Cannabis M&A: Get to Know Your New Landlord

Getting to closing on a cannabis M&A transaction is always a hurdle (read about that process in detail here). There are always a lot more contingencies to closing for cannabis M&A transactions than for run-of-the-mill businesses that don’t operate in highly regulated fields (e.g., cannabis acquisitions will require approval from state and possibly local agencies).

One closing condition that people often don’t focus on enough is landlord consent which often can be a huge challenge. In this post, I’ll look at why this is even an issue, and what makes it so challenging.

For the purposes of this post, I’ll focus mainly on business and asset purchase transactions. In California, M&A transactions generally involve business purchases given rules that prohibit transfer of license. Other jurisdictions may allow licenses to be transferred or at least obtained more easily while a business continues to operate and so purchases of all assets of the business (including their leasehold interest in the property they use) may be more common.

Whether someone is buying some of a cannabis business, all of a cannabis business, or just the assets of a cannabis business, the buyer is going to need to get the landlord that owns the property used by the seller or target company to sign off. Why? Because in virtually any lease, there are restrictions on assignment of the lease itself (automatically requiring landlord approval for any asset purchase) and leases will also specify that sales of certain percentages of equity in a cannabis business is treated as an assignment and requires landlord approval.

Landlord approval over assignments or changes of control is a critical lease component for landlords who want to know who they are leasing to. By prohibiting changes of control without landlord approval, landlords can have security that tenants won’t just try to sell their business to random people who may not be sufficiently capitalized to deal with above market rent (also very typical in cannabis leases).

As an aside, change of control language can be very highly negotiated as to the percentage of changes of control sufficient to trigger landlord consent requirements. If I rep a landlord, I want the percentage threshold to be low so my client always know who is operating the business. If I rep the tenant, I want it to be higher so the client is not burdened with going to its landlord every time they fundraise or someone sells their stock in the company.

I have said this before and I am sure I will say it again many more times, but the landlord-tenant relationship in this industry is the worst and most dysfunctional relationship of all. Landlords are overly suspicious of their tenants given the federal status of cannabis and long-time anti-cannabis prejudices that haven’t seemed to fade away, and often charge way over market for a lease. Tenants, on the other hand, are forced into what they often view (sometimes rightly) as very one-sided leases that require them to give up a ton and know that landlords have special leverage over them given that in many states, licenses can’t be moved (or at least can’t be easily moved) to new places.

So closing the loop here, in any M&A deal where a lease would be assigned or all or the majority of a business would be sold, you can virtually guarantee that the landlord will need to sign off in some capacity. And that means its as good idea as possible to get on the horn with that landlord as soon as humanly possible. There are two main few reasons for this beyond the obvious reason that a buyer will need landlord approval.

• It’s good to find out as soon as possible whether the landlord is the right “fit”. If a buyer and the landlord don’t get along well from the get-go, that’s something that the buyer should evaluate when deciding to enter into the transaction or to close it. Obviously, this is better to do even before signing a deal to save money if it’s a total deal-breaker.
• In many M&A deals I’ve worked on, especially where smaller companies are bought, the original leases are not good for a host of reasons and we end up asking for a new lease. From the landlord’s point of view, there’s really little reason to spend time negotiating a new lease. Some landlords are still willing to do it, and this is also good to find out early on.

In cannabis M&A transactions, there are tons of moving parts and it almost seems like there’s not enough time in the day to get done everything that needs to get done. Meeting, interacting with, and getting to know a future landlord isn’t just a smart idea, but is something that wise buyers prioritize.

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The Roll-up #201: Phytol and frauds

This week the Roll-up crew discuss phytol, a new vape cartridge additive that's raising health alarms.

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Don’t let the government’s marijuana lies make you miss out on the vaccine

Don't trust the government, trust the evidence. In this case, the evidence is overwhelming: Get vaccinated.

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Europe and Delta-8: How Will the Country Respond to the Craze?

Europe will be next up in the struggle to figure out how to regulate Delta 8, as the US continues to find its footing.

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High Times Cannabis Cup Nevada: People’s Choice Edition 2021 is Ready to Take Over

Nevada’s first-ever Cup open to the public has arrived!

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Cannabis nurseries are taking off, providing seeds and clones to growers

These nurseries have everything you need to start growing cannabis with seeds, clones, and tissue culture.

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Elections and Cannabis in Germany: Green All Around

Germany will hold parliamentary elections on September 26 of this year. While the ruling Union is expected to win the largest number of seats in the Bundestag, the majority of polls show the Greens (officially Alliance 90/The Greens) taking the second-highest number of seats. In fact, as recently as May, some polls had die Grünen coming in first.

If their numbers hold up, there is a good chance the Greens will be called in as a minority partner in a coalition government. Under such a scenario, the Greens’ leader, Annalena Baerbock, would be expected to become vice-chancellor.

Why does this all matter to readers of this blog? Well, check out what the Green’s platform has to say on cannabis:

“We want to dry up the black market for cannabis and drive back organized crime. To do this, we will introduce a cannabis control law. It enables the legal and controlled distribution of cannabis in licensed specialty shops. At the same time, we want to create a regulated and monitored system for the cultivation, trade and distribution of cannabis. In this way, real consumer and youth protection as well as addiction prevention should finally come into play.”

As discussed above, the Greens’ likely path to power is through a coalition with the more conservative Union. As junior members of that coalition, the Greens would not be able to implement their entire platform, instead needing to reach compromises with the Union, which “is the last of the major political parties in Germany to maintain a strictly prohibitive stance on drug policy, refusing to agree to legalization policies laid out by the Greens, the Social Democrats, the Free Democrats and the Left party.” There is also the small matter of a (slim) majority of German voters being opposed to the legalization of recreational cannabis.

Despite these obstacles, a partly Green coalition with Vice-Chancellor Baerbock in a prominent position would bring a strong pro-legalization voice to the heart of the government. Meanwhile, within the tricky context of coalition-building, dropping or moderating its long-standing opposition to cannabis might be a relatively palatable concession for the Union to make. With an estimated 4 million Germans who use cannabis, and almost half of German 18- to-25-year-olds having tried it, a greener stance could actually boost the Union’s popularity, especially among younger voters (and soon-to-be voters), likely a key demographic as the Greens become a mainstream force.

It is also worth noting that the Union, despite its strong poll numbers, is having internal leadership struggles. A fresher line on cannabis might be a way for certain Union leaders to set themselves apart, bringing further advocates of legalization into the mix. These tensions are also a reminder that, like most political organizations (especially large, establishment ones), the Union is not monolithic. This is particularly true of the Union, which is actually formed by two parties: the Christian Democratic Union (CDU) and the Christian Social Union (CSU). The latter is mistakenly considered by some to be the Bavarian branch of the CDU, but in practice there is daylight between the two parties when it comes to some issues.

In sum, there’s a good chance that the Greens will be part of Germany’s government by the end of the year. Whether they can reach compromise with the Union on cannabis legalization is an open question, but we’ll certainly be keeping an eye on what happens in Berlin.

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How cannabis vaporizers are continuing to evolve

Weed vaporizers have come a long way in the past couple decades. Read more on how companies continue to innovate and optimize vapes.

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Magic Hour Cannabis knows and grows good weed

Magic Hour Cannabis is an organic, small-batch weed brand in Oregon that encourages everybody to Take Time.

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Allen Iverson and Viola Brands Join Forces in Epic Partnership

Allen Iverson of NBA fame just joined forces with cannabis company Viola to produce exclusive strains.

