The new Select Squeeze THC Beverage Enhancers mix with anything and use nanotechnology to change the timeline on how these edibles interact with your body
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This Memorial Day, and every day, we honor the sacrifices many have made to help protect our freedom.
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Psilocybin (the chemical), psilocybin mushrooms, and anything containing psilocybin is illegal at the federal level and in every state in the United States. I know, I know, a few cities and the State of Oregon have decriminalized some psychedelics, but decriminalization does not create any kind of legal, regulated market. And yes, Oregon will eventually have a regulated market but not until at least 2023. And of course, there are a few companies who are paving the way with research under FDA auspices, but that doesn’t create a legal market either. So today, selling psilocybin just isn’t legal.
In spite of all of this, where there’s a law, there’s always a budding entrepreneur trying to find a loophole . . . but ultimately probably breaking that law. And that’s where we get to psilocybin spore kits.
Spore kits allow people to cultivate psilocybin. Spore kits generally don’t contain psilocybin. So the argument goes that because spore kits are psilocybin-free, they must be legal. There are a lot of problems with this argument.
Let’s first look at federal law. Under the Controlled Substances Act (CSA), psilocybin is a Schedule I narcotic alongside heroin. “But spore kits don’t have any psilocybin!”, one might say. Well, the CSA prohibits the knowing or intentional “manufacture” of a controlled substance. The CSA defines “Manufacture” to include “production”, which in turn is defined to include “cultivation, growing, or harvesting of a controlled substance.” So while a spore kit may not contain psilocybin per se, the use of the spore kit to cultivate psilocybin mushrooms probably violates the CSA.
Selling a spore kit likewise is an issue for a number of reasons.
What about the states? Every state is different but generally will have laws similar to the CSA relative to things like paraphernalia, attempts, etc. While cannabis-friendly states may provide exemptions for cannabis accessories from criminal charges for selling paraphernalia in some cases, that certainly doesn’t apply to psilocybin paraphernalia. Some states go the extra step — like California — and do stuff like this:
[E]very person who, with intent to produce [psilocybin], cultivates any spores or mycelium capable of producing mushrooms or other material which contains such a controlled substance shall be punished by imprisonment in the county jail for a period of not more than one year or in the state prison.
. . .
Every person who transports, imports into this state, sells, furnishes, gives away, or offers to transport, import into this state, sell, furnish, or give away any spores or mycelium capable of producing mushrooms or other material which contain [psilocybin] for the purpose of facilitating a violation of [the prior paragraph] shall be punished by imprisonment in the county jail for a period of not more than one year or in the state prison.
So in sum, it is illegal to cultivate spores in California that are even capable of producing psilocybin, and it’s likewise illegal to import or sell such spores.
There’s a lot of misleading information on line about spore kits (big surprise), but the bottom line is that even though federal law doesn’t explicitly mention spore kits, that does not mean they are legal, and in fact there is sufficient law that the federal government could latch onto to claim they are not legal. Moreover, states generally have similar laws and some expressly call out spore cultivation.
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It has been well over two years since Congress enacted the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), which legalized the commercial production of hemp and tasked the Food and Drug Administration (the FDA) with the regulation of hemp-derived products intended for human consumption. Nevertheless, the FDA has yet to carve a legitimate legal pathway for these products.
The FDA’s failure to fulfill its regulatory authority has resulted in the creation of a vastly unregulated market in which many products’ safety is questionable and where states have had to take up the reins by developing their own sets of rules and regulations for the manufacture, sale, and marketing of these products. This, in turn, has resulted in a patchwork of requirements that have made it incredibly difficult – if not impossible – for the industry to ensure compliance.
The FDA has attempted to justify its failure to regulate hemp-derived products, particularly CBD products, by hiding behind the Food, Drug and Cosmetic Act (the FDCA), which prohibits any new dietary ingredient, food, or beverage from entering the U.S. market if it has been studied and approved by the agency as a drug ingredient (the Drug Exclusion Rule) – if you recall, CBD was approved as a drug ingredient in Epidiolex in July 2018, just a few months before hemp and its derivatives became federally lawful. Although it is true that the FDA is required to follow and enforce the FDCA, the agency also has the authority to exempt substances from the Drug Exclusion Rule, at which point the agency can regulate the substance as any other dietary ingredient or food ingredient. In the case of hemp and CBD, the FDA has simply chosen not to act upon this authority.
Since the passage of the 2018 Farm Bill, Congress has repeatedly attempted to compel the FDA to serve its administrative functions by introducing bills that proposed to expressly exempt hemp-infused dietary supplements and/or foods from this federal prohibition.
In 2020, Congress introduced H.R. 5587 and H.R. 8179, bipartisan bills that proposed to exempt CBD products from the Drug Exclusion Rule so they could be regulated as dietary supplements, which failed to pass, thanks in part to COVID and the need to solve more pressing issues.
This year, once again, federal lawmakers came together and introduced versions of H.R. 5587 and H.R. 8179, namely:
The enactment of these Congressional bills would evidently help alleviate regulatory uncertainties surrounding the legality of hemp-derived products and raise the quality and safety of these products, and thus, assure consumers that these products are safe.
Industry leaders, including the U.S. Hemp Roundtable, the U.S. Hemp Authority, the National Industrial Hemp Council (NIHC), but also national groups such as the Wine and Spirit Wholesalers of America and Consumer Brands Association, and major herbal products associations like the American Herbal Products Association (AHPA), have expressed strong support for one or both of these bills, suggesting a strong likelihood of seeing CBD and hemp-derived products federally regulated by the end of this year – assuming the FDA doesn’t push back on these provisions, further delaying Congress’ ability to finally legalize these products.
We will continue to monitor these bills and keep you informed of future developments.
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In all of the hubbub over New York’s legalization of adult-use (i.e. recreational cannabis), not a lot of ink has been spilled over the expansion of New York’s medical cannabis program. As a brief refresher, New York first legalized medical cannabis in 2016. Since then, only 10 organizations (ROs), have been issued registrations. We are proud to say that a few of them are clients of our law firm.
New York has had some of the more restrictive patient certification requirements nationwide, which resulted in lower revenue for the ROs. It was widely assumed that New York’s medical cannabis industry, in particular the existing ROs, would have a leg up on recreational applicants once the MRTA was finalized and passed. As we get into below, it turns out there may not have been as many advantages as the ROs expected.
Let’s go through some of the questions we most frequently get about the MRTA’s changes to New York’s medical cannabis program.
Anyone who, “in the [patient’s physician’s] professional opinion and review of past treatments, the patient is likely to receive therapeutic or palliative benefits from the primary or adjunctive treatment with medical use of cannabis for the condition.” This is a pretty broad provision that is clearly intended to give physicians discretion to prescribe cannabis where they deem appropriate.
