Weed Wanted: June 2021

Portugal, the country that currently has one of the most liberal approaches to cannabis on Europe's Western Coast, is deciding on whether or not to go recreational, which is igniting the adult-use conversation throughout Europe and beyond.

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Oregon’s New Cannabis Laws: 2021 Edition

The 2021 Oregon legislative session wrapped up on Sunday, June 27. Thus I am here with the traditional, annual update on all our new cannabis laws. This year, I count 10 passed bills that deal squarely with cannabis. Some of these bills already have been signed by Governor Brown, while others are still making their way to her desk. As a reminder, if the Governor doesn’t sign an enrolled bill within 30 days, it becomes law regardless. I don’t expect Governor Brown to veto any of these 10 bills, with one possible exception.

From an industry perspective, the session was notable for what passed, as much as for what did not. I’m going to start this post by covering two big bills that failed, and then we’ll move on to the winners.

Bills that Failed

HB 3112 Cannabis social equity

In my preview of this session back in January, I wrote “if we are ever going to see a cannabis social equity bill become law, this should be the year.” Unfortunately, it wasn’t the year. The reasons this bill failed are complex, but HB 3112 was killed behind the scenes after four months of fits and starts.

Every year that goes by without a cannabis social equity bill makes the lift a little heavier. In January, I examined some of the challenges HB 31112 would face, and I concluded:

Unfortunately, this ship has sailed to some extent. There are thousands of cannabis industry licenses issued at this point in Oregon, and would-be beneficiaries of the Oregon Cannabis Equity Act will start from a moored position. The legislature should have dealt with this way back in 2015.

In the bigger picture, the fate of HB 3112 was not unique. HB 2002, the omnibus, statewide bill targeting structural and systemic racism in Oregon, also fell by the wayside. That said, Oregon did pass a raft of standalone racial and criminal justice bills, which you can read about in a broader summary here.

SB 864 Increased taxes

This bill would have increased the maximum percentage of tax that a city of county could impose on the sale of marijuana items, from 3% to 10%. SB 864 got sort of close in that it passed the Senate, but industry was staunchly opposed and, perhaps more importantly, the House Revenue Committee Chair let it drop. One factor there may have been the extra $1BB dollars contained in the state May revenue forecast, plus the $2.6BB received from the feds.

It will be interesting to watch what happens with cannabis tax increase proposals in the future, especially if state coffers run lite again, and due to the fact that much of the cannabis tax revenue has gone away to Measure 110. I am on record saying that cannabis taxes could go a bit higher, although for the sake of our clients I hope they do not.

Bills that Passed

HB 3000 Regulation of impairing artificially derived cannabinoids; etc.

This was a very big, significant, omnibus hemp bill, which did a million things. Here are the big ones for me:

Authorizes the Oregon Liquor Control Commission (“OLCC”) to regulate artificially derived cannabinoids.
Requires industrial hemp commodities or products intended for human consumption to be processed by a licensed marijuana processor.
Prohibits anyone other than a licensed marijuana retailer from selling specified industrial hemp commodities or products to consumers.
Requires the OLCC to adopt rules establishing maximum concentration of total delta-9 THC and other cannabinoids, including artificially derived cannabinoids, in single serving of cannabinoid product.
Directs the Oregon Department of Agriculture (“ODA”) to administer the Oregon Hemp State Program for production, processing and sale of industrial hemp.
Requires ODA to conduct criminal records check on applicant for industrial hemp grower license. Allows person licensed by department to transport within this state specified industrial hemp and industrial hemp commodities.
Requires ODA to establish requirements for tracking transfer of specified industrial hemp commodities and products.
Directs ODA to adopt rules to require industrial hemp grower to report to any loss of crop, or intention to not plant.
Requires grower ordered to destroy or remediate industrial hemp crop to provide to department documentation of destruction or remediation.
Directs ODA to refuse to issue registration or take other specified action if person plants industrial hemp crop or commits specified violation prior to applying for grower registration.
Allows marijuana processor to transfer, sell or transport industrial hemp commodity or product to person that is not marijuana processor, retailer or wholesaler if commodity or product meets specified requirements.
Prohibits sale of industrial hemp commodity or product intended for human consumption to consumer unless commodity or product meets specified requirements.
Establishes civil penalty not to exceed $10,000 applicable to certain persons growing industrial hemp crop that contains specified tetrahydrocannabinol concentration.
Establishes Task Force on Cannabis-Derived Intoxicants.

Most of these items are self-explanatory, but the key takeaways for me are that 1) industry should be pleased with this bill overall; 2) Oregon is looking really hard at solutions for bad behavior –predominantly in Josephine and Jackson Counties–related to its lightly regulated hemp industry, and 3) despite the consumer protection bent of HB 3000, Oregon chose not to ban all artificial cannabinoids as 11 other states have done to date. Oregon will regulate those cannabinoids instead. I believe the state should be commended for its rational response in the context of evolving research, and its respect for market dynamism. We will follow up soon with a more detailed post on this development.

HB 2284A Hemp commodity commission

Apparently lawful hemp operators wanted a commission to tax and market themselves, similar to the Oregon Wheat Commission or the Oregon Beef Council. It’s an interesting development for a relatively new state industry. We’ll be watching closely.

SB 408 Marijuana program adjustments

This is a Christmas tree bill that industry should be happy with. To start, it does a lot to pin down OLCC on enforcement issues we have critiqued for years on this blog. SB 408:

Specifies reasons for which OLCC may delay processing, approving or denying an application for marijuana licensure.
Requires OLCC to consider mitigating factors when revoking, suspending or restricting a license.
Requires OLCC to establish by rule a schedule of numbers and types of violations that indicate disregard for law by an applicant or licensee.
Requires OLCC to report, not later than December 31, 2021, and December 31, 2022, on rulemaking related to establishment of violations schedule and public safety.

Implemented properly, these changes should help set industry expectations for application processing, and more importantly, remove nebulous standards and protocols when licensees are charged with violations. On the administrative enforcement side, SB 408 also:

Authorizes OLCC to revoke, suspend or restrict a marijuana license for reasons including diversion of marijuana to interstate or illicit market, and for introduction of cannabinoids or marijuana not produced by an OLCC licensee or tracked METRC.
Authorizes OLCC to revoke a marijuana retailer license for specified reasons.

Finally, SB 408 attempts to tighten a few program gaps and clarify some vague terminology found in current rules and statutes:

Allows commonly owned marijuana producers to transfer to one another marijuana and usable marijuana, and defines “commonly owned.”
Allows marijuana producers to receive specified marijuana items from marijuana processors.
Specifies information required in a transfer manifest for transport of marijuana.
Requires OLCC to adopt rules to allow marijuana producer to receive specified amount of marijuana seeds from any source in Oregon.
Increases the personal possession limits to two (2) ounces of marijuana in public place.
Directs OLCC to adopt rules related to THC concentration in single serving of cannabinoid product or cannabinoid concentrate or extract.

HB 2519 Intrastate deliveries

This bill allows delivery of marijuana items by retailers to consumers in adjacent cities or counties, so long as those jurisdictions have adopted ordinances allowing for such delivery. Good fix.

SB 808 OLCC peace officers

This small bill makes a crucial change. It gives OLCC regulatory specialists the “peace officer” distinction (basically, police power), concurrent with OLCC’s expanded jurisdiction over artificial cannabinoids and hemp more generally. The idea here is to equip inspectors for encounters down in the wilds of Jackson and Josephine Counties to start, where sheriffs have stacks of warrants outstanding for unlicensed cannabis activity, and where fear of cartel-type activity is growing.