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New State Cannabis Office Debuts in Colorado

Governor Jared Polis of Colorado is creating a more socially equitable state cannabis industry with Senate Bill 21-111.

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THCV, CBN and CBG: Learn which Rare Cannabinoid is Best for Weight Loss, Sleep or Pain

Here we’ll explain the unique benefits of THCV, CBN, CBG, where to buy them and how to take them.

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Oregon’s New “THC in Milligrams” Limit

Earlier this month, Oregon Governor Kate Brown signed into law HB 3000, an omnibus bill covering a wide range of hemp-related issues. Unlike other cannabis bills passed last session, HB 3000 was written to take effect on passage, so it is now law. One of the important HB 3000 terms is a restriction on the sale of specific consumable hemp items, namely “adult use cannabinoids” and “adult use cannabis items,” to anyone under the age of 21.

HB 3000 defines “adult use cannabinoids” to include, but is not limited to:

tetrahydrocannabinols, tetrahydrocannabinolic acids that are artificially or naturally derived, delta-8-tetrahydrocannabinol, delta-9-tetrahydrocannabinol, the optical isomers of delta-8-tetrahydrocannabinol or delta-9-tetrahydrocannabinol and any artificially derived cannabinoid that is reasonably determined to have an intoxicating effect.

“Adult use cannabis item,” on the other hand, means:

1. A marijuana item;
2. An industrial hemp commodity or product that meets the criteria in OAR 845-026-0300; or
3. An industrial hemp commodity or product that exceeds the greater of:
   1. A concentration of more than 0.3 percent total delta-9-tetrahydrocannabinol; or
   2. The concentration of total delta-9-tetrahydrocannabinol allowed under federal law.

In addition, the new Oregon law tasked the Oregon Liquor Control Commission, which will be known as the “Oregon Liquor and Cannabis Commission” as of next Monday, August 2 (“OLCC”), in collaboration with the Oregon Health Authority (“OHA”) and the Department of Agriculture (“ODA”), to establish the concentration of adult use cannabinoids at which a hemp commodity or product qualifies as an adult use cannabis item, which the Commission did just four days following the enactment of HB 3000.

Pursuant to OAR 845-026-0300, an industrial hemp commodity or product is an adult use cannabis item if it:

1. Contains 0.5 milligrams or more of any combination of:
   1. Tetrahydrocannabinols or tetrahydrocannabinolic acids, including delta-9-tetrahydrocannabinol or delta-8-tetrahydrocannabinol; or
   2. Any other cannabinoids advertised by the manufacturer or seller as having an intoxicating effect;
2. Contains any quantity of artificially derived cannabinoids (i.e., “a chemical substance that is created by a chemical reaction that changes the molecular structure of any chemical substance derived from the plant Cannabis family Cannabaceae”); or
3. Has not been demonstrated to contain less than 0.5 milligrams total delta-9-THC when tested in accordance with Oregon law.

The new regulation further provides that if the hemp commodity or product qualifies as an adult use cannabis item it cannot be sold or delivered to a person under 21 years of age, unless it is sold by an OLCC licensed marijuana retailer that is registered to sell or deliver marijuana items to a registry identification cardholder who is 18 years of age or older or to anyone registered under the state’s medical marijuana program.

This 0.5 milligrams limit is a major change because determining the amount of THC in milligrams (weight) in a hemp product or commodity is different from using the overall percentage of THC contained in the product.

To help hemp companies determine whether their hemp commodity or product is below the 0.5 milligrams threshold, the three Oregon agencies released joint guidelines last week that, in part, explain how to perform the calculation. Here is how it works: A company must multiply the “THC” in mass (mg/g) found on their their product Certificate of Analysis (“COA”) by the weight of the item listed on the package. More simply put, if their hemp item weighs 1 gram and the THC listed on the COA is 3.3 mg/g, then the total THC would be 3.3 mg (3.3 x 1), which means the hemp item could not be sold to a minor because it contains more than 0.5 milligrams of THC.

While these new regulations prevent hemp companies whose products exceed the 0.5 milligrams threshold from selling their products to minors, they do not affect other sales and business activities. That said, it is plausible that the OLCC may eventually impose additional restrictions and requirements on these products so hemp companies should continue to closely monitor the Commission’s regulations to ensure continued compliance.

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Congress to Vote on Protecting State Cannabis Programs

Congress is planning a vote to decide on a proposal to protect currently existing cannabis programs across the country.

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Jon’s Stone-Cold Quarantine Cop List: 12th Edition

Forgive my tardiness, but these recent drops have had me moving in slow motion lately! While there was…

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Colin Hanks on Hanks Kerchiefs in Dispensaries, Veterans and Cannabis

A portion of proceeds will go to Homes for Our Troops.

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Colombia Legalizes Medical Cannabis Flower for Locals and Export

The country stands to become a leader in medical cannabis exports.

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The pandemic may have been the best thing to happen to cannabis tourism

Believe it or not, staying at home might have been a much-needed catalyst for a second at cannabis tourism in Canada

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Oregon Psilocybin: Advisory Board and Licensing Update

On March 18, Governor Kate Brown appointed members to the Oregon Psilocybin Advisory Board, which held its first meeting on March 31. Since then, the Board has met monthly and created five subcommittees to study facets of the emerging psilocybin industry including research, equity, manufacturing, training, and licensing. I chair the Licensing Subcommittee, which focuses on public health and safety, ethics, and consumer protection. We are developing informed consent documents, professional codes of conduct, and licensing requirements for psilocybin practitioners and facilities.

Each subcommittee reports its findings to the full Advisory Board, which will make regulatory recommendations to the OHA on or before June 30, 2022. After the conclusion of a two-year development phase mandated by Measure 109, the OHA will start accepting license applications from businesses and individuals on January 2, 2023.

Measure 109 requires the OHA to issue licenses for psilocybin manufacturers, testing labs, service centers, and facilitators. With respect to manufacturing, the Board is contemplating a range of psilocybin products that could be produced in Oregon. Its Products Subcommittee, led by Dr. Jessie Uehling, a mycology Professor at Oregon State University, is researching the benefits and drawbacks of various products and manufacturing methods. The group may also address related issues such as product testing, storage, and labeling.

When manufacturers submit a licensing application to the OHA, they must request the agency’s endorsement for at least one type of manufacturing activity. Though it remains unclear which manufacturing activities will be allowed, the Products Subcommittee has discussed endorsements for the cultivation of psilocybin producing fungi, the extraction of psilocybin from fungal material, the chemical or biological synthesis of psilocybin, and the production of various psilocybin-containing products for consumption. According to Measure 109, licensed manufacturers will be allowed to add endorsements to their licenses without paying additional fees.

Once licenses are issued, psilocybin will be administered only by trained and licensed facilitators at designated service centers. Tom Eckert, a Licensed Professional Counselor and Chief Petitioner for Measure 109, Chairs the Board and leads its Training Subcommittee, which is developing training requirements for aspiring facilitators. According to Measure 109, the OHA cannot require facilitators to have more than a high school education or its equivalent. However, the Training Subcommittee has considered requiring some facilitators to possess or obtain additional training before administering psilocybin to clients with complex medical or psychological conditions.