Yes, a sixty (60) day supply. But patients can “refill” their prescription with another sixty (60) day supply in the last 7 days of the previous 60 day period.
Just like any other prescription, the MRTA requires a prescription to identify the form of cannabis prescribed and the appropriate dosage. A patient’s registration identification card is required to include any recommendations or limitations by the patient’s physician as to the form or forms of medical cannabis and/or dosage for the patient.
The application is generally similar to the application process for a recreational license. Some key differences in terms of the application and criteria for registration:
As with recreational licenses, the Cannabis Control Board (CCB) will be issuing rules and regulations that detail the exact application process, including any application fees.
Maybe. The CCB is empowered to grant some or all ROs the ability to obtain recreational cannabis licenses, subject to any fees, rules, or conditions prescribed by the CCB. We will have to see what the CCB’s rules and regulations say.
There are few obvious advantages. ROs can be vertically integrated, which means control from seed to sale. The right to vertically integrate allows for cost control throughout the production process.
ROs are also allowed to dispense medical cannabis from 4 wholly-owned dispensaries, with the apparent right to have an interest in an additional 4 dispensaries (presumably in which the RO is not the sole owner). Of the additional 4 dispensaries, 2 must be located in underserved or unserved geographic locations as determined by the CCB.
Another big advantage is going to be in the initial supply of recreational cannabis. Unless the CCB staggers its issuance of recreational licenses in such a way that allows cultivators and processors to grow and manufacture cannabis products in advance of recreational sales, there will likely be a significant supply deficit, with only the existing ROs ready to step into the void.
Where things may not be as advantageous is with existing ROs’ right to operate recreational dispensaries. As per the MRTA’s recreational licensing article, an RO can sell recreational cannabis at 3 of its medical dispensaries. However, the sale of recreational cannabis is limited to the RO’s own products. We note that there is some debate as to whether the MRTA expressly limits ROs to selling its own products recreationally, as opposed to dispensing its own products (i.e. one level up the production chain). Here at the Canna Law Blog, we think the spirit of the MRTA indicates that the limitation applies to the sale of recreational cannabis.
The renewal provisions for ROs are pretty interesting. The CCB can choose not to renew a registration if it determines and finds that:
These two bases for non-renewal appear to target the existing ROs and multi-state operators and indicate that the CCB is really going to push for geographic diversity in the issuance of registrations.
On the whole, we mainly want to point out that a recreational license is not the only option available for prospective entrants into New York’s cannabis industry. There may be more barriers to entry in terms of capital requirements (i.e. that $2,000,000 bond option), but with the significantly expanded patient availability, it may make sense to explore medical cannabis registration for some prospective applicants.
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Try infused sriracha, powerful diamond joints, and sweet Mellows.
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On May 13, the health committee of Spain’s Congress of Deputies approved a proposal to create a subcommittee that will consider other countries’ experiences with medical cannabis. The subcommittee’s findings could pave the way for medical cannabis legalization in Spain. According to a recent poll, approximately 90% of Spaniards would favor such a move.
Spain currently lacks a medical cannabis program at the national level. Two cannabis medications, Sativex and Epidiolex, have been approved by the regulator, but only for specified ailments; use to treat other conditions must be approved by a medical tribunal, subject to variations among localities. Moreover, costs can be prohibitive.
The proposal to establish the subcommittee was tabled by the PNV (Basque Nationalist Party), which has emerged as a curious standard-bearer for medical cannabis. In keeping with its reputation as a conservative party, it is not calling for adult-use cannabis legalization, insisting on a focus on health issues.
Meanwhile, it is expected that the leftist Unidas Podemos will soon unveil a cannabis bill. Consistent with Podemos‘ platform, it is expected that the draft legislation will provide for recreational cannabis legalization, under extensive government supervision.
Going forward, the fate of legalization will largely hinge on the ruling Socialists. The government led by Prime Minister Pedro Sánchez has demonstrated a lack of enthusiasm for even medical cannabis legalization, affirming that “available evidence is insufficient to recommend widespread use [of cannabis] by patients with specific conditions.”
However, at regional levels of government, Socialists appear more inclined to support legalization, at least with regard to medical cannabis. Moreover, a recent poll suggests that 50% of Spaniards are in favor of legalizing adult-use cannabis, at least under some conditions. It is reasonable to assume that the figure amongst Socialist voters is higher. As such, we may yet see the Socialists throw their support behind a legalization bill.
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In prior posts, we discussed some of the common due diligence and compliance issues for ketamine clinics (see here and here). In this post, we discuss a healthcare compliance plan and the importance of having one in place for ketamine clinics. The Department of Health and Human Services (“HHS”) (which houses, among other agencies, the Centers for Medicare & Medicaid Services or “CMS”) has a department named the Office of Inspector General (the “OIG”). As noted on the OIG’s website:
HHS OIG is the largest inspector general’s office in the Federal Government, with approximately 1,600 dedicated to combating fraud, waste and abuse and to improving the efficiency of HHS programs. A majority of OIG’s resources goes toward the oversight of Medicare and Medicaid — programs that represent a significant part of the Federal budget and that affect this country’s most vulnerable citizens. Our government oversight extends to programs under other HHS institutions, including the Centers for Disease Control and Prevention, National Institutes of Health, and the Food and Drug Administration.
OIG is one of the primary regulatory agencies for fighting fraud and abuse in the healthcare industry. If a healthcare provider takes federal reimbursement (e.g., Medicare, Medicaid, VA, etc.) then various federal healthcare fraud and abuse laws come into play (e.g., the Anti-Kickback Statute, the Stark Law, the False Claims Act, etc.). While not all ketamine clinics are Medicare participating providers, we have seen a growing number of such clinics take Medicare reimbursement. Thus, OIG oversight is becoming more commonplace for ketamine clinics.
Moreover, in addition to the foregoing federal laws, most states have various forms of their own fraud and abuse laws, in addition to the corporate practice of medicine doctrine. Any well-crafted compliance plan should include all applicable state and federal healthcare laws.
A compliance plan makes good business sense, especially in the highly regulated field of healthcare. It is like the old adage in medicine – “an ounce of prevention is worth a pound of cure.” Penalties, fines, and other remedies imposed by OIG can be extremely costly, and in some instances, can lead to jail time for violations of certain federal laws.
Moreover, a sound compliance plan can likewise lead to cost savings for healthcare providers. As the OIG noted, “These programs can also benefit physician practices by helping to streamline operations.” OIG Compliance Program for Individual and Small Group Physician Practices, 65 Fed. Reg. 59345 (October 5, 2000). The OIG went on to note that a compliance plan can also: (1) speed and optimize proper payment of claims, (2) minimize billings mistakes, (3) reduce the chance that an audit will be conducted by CMS or the OIG, and (4) avoid conflicts with the self-referral and anti-kickback statutes. Id.
