution is not enough to require registration in those states. But doing anything more than maintaining a bank account, selling product through a broker, or doing other minimal business activities requires registration in those states:

State	Registration Required	Comments
Washington (WA)	Yes	If leasing warehouse space, storing product, or repackaging product in WA
California (CA)	Yes	If leasing warehouse space, storing product, or repackaging product in CA
New Jersey (NJ)	Yes	If leasing warehouse space, storing product, or repackaging product in NJ

Each international cannabis company will need to analyze each part of their U.S. operations to determine whether they need to register to do business in any states.

If, for example, you leased warehouse space and stored all of your west coast product in Washington and shipped it into California after the sale, then you would not need to register in California. The reverse would also be true if you stored all of your west coast product in California and shipped to Washington.

But if you would need to retool your CA and WA logistics to make this happen, that would probably cost you more in the long run (via shipping delays and other issues) than going ahead and registering in each state where you lease warehouse space or store product.

Often the criteria that a state’s taxation bureau applies regarding your income and sales tax obligations is different than the criteria that is applied by its department of commerce or secretary of state regarding whether the business needs to be registered.

The cost for initial state registration varies from USD $100-$300, and annual compliance with each state varies from a few hundred dollars to tends of thousands of dollars. The latter extreme expense can happen in Delaware, so be very careful when setting up a Delaware entity so you can ensure you minimize your annual franchise tax payment.

Generally, nonpayment of taxes is significantly more serious than nonregistration of a business entity due to high penalties that can and will be assessed against business owners (not just against the nonpaying businesses), but it is important to comply with both registration and taxation requirements.

Lastly, 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. 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.

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Pennsylvania Gov. Tom Wolf Makes Marijuana Legalization A Priority For 2021

The governor of Pennsylvania continues his push for legal pot.

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City of Atlanta Eliminates Pre-Employment Drug Testing For Certain Occupations

The mayor of Atlanta has signed an executive order suspending drug testing for certain prospective employees.

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Opioid Prescriptions Decline in Canada Following Cannabis Legalization

A recent study examines the rate of opioid prescriptions in Canada before and after cannabis legalization.

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How to share weed during a pandemic

We're all tired of the pandemic and miss that ceremonious smoke circle, but in the meantime, here are five ways to connect with your homies while getting high.

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Des Moines Decriminalizes Cannabis Possession—But It’s On Hold

The measure would make cannabis possession the lowest priority in the city.

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California Cannabis Enforcement and Age Limitations

One of the more clear aspects about cannabis law in California is age limitations. People can only enter dispensaries if they are 21 or up (for adult-use recreational customers) or 18 or up (for medical customers). The state affirmatively obligates retail licensees to verify that customers are the appropriate age before even letting them into a dispensary.

Sales of cannabis to minors can lead to serious penalties for cannabis licensees. Our cannabis lawyers in other states have seen enforcement actions based on minor sales before, so we only expect them to increase in the future. In this post, we’ll look at how the agencies will eventually be able to enforce minor-sales prohibitions in California.

What will inevitably happen (if it isn’t already happening) in California is that law enforcement will use “minor decoys” to verify compliance with age verification rules. The concept of minor decoys is actually baked into the Bureau of Cannabis Control (BCC) regulations. Specifically, law enforcement may use persons under 21 to “attempt to purchase cannabis goods, for the purposes of enforcing [state law], and to apprehend licensees, employees, or agents of licensees who sell cannabis goods to minors.”

That said, law enforcement’s hands are tied to some degree in how they can use minor decoys. For example:

• At the time of any operation, a minor decoy must be at least 20 years old. Using a decoy who is 18 or 19 still will not be permitted. This ultimately means that it will be much more difficult for law enforcement to prove that someone is not enforcing medical age verification rules that allow 18-year-old customers into dispensaries, given that persons under 18 couldn’t serve as decoys.
• Decoys must carry their own government-issued identification with their correct birthday or no identification at all. If the decoy is asked for their identification, they have to give it to the seller. This means too that decoys can’t present “fake” forms of identification. If these rules are followed literally, then sellers should only violate the rules if they fail to ask for ID, fail to properly read ID, or just ignore the ID altogether.
• Decoy are required to answer truthfully any questions about their age. Here too, the rules seem to prevent decoys from trying to bait a licensee into non-compliance with dishonesty.

These are not all of the requirements applicable to minor decoys, but the major ones. While this form of enforcement will inevitably be used, law enforcement will have to follow at least those procedures outlined above. If they don’t, then penalized licensees may have grounds to contest any sort of penalty or fine imposed on them by the state cannabis agencies (though it’s a bit less clear whether that would serve as a shield from any kind of prosecution).

As we’ve said for a long time, enforcement is inevitable in cannabis. Stay tuned to the Canna Law Blog for more developments on California’s enforcement regime.

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Bill To Decriminalize Possessing, ‘Casually’ Exchanging Small Doses Of Pot Introduced In Tennessee

For a casual transfer to comply with the proposed law, it must be a spontaneous transfer of marijuana without a transaction taking place.

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U.K. Mom of Epileptic Child Gets Cannabis Reprieve In Light of Brexit

Because of changing import laws due to Brexit, cannabis patients in the United Kingdom will have a much harder time accessing their medication.

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Red White & Bloom and High Times Collab Releases More Products in Michigan

After selling out within hours, the Red White & Bloom and High Times Collab is back for Round Two.

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Cannabis in Mexico: FREE Webinar Tomorrow, January 28!

Register HERE!

Mexico will soon be the largest country in the world to legalize cannabis and now is the time to start preparing for that.

Join Harris Bricken, in partnership with Mexico-based law firm, Lawgic, for a FREE hour-long, Q&A webinar tomorrow, Thursday, January 28th, at 12pm PT to learn about cannabis legalization in Mexico and how you can best position yourself to take advantage of it. The panel will be moderated by international cannabis and hemp CBD attorney, Nathalie Bougenies. Adrián Cisneros Aguilar, our lead Mexico cannabis law attorney, will join Lawgic’s Aldo Ricardo Rodríguez Cortés and Roberto Ibarra López to answer your questions.

During this webinar, we will discuss how businesses and investors can participate in Mexico’s soon to be booming cannabis and hemp industries. The panelists will answer the following questions during the webinar:

• What is the current situation concerning cannabis legalization in Mexico?
• How imminent is legalization?
• What can be done now (before legalization occurs) and what can be done once the market is fully legal?
• What are the major business opportunities for domestic and international companies?
• What links in Mexico’s cannabis supply chain will be best for foreign investment?
• What are the main issues for domestic and international businesses relating to cannabis imports, sales and marketing?
• What should you and your company be doing in Mexico NOW to prepare for when legalization takes place?