Dr. Rachel Knox and Dr. Angela Carter co-chair the Board’s Equity Subcommittee, which ensures that the industry created by Measure 109 is safe and accessible, especially for marginalized communities. This subcommittee includes members from outside the Board with diverse experience in a variety of disciplines including Dr. Pilar Hernandez-Wolfe, a clinician and professor at the Lewis & Clark Graduate School of Education and Counseling, Rebecca Martinez, and advocate and educator with the Fruiting Bodies Collective, and Ismail Ali, Acting Director of Policy and Advocacy at the Multidisciplinary Association for Psychedelic Studies (MAPS).

Members of the public are welcome to attend meetings of the Board and its subcommittees. A schedule of upcoming events, and recordings from past meetings, can be found at the OHA’s Measure 109 website. Businesses and individuals hoping to learn more about Oregon psilocybin regulation can contact the experienced psychedelics attorneys at Harris Bricken.

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Immersive Cannabis Experience Coming to NYC

Immersive entertainment is coming to New York City in the form of a new cannabis pop-up.

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New Mexico Expected to Run Out of Cannabis When Legal Sales Begin

New Mexico could run out of cannabis due to high demand when legal sales begin.

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Barcelona’s Cannabis Clubs in Limbo After Abrupt Court Ruling

Around 200 cannabis clubs in the city face an uncertain future.

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FY22 Agriculture Appropriation Bill: A Good Omen for the Hemp Industry

On June 29, the House Appropriations Committee (the Committee) released the draft of the fiscal year 2022 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies funding bill (the FY22 Agriculture Appropriations Bill), along with its Committee Report, in which it offers some promising provisions and instructions that would greatly benefit the hemp industry.

Here is an overview of the provisions found in the bill and the instructions incorporated in the Committee Report:

2014 Farm Bill Activity (Section 741)

The bill clarifies the legality of hemp cultivated, processed, transported, sold and turned into products in accordance with the 2014 Farm Bill by stating such hemp will remain lawful for commercial purposes after the 2014 Farm Bill expires.

2014 Farm Bill Extension (Section 766)

The bill proposes to extend the 2014 Farm Bill to January 1, 2023 – this deadline is currently set for January 1, 2022. This proposed extension is needed because the vast majority – 75% to be precise – of all licensed acres are regulated under a state program pursuant to the 2014 Farm Bill and implemented by states that either strongly object to the U.S. Department of Agriculture (USDA) final rule or face significant challenges to amend their regulations to align with those requirements. Affording state regulators additional time to transition the industry to the 2018 authorities should help reduce the negative impact the USDA final rule has had on the industry.

THC Limit Review

In its report, the Committee expresses its concern that the level of allowable THC content in hemp “may be arbitrary and pose a burden on hemp producers that is not supported by science.” Indeed, we’ve explained that this threshold dates back to 1976, when Canadian horticulturalists Ernest Small and Arthur Cronquist published an article entitled A Practical and Natural Taxonomy for Cannabis, in which the authors explained:

“It will be noted that we arbitrarily adopt a concentration of 0.3% delta-9 THC (dry-weight basis) in young, vigorous leaves of relatively mature plants as a guide to discriminating two classes of plants.”

In an attempt to remedy this issue, the Committee directs the USDA, the U.S. Department of Health and Human Services (HHS) and the Drug Enforcement Administration (DEA) “to study and report to Congress on whether there is scientific basis for the current limit of .3% THC in hemp and suggest alternative levels if necessary.”

Entry for Communities of Color

The Committee also expresses concern regarding the drug felony ban imposed by the 2018 Farm Bill, which disproportionately impacts communities of color, and thus, creates a barrier of entry in the industry for these populations that have been targeted by drug policies. Accordingly, the Committee directs the USDA to identify those barriers of entry and to make recommendations on how to ensure communities of color gain equal access and opportunity to engage in this emerging market.

Hemp Extract Regulation

The Committee Report also addresses the regulatory inconsistencies for the production of hemp that exist between the USDA final rule and the DEA interim final rule. In its report, the Committee states that “Congress intentionally expanded the definition of hemp to include derivatives, extracts and cannabinoids in an effort to avoid the criminalization of hemp processing” and that it understands that in-process hemp extract may temporarily exceed the 0.3% THC threshold before being packaged and sold as a finished product. Given this, the Committee directs the USDA to coordinate directly with the DEA to present the industry with guidance and information on in-process extracted material.

__

As these proposed revisions and instructions suggest, the Committee seems determined to establish a statutory and regulatory framework that ensures the hemp industry’s success. And for that, we applaud its members.

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Grizzlers is out of hibernation and ready to roam

After years in hibernation, Grizzlers is back in the wild & bringing their legacy experience to the legal market. Find out how you can get your paws on their pre-rolls.

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What I learned sitting courtside at the NBA Finals of weed

At the Emerald Cup, judges pair cutting-edge lab data with their own exquisitely tuned senses.

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Canada to Reopen Border, Travelers Reminded Cannabis is Prohibited

The border is open to Americans with proof of vaccination and who don’t have any cannabis.

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Georgia Medical Cannabis Program Finally Revamps and Expands

Georgia is giving its medical cannabis program a serious, and much-needed, makeover.

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Former New Mexico Police Officer Convicted on Drug Charges

Former police officer Daniel Capeheart has been convicted on drug charges, much to the surprise of New Mexico state.

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California Ketamine Clinics: Implications From Epic Medical Management, LLC v. Paquette

The corporate practice of medicine doctrine (“CPOM”) and state anti-kickback prohibitions vary from state to state. While some states have statutory prohibitions, other states rely upon case law for CPOM. These issues are typically not heavily litigated. When there is case law covering these subjects, it is imperative to review and understand these decisions. They will impact how you structure the ownership of a ketamine clinic, and likewise, how you structure Management Services Agreements (“MSA”) in strict CPOM states.

Background

One such case is Epic Medical Management, LLC v. Paquette, 244 Cal.App.4th 504 (2015). This case involved a dispute between the doctor, appellant Justin Dominic Paquette, M.D., and a medical management company, Epic Medical Management, LLC (“Epic Medical”), with which Dr. Paquette contracted to supply non-medical management services to his practice. The parties had a falling out and agreed to terminate the MSA. Epic Medical believed it was due additional fees under the MSA. But Dr. Paquette believed the management company had underperformed its duties under the contract and owed him money. The matter proceeded to arbitration, and the arbitrator ruled in favor of Epic Medical. On cross-petitions to confirm and vacate the award, the trial court ruled in favor of Epic Medical and confirmed the award. Dr. Paquette appealed, arguing that the arbitration award cannot stand because the contract, as interpreted by the arbitrator, is illegal. The California Court of Appeals concluded that the issue was not reviewable, and, if it was, the contract was not illegal as a matter of law.

Pursuant to the MSA, Dr. Paquette engaged Epic Medical “to provide management services as are reasonably necessary and appropriate for the management of the non-medical aspects of [the doctor’s] medical practice.” Among other things, Epic Medical was required to lease office space to Dr. Paquette, lease to him all equipment he deemed reasonably necessary and appropriate, provide support services, provide non-physician personnel, establish and implement a marketing plan, conduct billing and collections, and perform accounting services. Dr. Paquette was responsible for providing medical services. This is a very standard relationship structure in California, given its strict CPOM laws.

The primary issue on appeal revolved around the fees paid to Epic Medical. While the parties originally agreed to a payment methodology, it was modified by the conduct of the parties over a three and half year period prior to the termination of the MSA. Specifically, Epic Medical charged, and Dr. Paquette paid, a fee calculated as 50 percent of office medical services, 25 percent of surgical services, and 75 percent of pharmaceutical expenses (referred to as the “50-25-75 method”).