Under the Federal Sentencing Guidelines (the “Guidelines”) any entity (healthcare or otherwise) convicted of a crime that has an effective compliance program can apply for certain relief. When determining the amount of a fine, the Guidelines direct a court to establish a “culpability score” by calculating aggravating and mitigating factors. While a compliance program does not exculpate an individual from being criminally charged or being criminally convicted, it does demonstrate that the organization and/or the individual took reasonable efforts to prevent, detect and correct any improper conduct. Moreover, a compliance plan may lower the starting “culpability score” by up to 60%. Conversely, not having a compliance program is considered an aggravating factor that increases the culpability score.
There are real consequences for not having a compliance plan in place.
The OIG has released several different compliance plans for the healthcare industry. For purposes of this article, we rely upon the OIG Compliance Program for Individual and Small Physician Practices because it most closely approximates a ketamine clinic (the “OIG Compliance Guidance).
As noted in one of our prior articles, the seven elements of an effective compliance plan include:
65 Fed. Reg. at 59436.
The OIG Compliance Guidance goes into detail for each of the seven elements. While a full discussion of each element is beyond the scope of this article, a few of the highlights are set forth below.
Under the first step, auditing and monitoring, the OIG breaks this down into two sub-parts: (1) standards and procedures and (2) claims submission audit. Under standards and procedures, a ketamine clinic should regularly review its compliance plan and its fraud and abuse policies and procedures. Healthcare compliance and the legal landscape are constantly evolving and changing. New laws are passed, new regulations are promulgated, and new court decisions are handed down. Therefore, it is vitally important that a compliance plan is current and covers areas that apply to a particular practice.
Undertaking a claims audit is a way to check if your practice is complying with various state and federal laws. As the OIG noted, “In addition to the standards and procedures themselves, it is advisable that bills and medical records be reviewed for compliance with applicable coding, billing and documentation requirements.” Id. at 59437. Moreover, a self-audit can be used to determine whether:
Id.
Each of the foregoing areas tracks some of the federal legal requirements. For example, to bill Medicare, a physician certifies that the services were both reasonable and necessary. If that turns out to be incorrect, the physician and/or the practice could have liability for submitting false claims to the federal government.
The second element of a compliance plan is to develop and implement policies and procedures that emanate from the compliance plan. Often, for a small practice, there are form compliance policies and procedures that can be purchased and then tailored to an individual practice’s needs. Moreover, as the OIG notes:
Additionally, if the physician practice works with a physician practice management company (PPMC), independent practice association (IPA), physician-hospital organization, management services organization (MSO), or third-party billing company, the practice can incorporate the compliance standards and procedures of those entities, if appropriate, into its own standards and procedures. Many physician practices have found that the adoption of a third party’s compliance standards and procedures, as appropriate, has many benefits and the result is a consistent set of standards and procedures for a community of physicians as well as having just one entity that can then monitor and refine the process as needed.
Id. at 59348. Whether developing your own policies or adopting those of another entity, it is vitally important to train and re-train all employees on both the compliance plan as well as the policies and procedures. Simply putting together a plan, but doing nothing else, is just a waste of time and resources. For a compliance plan to work, compliance needs to be a regular activity of any healthcare organization.
Every healthcare practice is different and has its own compliance issues to focus on. A provider should focus on those issues that are most prevalent in his practice. The important thing to remember is that a compliance plan should be tailored to the specific needs and areas of risk for a provider. Moreover, the OIG recognizes that a small provider does not have the same resources and issues as a large multi-state hospital system. As the OIG noted:
The extent of implementation will depend on the size and resources of the practice. Smaller physician practices may incorporate each of the components in a manner that best suits the practice. By contrast, larger physician practices often have the means to incorporate the components in a more systematic manner. For example, larger physician practices can use both this guidance and the Third-Party Medical Billing Compliance Program Guidance, which provides a more detailed compliance program structure, to create a compliance program unique to the practice. Id. at 59436.
Ultimately, healthcare providers need to take the time to familiarize themselves with the legal risks that confront their practice. Healthcare is a tremendously complex area of the law with a myriad of legal requirements. Ignorance of the law is never a defense to a legal action. Given the high stakes involved with violating a healthcare law, a compliance plan should be an essential tool for any ketamine clinic, just like every other healthcare provider.
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The ten participants of Eaze's 2021 Momentum incubator pitched their business ideas to major investors.
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Flavor versus convenience? The choice is personal.
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You've heard the hype on delta-8 THC, but the hemp-derived goodness doesn't stop there. Delta-10 THC is said to offer a clear, cerebral head high.
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We work with a good number of multi-state operator (MSO) cannabis companies. Always have. Most of these companies are publicly traded, although others remain closely held. With more MSOs on the scene than ever before, it seems like a good time to list out some pitfalls for MSOs, their decisionmakers, lenders, etc., as these companies stretch across state lines and even internationally.
Many cliches exist along the lines of “a company is only as strong as its people.” These cliches may feel insipid, but they also tend to be true. Many cannabis MSOs suffer from poor leadership which may be exacerbated by inappropriate compensation structures. Here’s a piece from last fall, for example, on Aurora paying out millions in executive bonuses, immediately following mass layoffs and a reported loss of US $2.3 billion. Those are outsized numbers, but this kind of thing is common in cannabis public companies at various scale.
That said, it’s not all about the c-level. For newer and smaller MSOs in particular, it is vital to have strong personnel on the ground. Some of our MSO clients have excellent “grinders” who network fluidly, cut through nonsense quickly, make the right local connections, identify strong acquisition targets, etc. These MSOs understand the markets where they are buying and they make informed choices. The same rule applies to local hiring. It’s great to own a fleet of stores, for example, but much better if those stores are maximally profitable. Local management makes all the difference there.
This ties into the point above. We have seen (and admittedly helped) cannabis MSOs buy all sorts of things that should never be bought— at least not for the prices paid. I’ve helped MSOs buy businesses and then sell them two years later for pennies on the dollar. I’ve also helped buy businesses for MSOs where the acquisition goes lights out a year or two later. When a deal looks off, I’ll give the client some general thoughts, but at a certain point the lawyer’s job is to hold his nose and paper things.
Many times, MSOs will buy things (with other people’s money) just for the sake of buying. Companies are racing for market share; or the MSO has made a public announcement that it has locked in XYZ amazing deal; or the MSO feels pressure to quickly return capital to investors; or it wants to look active to attract more investment; or leadership is unsure when another deal will materialize in a certain jurisdiction; etc. There are all sorts of competing motivations and pressures to be “forward moving.” However, if no coherent strategy exists with respect to markets or operations, the chances of success are quite low.