The panelists will spend the final 15 minutes answering attendee questions. We will have more than 1,000 registrants so please send us your questions in advance of this event so we can eventually answer all of them here on the blog or in a subsequent session.

Register HERE!

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Recreational Marijuana Could Raise $43 Million In Tax Revenue For Delaware Each Year

The Delaware state auditor is making a strong case for cannabis legalization in the state.

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Why are gummies the most popular weed edible?

Weed edibles used to be all about brownies and cookies, but one type has risen to the top as of late, beloved by consumers and producers alike: gummies.

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Canadian Circle K Stores Now Carrying Cannabis Gift Cards

The gas station chain, Circle K, is now selling gift cards to a cannabis dispensary in 300 locations in Canada.

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High Glass Society: Operation: Pipe Dreamers Brings Legitimacy To The Glass Pipe World

The new series "Operation: Pipe Dreamers" showcases artists fighting against the social and political stigma of creating glass pipes.

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Oregon Cannabis 2021: Legislative Forecast and Report

The Oregon legislative session kicked off in earnest last week, with 32 proposed cannabis bills crowding the docket. In this post, I will run down the list and offer brief comments on each offering, as I do every year. Before diving in, though, some context will be useful.

First, the Oregon legislature is somewhat dysfunctional. Last year, the session was cut short when Republican legislators skipped town to protest the Democrats’ climate change bill. A series of draft cannabis laws (along with everything else) was left in the lurch. This year, the legislative focus seems centered on crisis response (COVID, wildfires, etc.) with big policies taking a back seat. In a sense, that bodes well for cannabis bill prospects, alongside the fact that the session is slated to last a full five months. But the Democrats still do not have a quorum-proof majority, so really, anything could happen.

Second, the recent success of ballot Measure 110 (which decriminalized all drugs in Oregon) will have a significant, unpredictable impact on cannabis legislating. Most immediately, it will peel off about 75% of current statewide marijuana tax revenues. This is because Measure 110 “dedicates all marijuana tax revenue above $11,250,000 quarterly [to ‘addiction recovery centers].’” As such, we should expect to see a lot of discussion around bills to raise marijuana taxes. (I’ll probably be pilloried for saying this, but Oregon is a comparatively low-tax, high-cannabis consumption state, and taxes could go higher.)

Third, something needs to be done about hemp. The Oregon Department of Agriculture (ODA) recently withdrew the hemp plan it had submitted to the feds. This means we will proceed for one more growing season under the 2014 Farm Bill—which is a not a bad thing—but the program is at a regulatory crossroads, of sorts, on certification and other issues.

And fourth, if we are ever going to see a cannabis social equity bill become law, this should be the year. We have engaged with various stakeholders on the $100 million Oregon Cannabis Equity Act and things seem to be progressing well– although the proposed bill has not yet been introduced. In my view, the big challenges here are going to be:

1. Finding money (there’s not much lying around right now, although Oregon may get see more support from the feds this year);
2. Surviving the Ways & Means committee (the bill would almost certainly “create a fiscal” and be sent to W&M);
3. Dialing in the best possible language to survive equal protection challenges; and
4. Unfortunately, this ship has sailed to some extent. There are thousands of cannabis industry licenses issued at this point in Oregon, and would-be beneficiaries of the Oregon Cannabis Act will start from a moored position. The legislature should have dealt with this way back in 2015.

So that’s the big picture. In the long list of bills below, I’m going to keep the comments brief– not so much for timing or readability concerns, but because it’s harder than ever to know what to make of all the cannabis bills this year. In most sessions, we begin with a clear idea of which bills have momentum, which have none, which could be patched in elsewhere, and which could be gutted and stuffed. At this point, though, the Joint Committee on Marijuana Legalization is a few years gone and the legislature’s composition has changed dramatically over a short period. There are many just a lot of new people and ideas, with COVID throwing a wrench into all of it.

House Bills (20)

HB 2014.  Distributes marijuana tax dollars to certain cities determined by population and location of city, and based on share of retail sales of marijuana items in state. This would be an exception to standard distributions based on city share of population and of licenses for marijuana- related businesses.

I am not sure this is going anywhere. Some jurisdictions will love it  and some will hate it, for obvious reasons.

HB 2015.  Increases maximum percentage of tax that a city or county may impose on sale of marijuana items, from 3% to 10%.

I believe the rates will increase, unless the state wants to claw some of this back from the localities. One way or another, I think marijuana taxes will go higher.

HB 2111.  Changes name of “Oregon Liquor Control Commission” to “Oregon Liquor and Cannabis Commission.”

By keeping the OLCC acronym, at least they’ll be saving on stationery! I do expect this one to pass, either on its own or as part of a cannabis Christmas tree elsewhere.

HB 2263.  Directs OLCC to study recreational marijuana tracking. It requires a report and sunsets in a year.

To me, “marijuana tracking” doesn’t seem to be a pain point in the OLCC program right now, but let’s see what happens here.

HB 2265.  Directs OLCC to study cannabis. It requires a report and sunsets in a year.

Obviously, this is really general. Someone needs to dial this in or drop it.

HB 2281.  Directs ODA to administer Oregon Hemp State Program for production, processing and sale of hemp. [Status quo.] Changes term “industrial hemp” to “hemp.” [Good idea.] Requires department to conduct criminal records check of applicants for licensure to grow hemp. [Mirrors 2018 Farm Bill protocol. Would hurt a lot of people who were victimized by the War on Drugs.] Allows department to identify and require by rule licensure for other activities related to hemp. [OK.] Directs department to establish by rule requirements for shipment manifest for commercial hemp shipments. [Sounds good.] Becomes operative January 1, 2022.

HB 2284.  Establishes an Oregon Hemp Commission.

More and more, I’m thinking we don’t want a special commission for this one commodity crop. I may pick up this topic in a future post.

HB 2294.  Imposes tax on wholesale sales of marijuana items across county borders, occurring on or after January 1, 2022.

I don’t like this one. I love the simplicity of Oregon’s current retail tax model. From an administrative perspective, it’s so easy to deal with. I also dislike the “county” issue here. There is no reason to discourage cannabis being transported from where it grows (and should be grown) to where it will be sold.

HB 2296.  Allows ODA to enter into agreements with law enforcement agencies to assist the department in carrying out certain inspections of industrial hemp.

Obviously the concern here is diversion and disguised THC crops. But there are a lot of challenges with a set-up like the one proposed here, from how the testing is actually done to general policing and delegation issues.