At the arbitration hearing, Dr. Paquette argued that because some of the fees were paid for Epic Medical’s marketing services, the payments constituted an illegal kickback scheme for referred patients. There was no dispute that some physician members of Epic Medical did refer patients to Dr. Paquette. Dr. Paquette took the position that paying Epic Medical a percentage of the revenues generated by those patients constituted illegal kickbacks, barred by Business and Professions Code section 650 (“Section 650”). The arbitrator did not entirely disagree with this characterization but concluded that any such violation was “technical” and did not impact the award.

Section 650

The first two subsections of Section 650 provide as follows:

(a) Except as [otherwise provided], the offer, delivery, receipt, or acceptance by any person licensed under this division … of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred is unlawful. [¶] (b) The payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer.

To overturn the arbitrator’s award, the Court of Appeals would need to find that the entire MSA was illegal and unenforceable. However, the Court of Appeals stated:

Even assuming, for the moment, that the doctor is correct and that payment to the management company according to the 50-25-75 method constitutes kickbacks for referrals, this does not go to the entirety of the contract. Referral patients were a small percentage of the patients seen while the doctor and management company were operating pursuant to the agreement. The [MSA] was not a referral agreement, but one for management services, of which referrals played only an incidental part.

After analyzing Section 650, the Court of Appeals concluded that “[g]iven the flexibility of Section 650, there is no absolute prohibition on consideration being paid to a management company – even one which occasionally refers patients.” Moreover, after reviewing the case law that eventually led to the passage of Section 650 and then future amendments to that statute, the Court of Appeals stated that Section 650(b) “permits contracts between physicians and non-physicians whereby compensation is based on a percentage of gross revenue, as long as the consideration is commensurate with the services rendered and/or facilities and equipment provided.” Based upon the foregoing, the Court of Appeals found that the only way the MSA could be illegal is if the consideration is not commensurate with the services provided and/or the facilities and equipment leased to the physician. To reach that conclusion, the Court of Appeals analyzed the payments made to Epic Medical and found that the profit margin was 12.8 percent.

CPOM Analysis

Finally, the Court of Appeals quickly determined that the MSA did not violate CPOM in California. As the Court of Appeals noted, to make such a determination requires the legal interpretation of the substantive provisions of the MSA. And, ultimately, the issue revolves around whether the management company exercises or retained the right to exercise control or discretion over the physician’s practice. The Court of Appeals found that the MSA had a “strict delineation between medical elements which the doctor controls, and the non-medical elements which the doctor has retained the management company to handle.” Thus, there was no violation of California’s CPOM doctrine.

Take-Aways and Lessons Learned

The Epic Medical decision is valuable in many regards. But the decision also leads to many questions as well, including:

1. While the Court of Appeals found a 12.8 percent profit margin reasonable, is there a range that the courts would also find reasonable? In other words, what about 15%, 20%, 25%, etc.?
2. The Court of Appeals found that the referral aspect of the MSA involved a small percentage of the patients, but at what point does that cross over to a violation? The court did not actually define what a “small percentage” meant. So, at least based on the appellate decision, we do not know the exact definition of “small percentage”.
3. Even though the Court of Appeals found no violation of Section 650, would the outcome have been the same if an action was brought under the federal anti-kickback statute (“AKS”) (which is a criminal statute)?
4. While the Court of Appeals was satisfied that the remuneration was essentially “fair market value”, what other proof would be required for a federal AKS action?

Notwithstanding these issues, the decision does provide useful guidance. It reinforces the fact that compensation in California must be “commensurate with the value of the services furnished or with the fair rental value.” This issue goes towards both Section 650 and CPOM. Moreover, the concept of “fair market value” payments is essential for the management services agreement safe harbor under the federal AKS. The decision likewise further buttresses the point that compensation in California can be based on gross revenues (which is not the case in all states, like New York). We now know that a 12.8 percent profit margin will likely be upheld in California. Obviously, a lower profit margin would likely be enforceable as well (these are very fact-intensive issues, so there are no absolutes when it comes to these general rules).

If you are considering opening or acquiring a ketamine clinic in California, Epic Medical is a decision you should know well.

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Ellie Paisley: Influencer Profile

Paisley Power: Become entranced by the whimsical world of the live painter and clothing designer.

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Ngaio Bealum: Influencer Profile

Ngaio Bealum, comedian and advocate, wears many hats in the cannabis industry—and many of them are wildly entertaining.

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Rachel Wolfson: Influencer Profiler

Rachel Wolfson on embracing her passion of comedy, cannabis and mental-health advocacy.

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Study Finds Cannabis Use Not Related to Loss of Motivation

Study shows cannabis doesn't make you unmotivated—at least not cannabis alone!

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What You Need to Know When Buying a Cannabis Business, Part 5: Structuring the Purchase

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 Part 3, we looked into things to consider when hiring your cannabis attorney. In Part 4, we discussed brokers – whether and how to use them to their best utility. Today, we discuss how to structure the transaction and why the transaction structure matters.

Transaction Structures

Acquisitions of cannabis businesses are typically structured as either a purchase of (1) assets or (2) equity interests (including a merger scenario), with an initial closing and a final closing. Due to potentially extensive known and unknown liabilities in the target company, asset purchases are the rule unless a cannabis license is not permitted to be assigned or assumed by a buyer, as is the case in California, where the purchase of equity interests is almost universally used.

The Pace of Proceeding to Closing

The highly regulated nature of the cannabis marketplace creates an often slow-moving environment for transactions, which first time buyers (or first time sellers) and their counsel may not expect. Depending on the state, a typical acquisition timeline may range from as few as two months to as many as 12 months after the buyer and seller are prepared to close the transaction.

An acquisition can close on the shorter end of the time range if the buyer already owns a license in the target market and is merely expanding its market presence by acquiring another license. Transactions that stretch to a year and beyond often involve one or more of the following:

• Significant undisclosed regulatory violations in the target company.
• A pattern of regulatory violations in the target company.
• A pattern of regulatory violations in the buyer company or its key personnel.
• The buyer’s inability to satisfy the state’s licensing requirements, including providing satisfactory proof of funds from legal or permitted sources.

Why Two Closings?

A cannabis transaction will also often have two closings for regulatory reasons. Although some parties may prefer to wait until the entire transaction has been approved by the state regulatory body to close a deal, most buyers and sellers are anxious to complete as much of the transaction as possible as soon as possible.

Where the closing of the acquisition will be split into two components, the first closing will occur after:

• Due diligence is completed.
• The transaction documents are fully negotiated and drafted.
• The buyer’s financing is arranged.

In the initial closing, the seller will transfer to the buyer as many of the seller’s business assets as permitted without regulatory approval, generally leaving only the license or the licensed entity to be transferred at the second closing.

The purpose of this structure is to provide the buyer all of the financial benefit and a significant level of the responsibility for operating the business from the initial closing. Once the second and final closing occurs, often months after the initial closing, the buyer obtains all the benefits and responsibilities of owning the acquired business retroactive to the date of the initial closing. This is all described in the transaction agreements, often requiring a spreadsheet to lay out monthly expenditures and expected revenue to be settled up at the second closing.

This uncertainty regarding the closing timeline, however, rarely slows down a motivated buyer and seller, and the industry players and their counsel routinely adapt transactions to fit the facts of a particular acquisition.

In the next post we’ll take a closer look at more items to consider when structuring the purchase.