This happens a lot! Everyone loves a good press release. Read them closely. MSOs exist that shall go unnamed and are always announcing things, seldom coming through and never making money. One example of this is the myriad of zombie cannabis companies on the Canadian Stock Exchange that rebranded as psychedelics companies and/or began issuing press releases about their psychedelic “initiatives” last year. These releases say things like “we have entered into a nonbinding letter of intent to buy [whatever psychedelic research company] with its valuable formulations to treat [anorexia or depression or some other thing] by [issuing super cheap common shares or warrants and paying some cash], and consummation of the transaction will all be subject to satisfactory due diligence.” These announcements are designed to raise a company’s profile and attract investment. In the short term the announcement may have some limited positive effect; in the long run, the opposite will be true.
This is the most general problem of all and ties into everything written above. A successful MSO will understand exactly: 1) where the discrete market opportunity lies; 2) how to execute; and 3) when to execute (or not). I’m often surprised at the types of questions people will ask me midstream on a transaction, with respect to market characteristics and trends in Oregon, for example. Or I’ll be amazed to learn about some other deal the MSO is running concurrently, with some other angle in some other jurisdiction and with no discernible synergy. Sometimes, a cannabis MSO will careen along from one shiny prize to the next, with no underlying strategy or long-term vision.
True story: A few months ago, I received a call from a large, out-of-state law firm we have assisted over the years. This law firm advertises heavily in the cannabis space and is Chambers-rated and all sort of things. I like them. The lawyers wanted to discuss a “last minute disclosure” issue on a deal, mid-closing. In the call, the lawyers explained how the disclosure tied into a complex business structure they had created to avoid a “non-resident ownership issue” for the acquiring MSO. Friends– Oregon has not had a residency requirement for cannabis business ownership for the past five years. That call was pretty awkward and I do not know what happened next.
When our MSO clients go to other states, I never want to run those deals. I don’t care if someone else earns the fees. I don’t know the local rules; and even if I can research them, much of what I’d need to know to provide the best possible value is unavailable online. With no exceptions, I will either have a Harris Bricken lawyer handle it (if we have an office in that state), or I will steer the client toward a good local lawyer from some other solid firm. Too often, however, I see MSOs trust that one lawyer or law firm is good enough to run their deals all across the country. Better to work with someone qualified. The value will be there.
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You’ll never guess the answer.
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A common question that arises in Ketamine clinic transactions is whether a clinic or physician (collectively, “healthcare providers” or “providers”) can use or promote Ketamine for off-label uses. The short answer is yes, subject to several caveats, as discussed below. However, before reaching the answer, it is important to define what “off-label” use means and whether the U.S. Food and Drug Administration (“FDA”) has jurisdiction over the healthcare providers to enforce off-label promotion.
The term “off-label” means that a prescription is being used for an indication that is not set forth on the drug’s label. Labels must be approved by the FDA as part of the pre-market approval process and must contain certain information about the approved uses. See, e.g., 21 C.F.R. § 201.56(a)(3) (“The labeling must be based whenever possible on data derived from human experience.”). The label is prepared after, among other things, clinical trials have been completed and approved by the FDA. See, e.g., 21 U.S.C. § 505(i) (requiring clinical trials before a drug can be approved for marketing).
The FDA may decline a new drug application when, for example, the evidence fails to demonstrate the drug’s safety or “there is a lack of substantial evidence that the drug will have the” claimed effect. 21 U.S.C. § 355(d). (“‘[S]ubstantial evidence’ means evidence consisting of adequate and well-controlled investigations, including clinical investigations, by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved, on the basis of which it could fairly and responsibly be concluded by such experts that the drug will have the effect it purports or is represented to have under the [proposed] conditions of use….”).
The Federal Food, Drug, and Cosmetic Act (“FDCA”) (codified at 21 U.S.C. § 301 et seq.) and FDA regulations generally prohibit manufacturers from marketing, advertising, or otherwise promoting drugs for unapproved or “off-label” uses. See 21 U.S.C. §§ 331(a) & (d) (prohibiting manufacturers from introducing misbranded or unapproved drugs into interstate commerce); see also, e.g., 21 C.F.R. § 202.1(e)(4)(i)(a) (“An advertisement for a prescription drug …shall not recommend or suggest any use that is not in the labeling accepted in [the] approved new-drug application….”).
While there are very strict laws and regulations about off-label promotion for drug manufacturers, healthcare providers are not subject to those same restrictions (if such providers are not employed by or contracted with a pharmaceutical manufacturer). See Dresser R, Frader J, Off-Label Prescribing: A Call for Heightened Professional and Government Oversight, 37 J. Law Med. Ethics 476 (2009) (“Consistent with its jurisdictional authority, the FDA controls manufacturers’ product marketing.”). A healthcare provider has the absolute right to discuss and recommend drugs for off-label uses with patients. Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 350–51 (2001) (because the FDCA does not regulate the practice of medicine, and because prescription drugs may have therapeutic uses other than their FDA-approved indications, physicians may lawfully prescribe drugs for off-label use); see also Teo W: FDA and the practice of medicine: looking at off-label drugs, 41 Seton Hall Legis. J, 305, 307 (2016) (the FDA has consistently maintained that “it does not regulate the practice of medicine between physicians and patients.” (footnote omitted)).
Ketamine is a Schedule III non-narcotic controlled substance in the United States pursuant to the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, which means it is a lawful prescription drug that has accepted medical use. 21 C.F.R. § 1308.13. Ketamine is typically used as a surgical anesthetic and has been approved for the treatment of certain types of depression. See Prescriber’s Digital Reference (2021), https://www.pdr.net/ (ketamine hydrochloride is approved for induction and maintenance of anesthesia and procedural sedation, and esketamine hydrochloride is approved for the treatment of depression in conjunction with an oral antidepressant and for the treatment of treatment-resistant depression in adults). Therefore, the use of ketamine for any other conditions (e.g., pain relief) is considered off-label. However, physicians are increasingly using ketamine in the off-label capacity to treat mood disorders, pain symptoms, and other conditions.
While the FDA may not have jurisdiction over healthcare providers for off-label uses, that does not mean a provider can market (or make “claims”) ketamine for any condition without fear of reprisal. There are two primary legal areas that a healthcare provider should be aware of – medical malpractice claims and deceptive trade practice claims under state and federal law (under federal law, the Federal Trade Commission has jurisdiction to bring an action against a provider).
Using and promoting ketamine for a condition that is not “on-label” can lead to malpractice claims against unwary healthcare providers. A malpractice claim often revolves around whether the physician’s care met the community standard for treating a specific condition. In the absence of FDA approval or extensive research that supports the use of a drug for a particular condition, a provider may have a difficult time convincing a jury that her care was consistent with the community standard (click here for a summary of possible bases for malpractice claims, which notes –“Plaintiffs may recover in off-label medical malpractice cases if it can be established that a physician’s off-label prescription deviated from an acceptable and prevailing standard of practice.”).