HB 2416.  Directs ODA to advance design of cannabis business certification program. Directs Oregon Liquor Control Commission (OLCC) to allocate moneys from Marijuana Control and Regulation Fund to department for purposes of cannabis business certification program.

More red tape. No.

HB 2445.  Enacts a 2028 sunset for exemption of medical marijuana registry cardholder or primary caregiver from tax imposed on retail sale of marijuana items.

Expect serious pushback, even with the date kicked out so far. Oregon has never been able to tax medical marijuana, although I wonder how strong the patient lobby is anymore.

HB 2519.  Allows delivery of marijuana items to consumers within a city or county in which a marijuana retailer is located and to consumers in cities or counties that have adopted ordinances allowing for delivery of marijuana items from adjacent cities or counties.

Absolutely. Delivery is working great with COVID and was before, too.

HB 2671.  Hemp. Directs ODA to issue research licenses to qualified applicant. Allows licensed researchers to collect samples of industrial hemp crops that exceed tetrahydrocannabinol limit to perform studies related to crop biochemistry.

Sounds good although I doubt they’d get many applications.

HB 2973.  Prohibits adults from possessing more than two ounces of usable marijuana in public place. Provides that delivery of not more than two ounces of usable marijuana to adults is exempt from certain laws regulating marijuana. Directs OLCC to adopt rules in accordance with possession limits.

So it keeps the personal possession limits in place, but only at a residence. The trick here, or one of them, would be getting the “public place” definition right. Not an inspiring idea overall.

HB 2982. Prohibits OLCC from disciplining a licensee or licensee representative for violation if violation is result of theft.

Absolutely! I have been complaining about this since the day the rules issued. 

HB 2990.  Requires Oregon Health Authority (OHA) to share specified information related to marijuana for medical use with authorized employees of local governments for certain purposes.

State and local law enforcement already have access to this information by statute. Not sure what the policy concern is here, with respect to local government employees.

HB 2996.  Directs OLCC to establish by rule process to register medical marijuana grow sites. Defines “medical marijuana grow site.” Allows medical marijuana grow sites to apply for registration no later than June 1, 2022. Establishes plant production limits for medical marijuana grow sites registered by commission. Specifies that marijuana grow sites registered by Oregon Health Authority may produce marijuana for no more than two registry identification cardholders. Becomes operative January 1, 2022.

This bill is trying to wind up a years-long process of moving medical marijuana regulation from OHA to OLCC. We saw this one coming many years ago.

HB 2997.  Directs Department of Revenue, OHA, OLCC, ODA and the Governor’s office to consult with Oregon Cannabis Commission and other cannabis entities to develop plan to address issues related to regulatory authority over marijuana, over the course of one year. Requires plan to be submitted to interim committees of Legislative Assembly. Directs OLCC to adopt rules to develop compliance education programs for cannabis entities regulated by commission.

I don’t see it happening. Too many bigger fish to fry.

HB 3000.  Directs OLCC to “study cannabis”: for a year. Requires report to interim committee of Legislative Assembly related to judiciary.

Mirrors HB 2265. Please provide details Representative Wilde!

HB 3013.  Same as HB 3000.

Senate Bills (8)

SB 35.  Directs ODA to administer Oregon Hemp State Program for production, processing and sale of hemp. [Status quo unless the state gives up next year and doesn’t submit a USDA plan.] Changes term “industrial hemp” to “hemp.” [Good.] Requires department to conduct criminal records check of applicants for licensure to grow hemp. [I don’t like it. Mirrors 2018 Farm Bill policy.] Allows department to identify and require by rule licensure for other activities related to hemp. [OK.]

This one will probably be reconciled with HB 2881, and merit some real discussion.

SB 96.  Defines “cannabinoids” for purpose of inhalant delivery systems. Authorizes OHA to consult with OLCC on adoption of rules related to inhalant delivery systems containing cannabinoids. Authorizes commission to regulate testing and labeling of inhalant delivery systems that contain cannabinoids derived from industrial hemp.

The state has been grappling with vape laws and rules for a while. Will be interesting to watch this one.

SB 157.  Enacts 2028 express sunset for exemption of medical marijuana registry cardholder or primary caregiver from tax imposed on retail sale of marijuana items.

cf. HB 2445 above.

SB 307.  Waives fees for obtaining medical marijuana card for veterans who have total disability rating of at least 50 percent as result of injury or illness incurred or aggravated during active military service, and who received discharge or release under other than dishonorable conditions.

Seems like low-hanging fruit, with the only question being whether 50% is the right number.

SB 400.  Directs OHA to study medical marijuana registry identification cardholders, for a year. Requires report to interim committee of Legislative Assembly related to judiciary.

I guess more information would be fine. May not go anywhere.

SB 402.  Allows hemp grower or handler to sell or transfer hemp cuttings. Defines “cutting” as any part of the hemp plant that (A) has been removed or has fallen off the hemp plant; (B) is not dried; and (C) does not include any roots, or parts or roots, of the hemp plant.”

The discussions here will be pretty fun! It’s obvious why industry wants this; cops not so much.

SB 408.  Allows marijuana producer to track mature marijuana plants by “batch” [as opposed to by plant]. Allows marijuana producers owned at least 51 percent by same person to transfer to one another marijuana and usable marijuana. [Producers cannot currently transfer to producers, at all.] Allows marijuana producer to receive specified marijuana items from marijuana processor. [I want to understand the policy here.] Specifies information required in transfer manifest for transport of marijuana. [OK.]

Interesting bill overall. Working around the edges on some OLCC environment issues.

SB 411.  Directs OHA and OLCC to study cannabis packaging and write a report by next session.

Hopefully the idea here is not to go more restrictive.

—

Stay tuned as always. We will update during the course of the next five months on any big developments, and recap per usual at the end of the session.

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Removing Fascism from The German Cannabis Discussion

88 years after the Nazis came to power, the last vestiges of their influence are being rooted out of German culture, language, laws, and science. Cannabinoids are on the leading edge of that.

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New Mexico Cannabis Legalization Bill May Be Coming Soon

New Mexico lawmakers are preparing a cannabis legalization bill to introduce to Congress.

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Several Nations Could Legalize Adult Use Cannabis In 2021—Which Could Be Next?

The new year brings more opportunities to legalize, decriminalize, and reform the laws regarding cannabis.

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Is Amsterdam really going to ban tourists from cannabis coffeeshops?

The mayor wants the ban, but few others do—and the results could be disastrous.

