Alyssa reports on her delta-8 THC experience, and talks with the producer of 'Weediatrics,' a new streaming documentary about medical cannabis families.
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The exceptional strains available in Trulieve's Cultivar Collection are the product of a passionate commitment to craft processes in cannabis cultivation.
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Two-thirds of Black cannabis users hit blunts
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#BuyBlack from businesses in Washington D.C. with these Black cannabis brands that provide a unique D.C. experience.
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Most people know that any party to litigation unquestionably owes an “uncompromising duty to preserve” what they know or reasonably should know may be relevant evidence in their lawsuit. What they don’t know is this is true before any discovery requests are served, and sometimes, even before the complaint is filed. Here’s a primer on the duty to preserve evidence and its violation: “spoliation.”
Duty to Preserve Evidence
The duty to preserve evidence arises when:
Under this basic principle, the duty is generally considered triggered, at the latest, when the defendant is served with the complaint. But before that point, most courts also agree that the defendant’s receipt of a demand letter, or some other threat of litigation, will also trigger the duty. That’s why as a general rule, we recommend our clients err on the side of caution and immediately instruct them to take steps to preserve all potentially relevant documents, including emails and the like, that might routinely get shredded (in the case of paper) or deleted/overwritten (in the case of electronic files). This suspension of routine document destruction policies is what we call a “litigation hold.”
A quick note on electronic evidence – today, this typically constitutes the bulk of evidence that is produced in litigation, and there are several facets to making sure you’re complying with the duty completely. Backup storage or archives need to be preserved. Old storage devices, like hard drives or even old cell phones, all need to be preserved and searched if they can potentially hold relevant evidence.
Spoliation
Violation of the duty to preserve evidence is known as “spoliation.” Spoliation is BAD – and the Court has the inherent power to order sanctions for spoliation of evidence. This is determined on a case-by-case basis, and the sanction is based on a balancing test of the degree of fault vs. the degree of prejudice suffered by the opposing party. Some examples are:
These consequences can severely hamper a case or defense, and they’re harsh for a reason. If you find yourself contemplating litigation or believe you might be on the receiving end of a lawsuit, make sure to understand these obligations so you’re fulfilling your duties from the outset.
The post A Primer On the Duty to Preserve Evidence – And What Can Happen If You Don’t appeared first on Harris Bricken.
Over the next few months, California’s three cannabis agencies are going to consolidate their authority over the entire state’s industry into one new mega-agency: the Department of Cannabis Control. This is undoubtedly a good idea as having three agencies overseeing the same industry has been cumbersome, ineffective, and inefficient for many licensees. many other states consolidate cannabis regulatory authority into one agency, and this is a welcome change for California.
That said, consolidation is going to have a lot of hiccups. Every aspect of licensees’ relation to the agencies will probably undergo some kind of transition: license numbers and certificates will change so they are uniform across all license types, information and documents will need to get transitioned over which will probably not be easy, and it’s unclear which of the agencies current web portals will be usable with the new agency.
We also don’t know a ton about what will happen from a regulatory point of view. Currently, there are three sets of regulations (other than tax regs) that were promulgated by the agencies. It’s likely that the regulations will get combined to some extent as there are a lot of places where there are no conflict. But there are a good deal of areas where the current sets of regulations do conflict, and it will be interesting to see what happens.
While we don’t know much about what will go down in the next few months, we can safely say that whatever happens will affect a lot of commercial contracts within the industry if for no other reason than the potential for changes in the definitions of “owners” and “financial interest holders” (FIHs). Currently, the agencies define these terms somewhat differently, which can have pretty big impacts in the long run.
Breaking this down a bit, a person is an “owner” of a cannabis business when they own 20% or more of the business, hold certain positions in the business (officer, director, manager of an LLC, etc.), or manage, direct, or control the business. Financial interest holders are generally people who own less than 20% or provide loans or investments to the business. The Bureau of Cannabis Control (BCC) adds to this list and defines people as owners if they expect 20% of the profits of the business, and expressly requires looking “up the corporate ladder” in the event that an entity is an owner or FIH until you get to actual people (where the Department of Food and Agriculture (CDFA) doesn’t have such an explicit rule and the Department of Public Health’s (CDPH) rule is much slimmer).
This is a lot to unpack so the best way to see this in action is with an example. Let’s say a company licensed IP to a CDPH licensed manufacturer and as compensation was entitled to more than 20% of the profits of the business. It’s possible that under the CDPH rules, that company would only be considered a FIH. But under the BCC rules in the same circumstances, that company could be considered an owner. The impact of this is that the level of disclosures for owners (across all agencies) is orders of magnitude more intense than for FIHs. There are lots of companies who have entered into contracts with only CDFA or CDPH licensees where they may be considered FIHs. Many of these contracts would turn the same companies into owners under the BCC rules.
Problematically, no matter how the DCC decides to move forward, it will be forced to addressed overlap and contradictions in the regulations right off the bat. This is just one example, and there are many other potential issues that the agency will need to figure out, because it cannot plausibly adopt regulations that conflict (we’ll probably do a post soon about some areas in which things will need to be addressed).
The import of all of this is that licensees or companies that contract with licensees should be getting ready to go back through every contract they have inked that is still in effect and figuring out whether they stack with the new regs. A lot of this by definition can’t be done yet given that we don’t know what the future will hold here, but companies should be prepared for this and at least cognizant of the prospect of big picture changes like this.
We will continue to report on agency consolidation as we get closer to the real thing. So stay tuned to the Canna Law Blog.
The post California Cannabis Agency Consolidation Will Affect Cannabis Contracts appeared first on Harris Bricken.
Buying a cannabis business does not occur in a matter of days, and transactions fall apart for a variety of reasons, as we discussed in Part 1 of this blog series focused on the buy-side of a cannabis M&A transaction. In this Part 2, we focus on the regulatory environment, discussing concepts that first-time buyers and their attorneys should be aware of.