The second area of concern is whether the off-label promotion is deceptive to consumers. There are both state and federal laws that are intended to protect consumers from false or misleading advertising. Click here for a summary of the Unfair and Deceptive Acts and Practices (UDAP) statutes in each of the fifty states and the District of Columbia.
Under the deceptive trade practices theory, if a healthcare provider makes “claims” about a drug that have no clinical evidence to support such claims, it is easy to see how this could lead to a deceptive trade practices action when a drug does not work as advertised (or worse yet, injures the patient). For example, if a provider posted on her website that one injection of ketamine was a “cure” or “100% effective” for the treatment of psychosis, that could certainly help form the basis of a deceptive claim action.
Thus, care must be taken to promote off-label uses of ketamine in a non-misleading way. The gold standard for “proving” a “claim” is a well-controlled randomized clinical trial that is statistically significant (e.g., the results can be generalized beyond the research and control groups). Certainly, FDA approval requires such proof, and in the absence of FDA approval, other credible evidence must exist to insulate healthcare providers from various legal actions.
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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 Part 2, we focused on the regulatory environment, discussing concepts that first-time buyers and their attorneys should be aware of. In this Part 3, we look into things to consider when hiring your cannabis attorney.
In my time representing clients in the cannabis industry, I have learned that cannabis company owners can be, on balance, less willing to engage attorneys to help them with their work than clients in other industries like our international practice. I am not sure whether that is because of the relative “simplicity” compared to international transactions or whether cannabis owners generally distrust lawyers or do not see the value in us. The last reason is often why clients who have been burned once in a business deal make great clients: they know what problems their attorneys can help them avoid and they can put a price tag on that value.
In a transaction, sellers are generally less willing to hire an attorney than buyers because sellers are more concerned with getting paid, while buyers are beginning to navigate a whole host of potential business issues, including many of seller’s legacy business issues the buyer will not know about.
When hiring your cannabis attorney, you should expect to see an engagement letter with language like the below capitalized text. Cannabis work is still very nebulous, so your attorney’s engagement letter will probably seek to protect their firm to the greatest extent possible. Most cannabis engagement letters will contain additional disclaimer language to protect the law firm from future malpractice claims and ensure that you as the client have reasonable expectations, and it will probably be in all caps:
WE CANNOT GUARANTEE YOUR ABILITY TO RECEIVE A MARIJUANA-RELATED BUSINESS LICENSE IN ANY WAY.
POSSESSING, USING, CULTIVATING, MANUFACTURING, PROCESSING, DISTRIBUTING, AND SELLING MARIJUANA ARE ALL FEDERAL CRIMES. NO LEGAL ADVICE WE GIVE YOU IS INTENDED TO ASSIST YOU IN VIOLATING ANY LAW OR AVOIDING DETECTION OR PROSECUTION OF SUCH VIOLATIONS.
OUR ADVICE IS INTENDED SOLELY TO ASSIST YOU IN COMPLYING WITH STATE CANNABIS LAWS. THE ILLEGAL STATUS OF MARIJUANA UNDER FEDERAL LAW MAY IMPACT THE ATTORNEY-CLIENT RELATIONSHIP, THE ATTORNEY-CLIENT PRIVILEGE, AND THE CONFIDENTIALITY OF INFORMATION PROVIDED.
As with all transactions, your legal counsel is considering their ethical obligations in advising you to comply with applicable laws and regulations. No ethical attorney will ever advise you to break applicable state laws and regulations (but federal and state law conflicts are another thing).
Your counsel must be familiar with the applicable regulatory structure and will likely document all guidance provided to you regarding the regulatory environment either through regular emails and memos to you or to your counsel’s own files. This especially includes instances where you want to toe the legal or regulatory line, even where your attorney personally feels like some laws and regulations are nonsensical.
Some cannabis company owners are inherently suspicious of legal counsel, so it is not uncommon for you as the buyer to be the only party engaging counsel in the transaction. If the seller will not be hiring legal counsel, then you and your attorney will need to determine whether your attorney should engage directly with the seller or whether all negotiations should remain at the buyer and seller level. This is generally a strategic decision about what the seller will expect and be comfortable with.
If your attorney will be the only attorney involved, then you should plan on paying additional legal costs associated with your attorney performing all of the transactional work without seller’s counsel involved. You may want to address this added expense with the seller and increase the purchase price accordingly. You also need to determine whether you, the seller, or your attorney will take on the additional work of filling out license transfer forms and dealing with your state regulators.
You may want your attorney to explain contract provisions generally to the seller, but your counsel may be hesitant to do so and will at least clarify that they will not be providing legal advice to the seller when doing so.
Employing the lone attorney in the transaction is not all bad. When seller does not engage counsel, the transaction often moves forward faster, with the initial closing occurring quickly after the initial drafts are provided to the seller. Counsel will ensure that the transaction documents include representations by the seller that the seller has had ample time and opportunity to engage its own counsel.
For more on this topic, check out Hilary Bricken’s recent post, titled Cannabis Lawyers and Law Firms: The Good, the Bad and the Ugly. For earlier posts in this series, see:
The post What You Need to Know When Buying a Cannabis Business, Part 3: Hiring Your Lawyer appeared first on Harris Bricken.
Last month, I wrote this post about the availability of fraudulent transfer claims under the Uniform Voidable Transactions Act when it’s possible that a cannabis judgment debtor (or soon to be judgment debtor) begins to move its assets around to avoid future payment. But what if you have those concerns at or near the beginning of a lawsuit? A writ of attachment may be the answer.
Attachment is a prejudgment remedy that allows a creditor (typically the plaintiff or cross-complainant) to obtain a lien on the defendant’s assets during the pendency of the case. I’ll start off by saying this is difficult to win (more on that below), and the process involves compliance with extremely strict statutory requirements and technicalities. If obtained though, attachments provide huge leverage and motivation for settlement. They also allow you to become a secured creditor, which means you’ll gain priority over the defendant’s other creditors that might come to existence while the case remains active.
Attachment is a statutory mechanism, and Code of Civil Procedure § 483.010, et seq. is the operative section. Subsections (a) and (b) provide:
(a) Except as otherwise provided by statute, an attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney’s fees.
(b) An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement, statute, or other rule of law (including any mortgage or deed of trust of realty and any statutory, common law, or equitable lien on real property, but excluding any security interest in fixtures subject to Division 9 (commencing with Section 9101) of the Commercial Code). However, an attachment may be issued where the claim was originally so secured but, without any act of the plaintiff or the person to whom the security was given, the security has become valueless or has decreased in value to less than the amount then owing on the claim, in which event the amount to be secured by the attachment shall not exceed the lesser of the amount of the decrease or the difference between the value of the security and the amount then owing on the claim.