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Arizona Issues Interim Final Regulations AND New Recreational Licenses

Exciting times have arrived in Arizona’s cannabis industry! The Arizona Department of Health Services (the “Department”) (1) released final interim rules for recreational licensees, and (2) issued new recreational licenses. As noted by Marijuana Moment’s Kyle Jaeger, the marks the fastest transition from voter approval to sales implementation of any state that has legalized marijuana to date.

Specifically, on January 22, 2021, the Department issued 86 new licenses for adult use or recreational use marijuana (CLICK HERE for the list). By happenstance, I drove by the Harvest dispensary in North Scottsdale on Friday (January 22), and the lines were literally around the building! So, it appears that recreational sales have started out strong in Arizona.

The Department also released final interim rules for adult use establishments in January 2021, that were effective as of January 15, 2021 (CLICK HERE to view the regulations). Unfortunately, it does not appear that the Department released a redline of the regulations that show the changes from the draft rules to the interim final rules. However, I will discuss a few of the more important changes below.

It’s worth noting too that the Department did not make changes to certain rules notwithstanding public requests to do so. For example, certain commenters requested that the license fee be reduced for initial licensees. The Department decided to stick with its original proposal, so the initial licensing fee remains a pretty steep $25,000.

One change made to the rules is with regard to the financial conditions that must be satisfied by a licensee. Under the draft rules, the applicant had to demonstrate it had “at least $500,000 in funds available” and a financial institution had to provide evidence of same within 60 days of the application. Under the interim final rule, while there is still a requirement for at least $500,000 in available funds, there are now a few other requirements. A.A.C. R9-18-303(A)(6).

1. A financial institution has to provide proof of funds within 30 days of the application.
2. The Department has expanded who may have the funds. Before, it was just the applicant. Now, it can be the “applicant or principal officer or board member of the applicant” who has the funds.
3. The documentation provided to the Department must now show evidence “that the $500,000 has been under the control of the applicant or principal officer or board member of the applicant for at least 30 days before the date of the application.”
4. Under the draft rules, an applicant had to show “$500,000 in funds available.” Now, an applicant or other appropriate person must show “$500,000 in liquid capital, as defined in A.R.S. § 6-851.” (CLICK HERE for the definition of liquid capital).

Another new requirement is that an applicant must ensure that an individual is not an applicant, principal officer, or board member on more than five (5) marijuana establishment license applications. R9-18-303(C). This new regulation relates to just recreational licensees (medical marijuana licensees are discussed in separate regulations).

Security is another area that has new requirements. For example, while there were certain security requirements regarding cultivation, the interim final regulations provide more stringent standards. R9-18-312(A)(1) & (2).

1. For indoor cultivation sites, the marijuana must be cultivated in a closed, locked room.
2. For outdoor cultivation sites, the location must (a) be surrounded by solid, 10-foot walls that are constructed of metal, concrete, or stone that prevent viewing of the marijuana plant, and (b) have a one-inch thick metal gate.

These new requirements, especially for outdoor cultivation, will certainly add expenses to the development of a cultivation site. However, it certainly appears that these regulations will also help to protect licensees from theft and other nefarious activity.

In the coming months, we expect to see draft rules for both testing facilities in Arizona as well as the new Social Equity Opportunity Program. When they are released, we will be reporting on those requirements as well.

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Circle K is the Latest Company to Take on a Cannabis Business in a Trademark Dispute

Earlier this month, Circle K Stores Inc., owner and operator of the chain of Circle K convenience stores, filed a Trademark Trial and Appeal Board (“TTAB”) Notice of Opposition against Medical Marijuana, Inc., a California company with a pending U.S. federal trademark application for the following design mark (the “MM ‘K’ Mark”):

The MM “K” Mark was filed to cover the following services in Class 035:

Marketing consultation in the field of botanical products and hemp-based products, namely, hemp-based personal care products, anti-aging products, food and nutritional supplements, chewing gums, candies, beverages, edible oils, and vaporizers; retail services provided through direct solicitation by a network of independent distributors and independent representatives directed to end-users featuring botanical products and hemp-based products containing or derived from cannabis with a delta-9 THC concentration of not more than 0.3% on a dry weight basis, namely, non-medicated hemp-based personal care products, non-medicated anti-aging products, and vaporizers; online retail store for botanical products and hemp-based products containing or derived from cannabis with a delta-9 THC concentration of not more than 0.3% on a dry weight basis, namely, non-medicated hemp-based personal care products, non-medicated anti-aging products, and vaporizers.

Circle K owns a number of U.S. federal trademark registrations covering services in Class 035 (such as retail store services, grocery store services, restaurant services, and other distribution channels for the sale of personal care products, anti-aging products, food and nutritional supplements, chewing gums, candies, beverages, edible oils, vaporizers, etc.), including the following “K” logo:

According to Circle K’s Notice of Opposition, the company operates nearly 10,000 stores in North America, and operates thousands of stores in Europe and Asia. Circle K alleges that the MM “K” Mark so resembles the Circle K mark(s) that, when used on or in connection with the goods identified in the Opposed Application, it is likely “to cause confusion, to cause mistake, or to deceive” consumers as to the source of the goods.

We’ve written before about the TTAB opposition process, and have also talked about what TTAB opinions related to cannabis typically look like. A trademark opposition is a proceeding in which one party seeks to prevent registration of another party’s trademark (as is the case here). If a party believes that it will be damaged by the registration of a mark, it can file an opposition. The TTAB’s Manual of Procedure provides guidance for TTAB proceedings, and the TTAB follows the Federal Rules of Civil Procedure.

Following application for a U.S. federal trademark, if an examining attorney approves an application for publication, that application will be published for opposition for a period of 30 days. During that 30-day opposition period, third-parties may file a Notice of Opposition with the TTAB, which begins the opposition proceeding. During the opposition period, third-parties may also request extensions to file a Notice of Opposition, granting them additional time to attempt settlement negotiations or begin the opposition process.

An opposition proceeding with the TTAB is similar to litigation in federal or state court. The Notice of Opposition that must be filed by an opposer is similar to a complaint in that it states the factual background of the case, the grounds for opposition of the trademark application, and the request for relief. Any person who believes it is or will be damaged by registration of a mark has standing to file a complaint.

At this point, Medical Marijuana Inc. has yet to file its response, but we will follow along to see if they do. If they fail to respond, a default judgment will be entered against them, and their application for the MM “K” Mark will be abandoned. This case is one of many in the long list of trademark disputes we’ve seen lately involving large corporations and cannabis companies, and could help inform future cannabis trademark applicants as to the scope of goods or services they can safely provide under a mark that is similar to an established brand without infringing.