Navigating Through Federal Illegality
Marijuana remains a Schedule I controlled substance under the U.S. Federal Controlled Substances Act. Many states have enacted legislation and created regulatory frameworks that permit the cultivation, processing, manufacturing, and retail sale of marijuana within their borders.
However, the acquisition agreements, beginning with the term sheet (or letter of intent) and the attorney firm’s engagement letter should clearly acknowledge the illegality of marijuana according to federal law. They should also include provisions relating to future positive or negative changes in applicable laws and regulations (and their uneven enforcement) that may frustrate the entire purpose of the transaction.
Are You Dealing with Marijuana or Hemp?
The 2018 Agricultural Improvement Act (the “2018 Farm Bill”) removed “hemp” from the definition of “marijuana,” and now hemp can generally be considered a commodity much like any other agricultural crop. However, due to hemp’s affinity with marijuana, the 2018 Farm Bill also directed the USDA to develop a national hemp regulatory structure, with each state and tribe being given the leeway to develop its own hemp cultivation plan for approval by the USDA.
Because the term cannabis can refer to both marijuana and hemp, it is important to understand whether the acquisition target deals with marijuana, hemp, or both. Typically, a target company will specialize in one or the other.
Although a hemp acquisition is significantly less problematic than a marijuana acquisition, many of the considerations in this blog series should also be considered in a hemp acquisition to ensure that the target company’s lines of business are clearly delineated and adhered to. We will deal more with this in our posts on the due diligence period and in the representations and warranties sections in the transaction documents.
Can You Really Buy That Company?
Next, the buyer needs to determine what type of cannabis licensure is being acquired. Some states permit vertical integration within the industry – from plant genetics through to retail sales – while other states, like Washington, prohibit some or all vertical integration.
Other states may, for the purposes of promoting social equity or avoiding market dominance by a single company or a small group of companies (antitrust concerns), have limits on the number of licenses that can be owned. These states may also limit the types of contracts that can be entered into among licensed companies to try to promote a more free and full market environment among licensed companies.
Potential acquirors from a different jurisdiction should become aware of the regulatory limitations in the target state. State laws and regulatory regimes differ significantly across state lines, and you cannot reasonably determine the contours of a state’s marijuana marketplace just by looking at the state’s political environment.
Where Do We Go From Here?
In the following post we will do a deep dive into these parts of a cannabis acquisition:
The post What You Need to Know When Buying a Cannabis Business, Part 2: The Regulatory Environment appeared first on Harris Bricken.
Delta-8 is federally legal, and most states don't prohibit it. But the DEA and state lawmakers may soon catch up to the new craze.
The post How long will delta-8 remain legal? appeared first on Leafly.
At Harris Bricken, we keep close tabs on what is happening around the world, and we know that our friends and clients do, as well. We are happy to provide this podcast series: Global Law and Business, hosted by international attorneys Fred Rocafort and Jonathan Bench, where we look at the world by talking with business leaders, innovators, service providers, manufacturers, and government leaders around the world.
In Episode #53, we are joined by Ryan Hurley, general counsel at Copperstate Farms, the largest greenhouse cannabis producers in North America.
We discuss:
We’ll see you next week for another exciting and informative episode when we discuss China geopolitics with the National Bureau of Asian Research’s Senior Fellow Nadège Rolland.
The post Global Law and Business Podcast: Arizona Cannabis with Ryan Hurley appeared first on Harris Bricken.
Delta-8-THC is a close cousin of standard delta-9-THC, and thanks to the 2018 farm bill, it can be purchased anywhere hemp products can be purchased. Find out how you can experience delta-8 products from 3Chi.
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Deepak Chaudhary and the Indian Landrace Exchange connect indigenous farmers with modern growers in an equitable exchange.
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With a target goal of 50% of New York cannabis licenses issued to social and economic equity applicants (Equity Applicants), we thought it would be helpful to provide a detailed explanation of the Marijuana Regulation and Taxation Act’s (MRTA) social and economic equity plan, how the license application process works vis-à-vis Equity Applicants, and critical differences in the application process for non-Equity Applicants. Here at the Canna Law Blog, we think the social and economic equity program could do a LOT of good for New York State.
The overall goal of the the Equity Plan is to promote diversity in commerce, ownership, and employment, and to provide opportunities for social and economic equity. The MRTA identifies the following applicants as Equity Applicants:
In terms of ownership interest in a business enterprise, at least 51% of the business must be owned by one or more US citizens or permanent residents for the applicable category (i.e. 51% women owned).
The business must qualify as a small business and the women or minority ownership cannot be a façade: no straw owners allowed. Equity Applicants will have to demonstrate that the women or minority ownership is real, substantial, and continuing, with the Equity Applicant having and exercising authority to independently control day to day business decisions.
The MRTA defines minorities as US citizens or permanent residence that are able to demonstrate membership in one of the following groups:
The expressed goal is to award 50% of licenses to Equity Applicants. The MRTA does not provide any indication if the target is allocated across all license types and we, along with everyone else, are eagerly waiting for the Cannabis Control Board (CCB) to issue the rules and regulations that will govern adult-use licenses.
A few. One critical potential difference is that Equity Applicants only need to provide a plan for having sufficient real estate and equipment to operate a proposed cannabis business, while non-Equity Applicants will need to own or have a contract to operate in a specific location. We note that the CCB will need to confirm if the “plan” exception applies to retail dispensary Equity Applicants.
Another related difference is that certain applicants will receive priority in the licensing process. The MRTA provides that “extra” priority will be given if the applicant is:
As of now, two significant programs will provide tangible support to Equity Applicants. The first is a loan program operated by the Office of Cannabis Management and/or the Urban Development Corporation that will issue low interest or interest free loans to Equity Applicants.
The second is an incubator program that will be created by the CCB. The incubator program will be designed to encourage Equity Applicants to apply for a license and, if licensed, will provide direct support in the form of counseling services, education, small business coaching and financial planning, and compliance assistance.