So, in order to qualify for an attachment, the claim must be:
If the conditions above are met, you can move forward with applying for the attachment. Note that you’ll have to establish a prima facie claim, and the court is going to have to make a preliminary determination of the merits of the dispute. Because this requires a mini, preliminary trial of sorts, the process is notoriously time-consuming and expensive, especially if the defendant mounts an aggressive defense. However, that time and money may well be worth it because if obtained, it provides security in knowing there will be something of value to secure your future judgment.
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When the author realized she'd eaten 100 mg and not 10 mg, her positive embrace of 'set and setting' made all the difference.
The post I ate 10 times more THC than I planned. Here’s what happened appeared first on Leafly.
Many of the old home remedies to cleanse your system of weed are ineffective at best and dangerous at worst. PassYourTest.com provides a guarantee on trusted solutions so you can be confident your detox will work.
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Over the last few weeks we have seen a number of articles about New York’s Marijuana Regulation and Taxation Act (MRTA) written by attorneys based outside of New York or (worse yet) attorneys who are not licensed to practice law in New York. We have been pretty “vocal” about the importance of selecting the right law firm for your cannabis business. Significant consideration should be given to hiring an attorney and law firm that actually practices law in the state in which you intend to operate.
Hiring a “local” law firm is important in any state, but we cannot overstate the significance of having institutional knowledge of the issues and customs that are specific to New York. Any attorney worth their salt can regurgitate a few section headings from the MRTA and summarize the text of any given provision. That’s all well and good until the Cannabis Control Board (CCB) issues its regulations and applicants actually need real legal guidance in organizing their businesses and preparing their applications.
Let’s go through some issues that an out-of-state attorney is probably not even thinking about, let alone prepared to address. We note that the below list is a wonderful segue way into issues that prospective applicants should start considering now.
So you’re interested in opening an on-site consumption location in Manhattan. You’re thinking about leasing ground-level retail space in Chelsea or Flatiron. Maybe (MAYBE) an out-of-state attorney knows the difference between the two.
Is that attorney familiar with the boundaries of Community Board 4 and Community Board 5? We doubt it. Will that attorney have credibility with the community board if you need your attorney to advocate against opting out of retail and on-site consumption licensing at a community board hearing? A better question: does an out-of-state attorney even know what a community board hearing is?
The point is that the MRTA deputizes local governing bodies in a way that requires local knowledge. Hiring a law firm that does not understand the intricacies of local governments in New York could end the application process before it starts, particularly for retail and on-site consumption applicants.
We have emphasized the importance of real estate as part of the application process. Beyond the obvious business implications (location, location, location), the MRTA requires applicants to own or lease the physical location in which they intend to operate when submitting applications. Which means that applicants will need to select and actually contract for their real estate before they obtain a license.
You want to apply for a cultivation license in the Town of Riverhead on Long Island? Let’s assume you found a broker you like to give you some options for leasing property. Has your out-of-state attorney ever dealt with a New York real estate broker? Does your out-of-state attorney know how to confirm the property is zoned for industrial use? Very quickly, time and money can be wasted on bringing in outside consultants because of a lack of local knowledge.
Which brings us to actually contracting for real estate. We will not belabor the point: the New York real estate market is among the most competitive and insular real estate markets in the world. Hiring a law firm without at least a basic understanding of how New York’s real estate market operates would immediately put an applicant at a disadvantage.
How? Try these questions: how much does it cost to negotiate and prepare a commercial lease in Manhattan? How many months of free rent are most commercial landlord’s considering? Will landlords consider a tenant improvement allowance? Who pays transfer taxes if you want to buy the location? Is a mortgage recorded?
Chances are a non-New York attorney will not be able to answer those questions without doing a fair amount of research (you’ll be paying for that). Once it starts, New York’s licensing process will move fast. New York’s real estate market will move faster. Don’t waste time by choosing an out-of-state attorney who will not be able to move at the speed needed by New York applicants.
Let’s say you leased a retail space in Brooklyn for a retail dispensary. Now you actually have to build out a store. At a minimum, you will need to hire a contractor and an architect. You may also need to hire an engineer, an interior designer, or any number of other consultants that help clients design and build their physical locations.
At a minimum, your attorney will need to be able to understand New York construction contracts, which contain numerous provisions specific to operating in New York, particularly with respect to mechanic’s liens and insurance. Does your out-of-state attorney have any idea how long it takes to have plans approved by the Department of Buildings and permits issued for work? How about a Stop Work Order issued by the Department of Buildings?
Missteps in the design and planning process before construction begins can cause significant delays, every day of which is another day you, as a retail dispensary licensee, is paying rent but not operating. Mistakes in contract drafting or during the construction process can also lead to costly delays and lien issues, which in turn can trigger defaults under a lease (or loan documents).
In the face of construction delays and associated costs, the need for a New York attorney is obvious. You wouldn’t hire an Oregon contractor to build a house in upstate New York. You shouldn’t hire an Oregon attorney to guide you through developing your cannabis business in New York.
The impact of federal banking laws on the cannabis industry is well-publicized and hopefully an issue that will soon be remedied. Until then, federally insured banks cannot lend money or provide retail banking services (deposits, checking, etc.) to cannabis businesses.
In the absence of the national banks, the only current options for cannabis businesses are credit unions and smaller banks that operate only on a local level. It is unlikely that an out-of-state attorney is familiar with New York credit unions or alternative financing options that are specific to New York. Given the substantial capital that will be required for cannabis businesses to get started in New York (separate and apart from any license fees imposed by the CCB), having a New York attorney that is familiar with financing and banking options in New York will be critical to a business’ success.
For any business, some form of dispute resolution, be it litigation, arbitration, or mediation, is likely. We expect that almost all disputes arising from New York’s cannabis industry will take place in New York. Setting aside the fact that being admitted to practice law in New York and in our Federal Courts is a condition to appearing in a litigation, having knowledge of New York’s rules of practice is essential to navigating dispute resolution in New York.
As a final reminder of the importance of using a New York attorney for developing your cannabis business in New York, we end with a statement from Assemblywoman Crystal Peoples-Stokes, one of the sponsors of the MRTA. In short, in a presentation to the City of Rochester, Assemblywoman Peoples-Stokes said that the spirit of the MRTA is to benefit New Yorkers and that the CCB’s rules and regulations will adhere to that guiding principle. You don’t have to hire us, but we strongly urge any applicant to consider local New York attorneys as your advisor for entrance into New York’s cannabis industry.
The post The Marijuana Regulation and Taxation Act: I’m in a New York State of Mind appeared first on Harris Bricken.