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Does My International Cannabis Business Need to Pay U.S. Federal or State Taxes?

We regularly field inquiries from international companies and existing international clients regarding U.S. cannabis business operations. This post and the two that follow will answer questions for foreign cannabis companies regarding when they need to pay U.S. federal and state income taxes, when they need to register a U.S. business entity, and what options are available to them to establish U.S.-based banking operations.

First, you need to recognize that your law firm will stay within its core area of expertise and focus on the legal requirements of your business rather than the execution of your tax obligations. You will want to engage a U.S.-based accounting firm to help with ensuring your tax filings are completed on time and accurately. This may mean you need to hire a CPA firm with international tax expertise and a local CPA firm where you do business in the U.S. Or you may want to hire one international CPA firm to deal with both your international and domestic tax obligations.

Many of our international cannabis clients have been very successful in their home countries and have started to engage in some U.S. sales. These sales may be accomplished directly from abroad to consumers, from abroad through brokers, or by directly engaging in U.S. business operations in country. Many of these companies understand the potential perils of the international cannabis trade and want to ensure they are exactly compliant to avoid any business or immigration issues for owners and employees.

U.S. Federal Income Tax

All U.S.-based income is initially subject to U.S. income tax unless an income tax treaty applies between the U.S. and a foreign company’s home country. If a tax treaty applies, then the foreign company can claim a reduction in U.S. federal income tax if the foreign company already paid income tax in the foreign company’s home country on that U.S.-based income. The U.S. has an income tax treaty with 68 countries, many of them dating back decades. You may be surprised at some of the countries on the list: Venezuela, Russia, Malta, Switzerland, and Cyprus, for example, and others that are not on the list: Singapore, Hong Kong, British Virgin Islands, Bermuda, Argentina, and Brazil.

Generally, as soon as an international cannabis company closes its first U.S. sale, it will incur some U.S. federal income tax obligations. If as an international cannabis company you want to continue to do business with the U.S., you will want to do everything possible to take advantage of income tax savings under an applicable income tax treaty, even if it means first setting up a new subsidiary in a country that has an income tax treaty in place with the U.S.

As an international business you can generally determine how you want to be taxed at the U.S. federal level. You should consult with legal and tax counsel to help you choose your optimal U.S. federal tax classification (c corporation, partnership (LLCs and partnerships), and sole proprietor (s corporation status is not available to international owners).

U.S. State Income Taxes and Related Taxes

U.S. state income taxes vary from state to state, and not all states honor the effect of an international income tax treaty. For instance, both California and New Jersey require payment of state income tax based on revenue from sales in their states even if a tax treaty with a foreign country exists at the U.S. federal level.

You will need to check the requirements of each state where you make sales to determine whether and when they require payments of income tax or a similar tax. For instance, Washington does not have a state income tax, but it has a gross receipts tax that is similarly based on sales within Washington. This means that the gross receipts tax is seen as outside the effect of an income tax treaty. See below:

State	Income Tax	Other Tax	Comments
Washington (WA)	None	Gross receipts tax (0.484% of gross receipts)	Gross receipts = gross income or gross sales from WA buyers
California (CA)	8.84% of net income for corporations	Depends on current business operations	Only based on CA sales, not U.S. or worldwide sales
New Jersey (NJ)	6.5-9.0% of net income (percentage change based on income bands)	None identified based on SCA’s current operations	Only based on NJ sales, not U.S. or worldwide sales

States generally require sellers to collect and remit monthly or quarterly payments of sales tax that is collected on retail sales, so you want to ensure that you are collecting the appropriate amount of tax for each transaction.

None of these states requires a company or its U.S.-based brokers to collect sales tax from wholesale buyers because sales tax is only collected on retail sales. But international companies should collect and should require that their brokers collect a reseller permit from each wholesale buyer to keep in their tax records. The reseller permit does not need to be shown at each transaction but can be kept on file for the life of the buyer-seller relationship.

Many states also require an excise tax to be paid on marijuana (not hemp) transactions, which are not considered a sales tax.

Potential Immigration Issues with Engaging in a U.S. Marijuana Business

Lastly, 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 you want to participate 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.

Further Questions to Ponder

As you are digesting this information, keep in mind the following questions:

Do you want to engage in business with the U.S. directly by becoming the seller? Or, do you want to form a new company in a country to take advantage of an income tax treaty?

• If you will be engaging directly in business with the U.S., how will that entity be taxed?
• How important is it to you to simplify your U.S. obligations, and would it be more beneficial to form a wholly-owned U.S. subsidiary company to simplify your U.S. state registrations, tax payments, and U.S. banking?

Stay tuned for upcoming posts in this series on U.S. banking for international cannabis businesses, and international cannabis registration requirements.

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Recreational cannabis sales debut in Arizona months ahead of schedule

Less than three months after voters passed Prop. 207, the first retail marijuana stores opened in Arizona.

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He was serving a life sentence for cannabis. Then he got a phone call from Ivanka Trump

Craig Cesal is living proof of how ludicrous America's war on drugs became.

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Florida Lawmakers Pushing For Cannabis Law Changes And Reform

Lawmakers in the Sunshine State are trying to make the future brighter for those who use cannabis.

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Puffco takes dabbing to the next level with the Peak Pro

Puffco ups its game with the Peak Pro, the latest in e-rigs, allowing dabbers more convenience and control, while staying sleek and stylish.

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The Roll-up #180: Look who Trump pardoned

President Trump pardoned 12 longtime cannabis prisoners on his final full day in office. We spoke with one of them.

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California Agencies Win Discovery Stay in Hemp Destruction Dispute

Back in April 2020, Apothio sued the County of Kern and the California Department of Fish and Wildlife, alleging that in October 2019, state and county law enforcement agents entered its farm fields and ordered the destruction of 500 acres of hemp crops worth approximately $1 billion. Apothio claims the agencies’ search warrant was defective because it included an incorrect description of Apothio’s principal, Trent Jones, the acreage grown, and because it ignored Apothio’s status as a research entity under California law. Most recently, the defendant agencies filed motions to dismiss Apothio’s case is in its entirety because its crops constitute contraband under federal law, and Apothio can not have a property interest in such contraband.

While the civil case commenced, Mr. Jones was then arraigned for criminal misdemeanor charges for the illegal cultivation and sale of marijuana (based on the facts of this case) in October 2020. Based on this development, the defendant agencies filed for a motion to stay discovery (essentially, pause discovery) in the case pending (1) completion of the criminal investigation of Mr. Jones, or (2) at least a decision on the motions to dismiss.