HB 3295 County eligibility for tax distributions

I’ll admit this is a boring one. HB 3295 modifies county eligibility requirements for transfer of moneys from the Oregon Marijuana Account. It also requires counties, with a few exceptions, to convene cannabis advisory panels before they adopt specified ordinances related to marijuana, in order to be eligible for transfers of moneys. Enough said.

HB 3369 Medical marijuana medical professionals

This commonsense bill allows nurses (like doctors) to discuss medical marijuana use with patients. It also specifies licensed health care providers who may recommend medical use of marijuana to registry identification cardholder. Cool.

SB 307 Oregon medical marijuana card discount for veterans

Another commonsense bill. This one waives fees (which are very small anyway) for certain veterans wishing to obtain a medical marijuana card. Each qualified veteran must have a total disability rating of at least 50 percent as result of injury or illness incurred or aggravated during active military service, and they must have received a discharge or release under other than dishonorable conditions. Back in January, I wrote “seems like low-hanging fruit, with the only question being whether 50% is the right number.” Same question, I guess, but it’s good this passed overall.

HB 2111A Changes name of OLCC

Changes the name of the “Oregon Liquor Control Commission” to “Oregon Liquor and Cannabis Commission.” This is appropriate and it’s sort of strange it took so long, especially given the acronym remains unchanged.

SB 96 Regulation of inhalant delivery systems

Last but certainly not least, SB 96 authorizes OLCC to regulate testing and labeling of inhalant delivery systems that include hemp-derived vapor items. Of all the bills this session referred to Governor Brown, this is the only one where signature is an open question. I don’t have a great read on that, but I assume she ultimately signs. If so, this regulation would be a significant undertaking for OLCC. Stay tuned.

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Tuesday, June 29, 2021

The cannabis-infused freezie of my dreams hits Ontario retail stores in July

Canadian cannabis consumers are excited to celebrate summer with the first frozen edible on the market.

The post The cannabis-infused freezie of my dreams hits Ontario retail stores in July appeared first on Leafly.

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Mexico Supreme Court Decriminalizes Recreational Cannabis

Mexico’s highest court struck down the nation’s laws against consumption and personal cultivation of marijuana on Monday, more than five years after a limited ruling that declared the prohibitions against recreational cannabis unconstitutional.

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Mississippi Hears Testimony About Legalizing Cannabis

This week, Mississippi held a meeting to talk about legalizing cannabis, and heard testimony from folks in other…

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Zimbabwe Initiates “Green Industry Fund” to Lure Foreign Cannabis Investors

Zimbabwe is allowing 100 percent ownership in enterprises, including funds from outside the country.

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Pennsylvania Lawmakers Approve Changes to Medical Marijuana Regulations

House Bill 1024 was approved in Pennsylvania, extending the allowance of curbside pickup and other practices that were put in place in response to the coronavirus pandemic.

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Calling all homegrowers: Here are three standout seed strains you’ll want to get to know

Check out some exceptional seed strains for your homegrow from Kannabia Seed Company. Grower notes for each strain will help you get the best possible yield.

The post Calling all homegrowers: Here are three standout seed strains you’ll want to get to know appeared first on Leafly.

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BREAKING: Mexican Supreme Court Legalizes Individual Adult Cannabis Use

In a historic session yesterday afternoon, the Mexican Supreme Court voted to issue a General Declaration of Unconstitutionality (the “Declaration”) of the General Health Law’s prohibition on individual adult (recreational) cannabis use.

The Supreme Court vote followed the Mexican Senate’s failure to pass a Cannabis Law bill that would have regulated adult use, as we reported here. In 2018, the Mexican Supreme Court ruled that the federal statutory prohibition on recreational marijuana use was unconstitutional, and ordered Congress to legalize recreational use throughout Mexico within 90 days. The deadline was extended several times and the final extension expired on April 30, 2021.

In issuing the Declaration (which will be effective upon publication in the Federal Official Gazette and notification to the Ministry of Health — most notably COFEPRIS, the Federal Commission for Protection Against Health Risks) and both chambers of Mexico’s Congress, the Supreme Court Justices have expunged from the Mexican legal system the wording in the General Health Law providing that any cannabis-related activity should only be conducted for medical or scientific purposes.

What does the Declaration mean for consumers?

First, that activities related to individual adult use of cannabis are now fully legal nationwide. In other words, the individual right to grow and consume marijuana without affecting third parties is now officially recognized in Mexican law, formalizing existing jurisprudencia (binding court precedent).

Second, COFEPRIS, which will continue to be the agency in charge of issuing individual adult use cannabis permits, has been directed to issue guidelines telling consumers how to procure seeds for themselves, apply for permits and conduct individual adult use activities.

Third, individual adult cannabis use is considered an exercise of “the right to the free development of one’s personality” (for what that means concerning cannabis use, see here), which in Mexico, following international practice, is deemed a human right.

Fourth, you will still need a permit to conduct individual adult cannabis use-related activities (i.e. growing and consuming marijuana without a permit will still be a crime). However, in order to have COFEPRIS entertain your application, you will no longer need to file an amparo action saying that the Court had already ruled that prohibition of individual adult use was unconstitutional.

Fifth, as previously, individual adult use does not include the right to import, purchase, sell or in any other way transfer ownership or distribute cannabis or THC. A permit shall only allow for growing, preparation, possession and transport of cannabis for individual (i.e. private) use. Any violation of this will result in revocation of the permit.

Sixth, given that in our experience COFEPRIS either does not answer applications or outright rejects them, we foresee that amparo actions will still be needed to get individual adult use permits.

Seventh, because now individual adult use is officially recognized, individuals (or their lawyers) can force COFEPRIS to respond to applications or justify rejections by filing amparo actions that include a request to federal courts to allow individual activities pending a ruling-till now, you had to wait for a court ruling ordering COFEPRIS to act and obtain a permit to conduct any activity.

What does the Declaration mean for cannabis industry stakeholders?

The Declaration signals another step along the road to the comprehensive Cannabis Law we expected Congress to enact earlier this year. Though the Declaration issued by the Supreme Court limits adult cannabis use activities to individual consumers, those consumers will require seeds, accessories and more. Once COFEPRIS issues guidelines that provide a framework for individual cannabis use, industry stakeholders will be able to react.

With its Declaration of unconstitutionality, Mexico’s Supreme Court has renewed pressure on the Mexican Ministry of Health and both chambers of Congress to regulate cannabis, for the sake of legal certainty and public health policy.

Full legalization of cannabis cultivation and distribution is all but inevitable in Mexico, and as we have written recently, interested stakeholders understandably want to be prepared when the doors swing open. Go here for our suggested steps to ready your business for that day.

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Monday, June 28, 2021

The Roll-up bonus episode: ‘Seeds of Change’ author Janessa Bailey

Hannah buys a house, live performances resume, and David Downs discusses the hottest strains of the hot season.

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Supreme Court Justice Calls for the Reversal of Marijuana Prohibition

The expiration date of cannabis prohibition has long passed in America, according to U.S. Supreme Court Justice Clarence Thomas.

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Colorado Limits Purchases of Cannabis Concentrates and Puts Restrictions on Medical Marijuana Program

House Bill 1317 was signed by Colorado Gov. Jared Polis on Thursday with the intention of keeping cannabis concentrates out of the hands of youth.

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Hemp Industries Association Urges Regulation, Not Prohibition, of Delta-8 THC

For the past year, my colleagues and I have written extensively on the murky legality of Delta-8 tetrahydrocannabinol (THC). We have covered everything from the Drug Enforcement Administration (DEA)’s position on “synthetically derived THC” to the growing number of state bans. You can read more on these issues here:

Today, we turn to the Hemp Industries Association (the HIA)’s recent public announcement, in which the nonprofit expressed its support for the controversial cannabinoid.