Delta-8 THC had a good run. People made money, customers were happy, and it all seemed legal to boot. Like all good things in life, states and the DEA are doing everything in their power to ensure that delta-8’s run comes to an end. Let’s talk about why.
For those of you who may not have been paying attention, delta-8 is one of many, many cannabinoids in cannabis (marijuana and hemp) plants. Unlike CBD, it gets you high. It’s not usually present in high volume in cannabis, so it’s usually derived by converting hemp CBD through chemical processes, and can’t be legally derived from marijuana under federal law.
In theory (or, more accurately, according to the literal text of the federal 2018 Farm Bill, if you care about little details like “what the actual law is”) hemp-derived delta-8 THC should be considered legal under present federal law. But the DEA apparently didn’t get that memo.
Late last year, the DEA issued an interim final rule (IFR) that says that all synthetic cannabinoids are Schedule I narcotics and illegal. Never mind that delta-8 is most commonly derived from a hemp plant and that the 2018 Farm Bill legalized hemp and its derivatives because, well, the DEA apparently thinks it’s as dangerous as heroin. We wrote quite a bit on why the DEA was just wrong around the time the IFR was published, and generally stand by that opinion. See the below:
Surprisingly, the DEA didn’t see eye to eye with the entire industry. It even put delta-8 on its “Orange Book” of controlled substances. I won’t get into too much more detail on the status of federal delta-8 law, as my colleague Nathalie Bougenies recently did just that a few months back.
That said, I will note that there are a number of lawsuits challenging the IFR. One of those cases was recently dismissed based on essentially technical legal issues, and there is another challenge in a federal appellate course that will play out soon.
The problem here is that even if the IFR is completely overturned, it really won’t matter given that states are apparently in a secret contest to ban delta-8 as fast as they can. On May 18, Hemp Industry Daily published an article noting that Michigan was in the process of banning delta-8 and noted at the end that this was the TWELFTH state to do this–including uber hemp friendly states like Colorado and Kentucky. I can already sense the California Department of Public Health itching to post another website FAQ banning delta-8.
As lawyers are valiantly duking it out with the DEA in the D.C. Circuit, one has to ask: will it really do anything? If states ban delta-8, it doesn’t really matter if the IFR is scrapped. To the extent that states’ positions are based on the IFR, the state can always just find another justification to ban delta-8. And the DEA can always just find another way to sink it’s teeth into delta-8.
How did we get here? Why all the fuss? The answer is probably the fact that delta-8 is intoxicating. While it’s not intoxicating to the same extent as delta-9 THC, it still gets you high. As I’ve believed for a while, there’s no way states were going to just sit back and let people sell delta-8 without restrictions. Delta-8 is often sold online or in retail settings where there is no state or federal mandate to verify age, for example. This was not something that states would tolerate for long.
While I personally expected to see states start to impose regulatory restrictions instead of full on bans, here we are. It seems like every day, another state or two has banned delta-8. Just last year, we thought smokable hemp would be banned almost across the board, and those bans moved at a glacial pace compared to the lightspeed effort states are taking to get rid of delta-8.
At this point, things are not looking good for the industry, and will likely get a lot worse before they get better (if they do). It’s certainly possible that once the air clears or the DEA loses, states will try to fill the vacuum by strictly regulating delta-8. But for now, we’ll just have to watch out to see which state jumps on the ban-wagon next.
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Efforts by the Multidisciplinary Association for Psychedelic Studies (MAPS) to legalize prescription MDMA (Ecstasy) appear to have passed a gigantic hurdle earlier this month: MDMA is on track to meet the testing requirements to be a legalized prescription drug, specifically intended to treat the symptoms of post-traumatic stress disorder (PTSD). After analyzing the preliminary results of the latest Phase III study of the effects of MDMA, scientists believe that MDMA represents a potential breakthrough in PTSD treatment. This is huge news because FDA has only approved a few antidepressants to treat PTSD, and about half of patients get no relief from those drugs.
According to analysis by an FDA-coordinated independent data monitoring company (DMC)—which reviewed MAPS’ Phase III data after 60% of the subject completed the study—there is at least a 90% chance that the Phase III testing will yield statistically significant results once all participants have been treated. The results of the study were published last week in Nature Medicine, a prestigious trade journal.
So, how did the study work? Scientists used a randomized, placebo-controlled study with 90 participants suffering from severe PTSD. They found that MDMA significantly reduced PTSD symptoms and functional impairment. Specifically, 67% of patients improved enough to no longer satisfy the diagnostic criteria for PTSD, and a third experienced complete remission. Furthermore, MDMA did not induce adverse events of abuse potential, suicidal idealization or attempts, or QT prolongation. Ultimately, the results of the study indicate that MDMA-assisted therapy is highly efficacious in those with severe PTSD, and that MDMA treatment is safe.
Phase III testing is critically important for the legalization of prescription MDMA. In this phase, scientists evaluate how MDMA compares to existing medications that treat PTSD such as Prozac, Zoloft, and Paxil. Phase III is also a considerable step up from Phase I and Phase II; Phase I trials examine the safety of the drug but not the efficacy of the drug in humans, and Phase II trials study whether the drug actually treats PTSD in conjunction with talk therapy.
The study results are a huge victory for Rick Doblin in particular, who has spent more than 30 years advocating for psychedelic drug use to treat emotional trauma (sometimes, Doblin refers jokingly to MAPS as “the world’s oldest start-up”). Founded by Doblin in 1986, MAPS is a nonprofit based in San Jose, California that is committed to attracting funding and seeing MDMA through the Food and Drug Administration (FDA) drug approvals process. Since then, MAPS has guided MDMA through various regulatory obstacles and investors have contributed lots of money to study the efficacy of MDMA in treating PTSD. Just last August, MAPS announced that it had raised $30 million to complete this first Phase III MDMA study.
MAPS is preparing for a sprint to the finish line, aiming for FDA approval in 2022 and drug commercialization in 2023. The biggest challenge between now and then for MAPS likely will be raising a few hundred million more to complete a second Phase III study, move into drug production, and train therapists around the world to administer treatment.
We have been following MAPS and predicting the success of this treatment regime for a while now, and we were excited to see these results and follow the progression of MDMA towards legalization. It could also pave the way for approvals of other psychedelic drugs in the FDA channel, as we’ve been covering on this blog for the past three years.
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74% of Mississippi voters approved medical marijuana legalization. The state's Supreme Court was aghast—and burned down the house to prevent the new law from taking effect.
The post Mississippi meltdown: High court destroys state initiative system to stop medical marijuana appeared first on Leafly.
Legislators added new caps on homegrow and THC potency—and moved locals to the front of the licensing line.
The post Montana just changed its marijuana law. Here’s what you need to know appeared first on Leafly.