For everyone’s benefit, the Court issued a lengthy opinion breaking down its decision.  It started with the defendant agencies’ request to stay discovery pending completion of the criminal investigation. It noted: “a party has no constitutional right to a stay of civil proceedings during the pendency of a criminal investigation or prosecution, nor does the Constitution protect a party from being forced to choose between the consequences of asserting or waiving his Fifth Amendment rights in the civil proceedings.” In considering whether to issue a stay, the court should consider the extent to which the defendant’s Fifth Amendment rights are implicated, as well as the following five Keating factors:

• The interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to the plaintiffs of a delay;
• The burden which any particular aspect of the proceedings may impose on defendants;
• The convenience of the court in the management of its cases, and the efficient use of judicial resources;
• The interests of persons not parties to the civil litigation; and
• The interest of the public in the pending civil and criminal litigation.

Overall, the Court was not convinced that Mr. Jones’ Fifth Amendment privilege would implicate great issues in the civil case:

Even if the criminal case cause Jones, in his individual capacity, to assert his Fifth Amendment privilege given the factual and legal overlap between the investigation and the civil case here, corporate defendants are entitled to no such privilege. Nor does the privilege extend to corporate records. Moreover, a custodian of corporate records “has no privilege to refuse production [even if] their contents tend to incriminate him.” … Defendants may still elicit valuable testimony from unnamed corporate representatives and compel production of relevant records given the inapplicability of the Fifth Amendment privilege to the corporate entities. The extent to which Jones’s Fifth Amendment rights are implicated does not warrant a stay of this action. (Citations omitted).

The Court then discussed each Keating factor, finding that on balance, those factors favored Apothio’s position as well:

• “This factor weighs in [Apothio’s] favor” – Apothio had claimed an interest in collecting evidence while it is still fresh, before witnesses’ memories fade and evidence becomes stale; Apothio had also claimed its continued financial viability was threatened as long as the litigation continued.
• “To the extent that the Plaintiff is attempting to misuse the civil discovery process and obtain materials from an ongoing criminal investigation, the Court finds that a stay would be warranted” – this was incredibly fact-dependent and was largely a wash.
• “This factor weighs in Plaintiff’s favor” – Apothio had contended the efficient use of judicial resources would be to proceed with discovery, as that could lead to a quicker resolution of the case and facilitate realistic settlement negotiations.
• As to the interest of parties and non-parties, the Court found that the general principle of “the public has an interest in relatively speedy resolution of civil matters” to outweigh any argument the defendant agencies provided.

Ultimately, the Court refused to stay discovery based on the ongoing criminal proceedings. However, it then considered the defendant agencies’ request to stay discovery pending resolution of their motions to dismiss. In deciding this issue, it noted the overall consideration would be to balance “the harm produced by a delay in discovery against the possibility that the motion will be granted and entirely eliminate the need for such discovery.” Two requirements must be met for a stay to be issued:

• The pending motion must be potentially dispositive of the entire case, or at least dispositive on the issue at which discovery is aimed.
• The pending, potentially dispositive motion can be decided absent additional discovery.

As to the first prong, the defendant agencies argued their pending motions to dismiss will dispose of the complaint essentially because Apothio’s crops are legally and factually contraband under federal law, and Apothio can have no property interest in such contraband. The Court agreed, writing it had taken a “preliminary peek” at Apothio’s opposition and found it unconvincing on its face, without any need for further discovery. Therefore, the Court granted the defendant agencies’ request for a stay pending a decision on their motions to dismiss. This was a pretty big blow to Apothio – now, the parties are essentially frozen in their efforts until the defendants’ motions are heard.

This case and opinion will definitely be one to watch – not only for the high stakes at play, but also for the insight into how civil and criminal proceedings intersect, how the federal courts are generally looking at and treating hemp companies, and the deference shown to government agency parties. We will report back when the motions are heard, as that decision will certainly be telling.

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Massachusetts Dispensaries Sue Over Home Delivery Rules

Not everyone is celebrating an initiative meant to assist disenfranchised cannabis business owners.

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How to decarboxylate and infuse cannabis without an oven

No kitchen needed! Ardent decarboxylators and infusion devices are discreet, portable, and worry-free, with high-tech features to guide you easily from start to finish  If you’ve never made your own edibles, it may surprise you that you can’t just throw raw cannabis into some butter. First, it has to go through a process called decarboxylation— […]

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London Police Uncover Massive Cannabis Grow In City’s Financial District

A group of cannabis growers have taken advantage of the now-empty financial district.

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Jay-Z Announces Launch of Investment Fund To Aid Minority Cannabis Entrepreneurs

Jay-Z has launched an initiative to help lift up those who have been negatively impacted by the war on drugs.

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Medical Cannabis is Fully Legal in Mexico: Now What?

In our last post, we alerted you on the publication of the new Regulations on Sanitary Control for the Production, Research and Medical Use of Cannabis and Its Pharmacological Derivatives (the “Medical Regulations”). In this post, we provide an overview of what the Medical Regulations will address and what it potentially means to your business.

As expected, the Medical Regulations deal with the control, promotion and sanitary supervision of raw materials, pharmacological derivatives and medicines. Regulated activities include:

• Primary production for manufacturing supply;
• Raw material generation for research and seed production;
• Health and pharmacological research;
• Manufacturing of pharmacological derivatives and medicines and medical activities related to diagnoses, therapeutic, rehabilitation and palliative care;
• Importation, exportation and marketing.

Activities connected with all of the above will be authorized through licenses or permits, and the Regulations provide the requirements to obtain them. Among the activities that will be authorized officially for the first time are:

• Quality control laboratories
• Growing for research and industrial purposes
• Cannabis research protocols
• Processing, transport, import (both for industries and for self-consumption)
• Export
• Issuance of cannabis-related prescriptions
• Set-up of establishments permitted to sell medical cannabis products

The regulations clarify that COFEPRIS (Federal Commission for the Protection against Sanitary Risks) will not be the only agency to deal with. Although COFEPRIS will remain the chief agency involved in cannabis-related applications, other agencies are also charged with interpreting and applying these Medical Regulations, along with issuing permits and licenses. All of this means added time and costs that companies have to factor into their business plans for Mexico.

That said, there is now a much clearer roadmap towards conducting legal cannabis-related activities in Mexico, although the Medical Regulations have entered into force without a specific fee schedule for the permits or licenses included (aside from the specific fees are provided for in the Federal Fees Law (Ley Federal de Derechos)). Because the Medical Regulations’ transitory articles mandate implementation without impacting agencies’ current budget for this fiscal year, it seems certain that a fee schedule will be added soon.