The HIA statement is significant because it departs from many other hemp organizations’ position on Delta-8 THC. To date, most hemp advocacy groups that have spoken on the matter, including the U.S. Hemp Roundtable, have distanced themselves from Delta-8 THC, which is produced through isomerization, a chemical reaction that combines hemp-derived CBD with a solvent, acid, and heat. This segment of hemp stakeholders, fears the chemically-produced substance may destroy years of efforts convincing lawmakers that hemp is a safe, nonintoxicating, versatile commodity that offers a wide range of commercial opportunities for farmers, manufacturers, distributors, and retailers.

It is true that most Delta-8 THC sold in the U.S. is largely unregulated, readily accessible to minors and highly coveted for its psychoactive effects. For these reasons, it is easy to see how the controversial cannabinoid could further stigmatize and bring down the entire industry before it has an opportunity to show the plant’s full potential.

While the HIA’s position diverges from other hemp groups’, it isn’t surprising given the organization’s track record of defending the interests of the hemp industry. Since 1994, HIA has initiated four lawsuits, including two filed in the fall of 2020, in which HIA challenges the legality of the DEA’s controversial Interim Final Rule, which, in part, menaces the burgeoning Delta-8 THC industry by broadly stating that “[a]ll synthetically derived tetrahydrocannabidiols remain schedule I controlled substances.” This language is at the root of the legal uncertainty surrounding Delta-8 THC, and DEA has yet to clarify whether it actually takes the position that the conversion of hemp-derived CBD into Delta-8 THC renders the substance a “synthetically derived” THC.

The HIA’s position on the legality of Delta-8 THC consists of an 11-page document drafted by the organization’s attorneys, Rod Kight and Philip Snow, and of a press release, which are briefly summarized as follows:

Delta-8 THC derived from hemp is federally legal.
1. The 2018 Farm Bill broadly defines “hemp” to include the whole plant, as well as its cannabinoids and derivatives, that contain no more than 0.3% total THC. In addition, the federal law expressly removes “hemp” from the definition of marijuana under the federal Controlled Substances Act (the CSA). So even though most Delta-8 THC found on the U.S. market is derived through the isomerization of hemp-derived CBD, the substance is “hemp” because it is a derivative of a derivative of hemp.
2. Although Delta-8 THC has psychoactive effects and questions remain as to whether it is a “synthetic,” Delta-8 THC should not be treated as a controlled substance because it is not substantially similar to Delta-9 THC in its structure and its psychoactive effects.
3. Even if Delta-8 THC qualifies as a “synthetically derived THC”, the substance is not a controlled substance because the 2018 Farm Bill defines “hemp” to include its “derivatives”, which by definition are “synthetic.”
4. In accordance with the legal theory of “lex specialis”, Delta-8 THC is not a controlled substance because the 2018 Farm Bill is more specific than the CSA in that it expressly removes “hemp” from the CSA compared to the CSA, which generically refers to “THC.” As such, the 2018 Farm Bill overrides the contrary general provisions of the CSA.
  Side Note: Though seemingly sound, the legal arguments made by the HIA are purely theoretical as they have yet to be tested in a court of law.
A regulatory framework is vital to ensure consumer public safety.
1. Although more scientific studies are needed, history has shown natural cannabinoid consumption has been safe for thousands of years.
2. The HIA advocates for the regulation of the production of these products with an emphasis on consumer safety grounded in science.
3. The HIA invites industry leaders to adopt high quality and testing standards and to market these products through transparent and accurate labeling to build consumer confidence and expand the market.
Prohibition further exacerbates the threat to consumer safety created by unregulated markets. The HIA calls on state lawmakers to eschew ineffective bans and favor instead partnering with hemp industry experts to develop hemp policies that safely open markets, fosters innovation, spurs investments, and creates jobs.

So while on its face the HIA’s position differs from other prominent industry organizations, it essentially advocates for the same thing: safe, regulated products that will afford the hemp industry tremendous financial opportunity.

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Sunday, June 27, 2021

Cannabis Trademark Litigation: A Trademark is the Sum of Its Parts

In a case we’ve been watching closely, a California District Court Judge recently denied a motion by cannabis company Capna Intellectual. The motion sought to dismiss tobacco giant ITG Brands’ dilution claim for its “KOOL” brand. ITG’s branding uses “KOOL OOs” while ITG’s branding uses “BLOOM OOs.”

As a refresher, in December 2020, ITG had sent Capna a cease and desist letter that “was expressly limited to [Capna’s] use of the interlocking ‘OO’s, which are central to the KOOL Marks, and not directed to [Capna’s] use of the mark BLOOM per se.” In other words, ITG took issue with the fact that both marks had the interlocking OOs. Capna didn’t engage, so ITG filed a lawsuit in January 2021. A couple months later, Capna moved to dismiss ITG’s third claim for trademark dilution.

To back up – trademark dilution refers to “the whittling away of the value of a trademark when it’s used to identify different products.” To prevail on a claim of trademark dilution, its owner must show:

The mark is famous,
The defendant is making a commercial use of a mark in commerce,
The defendant’s use began after the mark became famous, and
The defendant’s use of the mark is “likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.” 15 U.S.C. § 1125(c)(1).

In its motion to dismiss, Capna argued that ITG’s KOOL OOs cannot be diluted because they’re not famous and because their mark was not sufficiently similar.

The Court didn’t hesitate to strike Capna’s first argument. For purposes of a dilution claim, “a mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark’s owner.” 15 U.S.C. § 1125(c)(2)(A). In determining whether a mark is famous, courts “may consider all relevant factors,” including:

The duration, extent, and geographic reach of advertising and publicity of the mark,
The amount, volume, and geographic extent of sales of the goods or services offered under the mark,
The extent of actual recognition of the mark, and
Whether the mark was registered.

The Court reminded Capna that raising factual doubts was not sufficient to defeat ITG at the pleadings stage, and it gave deference to ITG’s representation that the KOOL OOs are famous.

In addressing Capna’s second argument that the KOOL OOs and BLOOM OOs are patently dissimilar, the Court reiterated:

‘Whether a defendant’s mark creates a likelihood of dilution is a factual question.’ … ‘Dilution by blurring’ is association arising from the similarity between a mark … and a famous mark that impairs the distinctiveness of the famous mark.’ ‘Dilution by tarnishment’ is association arising from the similarity between a mark … and a famous mark that harms the reputation of the famous mark.’

Capna argued that the words KOOL and BLOOM are entirely different words, and that ITGB uses green and blue packaging while Capna uses red packaging. The Court conceded Capna raised an interesting argument – that ITG was wrongfully conflating the “OOs” and the “KOOL OOs” to support their argument that Capna’s use of the “OOs” constituted trademark dilution. The Court conceded, “it may turn out that the KOOL Marks are famous while the KOOL OOs are not.” However, the Court ultimately disagreed:

Even though KOOL and BLOOM are obviously different words, and ITGB may use green and blue packaging while Capna uses red packaging, those elements do not provide the sole bases for ITGB’s claim. Rather, ITGB takes issue with Capna’s use of interlocking OOs within and alongside the name BLOOM, and with how similar the BLOOM OOs and KOOL OOs appear while being used in connection with related goods. As ITGB and Capna both sell smoking products, it is plausible that consumers might mistakenly believe that KOOL cigarettes and BLOOM cannabis products originate from the same source based on the shared use of nearly identical interlocking OOs in the middle of each brand’s respective logos. ‘A family of marks is a group of marks having a recognizable common characteristic, wherein the marks are composed and used in such a way that the public associates … the common characteristic of the family, with the trademark owner.’ Thus, ITGB adequately alleges a similarity between the KOOL Marks and the BLOOM Mark that is sufficient to maintain a claim for dilution.