One of the enumerated evaluation criteria for applicants, generally, is that the applicant provides a plan to contribute to communities and people disproportionately harmed by the enforcement of cannabis laws, including the social responsibility framework established by the MRTA. Broadly speaking, we expect that being able to demonstrate a substantial benefit to such communities, from both employment and overall community perspective, will be a major consideration in evaluating applicants.
Not for the first three years of licensure, unless the transfer is to a qualified Equity Applicant and the CCB has given written approval of the conveyance. In the event of a sale, the transfer agreement must require the new license holder to pay the CCB all outstanding amounts due for any loans issued by the Office of Cannabis Management or the Urban Development Corporation and any other fees later determined by the CCB.
In closing our three-part series on the MRTA’s adult-use licensing provisions, we here at the Canna Law Blog think the MRTA’s social and economic equity plan has the potential to begin correcting social and economic injustices caused by decades of inequitable enforcement of marijuana laws.
With reasonable licensing requirements and a sufficient number of initial licenses issued, the implementation of the social and economic equity plan should also leave room for non-Equity Applicants to succeed and thrive. Stay tuned as we detail other sections of the MRTA and New York’s developing cannabis industry!
In the meantime, check out the earlier posts in this series:
The post New York Cannabis Licensing, Part 3: The Social and Economic Equity Plan appeared first on Harris Bricken.
It might feel counterintuitive at first, but I always talk with clients about the end of the lawsuit before giving the option to file one. Why? Because I believe that true client advocacy includes walking through what you’re fighting for – and because in most cases, our clients are fighting for monetary relief, I want to make sure collecting that relief is possible at the end of the road. Especially because litigating is expensive.
One concern many clients voice goes something along the lines of: “what if the defendant or counter-defendant moves his assets around once he realizes his risk exposure so he effectively becomes judgment-proof?” The good news is, there is a California claim available for any judgment creditor in exactly that scenario. The bad news is, it means starting another lawsuit.
So, below is a breakdown of California’s fraudulent transfer claim for those who are considering their pre-litigation options, or maybe for those who have judgments in hand and feel defeated.
A fraudulent transfer claim is available when the debtor/owing party tries to avoid paying a debt by transferring his/her property to a third party. The Uniform Voidable Transactions Act (“UVTA”), codified at Civil Code § 3439 et seq. gives the creditor the right to set aside any such transfers, and further enables them to reach the property.
The statute of limitations on a fraudulent transfer claim is four years from the date of transfer OR the judgment/obligation was incurred. If you can prove that there was actual fraud (more on that below), the four years is extended to five years from the date of transfer OR the judgment/obligation was or reasonably could have been discovered. In any case, the maximum period is seven years from the date of transfer OR the judgment/obligation was incurred.
To prove a fraudulent transfer claim, you must show:
Actual fraud requires a showing that there was intent to hinder, delay, or defraud a creditor. Since nobody is going to admit this was their intent outright, the determination is usually based on inferences from the circumstances surrounding the transfer. Civil Code § 3439.04 contains a non-exclusive list of “badges of fraud” that may constitute evidence of actual fraud:
There’s no minimum number of these factors to establish intent. Just one or two might be enough (it depends on which factors are present).
Constructive fraud involves the transfer of an asset for less than its reasonably equivalent value, and one of these factors (or similar) are present:
Under the UVTA, there are several different remedies to be sought. Typically, the lawsuit is brought for avoidance of the transfer or obligation. Other remedies include attachments, injunctions against further transfer of assets, or appointment of a receiver to oversee remaining assets.
Overall, fraudulent transfer claims may well be worth pursuing if you’ve got a judgment in hand and the debtor and/or defendants are clearly engaging in some funny business to avoid paying. It’s certainly not ideal, but it’s good to have a clear idea of what your potential road blocks to recovery are – and, as early as possible in the game.
The post Cannabis Litigation: Fraudulent Transfer Claims and the UVTA appeared first on Harris Bricken.
It’s common in many different kinds of cannabis contract negotiations for the parties to execute a document early in the stages of negotiations that is often called a letter of intent (or LOI), but can also be called a term sheet. LOIs are used in most real estate and M&A transactions, but can be used for any kind of contract negotiation. In this post, I’ll look at some of the reasons why people execute LOIs as well as some of the legal issues surrounding them.
LOIs are typically executed to early on in a transaction once the parties have settled on big-picture terms like purchase price and payment terms. Unless they are completely binding (more on that below), they don’t contain a ton of the terms that will eventually go into the final agreement (commonly referred to as the “definitive agreement”). In very complex deals, you may see longer LOIs that include complex provisions, but even those are much more abbreviated versions of the definitive.
The reason for LOIs is basically to hold a deal open and to make sure the parties have the basic terms summarized and agreed upon. LOIs are usually not binding and parties are free to walk away from the deal or propose modifications based on the results of an initial diligence (if any precedes the drafting of the definitive) or during negotiations for the definitive. But they serve as a good faith effort to keep the parties involved.
Some LOIs go a step further and have confidentiality and exclusivity clauses that actually are binding and require one or both parties to not disclose the deal terms to outsiders or shop the deal around (usually these obligations are put on the seller in a real estate sale or M&A transaction or lessor in a lease LOI). From the buyer/lessee’s point of view, these can be critical–most buyers would not want to spend the time inking an LOI only for the seller to take it to competitors and shop around for a better purchase price.
As I noted, there is a difference between binding and non-binding provisions of LOIs. Many LOIs include mostly or all non-binding provisions. It’s certainly possible to have a binding LOI but it’s less common. It can be very risky to execute a binding LOI because it by definition would not contain many of the terms the definitive would have (including even material terms). There is always a risk that one side could simply stop negotiating towards the execution a definitive agreement if they already had a binding LOI and it benefitted them to not have all the constraints of a definitive.