The post What You Need to Know When Buying a Cannabis Business, Part 5: Structuring the Purchase appeared first on Harris Bricken.

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Fifty-Four Years Ago Today—The Beatles Insisted the UK Legalize Weed in Newspaper Ad

According to The Beatles, all you need is bud.

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Why Most Cannabis Businesses Should Ditch Their SOW Models

Lately, in my review of certain cannabis transactional agreements like cannabis intellectual property (IP) licensing agreements, manufacturing agreements, and distribution agreements, I’m seeing a really high number of statements of work (SOWs) attached. I’m not opposed to SOWs when they make sense. In cannabis though, nine times out of ten, a SOW model isn’t necessary, overcomplicates the parties’ performance, and creates conflicts between agreements. I think the reason I’m seeing a lot of SOW models is because licensees tend to rip their agreements from Google or just go with the flow on whatever a legalzoom style outfit tells them regarding the necessity of a SOW system no matter the industry, the regulations, or nature of the work.

You usually see SOWs incorporated with master services agreements (MSAs) or requests for proposals between vendors and their clients (think Microsoft or Apple vendor agreements, see here and here for legit SOW examples). The MSA sets forth the main legal terms and conditions between the parties (like term of the agreement, termination rights, confidentiality, representations and warranties, etc.). The SOW (or SOWs) typically controls and enumerates specific details around a given project or projects that will occur between the parties sometime during the term of the MSA. The SOW, itself, is an enforceable agreement to be interpreted alongside the MSA. Efficiency is really the main goal of the MSA/SOW in that when parties have multiple, different projects together they don’t have to keep coming back to the table to negotiate the main legal terms of their agreement. Instead, those are set for the term of the relationship and the SOWs just reflect particular project-to-project performance obligations and expectations.

When do SOWs work well? When the work to be done by a party is project-to-project and where each project is so different that deliverables, budget, deadlines, and substance dictate having a different set of parameters between each project. What I see most often in cannabis are:

1. SOWs when there’s no specific project or project-to-project concept and the exact details of the parties’ performance are always the same pursuant to the MSA.
2. Global legal terms and conditions in both the SOW and the MSA. Two recent examples of this redundancy that I’ve seen were (i) an IP license agreement where the licensor granted the right to use its IP to a distributor in the definitive agreement but then then the corresponding SOW went into great detail about ownership of the IP, and (ii) a fixed fee schedule for product production in an MSA that was then also packed into a SOW along with other substantially similar terms as the MSA anyway.
3. SOWs that utilize global legal terms that aren’t in the MSA. Another recent example was an agreement I reviewed where the production request process was in the SOW but not in the MSA, but the production request process was supposed to be uniform across all products regardless of type or amount.
4. Conflicts. The worst is when the terms between the MSA and the SOW create conflict between themselves, and many of these arrangements neglect to say whether the SOW or the MSA controls in the event of a conflict. In turn, instead of supplementing the MSA, a given SOW may unfortunately amend the MSA unbeknownst to the parties.
5. The parties neglecting to address termination between the MSA and the SOW or between SOWs.
6. SOWs that aren’t at all detailed and don’t contain any of the standard SOW provisions that assist the parties in their performance, leaving out lucrative details like project description/overview, purpose and scope, resources involved, project approach including phases and milestones, who is answerable for each task, deliverables, payment terms, commencement and completion dates, approvals, costs, etc., which completely defeats the purpose of a SOW.

The overwhelming majority of the time, cannabis licensees are not going to have relationships with each other that dictate needing SOWs. A distributor in California, for example, is going to be very limited in the services it can provide to other licensees and a distribution SOW just makes very little sense as a result. The concept of project-to-project distribution is not a reality, and even a distribution MSA with a single SOW doesn’t make a lot of sense because cannabis regulations dictate that the terms and conditions between the parties will be mostly global legal terms to ensure compliance.

A SOW system might make sense for manufacturing services if the manufacturer, on behalf of the other party, is going to be making a variety of products with wildly different make-ups and specifications while also engaging in a variety of marketing campaigns, customer outreach, etc. around all of those products, but that’s hardly ever the case. However, the typical scenario in cannabis is that one party licenses its IP to a manufacturer to make maybe a handful of products in accordance with limited specifications provided by the IP licensor, and the manufacturer then transfers those products on to a distributor for testing and retail sale. All of that can (and should) be easily and simply set out in a single IP license and manufacturing services agreement.

Cannabis licensees all too often either don’t realize or don’t care that they’re setting themselves up for failure or breach or both when they engage in the MSA/SOW model. While SOWs can be appropriate and amazingly efficient under the right circumstances, the cannabis industry, at this point, when it comes to licensee-to-licensee transactions isn’t really served by them in my experience. Instead, the use of the SOW when incorrectly used or sloppily done can actually throw up all kinds of ambiguities and performance issues, so cannabis licensees would be wise to think twice before implementing them.

The post Why Most Cannabis Businesses Should Ditch Their SOW Models appeared first on Harris Bricken.

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How hempsmart supports mental wellness beyond CBD

The human beings at hempsmart™ know that smart CBD products can help support a holistic healthy lifestyle. Find out how you can build a balanced routine.

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Cannabis Cup Oklahoma 2021 Gears Up for Kickoff

The Cannabis Cup Oklahoma: People’s Choice is ready to rumble.

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Representative Alexandria Ocasio-Cortez Proposes Psychedelic Amendment

Representative Alexandria Ocasio-Cortez just once again spoke out in support of psychedelic drugs.

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Denver Cannabis Company to Expand Alzheimer’s Research

Denver just expanded Alzheimer’s research, allowing researchers to uncover a realm of uncharted territory.

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Ketamine Clinics: What is a “Referral” Under the Federal Anti-Kickback Statute?

In a prior post, we discussed the federal anti-kickback statute (the “AKS”) and the implications for ketamine clinics. In short, the federal AKS prohibits anyone from paying or receiving anything of value for the referral of patients where a federal government healthcare payment program is the payor (e.g., Medicare, Medicaid, VA, etc.). 42 U.S.C. § 1320a–7b. While there are many safe harbors that can apply in these situations, one of the fundamental questions is what constitutes a “referral” under the AKS? To help answer and illuminate this question, in 2020, the Seventh Circuit Court of Appeals rendered its decision in Stop Illinois Health Care Fraud, LLC v. Sayeed (No. 12-cv-09306).

Background

Stop Illinois Health Care Fraud, LLC (“Plaintiff”) brought a qui tam action against Management Principles, Inc. (“MPI”) and some of its associates, including its owner and manager, Asif Sayeed, M.D. (“Dr. Sayeed”), as well as the Healthcare Consortium of Illinois (“HCI”, and collectively with MPI and Dr. Sayeed, the “Defendants”). Plaintiff alleged that Defendants had an illegal referral practice that violated the AKS and, by implication, the federal and state False Claims Acts (the “FCA”). After a bench trial, the federal District Court found no violation of the foregoing statutes.

HCI was an organization that contracted with the Illinois Department of Aging to coordinate services to low-income seniors to keep them home and out of nursing homes. HCI would sometimes refer clients who needed in-home services to two companies owned by MPI. Plaintiff brought its claims under the state and federal FCAs. Neither the United States nor Illinois intervened in this qui tam action, so Plaintiff prosecuted this matter.

The material facts include:

The operative complaint alleged that MPI and HCI had a contract and that MPI paid HCI gift cards in substantial amounts in return for the ability to access the detailed information that HCI employees gathered about clients during in-home assessments. Using that information, MPI called Medicare-eligible seniors and offered them the services of its two home healthcare companies. MPI’s payments to HCI, the complaint alleged, ran afoul of the [AKS].