Motions to dismiss are hard to defeat, but this opinion serves as a good reminder that you aren’t immune from trademark infringement and dilution claims just because there are certain differences in your marks. Be sure to consult with knowledgeable trademark attorneys to avoid lawsuits like these.

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Saturday, June 26, 2021

Cannabis Due Diligence Mechanics and Red Flags

For years and years, our cannabis lawyers have assisted with due diligence on all kinds of cannabis transactions from sole proprietorships to public companies. So that means we are intimately familiar with the mechanics of how the due diligence process works on a series of different transactions, and that we have seen all kinds of shenanigans and shady misconduct during due diligence. Today, I’m going to talk about how diligence works, and some of the more common red flags we see during the process.

Not everyone is intimately familiar with the due diligence process, even though it’s inherent in most transactions. Due diligence is the process where one party to an agreement vets the other side or some asset of the other side (usually by requesting information and documents). In some deals, both sides perform diligence on the other. Some common examples include:

Investment deals where investors perform diligence on the cannabis company they will invest in
Mergers, acquisitions, or other purchases of equity in a cannabis company where the acquirer performs diligence on the target company
Asset purchases where the buyer performs diligence on the assets being purchased and in some cases, the owners
Real estate purchases where the buyer performs diligence on various aspects of the real estate

This isn’t an exhaustive list but these are some examples where there may be pronounced diligence, but even in smaller deals there is usually some kind of diligence. For example, if a California licensed cannabis manufacturer enters into a distribution agreement with a distributor, it will probably ask to see things like its license. This is diligence, though certainly not to the same extent as in, say, a M&A deal.

For deals that have a more pronounced diligence process, the process is usually spelled out in a letter of intent (you can read about those here) or in the main purchase agreement as a condition to closing (for this post, I’ll talk about diligence in the context of a business purchase just so it’s all consistent).

There’s usually a smaller amount of diligence and negotiation that take place before a LOI is signed, but the majority happens:

After executing the LOI but before signing the definitive purchase agreement; or
Between signing the purchase agreement and closing; or
Some combination of the two above.

There are a lot of reasons why diligence proceeds on different trajectories and this depends on the deal. Some parties want to execute definitive purchase agreements soon and do diligence before closing (in almost any purchase agreement, buyer won’t be required to close if it’s not satisfied with diligence). The benefit here is that buyer can get the deal signed quickly and lock the seller into a lot of terms. LOI do that to some degree, but they are usually not even a fraction as comprehensive as the main deal and are usually non-binding with the exception of a few provisions (again, see my article linked above).

The benefit to doing diligence pre-signing is that a buyer can figure out whether or not to waste time and money negotiating a purchase price based on the diligence before signing. Consider an example where during diligence, a buyer discovers something that causes it to want to lower the purchase price–before a purchase agreement is signed, this is easier to negotiate, but once it’s signed, it becomes more difficult. Of course, the risk here is that given the non-binding nature of many LOIs, the buyer is at a higher risk that the seller could walk.

What happens in many cases is number 3 above–the buyer will do some degree of diligence pre-signing and some post-signing. In these cases, buyers will get some of the big picture stuff up front, sign, and then do the nitty gritty diligence. This approach can be good because it’s a balance of both of the above.

Now that we’ve talked about when diligence occurs, let’s talk about how it occurs. Generally, it’s started when the party doing diligence makes requests for information to the other side. Sometimes these are relatively informal and sometimes they involve sending detailed questionnaires that can be dozens and dozens of pages long (it all depends on the size and complexity of the deal). These requests can ask for information about every aspect of the business–employment matters, litigation matters, tax matters, data security, and so on.

After receiving a diligence checklist or questionnaire, the seller will usually respond to certain requests in writing, and will then provide documents. The bigger the company is, the bigger the pile of documents are. It’s common for parties to use “diligence rooms” or “data rooms” which are virtual solutions that allow the parties to upload documents and sort them by category (e.g., “Real Estate”, “Intellectual Property”, “Litigation”) and sub-category (e.g., within Litigation, “Demand Letters”, “Settlement Agreements”, etc.).

After receipt of documents, then comes the sometimes long and challenging task of reviewing them. Diligence files are usually reviewed by some combination of the principals of the buyer, attorneys for the buyer, and accountants for the buyer (for the financial information). In more complicated and larger deals, you may see a cannabis regulatory attorney brought in to analyze just the responses and documents in the regulatory section, for example.

In almost any case, there are several rounds of this. The buyer will find places where it believes it hasn’t been provided sufficient information or documents. Or it may have other questions. For example, it may see a company lease for its main piece of property that is near the end of its term and may want to ask what efforts have been made to renew the lease. This process can also take a while.

Keep in mind too that many purchase agreements will set specific times for due diligence which necessitates the buyer to act quickly, review documents quickly, and ask follow-up questions quickly. That’s because at the end of these periods, the buyer may lose their ability to walk away from closing on the grounds that it was not satisfied with the results of diligence. Not surprisingly, these time caps are usually negotiated by the seller.

Okay, that was a lot of information. Now let’s get to the fun part–the red flags. Here are some of the bigger ones:

Sellers who won’t provide information or at least concrete information. It’s never a good sign when a buyer wants to buy a business but the seller isn’t telling them anything about it. I’ve even seen multiple deals where the seller threatened to walk if the buyer kept asking for info. Would you want to buy a car if the dealer refused to answer when you asked if it was functioning properly? What about if they said the deal was off if you kept asking? I don’t think so.
Sellers cutting back representations and warranties. Okay, this is not really a diligence issue but its certainly related. In any purchase agreement, the seller is the one making the most representations and warranties, and when they cut them during negotiations, it always gives the buyer reason for pause. For example, imagine buying a business and asking for the sellers to represent that it was current with its taxes, but it didn’t want to make that promise.
Sellers rushing closing. Sometimes there are legitimate reasons why closing needs to occur quickly, such as government mandated timelines or (in the case of investments) when money is needed quickly to fund a specific aspect of the seller’s business. But in the majority of transactions, dates are flexible and so it can be a big warning sign.
Lack of organization. Sloppily maintained documents is yet another big red flag. Businesses need to adhere to numerous corporate governance standards while operating, and if a seller can’t produce documents in an easy, legible format, that’s a bad sign. How confident can a buyer be that the seller complied with, say, IRC 280E, when it doesn’t have a signed copy of its own corporate resolutions?
Outright lies. Yes, this happens–a lot! Sellers are people and some people are not good. Unfortunately, sellers lie to and defraud buyers all the time. That’s why it’s important for buyers to not take sellers’ representations or information at face value. While fraud in the execution of a contract can be grounds for unwinding it, it’s a lot better to just avoid inking a deal in the first place.

Diligence is a hugely important part of any transaction. Buyers really need to be aware of how it works and take it seriously. Please make sure to follow us for more updates on cannabis deal making.

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Friday, June 25, 2021

Cannabis lounges are finally legal in Las Vegas—so when will they open?

Some may open this winter or next spring. But will they actually make money?

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The best cannabis strains for every type of grower

Growing your own weed is hugely rewarding. Indoor or outdoor, beginner or advanced—ILGM has you covered with the best cannabis strains for your grow.