Most of the time when binding LOIs are used, they are much, much more comprehensive than a typical non-binding LOI for just this reason. And when there are LOIs that have hybrid setups (for example, non-binding general terms but binding exclusivity/confidentiality clauses), they will be very explicit about what is and is not binding. The rationale here is that courts in the past have found LOIs to be binding where parties have disagreed on whether they were intended to be binding, so a lot of this is an exercise in caution.
Some of the more common problems we see with LOIs are as follows:
Cannabis companies who use LOIs should consider working with attorneys who can put together simple yet sufficient LOIs. Having a good LOI can save a lot of time, legal fees, and headaches later down the road.
The post Cannabis Transactions and Letters of Intent appeared first on Harris Bricken.
April 11 was a big date on Latin America’s election calendar, with Peru holding the first round of its presidential elections and Ecuador a decisive second round. For cannabis observers, the day began with the prospect of encouraging results in both countries. Instead, the outcome was a double disappointment. In Peru, the two candidates that made it to the second right are openly hostile to cannabis, while Ecuador’s president-elect appears less likely to push for adult-use legalization than his opponent.
Needless to say, presidential elections in any country are about more than cannabis or any other single issue. Voters in Peru and Ecuador surely had a lot of things on their minds on April 11, with cannabis being just one of them–and even then, not for everyone. Moreover, even proponents of adult-use legalization might have solid reasons for supporting candidates opposed to such changes. This is all to say we are not in any way judging the choices of the Ecuadorean and Peruvian electorates. In any case, vox populi, vox dei.
Still, it appears that the door to further legalization is closed for now in both Andean countries, which in itself is disappointing. In Ecuador, conservative Guillermo Lasso won. As we recently explained, President-elect 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.”
It is far from clear that a victory by Lasso’s second round rival, Andrés Arauz, would have been good news for recreational cannabis legalization in Ecuador. However, there were at least reasons for hope. As we described, it was hard to imagine that the youthful, urbane, and left-of-center Arauz would be strongly opposed to the prospect of bringing Ecuador in line with some of the most liberal jurisdictions in the continent.
Meanwhile, the Peruvian elections threw a curveball. Dark horse Pedro Castillo won the first round, and will face Keiko Fujimori in the second round. We already knew that Fujimori does not approve of cannabis. More than that, we expressed concerns about the fact that, contrary to most other candidates, she had not even differentiated between her views on medical and recreational cannabis. Castillo, on the other hand, was a mystery. Given the large number of candidates disputing the first round, we had to effect a triage and looked only into the views of the six candidates that, at the time, were doing the best in the polls. Might the socialist Castillo, who has declared that the Peruvian state must be an “innovator,” be more favorably disposed to cannabis?
Our hopes were soon brutally dashed, and frankly not just because of Castillo’s views on cannabis. For an American, Castillo is a strange political creature. He is to the left of Bernie Sanders on fiscal policy, but his social views are to the right of many Republicans. Consider this exchange with a Peruvian journalist:
Q: Would you legalize abortion or not?
A: Not at all …
Q: Euthanasia?
A: … I don’t support it.
Q: Same-sex marriage?
A: Worse yet …
Q: Legalize marijuana?
A: Of course not.
We are generally upbeat in this blog about the future of cannabis in Latin America, but the election results in Peru and Ecuador serve as a reminder of the hurdles that remain. The left-right divide is certainly present in the region when it comes to economics, but conservative social views straddle both sides of that line.
Going forward, cannabis proponents would do well to continue highlighting the economic potential of a developed cannabis industry. The Castillos of the world will not be moved by arguments based on liberal notions of personal choice, but the prospect on enhanced tax revenues and income boosts in rural areas (a Castillo stronghold) might be of interest.
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What types of cannabis businesses are out there? Learn about weed business models from the experts on cannabis funding.
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With neighboring states soon opening stores, Pennsylvania will see jobs and tax dollars drive out of state—unless they legalize.
The post Pennsylvania cannabis legalization advocates say ‘We’re next’—but it won’t be easy appeared first on Leafly.
Apart but unified for one smoky day.
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On March 31, Governor Andrew Cuomo signed into law the much-anticipated “Marijuana Regulation and Taxation Act“ (the “MRTA”). You can find our ongoing coverage of all things MRTA here. What isn’t obvious from the title of this new law, however, is that it includes provisions that may change how the state will eventually regulate its hemp industry.
The MRTA is the first state law that proposes to centralize the regulation of cannabis operators, including hemp and marijuana stakeholders. As we previously discussed, the MRTA tasked the Cannabis Control Board (the “CCB”) with implementing rules and regulations for “cannabinoid hemp” and marijuana which will eventually be administered by the Office of Cannabis Management (the “OCM”).
This is significant because just a year ago, the state enacted A08977, which instructed the New York’s State Department of Health (the “DOH”) to develop the state’s “Cannabinoid Hemp Program” (the “Program”) which was designed to regulate the processing, manufacturing, and sale of hemp extract and cannabinoid hemp products (finished hemp-derived products used for human consumption, except cosmetics) in the state.
Launched in November 2020, the Program requires processors, manufacturers and retailers of these cannabinoid hemp products to first obtain a license from the DOH, and establishes quality control standards in the form of proposed rules (the “Rule”). Although the DOH is accepting applications for cannabinoid hemp processor, retail licenses, and distributor permits, the state agency has yet to adopt and publish the Rule in the New York State Register. This means that no state hemp processor, distributor, or retailer is formally operating under these new regulations – the only lawful and formally regulated operations in the state are currently limited to activities pursuant to research partnership agreements with the Department of Agriculture and Markets (the “NYDAM”).
Nevertheless, the MRTA provides that existing rules, regulations, and determination made by the DOH that pertain to cannabinoid hemp at the time the CCB and the OCM take over the regulation of these products would remain in place until this new regulatory body adopts or repeals them. Therefore, it remains to be seen if the DOH will opt to finalize the rule making process or if it will defer to the CCB and the OCM in deciding whether to adopt the Rule in its current form, or a version of it, in the months to come.