***

Most of the trial testimony focused… on a 2010 Management Services Agreement [(“MSA”)] under which MPI paid HCI $5,000 a month. What HCI was paying MPI to do was the topic of much discussion, since the [MSA] itself was vague. HCI’s only stated obligations were to “assist MPI in the management of the case management Program and appoint personnel as Associate Managers.” For their part, HCI’s associate managers had to “[d]evote sufficient time for the performance of all assigned duties” and “[p]rovide periodic written reports of activities.” The [P]laintiff’s theory, as laid out in its opening statement, was that the ambiguous [MSA] was a sham contract meant to disguise a kickback offered for patient referral.

Dr. Sayeed further testified that the genesis for the MSA was because HCI needed financial help and MPI was trying to become an Accountable Care Organization, which requires a minimum of 5,000 Medicare recipients as patients.

Under the MSA, HCI was required to do two things: (1) give MPI access to the comprehensive forms that caseworkers filled out when assessing clients, and (2) teach MPI about how it coordinated care. And Dr. Sayeed’s testimony showed that his companies did use the information obtained from HCI’s files to solicit and acquire new patients. Dr. Sayeed referred to reviewing the HCI records as “data mining”.

The trial court issued a brief written order following trial whereby it found that Plaintiff failed to meet its burden of proof. The order did not go into detail regarding many of the material issues that were in dispute, thus leaving the Court of Appeals with many unanswered questions.

Court of Appeal’s Analysis

Ultimately, the Court of Appeals had to decide what “refer” means under the federal AKS. Plaintiff contended that MPI’s payments under the MSA were intended to secure access to the client information in the HCI files that it then used to place solicitation calls. Thus, Plaintiff claimed that this was, in fact, a referral.

In a prior landmark decision of the Seventh Circuit Court of Appeals, United States v. Patel, 778 F.3d 607 (7th Cir. 2015), the court likewise dealt with the definition of “refer” under the AKS. As the Court of Appeals noted from its Patel decision:

The central characteristic of the referral, we explained, was that the doctor “facilitate[d] or authorize[d]” the patient’s choice of provider. A doctor stands between the patient and his chosen provider because his approval is necessary to obtain the services, and “[e]xercising this gatekeeping role is one way that doctors refer their patients to a specific provider.” In so concluding, we observed that our holding was consistent with Congress’s broad objectives in the [AKS] of preventing Medicare and Medicaid fraud and protecting patient choice. (internal citations omitted.)

***

Patel’s holding that a physician “refers” patients to a home healthcare provider when he approves them for services does not directly control this case, which concerns not a gatekeeping doctor but an organization (here, HCI) with no certification authority. The applicable lesson is instead that the definition of a referral under the [AKS] is broad, encapsulating both direct and indirect means of connecting a patient with a provider. It goes beyond explicit recommendations to include more subtle arrangements. And the inquiry is a practical one that focuses on substance, not form.

The foregoing laid the groundwork for the Court of Appeal’s decision in this matter. The Court of Appeals inferred from the district court’s order (since the order was not very detailed) that it may have employed a narrower definition of referral that was inconsistent with the Patel holding. The Court of Appeals noted that if the district court had employed the Patel standard, then this case would be a close call.

Moreover, the district court’s order contained no mention of the evidence showing that MPI used access to HCI’s files to solicit and obtain patients, even though testimony on that point was considerable and unambiguous. As the Court of Appeals noted, “[a] practical analysis of this arrangement would allow, but perhaps not compel, a finding that it qualifies as a referral.” Left with too much uncertainty, the Court of Appeals reversed and remanded the district court’s order.

Take-Aways and Lessons Learned

The definition of “refer” is vitally important in the healthcare field. It can have implications for federal and state AKS, as well as federal and state FCAs. While this case is certainly a close call, it also helps to illustrate how courts view this issue. Some of the more important lessons include:

1. MSAs must be clearly written with the parties’ duties clearly outlined. As the Court of Appeals noted, the MSA in question was vague. A party never wants a vague agreement because it leads to questions regarding interpretation and the intent of the parties.
2. Any time there is a question regarding the AKS or any of the other federal fraud and abuse laws, it is imperative to question whether the arrangement violates or frustrates the purpose of these laws. The Court of Appeals noted, “we observed that our holding [in Patel] was consistent with Congress’s broad objectives in the [AKS] of preventing Medicare and Medicaid fraud and protecting patient choice.” Thus, when reviewing these types of issues, always remember the twin goals of the federal fraud and abuse laws – (a) to prevent over-utilization of healthcare services, and (b) to prevent unnecessary services, both of which can lead to poor quality outcomes and excessive costs for the federal government.
3. Any time there is an AKS violation, an FCA claim is almost a given. They literally go hand-in-hand.
4. To quote the Court of Appeals once again, “The applicable lesson is instead that the definition of a referral under the [AKS] is broad, encapsulating both direct and indirect means of connecting a patient with a provider. It goes beyond explicit recommendations to include more subtle arrangements. And the inquiry is a practical one that focuses on substance, not form.” This is really the gravamen of this case. The term “refer” is intended to be very broad, and it is very easy to overlook this issue. Certainly, in this case, at first glance, it is hard to see how this arrangement was a “referral” arrangement. But, after reviewing the Court of Appeal’s rationale, it becomes much clearer.

The AKS is a criminal statute with criminal penalties. Thus, it is vitally important to understand the AKS and all of its nuances – which is no small feat. Any ketamine clinic that accepts Medicare or any other federal healthcare program reimbursement needs to understand these issues to avoid criminal penalties (among other things).

The post Ketamine Clinics: What is a “Referral” Under the Federal Anti-Kickback Statute? appeared first on Harris Bricken.

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Utah Faces Lawsuit Over Cannabis Licenses

Utah is facing a lawsuit thanks to out-of-state operators who may have gotten inside info on the licensing process.

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Johnson & Johnson, Drug Distributors Settle to Pay $26B for Roles in Opioid Crisis

The $26 billion tab is the result of around 3,000 opioid-related lawsuits.

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Congressman Speaks Out for Sha’Carri Richardson

Tennessee Congressman Steve Cohen spoke out against the ban of Sha'Carri Richardson, saying marijuana only is performance-enhancing for hot dog eating contests.

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Slippery Moisturizer will take your self-care to new heights

We all deserve nice things. Slippery Moisturizer from LUXEARI will take you there. Always made from premium, small-batch hemp.

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Amazon Went to Space, Now on to Cannabis

Amazon already made headlines going to space, and they’re poised to take on the cannabis space next.

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Canadian hash products to sample this summer (hot knives not included)

This isn't your parents hash.

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Cannabis Litigation: Attempt to Plead Around the “Illegality” Defense Fails

As the country moves toward decriminalizing and even legalizing marijuana, federal courts largely remain closed to commercial disputes involving marijuana by operation of the illegality defense.  We’ve written about the defense on several occasions, see here and here. Briefly, the illegality defense is an affirmative defense pleaded by a defendant who has been sued for breach of contract or other related business torts. It applies in contexts other than marijuana to be sure but is often raised by a defendant who seeks to dismiss a federal court case on the ground that the contract is void because its subject matter is illegal under the Controlled Substances Act.