Nanotechnology means a different kind of edible. Wana Quick Gummies are not only delicious, the may also produce a faster onset of effects.
The post How Wana Quick Gummies could make the good times come faster appeared first on Leafly.
Goodbye, Mississippi ditch weed. Hello, real-world high-quality cannabis.
The post DEA finally ends fed monopoly on schwaggy research-grade cannabis appeared first on Leafly.
If you’ve been reading our blog for the last few years, you know that California has taken a pretty absurd position on hemp-derived CBD for the last few years. Though the state led the charge to legalize cannabis (in California, “cannabis” is legally defined as only marijuana and not hemp), the state just can’t get its act together with anything that’s made from hemp. In 2018, the California Department of Public Health (CDPH) published an FAQ that said that hemp CBD could not be added to any kind of orally consumable product like foods, beverages, dietary supplements, or animal products, which has been the rule ever since.
You can read an older analysis of mine on the CDPH’s position here. In my opinion, the CDPH’s position was highly suspect – there is no law in the state that actually forbids adding CBD to anything; the CDPH just followed the federal Food and Drug Administration’s (FDA) position. While the FAQ did not expressly say so, it appears that the CDPH actually took the position that CBD was an adulterant under the state’s Sherman Food, Drug, and Cosmetic Law (which is similar to the federal Food, Drug and Cosmetic Act laws that the FDA enforces). Local agencies like the Los Angeles County Department of Public Health issued statements that did state that CDPH was an adulterant, ostensibly because CDPH took that position. And so without undergoing any kind of rulemaking process, CDPH effectively outlawed CBD consumables, and CDPH and local agencies actually enforced this position.
While CDPH made its stance relatively clear with respect to oral consumables, it was not totally clear with respect to cosmetics. The FAQ does not mention cosmetics once and its full title is “FAQ – Industrial Hemp and Cannabidiol (CBD) in Food Products” (that’s not my emphasis, but CDPH’s). In the wake of this FAQ, it was unclear what exactly CDPH’s position was on cosmetics. Under the Sherman Law, the state technically has authority over cosmetics, so it’s not clear what the agency’s position was and many people assumed that the agency’s silence on CBD in cosmetics meant it was okay with them.
However, in January 2021, CDPH quietly issued a revised FAQ, which is now called “CDPH Information on Industrial Hemp (IH) Derivatives Including Cannabidiol (CBD)”. The single-page revised FAQ starts out by expressly adopting the FDA’s position banning CBD as a food additive, dietary supplement, or pet food, and then goes on to expressly state that CBD is an adulterant in food and cosmetics. Here’s the relevant language:
California’s Sherman Food and Drug Law provides that any food (which includes beverages and pet food) is adulterated if it is, bears, or contains any food additive that is unapproved, and that a cosmetic (which includes lotion and salves) is adulterated if it bears or contains any poisonous or deleterious substance that may render it injurious to users under the conditions of use prescribed in the labeling or advertisement of the cosmetic, or under conditions of use as are customary or usual.
Hulled hemp seed, hemp seed protein, and hemp seed oil are the only components of hemp that are GRAS and allowed in food. CBD derived from hemp or any other source is currently not allowed in any of the items regulated by the Food and Drug Branch of the California Department of Public Health, including foods, drugs, and cosmetics.
And, there you go. CDPH has now taken the incredible position that CBD cannot be added even to cosmetics such as lotions or salves in the State of California. This position is even more restrictive than FDA’s stance on the same topic. In all, it seems that the agency is intent on doing everything in its power to make life difficult for the industry. There are numerous states that are doing their best to regulate CBD products and ensure they are safe in spite of the FDA’s position, but California – the largest economy in the U.S. – has decided to just ban the products. As of now though, we aren’t aware of any publicized enforcement efforts.
This is obviously not good for CBD companies, though there may be light at the end of the tunnel (a big maybe) given that there are efforts to pass actual laws that will force CDPH and other agencies to regulate CBD products. We will see if that pans out, so stay tuned to Canna Law Blog for more updates.
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Gov. Kay Ivey signed the bill into law. The first licenses are expected in late 2022.
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As we often point out in these pages, cannabis companies are unable to register trademarks for many of the core products. The United States Patent and Trademark Office (USPTO) “refuses to register marks for goods and/or services that show a clear violation of federal law, regardless of the legality of the activities under state law.” These goods include not only marijuana as defined by the Controlled Substances Act (CSA), but also many CBD products, such as edibles, which are prohibited under the Federal Food, Drug, and Cosmetic Act (FDCA).
Unsurprisingly, impacted companies have mounted numerous challenges to the existing framework. One such challenge comes from a company called Joy Tea, which had a trademark application (88640009) for CBD drinks rejected by the USPTO.
When it initially rejected Joy Tea’s application, the USPTO noted that “it is unlawful to introduce [into interstate commerce] food to which CBD, an ‘article that is approved as a new drug,’ has been added … regardless of whether the substances are hemp-derived.” The USPTO also noted that, as described, Joy Tea’s goods did not specify the CBD source, potentially covering goods defined as marijuana under the CSA (that is, containing more than 0.3% THC).
At the USPTO’s suggestion, Joy Tea amended its description of the goods to overcome the refusal under the FDCA. The new description clarified that “ingredients [are] solely derived from hemp with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis.” While this change took care of the refusal under the CSA, it did not resolve the grounds for refusal under the FDCA. Joy Tea is now appealing the decision at the Trademark Trial and Appeal Board (TTAB).
To fully grasp the nuances of the dispute, it is important to understand the difference between the two most common bases for a trademark application: actual use and intent to use (ITU). When a registrant files an application on an actual use basis, it is claiming that it has already used the mark in commerce. By contrast, an ITU application only requires a bona fide intent to use the trademark on the part of the registrant.
Joy Tea’s main contention is that it should be allowed to register the trademark on an ITU basis because it anticipates the described goods (CBD drinks) will be lawful by the time the registration is complete. In essence, Joy Tea is saying that its intent to use the mark on CBD drinks is contingent on those drinks becoming lawful. As a result, there will be no unlawful use to concern the USPTO.
The USPTO, however, disagrees with this stance. In the agency’s view, lawfulness “is determined at the time the application is filed and not what may or may not be lawful … years from now.”
We anticipate the USPTO will prevail. A ruling in Joy Tea’s favor would require USPTO to devote resources to the examination of applied-for trademarks that may never be registerable. It could also force the agency to monitor the state of the law in various fields on an ongoing basis.
This all said, Joy Tea and its counsel are deserving of a hearty “well played.” If Joy Tea prevails, it will mark a dramatic before-and-after when it comes to cannabis trademarks. Cannabis companies would do well to start getting ready to file what may soon be known as Joy Tea applications. Just in case.
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