What is apparent from reading the MRTA is that Article 5, which contains provisions governing the regulation of cannabinoid hemp products and hemp extract, generally aligns with the Rule in that it contains similar definitions and mandates that cannabinoid hemp processors and retailers secure a license to lawfully enter this market. That said, Article 5 also contains language that suggests the CCB may impose additional requirements on the hemp industry. For example, the MRTA stipulates that wholesale activities will not be authorized without obtaining an appropriate registration or permit. It also provides that the CCB may issue “special use permits,” which are temporary permits for carrying on any activities related to cannabinoid hemp, hemp extract and products derived from hemp that are licensed by the agency.
So, while it’s impossible to determine to what extent the MRTA and its upcoming regulations will impact the hemp industry, one thing is certain: stakeholders not currently operating under a NYDAM research partnership agreement will need to wait a bit longer before they may lawfully enter New York’s cannabinoid hemp market.
The post Will New York’s Cannabis Law Create Sweeping Changes for Its Hemp Industry? appeared first on Harris Bricken.
As noted in Ketamine Due Diligence: What A Buyer Should Know – Part 1, we have worked on several Ketamine clinic acquisitions, and one of the most important aspects of any deal is due diligence. This post will discuss some of the state healthcare regulatory issues a buyer will want to focus on for a ketamine deal.
One of the issues a buyer will need consider is the corporate practice of medicine (“CPOM”) doctrine. This is uniquely a state issue, and each state has a different regulatory regime. For some states, like Arizona, the CPOM doctrine is loosely defined by common law. On the other end of the spectrum, states like California have a strict regulatory and statutory scheme for CPOM issues.
At its core, the CPOM doctrine seeks to prevent non-healthcare professionals from making medical decisions or decisions that impact a provider’s practice. For example, if Buyer is a publicly held corporation, would a provider want Buyer directing the provision of care by the provider? Would a provider be ok if Buyer decided to stop carrying certain products because the margins are not large enough? Aside from the CPOM doctrine, providers have their own ethical and moral obligations that should never be trumped by non-healthcare individuals.
As mentioned above, in Arizona, the CPOM doctrine is defined solely by case law. There are two appellate decisions involving optometrists that serve as the basis for the CPOM doctrine. For example, the first decision was Funk Jewelry Co. v. State ex rel. La Prade, 46 Ariz. 348 (1935). The Arizona Supreme Court framed the issue this way:
The principal question necessary for us to decide is whether the complaint, alleging that the corporation defendant, through a registered optometrist, is employing objective and subjective means and methods, other than the use of drugs, to determine the refractive power of the human eye or any visual or muscular anomalies thereof, and prescribing or adapting lenses or prisms for its correction or relief, states a cause of action for injunction against such practice.
The Supreme Court then found:
Article 11, chapter 58 (sections 2570–2576), Revised Code of 1928, contains legislation defining and regulating the practice of optometry. Therein it is provided that a person desiring to engage in the practice of optometry must be over 21 years of age and of good moral character and possess certain specified educational qualifications, pass an examination before the state board of optometry appointed by the Governor, and obtain from such board a certificate of registration. The qualifications of an optometrist, as thus outlined, of course exclude a corporation from the practice. It cannot qualify and cannot obtain a certificate of registration. It is not of the class of persons the Legislature intended to authorize to practice optometry. It does not possess the necessary moral and intellectual qualities.
Finally, the Supreme Court went on to note:
That a corporation may not engage in the practice of the law, medicine, or dentistry is a settled question in this state. None of those professions which involves a relationship of a personal as well as a professional character, which has to do with personal privacy, can be placed in the same category as druggists, architects, or other vocations where no such relationship exists.
Based upon the foregoing, including the statutory interpretation and authority from other jurisdictions which prohibited the practice of professions in a corporate context, the Arizona Supreme Court held that the defendant’s employment of an optometrist violated the laws regulating the practice of optometry.
At the other end of the spectrum is California, which has an extensive and rigid CPOM doctrine. The California CPOM is derived from the laws for professionals and case law that has developed over many decades. A full discussion of the California CPOM is beyond the scope of this post. However, if you are considering starting or buying a Ketamine clinic in California, we would caution you to seek healthcare regulatory counsel who is fluent in the CPOM doctrine. Deal structures in California are typically more involved than other states because of the CPOM doctrine, and often times requires a variety of companies and relationships to effectuate a compliant operation.
Depending upon which state you live in, there could be state licensing issues you will need to explore. In Arizona, we are aware of at least one Ketamine clinic that is licensed as an Outpatient Treatment Center (“OTC”) by the Arizona Department of Health Services. However, we do not know the exact services that are provided by this clinic, which could impact whether a clinic needs to be licensed by the state.
In Arizona, an OTC is defined as “a class of health care institution without inpatient beds that provides physical health services or behavioral health services for the diagnosis and treatment of patients.” A.A.C. § R9-10-101(156). Seems pretty broad? Yes.
In turn, behavioral health services are defined as:
services that pertain to mental health and substance use disorders and that are either: (a) performed by or under the supervision of a professional who is licensed pursuant to title 32 (e.g., physicians and nurses) and whose scope of practice allows for the provision of these services, or (b) performed on behalf of patients by behavioral health staff as prescribed by rule. A.R.S. 36-401 § (A)(11).
So, imagine that Ketamine is used to treat a substance use disorder. Would that then subject the clinic to licensure by the state? There is certainly a compelling argument to be made in that case. And, this is just one example of how a Ketamine clinic could be a regulated entity in Arizona.
What if the clinic you are buying is already licensed by Arizona or another state? What do you need to do to stay in compliance? The first step is to check your state’s regulatory and statutory schemes for licensing. If your state has “change of ownership” or “change in control” requirements, the buyer may very well need to notify the state and update clinic’s application. Alternatively, if you are not buying the stock of Ketamine clinic, you may need to apply for a license with the new entity that will be running the clinic.