Increasingly the mere fact that marijuana is involved does not by itself preclude seeking relief in federal court. For example, the Tenth Circuit has ruled that the Fair Labor Standards Act applies to marijuana industry employers. Other federal courts have permitted cases to go forward where a contract may be enforced in such a way that does not condone or require illegal conduct such as requiring a cannabis company borrower to repay a loan it had received.

A recent ruling from the District of Colorado reflects that federal courts remain wary of civil disputes involving marijuana and will look past the surface allegations of a complaint in assessing the applicability of the illegality defense.

In Sensoria, LLC et al. v. Kaweske, et al. (D. Colo. No. 20-cv-00942-MEH), the plaintiffs sought to recover their investment in a cannabis business known as Clover Top Holdings and filed claims for breach of contract, civil theft, fraud, breach of fiduciary duty and so forth. In an early ruling the court dismissed most of the claims because of Clover Top Holdings direct involvement in the growing and selling of marijuana.  But the court allowed plaintiffs to replead claims because there was the “potential” that plaintiffs might be able to seek relief that did not implicate federal marijuana laws.

The plaintiffs repleaded their claims and attempted to avoid the illegality issue by reframing their relationship with Clover Top Holdings. The amended pleading cast their involvement in Clover Top as that of a passive investor whose intention was to invest in a lawful business. And although plaintiffs knew Clover Top was involved in cannabis, there were aspects of cannabis and hemp that do not violate federal law and so the investment could have been lawful. Defendants moved to dismiss.

The court noted that the intention to invest in a lawful business did not render the illegality issue moot and, consequently, reframing the relationship did not by itself preclude dismissal. Plaintiffs emphasized that certain Clover Top assets, such as land and buildings, are not inherently unlawful and argue to seek relief against those types of assets. But the court was not persuaded, reasoning that those assets were being used for marijuana and could be the subject of criminal forfeiture. So the court rejected plaintiffs attempt to recover those assets as a form of compensation. Ultimately the court concluded that marijuana “lies at the heart of the business and thus the lawsuit.” Accordingly, the court found itself unable to award any form of relief that would not implicate the federally unlawful activities of growing, processing, and selling marijuana.

Although an unfortunate ruling for the plaintiffs, they may try to continue their claims in state court where the illegality defense—at least in states where recreational marijuana is legal—is a nonstarter. Many cannabis businesses, especially larger multi-state operators, would prefer to litigate in federal court rather than state court for a variety of reasons. Unfortunately, until the federal government enacts legislation that would permit federal courts to enforce marijuana contracts like any other subject, cannabis business disputes will remain relegated to state courts. The Sensoria case shows that although some business disputes involving marijuana may be prosecuted in federal court, a plaintiff cannot rely on artful pleading alone to avoid the illegality defense.

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The Roll-up #200: Celebrating our 200th episode with Justin Bieber

The Roll-up crew marks a podcasting milestone with a show featuring Justin Bieber and Chuck Schumer—together at last.

The post The Roll-up #200: Celebrating our 200th episode with Justin Bieber appeared first on Leafly.

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New Hemp Extract Exhibits Potential Weight Loss Properties

A hemp extract could be a new key to weight loss and body mass index control.

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Officials Warn About Fentanyl-Laced Weed—the Myth that Refuses to Die

Are people just making up stories about fentanyl-laced weed?

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Actor Adam Rodriguez Wants You to Elevate Your Highs

Adam Rodriguez, The “CSI: Miami” and “Magic Mike” star discusses his rise to fame, the importance of discipline and how growing your own weed enhances your stoney bliss.

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Republican Lawmakers Want Biden to Reclassify Cannabis

Republican Congressional representatives want Joe Biden to keep the promises he made on the campaign trail and reclassify cannabis.

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Cannabis Trademarks: Cointreau Sues Potential CBD Competitor

Last month we discussed the recent lawsuits brought by the Wrigley Company against five cannabis businesses it accuses of infringing its trademarks. Cointreau is now following Wrigley’s lead, suing the maker of Quatreau CBD-infused sparkling water.

As we pointed out in our analysis of the Wrigley lawsuits, there is a fine line between legitimate trademark protection and the stymieing of creativity. In the context of the Wrigley cases, getting fake “Skittles” off the street is the very reason trademark rights exist in the first place: Both Wrigley and the consumer suffer if “Skittles” not made by Wrigley are available on the market.

At the same time, it is hard to imagine that many people buy Zkittlez in the mistaken belief they are in fact Skittles. That said, it is likely that at least some people are not able to tell the difference between the two brands, and perhaps trademark law needs to be viewed through the prism of those consumers. That will be up to the courts to decide in the Wrigley litigation.

The Cointreau case appears to be one of the instances where the chances of actual confusion are low. First, it does not appear that the Quatreau branding is trying to emulate Cointreau’s. The last five letters of both names are the same, yes, but would there be a risk of confusion between the words revelation, damnation, introspection, and so on? The relative “foreignness” of the terms may impact perceptions, but do we really want to set a precedent that allows a brand called Locatelli to allege that its competitor Brancatelli’s name is too similar?

Moreover, “eau” means water in French, and Quatreau is from Canada, where French is an official language. This at least suggests a reason for using that particular ending other than ripping off Cointreau (which itself has nothing to do with water, being a family name).

Perhaps it is genuinely concerned about similarities between the names, but it could also be that Cointreau is trying to get a potential competitor out of the way. As the company itself noted, “it is … ‘actively considering’ selling non-alcoholic drinks in the U.S., calling it a ‘logical extension’ of its brand.”

To hold that Quatreau and Cointreau are similar would be to hold the American consumer in low regard, to deem it an unsophisticated creature unable to differentiate between highfalutin foreign words. It is possible that the makers of Cointreau endorse that view, but a U.S. court should not. Cointreau should use its trademarks to keep bottles of poisonous fake booze off the shelves, not to dispense of potential competitors through legal subterfuge.

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New York Senator Introduces Cannabis Cultivation Bill

Adult-use cultivator provisional licenses would allow farmers to start planting in New York.

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Virginia Attorney General to Hire State’s First Cannabis Attorney

The job requires someone who can serve as general counsel to the Virginia Cannabis Control Authority.

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Aquaponics: The future of sustainable cannabis is fueled by fish poop

This female-driven, sustainably-cultivated, ethically-sourced weed fueled by fish poop just might disrupt the cannabis industry.

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Colorado Releases Report on Impact of Cannabis Legalization

Colorado's new report includes data that legalization had little effect on youth cannabis usage and that Black people still being disproportionately targeted for cannabis offenses.

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Searching for the fountain of Blue Dream in Santa Cruz, CA

No one has claimed this ubiquitous strain.

The post Searching for the fountain of Blue Dream in Santa Cruz, CA appeared first on Leafly.

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Cannabis in Ireland: Global Law and Business Podcast with Natalie O’Regan

Listen HERE or stream on Spotify, Apple Podcasts, Amazon Music, Stitcher, or Soundcloud!

At Harris Bricken, we keep close tabs on what is happening in various industries around the world, including cannabis.

In our weekly Global Law and Business podcast, hosted by international cannabis attorneys Fred Rocafort and Jonathan Bench, we look at the world by talking with business leaders, innovators, service providers, manufacturers, and government leaders around the world.

In Episode #65, we are joined by Natalie O’Regan, a cannabis activist in Ireland.