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Try these popular Canadian cannabis strains

Check out this list of popular (and proudly Canadian) cultivars to experience the bounty of Canadian cannabis.

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We bought delta-8 THC at a head shop. Here’s what we found

One product was made by a real company. The other two were fakes. That's not a good percentage.

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Refreshing cannabis-infused beverages to celebrate Canada Day

Looking to enjoy a refreshing, infused beverage this Canada Day? Look no further than these 10 tasty options, in a variety of doses and flavours.

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Updated (and Interactive!) Cannabis Legalization Map

Cannabis legalization continues to sweep the nation.

Below, you’ll find an interactive map below of the United States and its territories containing information on each state’s cannabis legalization status. The map also includes information about pending cannabis legislation and the locations of Harris Bricken offices.

Clicking on a state icon will reveal additional information about that state’s legalization status. Clicking on an Harris Bricken office icon will provide you with that office’s contact information—don’t hesitate to reach out with your cannabis legalization and licensing questions!

This information was compiled from a variety of reliable sources (one of which can be found here) and is subject to change at any time. The map is current as of June 24, 2021.

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Thursday, June 24, 2021

5 legit cannabis products for menstrual pain

Pain relief is a woman's right.

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Social Justice Cannabis Brand EVIDENCE Launches With the Help of Damian Marley, Berner and Other Celebs

EVIDENCE is a new cannabis brand that's not only growing weed in a prison, but is also dedicated to social justice, donating $1 from every sale to helping free those who are serving time for weed-related charges.

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The European Fight Over CBD Continues

The European Commission may have ruled that CBD is not a narcotic, but there are still strange hangovers all over Europe as this ruling trickles down to sovereign jurisdictions—and legalization strategies are shifting accordingly.

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Federal Court: Cannabis Licensee Residency Requirements (Which are Dumb) are Probably Unconstitutional

One interesting thing about cannabis law is how so much of it ties into “first principles”, or bedrock tenets of the U.S. Constitution. We lawyers spend our days papering deals and suing folks (always with good cause) and defending clients from lawsuits (which are always B.S.), so we seldom revisit first principles. But these principles include massively important things like conflicts in law arising from the Constitution’s Supremacy Cause (favoring the federal government), versus the states’ “reserved” rights under the Tenth Amendment. In the case of today’s blog post, the Constitutional issue is the Dormant Commerce Clause (“DCC”) as relates to cannabis residency requirements. A federal court in Missouri just put a freeze on those requirements.

Before I get going on this, I’d like to confirm I’m not a litigator and I’m certainly no great Constitutional law scholar. The closest I get to either of these things is: 1) writing tough letters before handing a file to one of the very smart litigators we are lucky to have at the law firm, and 2) teaching a Cannabis Law & Policy course here at the local law school. Other than that, I mostly give people business advice and help them solve problems out of court.

Anyway, the dormant commerce clause (“DCC”) is a fascinating little point of law we’ve been noodling on this blog since at least 2015. The DCC is sourced from the U.S. Constitution, but is not actually written there. Instead, the DCC is a judicial doctrine that courts have inferred from the (non-dormant) Commerce Clause in Article I. Briefly, the DCC prohibits state legislation that discriminates against interstate or international commerce. Our favorite example? Residency requirements in the case of cannabis business ownership.

In addition to arguing that these nativist requirements are legally questionable, our position generally has been that restrictions on residency are a bad idea. They are terribly hard to draft (and often drafted by lawyers without business chops, to boot); they are harder to enforce; and they seldom achieve their desired, protectionist results. People game them like crazy! But if you goal is to prevent someone from taking a loan from their out-of-state grandmother to launch a small business, or if you want to ensure that minority communities with limited access to capital have an even smaller chance at succeeding, then residency requirements, I suppose, are great.

When we do find ourselves working in residency requirement states (like Washington) what we’ve generally found is that there is simply more work for lawyers and regulators, while industry suffers. In my view, Oregon was basically a fiasco until residency requirements were abolished back in 2016. Everyone ought to follow suit. Eventually, they will; and eventually, cannabis program residency requirements will go the way of federal cannabis prohibition.

Anyway, back to this federal court ruling. Given what I’ve written above, I was happy to see this important decision come down a few days ago. On June 21, the U.S. District Court for Western District of Missouri, Central Division, preliminarily enjoined (blocked) the local regulatory body from enforcing that state’s ill-conceived 51% residency ownership requirement. The court’s basic rationale is that Mark Togo, the plaintiff suing to strike down the residency requirement, is likely to prevail at the end of this lawsuit on DCC grounds. Because of this ruling, the Missouri Department of Health and Human Services (DHSS) is not allowed to enforce the residency requirement against Mr. Togo or anybody else until the case is fully adjudicated or settled.

I’ll be interested to see if DHSS pursues the time-honored administrative strategy of slow-walking transactions during the pendency of litigation, or if the agency will stand down on this bozo rule. The latter course of action is what Maine followed last year. That state was also sued on a DCC theory with respect to its residency requirement. In response, the state (on advice from its lawyers) decided to cease enforcement of residency rules altogether. Presumably, Maine is now like Oregon or California or Nevada or any of the other common sense states that don’t discriminate against their neighbors.

Is the Missouri lawsuit ultimately going to succeed? Hard to say. Like I said, the ruling is promising in that the court feels Mr. Togo is likely to prevail (and the court only required that he post a $10,000 bond, which is small as far as these things go). That said, other plaintiffs in other states have failed. In Oklahoma, for example, a federal judge recently threw out one of these DCC lawsuits by a Washington plaintiff, holding that the state is protected from the lawsuit by the Eleventh Amendment. So it’s possible we are teed up for a circuit split, as the litigators say.

We’ll keep you posted on this interesting topic. In the meantime, for more on cannabis and the dormant commerce clause, check out the following blog posts:

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New ‘Seeds of Change’ report rates states on cannabis equity, finds most lacking

A Leafly investigation reveals causes of low Black ownership rates and highlights solutions to the industry's biggest challenge.

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Wednesday, June 23, 2021

Charges laid in CannTrust scandal that rocked the Canadian cannabis industry

Charges have been filed in a scandal seemingly straight out of a TV show—hidden grow rooms, possible unlicensed shipping overseas, and 12,500 kg of illegally grown weed destroyed.

The post Charges laid in CannTrust scandal that rocked the Canadian cannabis industry appeared first on Leafly.

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Oklahoma Medical Marijuana Delayed by Tracking System Lawsuit

The implementation of a seed-to-sale tracking system for medical marijuana products in Oklahoma has been delayed by a lawsuit.

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Rhode Island Senate Approves Legal Cannabis

Rhode Island just made history by approving a legal cannabis bill. The proposed legislation passed 29-9 earlier this week.

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How to find and buy quality delta-8 THC products

Delta-8 products are everywhere these days. Here's how to find the best brands and avoid scammy junk.

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Ketamine Clinics and the Federal Anti-Kickback Statute: Beware!

In a prior post, we discussed some of the various Federal laws that apply when a ketamine clinic is a Medicare provider (or accepts reimbursement from another Federal program, like Medicaid, the VA, etc.). Click here to review the post. While other Federal laws apply in these situations (e.g., the Stark Law, the Federal False Claims Act, etc.), the Federal anti-kickback statute (“AKS”) is a criminal statute. Thus, extra scrutiny applies in these situations. While many states have an AKS corollary based on state law, they vary tremendously. However, anyone who is contemplating a purchase of a ketamine clinic must review all applicable healthcare laws to ensure prior and future compliance. That is no small feat.