Now, although the Regulations implement a federal law (the General Health Law) and are therefore applicable in the whole country, health-related licenses and permits are linked to the domicile stated in an application. There is a distinction to be made here: for some activities, like growing or processing, the Regulations expressly or impliedly allow for performance in various States, as long as you apply for a license for each venue. In other cases, a single permit/license, though linked to a domicile, will cover the activity, regardless of where it is performed (e.g. transportation).

It is also important to note that licensees can sell to other licensees below them in the supply chain for medical, research and refinement purposes. For instance, grow licensees can sell to processor licenses, while processor licensees can sell to distributor licensees. Cannabis cannot be sold to the general public, save through licensed establishments. This means that if you, as a patient, need to import medical cannabis products for your treatment, you apply for a special import permit showing your prescription, at which point you may order freely (although ordering online and having product sent to you via mail/parcel is prohibited).

Finally, the Medical Regulations provide for the regulation and licensing of establishments that provide medical attention and sell cannabis products. These will include pharmacies or other specialized medical and therapeutic establishments, but not more general (i.e. convenience) stores. The Medical Regulations further provide that licenses authorizing establishments shall be renewed upon expiry in accordance with other relevant regulations implementing the General Health Law, but do not provide for a license expiry date from the outset.

In upcoming posts we will explore more in detail each of the regulated activities, main application requisites and their implications. Stay tuned!

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The curious case of the stolen bike and the missing quarter-ounce

A delightful story about nice people in the big city helping a poor little lost bag of weed find its way home.

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Cannabis Use Associated with Less Alcohol Consumption Among Those Seeking Treatment

A newly published study supports the idea that cannabis may help some people in their goal of alcohol cessation.

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Trump pardoned 12 cannabis prisoners on his way out. Here are their stories

On his final day in office, Donald Trump pardoned 12 federal marijuana prisoners serving outrageous sentences.

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Idaho Senator Pushes Back on Legalization with Proposed Psychoactive Drug Ban

Senator C. Scott Grow is seeking to amend the state's constitution to prevent cannabis reform.

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Trump’s Final Clemency: Among Usual Suspects, Pot Prisoners and Hip Hop Producers

On Trump's final day of being President of the United States, he granted clemency to a handful of people serving absurd sentences for cannabis offenses.

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Washington Cannabis: What to Watch for in 2021

Because this is the beginning of the year, and because I have had many clients ask me about the status of Washington’s cannabis market lately, I wanted to weigh in on my predictions for Washington cannabis developments in 2021.

WSLCB Rules

Even though we would consider Washington’s marijuana market quite mature when compared to many other states, the Washington State Liquor and Cannabis Board (WSLCB) remains vigilant (and in some cases, militant!) and continues to seek input from stakeholders as it refines its policies and procedures. In early January, the WSLCB adopted a slew of rules that will impact licensees in 2021:

     a.     Emergency Rules (WAC 314-55-1055) – Marijuana Product Disclosure Form (Effective January 6, 2021)

This rule requires all manufacturers of THC products to disclose all compounds used in production and processing and is specifically targeted to root out any noncompliance with the Vitamin E Acetate Ban (see below).

     b.     Emergency Rules (WAC 314-55-1065) – LCB Vitamin E Acetate Prohibition (formerly LCB Vitamin E Acetate Ban) (Effective January 6, 2021)

This rule extends the ban on vitamin E acetate.

     c.     Emergency Rules (WAC 314-55-077) – Marijuana Processor License – Privileges, Requirements and Fees (Effective January 6, 2021)

This extends the emergency rule permitting enforcement action against any licensed marijuana processor that fails to comply with the ban on vitamin E acetate.

     d.     Emergency Rules (WAC 314-55-079) – Marijuana Retailer License – Privileges, Requirements and Fees (Effective January 6, 2021)

This extends the emergency rule permitting enforcement action against any licensed marijuana retailer that fails to comply with the ban on vitamin E acetate.

     e.     Adopted Permanent Rule (CR-103P)  Certificate of Compliance (relating to location compliance)

This rule implements legislation requiring the WSLCB to issue a certificate of compliance for a marijuana business (a) applicant and (b) license holder under certain circumstances. For the applicant, the certificate will be issued if the business premises meets the statutory buffer zone requirements at the time the license application was filed. For the license holder, the certificate will be issued if the business premises meets the statutory buffer zone at the time the WSLCB receives the license holder’s application to receive a certificate of compliance.

The certificate provides a safe harbor in that it allows the licensee to operate the business at the location even if an otherwise disqualifying factor later emerges regarding the statutory buffer zone.

WA Task Force on Social Equity

The Washington task force on social equity was born from legislation enacted in 2020 in the wake of the mass social justice protests. The task force is in its infancy, and its developments are being closely covered by the Cannabis Observer.

The task force recently adopted operating principles focusing on anti-racism and will be creating its first working groups to address disproportionate impact areas, technical assistance, and license types in Washington’s marijuana market. Its goal is to address the racial inequity in the initial licensing rounds in part by making up to 34 marijuana retailer licenses available from existing licenses (forfeited, revoked, or canceled) and available licenses not yet issued by WSLCB. $1.1MM has also been appropriated to assist applicants with the licensing process and related business plan assistance.

We can expect to see significant changes in the retail market in 2021 as the task force continues its work and the WSLCB complies with its legislative mandate. We can also expect increased education especially focused on communities and areas that have been historically disproportionately affected by the enforcement of marijuana prohibition laws.

Cannabis Compliance Consultation

The WSLCB recently announced the composition of its Cannabis Compliance Consulting Team, which allows licensees to request a site visit for help identifying areas of potential non-compliance with an aim toward encouraging voluntary compliance rather than licensees waiting for the WSLCB to discover and initiate some type of formal enforcement. These 11 consultants are spread across the state and are available to help producers, processors, retailers, researchers, and transporters. Even though they cannot issue administrative violations, we expect to see a tepid response during 2021 from most licensees who are loath to invite any governmental or quasi-governmental authorities into their business for compliance related matters.

Enforcement Actions

The WSLCB made a big announcement in late 2020 regarding its shutting down the cannabis testing lab Praxis for falsifying test results. The WSLCB will continue to root out fraud in all aspects of the marketplace. For those interested, there will be dialogue sessions on cannabis testing where you can provide your input.

New Financing Arrangements

In the wake of the social equity program rollout we expect to see increased investment as financiers lend funds and invest in up to a 49% equity stake in new social equity retail licensees. As a reminder, check out this post regarding the difference between a true party of interest and a financier. Different disclosure rules apply to these parties as relates to licensees, and you do not want to be the license holder, the true party of interest, or the financier on the WSLCB’s wrong side.