As an aside, and further to Part 1 of this article, if the clinic is licensed as a Medicare provider, you may need to update your Medicare application or you may need a new license altogether if you are not buying the stock of the clinic. Great care must be taken to make sure you are applying under the correct conditions. The Medicare application, which includes sections for amending an application, is the Medicare 855 Form.
Arizona passed a new Limited Liability Act (the “New Act”) that became effective on August 31, 2019 but was designed to be implemented in stages. The New Act applies to Arizona LLCs formed, converted or domesticated on or after September 1, 2019, and applied to all other LLCs starting on September 1, 2020. There are various issues under the New Act that should be considered if the selling entity or another entity involved in your deal was organized before the New Act became effect.
Some of the issues under the New Act include:
These are just a few examples of issues you will need to review and consider. Moreover, you may very well determine that amendments are needed to any such Operating Agreements. Under the New Act, there are many “optional” provisions you could layer into an Operating Agreement.
Before consummating any transaction involving an Arizona LLC, corporate counsel should review such agreements in great detail and advise their clients of the various ways that the agreement can be amended or changed (whether mandatory or permissive under the New Act).
Healthcare is an industry that requires a significant substantive knowledge and incredible attention to detail. State law issues, in addition to Federal issues, can be pervasive for a Ketamine deal (and any other healthcare-related deal). Any buyer or seller in this industry should consult with attorneys who are fluent in healthcare laws. Otherwise, the penalties for violating these laws can be quite severe, including criminal penalties and jail time.
Put another way, this is just like medicine – preventative care can save you a lot of time, money, and headaches. Due diligence and retention of the right counsel is tantamount to preventative care for the legal and business worlds.
The post Ketamine Due Diligence: What Any Buyer Should Know, Part 2 appeared first on Harris Bricken.
Today is that hallowed cultural holiday for the cannabis industry, 4/20. Of all of the 4/20’s of the past, this one hits a little different (although 2015 was a nice year, too). We have seen so much political change in support of cannabis, including state-by-state legalization in the past year. We’ve also seen some fun, holiday-specific events– Colorado is awesomely auctioning off 4/20 festive license plates, and Adidas is having a 4/20 draw to be able to buy Towelie Superstars (yes, I registered for that drawing)).
Although you probably can’t gather in crowds to celebrate cannabis this year, here’s a list of the unique highlights to be thankful for this socially-distanced 4/20:
Unless you’ve been living under a rock, you know that the Dems are now in control of Congress and the White House, which means that cannabis should finally get a fair shake at legalization (at least according to Senate Majority Leader Chuck Schumer). While President Biden has never supported legalization, he seems to now be fine with medical cannabis, and the Democrats also seem to be pretty bullish on getting some kind of cannabis legalization through Congress before the 2022 midterms.
The Marijuana Opportunity, Reinvestment and Expungement Act (the “MORE Act“) is a historic piece of legislation that might actually run the political gauntlet to make it through Congress. Last year, it passed the House but got shut down by the Republican-controlled Senate as we predicted.
Among other things, the 2019-2020 version of the MORE Act:
Importantly, while the 2019-2020 MORE 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).
Just last month, the chairman of the House Judiciary Committee, Chairman Jerrold Nadler, confirmed that he will reintroduce the MORE Act. If the Dems are truly serious about legalization, the 2021 version of the MORE Act is going to have a lot more detail and probably even some significant changes to ensure a comprehensive federal framework is put into place (and you can bet on it that certain private interests groups are going to be all over the lobbying on this legislation).
Access to financial institutions for cannabis businesses has been so-so under the 2014 FinCEN guidelines. Those guidelines don’t do anything to change or improve federal banking laws that otherwise bar financial institutions from accepting cannabis dollars because of the Bank Secrecy Act and federal anti-money laundering laws.
As a result, for years the cannabis industry has cried out and lobbied for federal reform to allow cannabis businesses to just deposit their cash with banks and credit unions. Many legal experts and policy analysts now believe that, before we see a version of the MORE Act take full flight, we’ll see small, technical federal fixes to bring about the end of federal cannabis prohibition, and the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act“) is one of those fixes.
In short, the SAFE Banking Act creates a safe harbor for banks and credit unions so they cannot be held liable or subject to federal forfeiture action for providing financial services to a cannabis-related business. The SAFE Banking Act has passed the House four times now with the fourth approval vote taking place yesterday. The hope is that now that Congress and the Executive are controlled by the Democrats that the SAFE Banking Act will easily (and swiftly) become law (at the same time, there could be various strategic reasons to only take parts of the SAFE Banking Act and put them into a broader legalization measure).
Under former President Donald Trump, we saw two lousy Attorney General picks. The first was notorious cannabis-hater Jeff Sessions, who ended up withdrawing all Department of Justice guidance on state-legal cannabis federal enforcement, and who left the DOJ with a single cannabis enforcement memo that just regurgitates the federal Controlled Substances Act. The second, Bill Barr, wasn’t so bad in that he basically deferred to the 2013 Cole Memo regarding federal enforcement in states with legal cannabis.
Under President Biden, Merrick Garland is the U.S. Attorney General. Without a doubt Garland is no Sessions and it sounds like he’ll end up being more like Barr where he won’t institute a Cole Memo 2.0, but he also won’t waste federal enforcement resources on state-legal cannabis.
A great wave of change is that more states are legalizing cannabis via legislative action rather than waiting around for people’s initiatives at the ballot box. Already this year, New York, Virginia, and New Mexico legalized cannabis through their legislatures (if you’re interested in New York, be sure to check out our May 4th webinar, “Intro to the Marijuana Regulation and Taxation Act“). Believe or not, on this 4/20, there are only 3 states left that have no legal form of cannabis (and they’re the ones you’d expect–Idaho, Nebraska, and Kansas).
Happy 4/20, everyone!
The post Happy 4/20! Why This One’s Different From All the Rest appeared first on Harris Bricken.