Overview of the AKS

So, what does the AKS say? In relevant part, the AKS provides are follows:

(1)        Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind—

(A)       in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B)       in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $100,000 or imprisoned for not more than 10 years, or both.

42 U.S.C. § 1320a–7b(b)(1).

The immediately succeeding section provides the same but focuses on those who “offer[] or pay[] any remuneration” for “furnishing or arranging” or to “purchase, lease, order, or arrange for or recommend purchasing, leasing or ordering” items or services that are payable by a Federal health care program. 42 U.S. Code § 1320a–7b(b)(2).

Additional Penalties for Violating the AKS and Purpose of AKS

In addition to the penalties outlined in the AKS, there are possible additional penalties under the Civil Monetary Penalty Law. 42 U.S.C. 1320a-7a(a)(7). Moreover, when there is an AKS violation, the Federal government can also bring claims under the Federal False Claims Act. A provider who is convicted of an AKS violation also faces exclusion from Medicare, Medicaid, and other Federally funded health care programs.

Thus, the golden rule is “thou shall not pay for referrals” – unless you enjoy spending time in prison and paying tremendous monetary penalties.

Why do we have an AKS? The fundamental purpose behind many of the Federal fraud and abuse laws centers on over-utilization and unnecessary medical services, which in turn, drive health care costs higher. Providers who are incentivized to provide more services may compromise quality patient care in the pursuit of money. Any time profit drives medical decisions, one can see the danger in those situations. Plus, we already have an incredibly expensive health care system. According to the Centers for Medicare & Medicaid Services, “U.S. health care spending grew 4.6 percent in 2019, reaching $3.8 trillion or $11,582 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.7 percent.”

Safe Harbors for the AKS

While the AKS is very broad in its reach, there are “safe harbors” under the AKS. To avoid prosecution under the AKS, an arrangement must meet every element of the safe harbor. Otherwise, an individual or entity is not immune from prosecution.

Given the corporate practice of medicine doctrine, which is a state-based law, many ketamine clinics are owned by the providers but managed by a management services organization (“MSO”). The operative document is typically a management services agreement (“MSA”) to effectuate this relationship.

There is a regulatory safe harbor for MSAs to ensure a clinic will not have any issues under the AKS. The regulation states:

As used in [the AKS], “remuneration” does not include any payment made by a principal to an agent as compensation for the services of the agent, as long as all of the following seven standards are met—

The agency agreement is set out in writing and signed by the parties.

The agency agreement covers all of the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent.

If the agency agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a full-time basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.

The term of the agreement is for not less than one year.

The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.

The services performed under the agreement do not involve the counselling or promotion of a business arrangement or other activity that violates any State or Federal law.

The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

42 C.F.R. § 1001.952(d)

Again, to enjoy the protections under the MSA safe harbor, every element must be met. While some of the elements are easy to understand and apply – like the requirement that the MSA has a term of at least one year – other elements are trickier. Perhaps the most difficult element to meet is the requirement that the payments are “consistent with fair market value.” To meet this element, we typically recommend the retention of a healthcare appraiser to assist in setting the compensation between the providers and the MSO. An appraisal is the “gold standard” for those who enter into MSAs, and one of the few ways to truly protect the parties from an AKS claim.

The AKS is a complex statute with many nuances. Additionally, there are Office of Inspector (“OIG”) opinions, OIG Fraud Alerts, the preamble to the regulations, case law, and other sources to review for AKS-related issues. Ultimately, the AKS is a very fact-intensive inquiry. But, for those who want to enter the U.S. health care sector, understanding the Federal fraud and abuse laws is paramount and can impact how relationships are structured.

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Tuesday, June 22, 2021

Ohio Adds New Rules to Govern the Controversial Delta-8

The Ohio Medical Marijuana Control Program has provided guidance on how licensed cannabis businesses should distribute, produce and sell Delta-8 THC products.

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Connecticut Officially Legalizes Recreational Marijuana

Gov. Ned Lamont signed a bill to make Connecticut the fourth state to legalize recreational cannabis so far in 2021.

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Washington Court of Appeals Overturns LCB Interpretation of “Tied House” Rule

The State of Washington strictly regulates the relationships between marijuana producers and processors, on the one hand, and marijuana retailers, on the other. Many states permit the same persons to hold financial interests in all three types of licenses. But not Washington. Under RCW 69.50.328, neither a licensed marijuana producer nor a licensed marijuana processor may have a direct or indirect financial interest in a licensed marijuana retailer. This means that vertical integration from production to retail is prohibited in Washington, though it is common in Oregon and other jurisdictions.

This statutory prohibition on cross-tier financial interests led the Liquor Control Board (“LCB”) to adopt a regulation commonly known as the “tied house” regulation. The tied house regulation provides that “No industry member or licensee shall enter into any agreement which causes undue influence over another licensee or industry member.” WAC 314-55.018. Expressly exempted from the category of “undue influence” are agreements about the placing and accepting of orders for the purchase and delivery of marijuana made in accordance with usual and common business practice, and which are otherwise lawful. But exactly what the tied house regulation means in a practical day-to-day sense has been unclear.

In a recent opinion, the Washington Court of Appeals was called to interpret the meaning of “undue influence” in the tied house regulation as it relates to a dispute between members in a limited liability company that held a marijuana retail license. Yaron v. Conley, No. 80120-1-I (June 7, 2021).

The Facts of Yaron v. Conley

Like many cannabis business dealings, the facts involve individuals with holdings in multiple entities, which in turn have overlapping relationships and dealings. In April 2014, the LCB granted the defendant Conley, in the name of her business, Mary Jane, a retail marijuana license for operation in Kirkland, Washington. In 2015, Conley approached the AVH & BJ Holdings LLC, which owned commercial property in Kirkland. The owners of AVH & BJ were Joseph, Bracha, the Plaintiff Yaron, and a company Auroraview Holdings, whose majority owner was Yaron. AVH & BJ was managed by Joseph and Yaron.

AVH & BJ leased the entire property to a separate company, JRM, which Joseph owned. JRM then subleased a portion of the property to Dynamic Harvest, a marijuana producer. Meanwhile, Conley struck a deal with Yaron, Joseph, and Bracha in which they would find commercial space for Conley’s marijuana business on the condition that they became her business partners and were named as part owners in the Mary Jane retail license. Later, Brancha abandoned the idea, leaving Conley, Yaron, and Joseph as the putative members of Mary Jane.

Yaron and Joseph submitted a Change in Governing Persons application to the LCB. They did not disclose to the LCB their interests in JRM or AVH & BJ Holdings. But the LCB later learned that Joseph, the owner of JRM, leased property to Dynamic Holdings, a producer. The LCB concluded that Joseph could not become a retail licensee without violating the tied house regulation and corresponding statute.

The LCB also began investigating Yaron’s ownership interest in Mary Jane. In February 2017, the LCB sent a letter stating that Yaron was prohibited from holding an ownership interest in Mary Jane because of his ownership interest in Auroraview. (Recall that Auroraview owned an interest in AVH & BJ Holdings, which company owned the property and leased it to JRM, who then subleased a portion to Dynamic Holdings.) This relationship, believed the LCB, violated the tied house regulation.

The LCB gave Mary Jane 45 days to remedy Yaron’s alleged violation of the tied house regulation or to eliminate his interest either in Mary Jane or Auroraview. Yaron began divesting from Auroraview but Conley moved to remove Yaron as a member of Mary Jane.

Yaron sued Conley for breach of contract, breach of fiduciary duty, and declaratory and injunctive relief. In her answer, Conley asserted, as an affirmative defense, that the operating agreement was illegal because it violated public policy.