Industry Consolidation

We have blogged in the past about the WSLCB’s overreaching into license holder qualifications and restrictions, and nowhere is this more relevant than in instances where WSLCB regulations clash with industry consolidation. In the past few months we have been involved in many discussions and deals regarding industry consolidation, where MSOs (multi-state operators) and international cannabis companies (especially Canadian public companies) are trying to buy and sell interests in WSLCB licensees. We can expect more of this in 2021 and more WSLCB resistance to MSOs and foreign funds investing in the Washington cannabis market.

Hemp Program

Washington’s hemp program is quite mature because of the state’s experience with the marijuana industry. The WSLCB continues to hold its ground on CBD products it considers within its purview, which is why food and vapor products containing CBD are only permitted within the state legal marijuana market. No significant changes will happen on this front until the FDA comes out with more guidance on the status of CBD and related cannabinoids.

Litigation and Dispute Resolution

We expect to see an increase in disputes among license holders, owners, financiers, suppliers, and customers in the industry. This is due in part to Covid fallout and part to industry maturity. People who engaged in transactions without a lawyer or without a good lawyer involved will be fighting over both their business relationships and the poor contracts that underpin them (if they even bothered to put a contract down on paper).

We do not expect the WSLCB to let up at all in 2021, but there are many ways for Washington and out-of-state cannabis businesses to thrive within the marketplace this year.

The post Washington Cannabis: What to Watch for in 2021 appeared first on Harris Bricken.

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Michigan Dispensary Gives Cannabis for COVID Vaccinations

The 'Pot for Shots' initiative was launched to encourage Michiganders to get vaccinated.

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California Hasn’t Seen An Increase In Young Adult Cannabis Use Since Legalization

A recently published study found no significant increase in youth cannabis use since legalization in California.

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USDA Hemp Final Rule: Hits and Misses

Last Friday, January 15th, the U.S. Department of Agriculture (the “USDA”) announced today’s publication of its hemp production final rule in the Federal Register, which will go into effect on March 22, 2021. This final rule builds on the interim final rule (the “IFR”) that was published on October 31, 2019. It includes revisions based on three public comment periods (you can read more on this issue here and here) but also takes into account “lessons learned from the 2020 growing season.”

These new hemp regulations contain six key provisions, which include:

1. Licensing requirements;
2. Recordkeeping requirements;
3. Procedures for testing the THC level concentration in the hemp plant;
4. Procedures for disposing of non-compliant hemp (i.e., hemp that exceeds acceptable THC threshold);
5. Compliance provisions; and
6. Procedures for handling violations.

The most significant revisions made to the IFR pertain to the procedures for testing the THC concentration and those for disposing of non-compliant hemp. Below are the highlights.

1.    Time of sample collection

The USDA agreed with the concerns expressed by commenters regarding the burden of imposing harvest within 15 days of sampling. As a result, the federal agency extended the window within which hemp must be harvest to 30 days following sampling.

2.     Sampling method

   a.     Where to sample from the plant

The Final Rule maintains the requirement that pre-harvest samples be taken from the flower material of hemp plants. The industry will be disappointed with this decision; many were advocating that samples should be taken from the “whole plant.” Fortunately, the Final Rule does provide more information than the IFR on where to cut the plant material. Specifically, the Final Rule provides that a cut should be made 5 to 8 inches from (1) the “main stem” (includes leaves and flowers, the (2) “terminal bud (occurs at the end of the stem), or (3) the “central cola” (cut stem that has the potential of developing into a bud) of the flowering top of the plants.

According to the USDA, this new standard

strikes an appropriate balance between the need to collect a sufficiently large portion of the plant’s flower (where THC and other cannabinoids are their most concentrated), and the need to avoid cutting a portion that is so large that it would be logistically difficult to transport, dry, and prepare for lab testing.

  b.    Sampling agents

The USDA is working on publishing additional training resources for sampling agents to help ensure consistency in the manner in which samples are collected nationwide.

3.     Acceptable THC threshold

The Final Rule maintains the total THC limit, which is the sum of the delta-9-THC (“THC”) and THC-acid (“THCA”) content. As we have repeatedly discussed on this blog, the total THC limit is problematic because this testing method tends to increase the THC concentration in the hemp sample, making it difficult not to exceed the allowed threshold. Moreover, because few hemp genetics currently on the market would comply with a total THC testing method, this rule forces producers to carefully select the types of seeds they buy from a limited sample.

4.     Negligence threshold

Hemp producers are required to dispose of plants that exceed the acceptable THC level. Nevertheless, if the plant tests at or below the newly adopted 1%  negligence threshold (the USDA increased it from 0.5%, thankfully), then producers will not have committed a negligent violation. Note that the Final Rule limits the maximum number of negligent violations that a producer can receive in a growing season to one.

5.     Registration with DEA

The Final Rule maintains the requirement that all hemp testing laboratories be registered with the DEA. However, due to the limited number of DEA-registered labs to test anticipated hemp produced in 2020 and possibly in 2021, the USDA has convinced the DEA to further delay enforcement of this requirement until January 1, 2022 (the original delay extended to October 31, 2020, or the publication of this Final Rule). The USDA continues to argue that this requirement is needed because labs could potentially receive hemp that exceeds the authorized 0.3% THC threshold (i.e., marijuana).

6.     Non-compliant hemp disposal

The Final Rule affords alternative disposal methods that do not require the use of a DEA-registered reverse distributor or law enforcement. These alternative disposal methods can be found here.

7.     State and tribal plan approval

Lastly, the Final Rule addresses the potential need for states and tribes to revise and resubmit for approval their plans in order to align with the requirements imposed under the Final Rule. The Final Rule also stipulates that states may continue operating under the 2014 Farm Bill until January 1, 2022. While this option will further delay the establishment of a uniform national hemp program, it will afford states more time to revise their plans and regulations and prepare growers to comply with the Final Rule, which is a good thing.

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In sum, the Final Rule contains improved regulations that suggest another step towards full implementation of the 2018 Farm Bill. Nevertheless, regulations such as the testing of hemp plants using DEA-registered labs are bound to cause more headaches for the industry. This is a shame given the numerous challenges with which hemp stakeholders have been faced for the past two years.

At this point, all we can wish for is that the Biden administration, including incoming Secretary of Agriculture Tom Vilsack, will promptly tackle the lingering issues that may further hinder the growth and development of this promising industry.

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