If you don’t know your weed history, you don’t know where you’re toking from. For the 50th anniversary of 420, we at Leafly produced five expertly reported strain family genealogies that capture most of the top 50 popular cannabis varieties on shelves today. Celebrate the iconic stoner holiday by picking up a legendary strain and […]
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Pancake Ice, Diablo Wind, and Pink Moon will sell out quickly at 17 chic stores.
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With so many 420 strains to choose from, Leafly Staff presents their top picks for what to smoke on weed's biggest holiday.
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In a recent bankruptcy decision by the Ninth Circuit Bankruptcy Panel (“BAP”), the BAP had the occasion to explore some of the intricacies of how the Bankruptcy Code interacts with the cannabis industry. Burton v. Maney, 610 B.R. 633 (B.A.P. 9th Cir. 2020) (“In re Burton”). While, generally, a putative debtor cannot enjoy the protections afforded by the Bankruptcy Code if it grows, cultivates or sells marijuana, recent court decisions have started to define how far the boundaries can be stretched. One Court recently summarized the dilemma as follows:
If the uncertainty of outcomes in marijuana-related bankruptcy cases were an opera, Congress, not the judiciary, would be the fat lady. Whether, and under what circumstances, a federal bankruptcy case may proceed despite connections to the locally “legal” marijuana industry remains on the cutting-edge of federal bankruptcy law. Despite the extensive development of case law, significant gray areas remain. Unfortunately, the courts find themselves in a game of whack-a-mole; each time a case is published, another will arise with a novel issue dressed in a new shade of gray. This is precisely one such case. In re: Sandra Mulul, 614 B.R. 699, 701 (Bankr. D. Colo. 2020) (“In re Mulul”).
In re Burton involved a Chapter 13 case filed in Arizona. The Debtors, Kent and Carly Rae Burton, disclosed certain information on their bankruptcy schedules which indicated they owned a 65% interest in Agricann, LLC (“Agricann”). Agricann was an “entity that was engaged in cultivating and selling marijuana.” In re Burton, 610 B.R. at 634. While the sale of medical marijuana was legal in Arizona at the time the Debtors filed for bankruptcy protection (2018), it remained (and remains) illegal under federal law.
After the Debtors filed bankruptcy, Agricann (which apparently ceased operating in 2016) sued two other entities in state court for “damages for breach of contracts under which Agricann was to cultivate, grow, and sell medical marijuana.” Id. at 635. Both the Chapter 13 Trustee’s counsel and a creditor in the case sought dismissal of the case because of the “Burtons’ involvement in the medical marijuana industry.” Id. The Debtors contended that because Agricann was no longer operating, no income from that entity would be used to fund their Chapter 13 plan of reorganization. However, the Bankruptcy Court found that a recovery in the state court litigation “would be derived from conduct that is illegal under federal law.” Id. at 634. The Bankruptcy Court ultimately dismissed the case, and the Debtors appealed the decision to the BAP.
As the BAP noted, “…a bankruptcy filing by an individual or entity with ties to a marijuana business raises difficult issues regarding how involved the debtor may be in that business and still be permitted to seek under the [Bankruptcy] Code.” Id. at 673. The BAP went on to state that the case law continues to evolve in this area and there are very few bright line tests. But the BAP also noted that one principle was evident from the case law, “…the mere presence of marijuana near a bankruptcy case does not automatically prohibit a debtor from bankruptcy relief.” Id.
After the BAP canvassed some of the case law involving marijuana assets in bankruptcy proceedings, it held that the Bankruptcy Court did not err in dismissing the Debtors’ case. Dismissal under 11 U.S.C. §§ 105(a) and 1307(c) was appropriate “because the continuation of the case would likely require the trustee or the court to become involved in administering of the Agricann litigation, which the court implicitly found would be tainted as proceeds of an illegal business.” Id. at 639.
Subsequent to the In re Burton case, the In re Mulul decision was issued by the Bankruptcy Court in Colorado. Of particular interest was the Colorado Bankruptcy Court’s evaluation of two other bankruptcy decisions in rendering its decision. The In re Mulul decision helps to help further define when a debtor may be able to enjoy the protections of the Bankruptcy Code.
The first decision discussed by the In re Mulul court was Green Earth Wellness Ctr., LLC v. Atain Specialty Ins. Co., 163 F.Supp. 3d 821 (D. Colo. 2016) (“In re Green Earth”). In re Green Earth involved a lawsuit by a cannabis company against its insurer. The plaintiff sued the insurer for failing to compensate the company for marijuana plants and equipment destroyed in a fire. The insurer claimed it was excused from performing under the insurance contract because of the illegality of the business. The court in In re Green Earth did not declare the insurance policy void on public policy grounds. As the court in In re Mulul noted:
[T]he operative decision point in Green Earth Wellness was Judge Krieger’s careful distinction between ordering the insurer to pay for damages to specific items (i.e., marijuana plants) and merely ordering compliance with the contract, which could be accomplished without reference to the existence of any marijuana asset. Presumably, if the insurance contract specifically required [the insurer] to replace the marijuana plants rather than merely compensate Green Earth for their value, the result would have been different. In re Mulul, 614 B.R. at 707-708.
The second decision analyzed by the In re Mulul court was Ginsburg v. ICC Holdings, LLC, No. 3:16-CV-2311D, 2017 WL 5467688 (N.D. Tex. Nov. 13, 2017) (“In re Ginsburg”). In re Ginsburg involved a loan to a medical marijuana business. Ginsburg, who was the lender, ultimately sued ICC Holdings for, among other things, breach of contract due to defaults under the loan, violations of state and federal securities laws, and the federal Racketeering Influenced and Corrupt Organization Act.
ICC moved to dismiss the lawsuit “because the purpose of the [promissory notes] [was] to fund the cultivation, possession and sale of marijuana, in violation of federal law, [and] the [promissory notes] [were] void and unenforceable because they contravene public policy.” In re Ginsburg, 2017 WL at *3. As the In re Mulul court stated, “…the [Ginsburg] courted noted, due to the fungibility of currency, repayment of the notes would not require ICC Holdings to ‘manufacture, distribute, dispense, or possess marijuana.’” In re Mulul, 614 B.R. at 708 (internal citation omitted).