After a bench trial, the trial court ruled against Yaron and in favor of Conley. The trial court concluded that Yaron’s ownership interest (through AVH & BJ) in a property leased by JRM to a marijuana producer (Dynamic Holdings) while simultaneously owning an interest in a marijuana retailer (Mary Jane) was a “regulatory cross-tier violation” because of the “possibility of undue influence exerted over either entity.”

The Tied House Regulation

Yaron appealed, arguing that the trial court erred when it concluded his ownership interests in ABV & BJ and Mary Jane violated the tied house regulation.

Here again is the text of the rule: “No industry member or licensee shall enter into any agreement which causes undue influence over another licensee or industry member.” WAC 314-55.018.

The Washington Court of Appeals agreed and reversed the trial court. Among other things, the appellate court noted that the regulations do not define “undue influence.” The Court found the term ambiguous because:

Undue influence could apply to varying degrees of financial relationships. For example, it could apply to any landlord that has an interest in marijuana production, processing, or retail business and rents to a differently tiered marijuana business, even if the rental is not for its marijuana business. On the other side of the spectrum, it could apply to no landlords at all. Thus, the regulation is ambiguous with regard to what constitutes undue influence over another industry member in this situation and generally. But the statute provides clarity in that it applies specifically to licensed marijuana producers and processors and thereby points to a more narrow interpretation.

Here, reasoned the Court, Yaron was neither a licensed marijuana producer nor a licensed marijuana processor. Rather, Yaron was a manager of AVH & BH and under the lease between that company and JRM, his consent was required before JRM could sublease any of the property. So Yaron’s consent was required for JRM to sublease the property to Dynamic Holdings. But nothing gave Yaron control over the operations or the rent of Dynamic Holdings. His control was limited to the approval of the lease, which he signed before he gained an ownership interest in Mary Jane. (One wonders if the result would be the same if he gave his consent after he gained the ownership interest in Mary Jane.)

So although Yaron was subject to the statute because of his interest in Mary Jane, Yaron lacked sufficient ability to improperly influence Dynamic Harvest for the benefit of Mary Jane, or vice versa. The relationship, ruled the Court, was “too tenuous to result in undue influence” and his ownership interests did not violate the tied house regulation.

Takeaways

I find three important takeaways in this case. The first is that LCB is not always right in its interpretation of the statutes and regulations governing marijuana. (Neither is its Oregon counterpart, the OLCC, for that matter.) The second is that an LCB’s interpretation of a regulation, unless it is an adopted a policy position, is not entitled to deference. Here, the Court ruled that the LCB’s letters to Conley and Yaron expressing its interpretation of the tied house regulation were not entitled to deference because they did not contain agency policy. The third is that Washington licensees and putative licensees should consider carefully how to structure business relationships and transactions to avoid running afoul of the tied house rule. It is not clear cut as Yaron v. Conley demonstrates, so there are opportunities for the careful business owner and risks for the careless.

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Monday, June 21, 2021

Maine Lawmakers Vote to Decriminalize All Drugs

Possession of illicit drugs like heroin and cocaine could be decriminalized in Maine, following two favorable votes by lawmakers last week.

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Puff with pride: 8 fantastic queer-owned cannabis brands

Every month is Pride when you can buy queer cannabis year-round from these incredible LGBTQIA+ weed brands.

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People of Color Are Still Disproportionately Targeted for Cannabis Arrests in New York, Despite Legalization on the Horizon

Data on marijuana-related arrests in New York during the first quarter of 2021 shows that people of color are still arrested at an alarmingly higher rate than white people.

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A Proud Boy claimed marijuana made him storm the Capitol. Stoner Twitter owned him

An accused insurrectionist says he 'smoked a significant amount of marijuana' before storming the Capitol. America's stoners set him straight.

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New York’s Cannabis Control Board – What’s Going On?

In all of the excitement over New York’s passage of the Marijuana Regulation and Taxation Act (MRTA), one of the things that often gets lost is that legalization was just the first step towards the issuance of adult-use cannabis licenses. The single most important administrative action item is the formation of the primary regulatory governing body, the Cannabis Control Board (CCB).

The CCB will be responsible for many of the prerequisites to adult-use licenses being issued. Chief among its responsibilities is the creation of the actual application process for both adult-use cannabis licenses and new registered organizations (ROs) and the industry’s rules and regulations, all of which will be issued within the framework of the MRTA.

The CCB will consist of five board members: three appointed by the Governor and two appointed by the Senate and Assembly (one each). The CCB’s chairperson will be nominated by the Governor with the advice and consent of the Senate. CCB members will be appointed for a term of three years and must be citizens and residents of New York.

It is difficult to overstate the importance of the CCB’s chairperson. The chairperson will have an outsized influence on the direction of New York’s cannabis industry. With so much leeway in issuing the industry’s rules and regulations, the chairperson has the ability to really prioritize social and economic equity applicants, decrease the early head start that could be held by the existing ROs, and establish a sustainable licensing process. The chairperson is also, technically, the individual who makes the preliminary determination as to whether a given license should be issued.

Below are a few practical examples of the CCB’s ability to steer the industry:

Restricting existing RO ability to sell other producer’s products at retail.

As we previously noted, there is some debate as to whether the MRTA expressly limits RO ability to sell any adult-use products in their respective adult-use dispensaries, instead of just their own products. It will be up to the CCB to clearly regulate whether the apparent prohibition applies to retail sales.

Confirming whether On-Site Consumption Licensees can sell retail.

With separate licenses for retail and on-site consumption, as well as an almost complete ban on holding multiple license types, it is unclear whether an on-site consumption licensee can also sell retail cannabis. Allowing both retail sales and on-site consumption for on-site consumption licensees is likely the difference between having a potentially sustainable business model and a money-loser that will probably not survive.

Setting application fees.

Do we need to explain the significance of this one? The CCB has the authority to charge applicants a non-refundable application fee. How the CCB sets that fee will directly impact how many prospective licensees will submit applications.

Setting canopy limits for Cultivator Licensees.

We have been pretty vocal about the importance of real estate as part of the licensing process. For prospective cultivator licensees, a major consideration in looking for real estate is how much usable square footage is needed. The CCB will determine if there is a canopy limit, which will directly correlate with cultivator license applicants’ need for real estate.

Defining a microbusiness.

With the microbusiness license one of the exceptions to the ban on vertical integration, we have had many clients ask about whether they would qualify as a microbusiness. The CCB will provide its definition of microbusiness, which may (or may not) open an avenue for vertical integration for a number of prospective applicants.

The importance of the CCB is clear by just looking at a few practical issues. All of which begs the question: what is the status of Governor Cuomo’s nomination of the CCB’s chairperson?

New York’s legislative session ended on June 10, 2021. The expectation had been that Governor Andrew Cuomo would have nominated someone in time for the chairperson to be approved by the end of the legislative session. With the overwhelming approval of legalization and excitement of impending tax revenue, contrasted by the cascading delays in accepting applications that would be caused by not appointing the CCB’s chairperson and four other board members by the end of this legislative session, it is difficult to comprehend that the Governor would take the risk of not timely making appointments. Yet here we are, over halfway through June, and we may now be waiting until January 2022 for the CCB’s chairperson to be appointed.

In terms of who might be nominated, a few names have been thrown out. It now appears that Governor Cuomo intends to nominate Karim Camara, a former Assembly Member and aide to the Governor. This is somewhat of a surprising development as it was widely expected that the Governor would nominate Norman Birnbaum, New York’s cannabis czar.