Given these decisions, is there a pattern emerging from the case law? The answer is yes, in part. The primary lesson learned is that if the debtor and its earnings are directly related to the marijuana industry (e.g., cultivating, selling, etc.) then in all likelihood, it cannot enjoy the protections of the Bankruptcy Code. However, as the connection between the cannabis earnings and the business become more attenuated, then there is a higher probability the debtor can move forward with a bankruptcy case.
There also is a hint of fairness and equity in these decisions, especially In re Ginsburg and In re Green Earth. It would be fundamentally unfair if a party knowingly engaged with a marijuana business, and then attempted to disavow its obligations because of “illegality” or the like. While the law is not always “fair”, at times, it can be.
The bankruptcy process is a very powerful tool that allows debtors to accomplish things it could never do outside of bankruptcy. When a party is deprived of this right, there is no other equivalent under the law. The sole remaining options are to liquidate without court supervision, or via state court receivership. Hopefully, in time, those in the cannabis industry will have the right to seek bankruptcy protection without the mental gymnastics that currently plague the industry. However, for that to occur, changes are needed in federal law.
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Finally, the post that all prospective New York cannabis applicants have been waiting for: an explanation of the Marijuana Regulation and Taxation Act’s (MRTA) license application process.
We ask you to curb your enthusiasm: while the MRTA provides a framework for the license application process, the actual license application (including the license fee) will be created by the Cannabis Control Board (CCB). When? Hopefully in the next few months. The MRTA requires the CCB to deliver its first annual report by January 1, 2023, which means that the MRTA contemplates cannabis sales in 2022.
Instead of walking through the relevant provisions section by section, we thought it would be helpful to answer the questions every prospective applicant has already asked. Here they are:
From the Office of Cannabis Management (OCM). Eventually. As we have repeatedly stressed, the CCB will be creating the rules and regulations for adult use licenses, including the form of the license application. The OCM will be responsible for administering the application process.
The MRTA requires the following information to be included as part of the application created by the CCB (as well as anything else the CCB comes up with):
The license application will require a check for the license fee, so it is safe to say that a license fee will be required. But we don’t know what the license fee will be across the different license types.
The license fee will be set by the CCB. Interestingly, the MRTA provides that the license fee may be based on cultivation and/or production volume, implicitly contemplating a sliding scale for license fees.
Another fun inclusion: the CCB also has the right to charge a biennial license fee (after the initial license is issued), which would be based on the amount of cannabis cultivated, processed, distributed and/or dispensed by the licensee (as applicable) or gross annual receipts of the licensee for the previous license period.
At a minimum, plus anything else the CCB adds as part of issuing the industry rules and regulations:
The OCM performs the initial evaluation of every application and submits its recommendation to the CCB. If the CCB is not satisfied with an application, the CCB’s executive director is required to notify the applicant of the specific reasons for the denial. An administrative appeal process has not been released, but the MRTA’s general provisions contemplate that a denied applicant can appeal through an Article 78 proceeding.
All initial licenses will be for 2 years.
It can, upon submitting a renewal application to the OCM and paying a renewal fee. Renewal applications will be issued at least 90 days prior to the expiration of the existing license.
Beyond requiring information that we expect will be consistent with the initial license application, renewal applicants will also have to:
Yes, but not without the CCB’s approval. Transfers and any changes in the underlying license information, such as changes in ownership, substantial changes to the licensee’s corporate structure, and changing the licensed locations, require CCB approval. Changes without CCB approval constitute grounds for suspension, revocation or cancellation of a license.
The broad takeaway from the MRTA’s adult-use licensing provisions is that applicants will need to have a lot of bases covered prior to submitting an application. As we all eagerly await the CCB’s issuance of its rules and regulations, we here at the Canna Law Blog will continue our series on the MRTA and provide regular updates on developments in New York’s cannabis industry. Stay tuned!
The post New York Cannabis Licensing, Part 2: The Application Process appeared first on Harris Bricken.
Two companies that provide data to the hemp industry are embroiled in a trademark dispute. New Leaf Data Services (“New Leaf”) sued PanXchange in Connecticut federal court, alleging that PanXchange’s offer of services under marks such as PANXCHANGE® HEMP BENCHMARKS constitutes infringement of New Leaf’s supplemental trademark registration, HEMP BENCHMARKS (Reg. No. 5079914). The case was eventually been transferred to Colorado.
In its answer to New Leaf’s complaint, PanXchange stated that the HEMP BENCHMARKS trademark is generic. PanXchange noted that Merriam-Webster defines “benchmarks” as “something that serves as a standard by which others may be measured or judged.” As a result, PanXchange claims, “the phrase ‘hemp benchmarks’ is not capable of distinguishing New Leaf’s services.” Consequently, PanXchange is asking the court to cancel’s New Leaf’s registration.
The use of the term “capable” is important, as a supplemental registration only requires that a trademark be capable of distinguishing an applicant’s goods or services. It does not require that the trademark actually distinguish said goods or services.
At heart, this case is about trademark basics, with the hemp connection being largely incidental. Nonetheless, the holding could have implications for other companies in the hemp and cannabis space.
If the court agrees with PanXchange and finds that “hemp benchmarks” is a generic phrase, it could lead companies to push the envelope when it comes to marks following the same basic formula (such as CANNABIS BENCHMARKS, for which New Leaf also has a supplemental registration). By contrast, if the court upholds New Leaf’s claim, we could see an uptick in applications for such marks.
What do you think? Should “hemp benchmarks” be considered a generic term like “oranges” or “computers?” Give us your thoughts in the comments section. And if you are a new or growing cannabis business, give some serious thought to your branding. Aside from federal law issues, a generic or descriptive name will always be hard to protect and may create headaches for your cannabis business.
The post Hemp Trademarks and the Perils of Generic Terms: PanXchange v. New Leaf Data Services appeared first on Harris Bricken.