To avoid putting the cart before the horse, we will hold off on walking through the bios and our thoughts on prospective appointments until an actual nomination has been made. But like the rest of New York’s cannabis industry, we are eagerly awaiting the actual nomination as the first tangible step towards a functioning cannabis industry in New York.

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One store’s legal battle to free the pot leaf and save Quebecois cannabis culture

A head shop is taking legal action to free the pot leaf from Quebec's restrictive policy banning cannabis paraphernalia.

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Sunday, June 20, 2021

Is California Going to Ban Delta-8 THC?

For a state that pioneered medical cannabis and was a relatively early adopter of recreational cannabis (cannabis is defined only as marijuana here and not hemp), California is among the worst states in the union when it comes to sensible hemp-derived CBD policy. So it should surprise absolutely nobody that in legislation that’s designed to “legalize” CBD (AB-45 and SB-235), the state is now coming for delta-8 THC.

Before explaining what delta-8’s fate may be, I’ll provide a brief CliffsNotes for how bad California has handled CBD:

2018: California Department of Public Health (CDPH) issued a FAQ on its website in July 2018 taking the position that CBD ingestibles were unlawful (check out an analysis of mine on those FAQs here). Over the next few years (according to a bill analysis accompanying AB-45, CDPH issued 13 notices of violation, 7 voluntary condemnation and destruction regulatory letters, and 9 embargoes in the wake of this–all without ever creating a real regulation! Local departments of public health were also active in enforcement.
2019: California tried but failed to pass AB-228, which would have legalized CBD.
2020: California tried by failed to pass AB-2827 and AB-2028 which were both targeted to legalize CBD.
2021: AB-45 and SB-235 are both making their way through the California Assembly and Senate, respectively. I’ve summarized these bills here and here.

The second of those links immediately above describes in detail provisions in these bills designed to outlaw any kind of smokable hemp product. I think these bills are longshots. This is in part due to the smokable hemp bans, which are facing huge industry backlash and severely narrow the market for hemp grown in the state, and in part due to general political reasons and opposition from the cannabis industry and elsewhere.

But there is one other feature of both of these bills that doesn’t seem to have been analyzed much in great deal before, which deals with delta-8 (and delta-10) tetrahydrocannabinol. If the bill passes in its current form, it could spell the end for delta-8 in yet another jurisdiction.

A lot of people don’t understand the difference between the different forms of THC, so I’ll give a brief summary. Delta-9 THC is the main intoxicating cannabinoid found in marijuana (again, called cannabis here in California, though “Cannabis” technically includes hemp too). Delta-8 and delta-10 are also cannabinoids found in marijuana and hemp but are generally expressed in very low quantities naturally.

Delta-8 specifically has taken off recently across the country. Like delta-9, it is intoxicating, though to a lesser degree. Because it is not usually present in high volume in cannabis, it’s usually derived by converting hemp CBD through chemical processes. What this means is that there is a large market in California for hemp biomass to use in creating delta-8.

Problematically, the proposed bills would define “THC” to include delta-8, -9, and -10. And problematically, hemp product manufacturers will need to certify that raw extract they use does not contain more than .3% THC. While there are definitely some ambiguities here, they will likely be resolved in the final draft or by regulation. We predict that the effect will likely be that hemp products will not be able to contain more than .3% of any kind of THC, including delta-8. This will make the market for such products very small, or non-existent.

What’s even more of a challenge based on this new definition is that it modifies the standard for total THC testing to include all forms of THC. For a recap, the state and federal government mandate testing to determine whether hemp has .3% or more THC by looking at THC plus converted THC-acid (THCA), which will convert when heat is applied. There are different ways to do this but the end result is that hemp that has, say, .29% THC could go over the legal threshold if there is a certain amount of THCA. Now that THC is defined to include all forms of THC, the test could be even harder to meet in some circumstances (even though delta-8 and -10 are usually expressed in very, very small quantities).

Like I said above, I think these bills are longshots. But it will be interesting to see if they pass in their current form and how state and local regulators decide to handle the situation. For more updates, please stay tuned to the Canna Law Blog.

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Saturday, June 19, 2021

Juneteenth Is a National Holiday, But the Struggle for Equality Continues

This past Thursday, President Joe Biden signed legislation making Juneteenth, which commemorates the end of slavery in the United States, a federal holiday. The measure had passed unanimously in the Senate, and in the House by a vote of 415-14.

Juneteenth commemorates June 19, 1865, when Gordon Granger, a Union general, arrived in Galveston, Texas to inform enslaved African-Americans that the Civil War had ended and that they had been freed under the Emancipation Proclamation, which had been signed by President Abraham Lincoln in 1863.

On arrival in Galveston, General Granger issued five written orders, but the highlight was Order No. 3, which included the words: “All slaves are free.”

The proclamation ended slavery only in states that had seceded from the Union in 1860-61; an end to slavery throughout the entire country (which in 1865 comprised 34 states) would not become law until December 1865, when the 13th Amendment was adopted into the Constitution.

As has also been true for the legalization of cannabis, states have been out in front of the federal government in celebrating Juneteenth. In 1979, thanks in large part to the efforts of state representative Al Edwards, Texas passed legislation making Juneteenth a holiday, and this week, Hawaii became the 49th state to recognize the day (South Dakota is the only state that has not yet passed legislation making Juneteenth an annual holiday, but did mark the day in 2020).

The federal recognition of Juneteenth represents one more small step in our national journey to come to terms with the United States’ history of slaveholding and racial injustice, and the holiday provides an opportunity to not only celebrate, but also to reflect on injustices past and present, and to mourn losses. These losses include life, of course, but also lost opportunities for generations of Black Americans.

Decades of cannabis-related arrests, convictions and incarcerations have inflicted structural, financial and psychic damage on many communities nationwide. The legalization of medical and adult-use cannabis has been accompanied in some states by social equity programs designed to benef people and communities that have been damaged by “the War on Drugs.” A recent example is New York State’s recently passed Marijuana Regulation and Taxation Act, or MRTA, which sets a goal of issuing 50% of licenses for distribution and retail to social equity applicants.

In the New York example, the definition of “social equity applicant” includes people with past marijuana convictions or who have relatives with such records, people who live in economically distressed areas or places where cannabis criminalization has been enforced in a discriminatory manner, people with incomes lower than 80% of the median income of the county in which they reside, minority- and women-owned business, disabled veterans, and financially distressed farmers.

A number of cannabis-legal states have implemented regulations aimed at redressing social inequity, but most of these measures do not go far enough; they open the door for “social equity applicants”, but fail to provide the administrative and financial support that in most cases will be necessary to ensure success in the cut-throat world of cannabis production and distribution.

We see significant opportunities for equity licensees and non-equity businesspeople to team up to share knowledge and opportunity, to create profitable businesses, and to help repair some of the damage inflicted by “the War on Drugs.”

On this historic day, the first Juneteenth to be celebrated officially nationwide, we applaud President Biden and the members of Congress who voted in support of the measure.

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Friday, June 18, 2021

The Roll-up #199: Strains of Summer

Hannah buys a house, live performances resume, and David Downs discusses the hottest strains of the hot season.

The post The Roll-up #199: Strains of Summer appeared first on Leafly.

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Florida Supreme Court Pulls the Plug on Recreational Cannabis Initiative

Cannabis advocates in Florida remain focused toward cannabis reform despite the Supreme Court’s recent decision.

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How Pure Sunfarms is bringing iconic BC bud into a new era

Pure Sunfarms combines deeply rooted cannabis expertise and modern agricultural techniques to craft pure, quality BC grown cannabis.

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