We discuss:

• The state of cannabis legislation in Ireland.
• Natalie’s research on drug policy.
• The “hamster wheel” of stigma in the context of drugs.
• Society’s need for labeling and its connection to cannabis laws.
• Ireland’s road ahead toward cannabis legalization.
• Listening, and watching recommendations from:
  • Natalie
    • Chasing the Scream: The First and Last Days of the War on Drugs by Johann Hari
    • Drug Use for Grown-Ups: Chasing Liberty in the Land of Fear by Carl Hart
  • Fred
    • Screen your calls before you answer them
    • DarkHorse Podcast with hosts Bret Weinstein and Dr. Heather Heying
  • Jonathan
    • 2020 U.S. Olympic Trials on YouTube
    • 2020 Tokyo Summer Olympics

We’ll see you next week for another exciting and informative episode when we sit down with Chris Campbell to discuss his The Tales of the Tribunal Podcast, and much more!

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Paying Our Respects to Revolutionary Educator and Hashmaker: Frenchy Cannoli Passes Away

Renowned hashmaker, educator and activist Frenchy Cannoli has suddenly passed away, leaving behind decades worth of revolutionary techniques in hashmaking.

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What is phytol and is it safe to vape?

Experts urge caution after a new study emerges suggesting phytol, a diterpene alcohol used as a diluent in vape cartridges, appears unsafe to inhale.

The post What is phytol and is it safe to vape? appeared first on Leafly.

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Surgeon General States Support for Cannabis Decriminalization

Surgeon Genereal Dr. Vivek Murthy is once again speaking out in favor of decriminalized cannabis.

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Harborside Under New Management, Announcement Reads

The large California-based cannabis company, Harborside, announced a new interim CEO and COO for the time being.

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Maryland Lawmakers Plan Cannabis Legalization Measure for 2022 Election

Maryland legislature announced it will place a cannabis measure on the 2022 ballot and will establish a work group to begin studying potential issues of legalization.

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How Hawthorne Gardening Company fights for an equitable cannabis industry

Hawthorne Gardening Company has committed $2.5 million over the next two years through The Hawthorne Social Justice Fund to fund organizations with cannabis social justice missions.

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Americans on pace to spend twice as much on weed as on milk

At the half-year mark, 2021 US cannabis sales topped $12 billion. That's as much as consumers spent on milk in all of 2020.

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Mississippi Advocate Demands Cannabis Access: An Exclusive with Amy Smoot

Mississippi patient advocate Amy Smoot reached out to High Times to share the story of a childhood struggle with seizures and the necessity of medical cannabis.

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University of Colorado to Study Relationship Between Exercise and Cannabis

University of Colorado is looking more into how cannabis can impact athletic performance, from performance enhancement to recovery.

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Illinois Announces Upcoming Cannabis Dispensary License Lotteries

Illinois just announced new license lotteries for eligible, social equity applicants.

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California and Psychedelics: Getting Closer

Over the last few months, I’ve written a few posts about SB-519, a bill introduced by California State Senator Scott Wiener earlier this year that is intended to decriminalize a host of psychedelics – from psilocybin to ketamine to LSD (you can read those posts here, here, and here). SB-519 has passed through the California Senate and is now working its way through the Assembly before (hopefully) passing a floor vote and getting signed into law by Governor Newsom.

When SB-519 was first proposed, I was pretty skeptical that it would have any chance of success given the fact that over the last three years, the California legislature hasn’t even been able to pass a CBD bill despite numerous attempts. But SB-519’s passage through the Senate and some parts of the Assembly seems to indicate that the bill may have a chance at success.

If you haven’t read my prior posts, keep in mind that SB-519 is not a legalization bill but a decriminalization bill, and that may be why it caught any traction in the first place. Legalization is different from decriminalization in the sense that legalization generally leads to a regulated market, whereas decriminalization generally reduces or eliminates penalties and nothing more.

In other words, SB-519’s not going to lead to psychedelic dispensaries, but if people use or possess psilocybin, for example, that may remove a lot of the penalties. That said, keep in mind that California’s legislature is a lot more conservative than you’d think, and so there have been some changes made to the bill to restrict its breadth. Most recently, the bill was amended to add personal possession limits– people possessing more than the limits could still be subject to more serious penalties.

If SB-519 passes, it’s likely that there could be even more changes between now and signing.

As SB-519 winds its way through the legislature, Marijuana Moment recently reported that California activists filed a petition with the state to start the ballot measure process for a psilocybin legalization measure that would be slated for the 2022 elections. The initiative is called the California Psilocybin Initiative 2022 (CPI) and was submitted to the California Attorney General by Decriminalize California.

The CPI is extremely broad in scope, much broader than Oregon’s psilocybin legalization law and even broader than California’s cannabis law. It would allow unlimited possession amounts, use by any person over 21, cultivation on private property, etc.

The law would give very limited regulatory authority to the California Department of Food and Agriculture (CDFA) but it makes clear that no licenses or taxes can be imposed on psilocybin except those assessed on normal non-psilocybin products. The law would allow businesses on land zoned for agricultural production and approved by CDFA to start producing psilocybin on January 1, 2023 and any business with a seller’s permit to start selling psilocybin products to persons 21 and up (this could include a huge number of businesses). There would also be labeling requirements that are not that different from (but still much more limited than) cannabis labeling requirements.

This is just a brief summary but as you can see, CPI goes way further than any sort of legalization bill I’ve ever seen for psilocybin or even cannabis. Unless it’s modified, I think this one has a pretty slim chance of success going forward. But we’ll have to wait and see. In the meantime, let’s keep our hopes up for SB-519.

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Cannabis Copyright Infringement: It’s NOT Nice

Our posts here regularly cover celebrity-backed cannabis companies who are doing things right (and sometimes, doing things wrong), but a recent copyright infringement case proves that not all celebrities are interested in getting involved in the industry – and certainly shouldn’t be presumed to be okay with using their fame to promote it.

Solar Therapeutics Inc., a cannabis dispensary in Massachusetts, caused a billboard to be erected on the side of an interstate highway to advertise its cannabis products. The billboard features a portrait of Mr. Cohen as his “Borat” movie character, with two thumbs up and his signature “It’s Nice!” slogan displayed across the top. The billboard was allegedly up for several weeks but has since been taken down.

After sending a cease and desist letter on behalf of Mr. Cohen and his company Please You Can Touch (who owns all of the infringed-upon Borat copyrights), Mr. Cohen and his company sued Solar and its President/Director personally for willful copyright infringement, false advertising, and violation of the Massachusetts statute against misappropriation of rights of publicity.

(As an aside, personally liability is not something we see often, especially in California, but Massachusetts law provides a corporate officer is personally liable for a tort committed by the corporation if he personally directed, controlled, approved, or ratified the wrongful act.)

The Complaint goes into great detail about why this misappropriation was so damaging – Mr. Cohen has been very selective in which issues he publicly gets involved in; he has never been involved in advertising ANY commercial products or services; and he has never used cannabis in his life. Despite this, the Complaint alleges, Solar knowingly misappropriated his image to increase its sales revenues (estimated to be approximately $26 million per year) and “took a gamble” on Mr. Cohen never learning about their infringing billboard.

The claim for damages is staggering: at least $9 million.  This is made up market value compensation, statutory treble damages, punitive damages, and attorneys’ fees. And unfortunately for Solar, Mr. Cohen and his company are actually entitled to all of this. Under their copyright infringement claims (of twelve copyrights no less), Section 504(b) of the Copyright Act provides for an award of actual damages, disgorgement of a defendant’s profits arising from the infringing acts, its reasonable attorneys’ fees, and costs of suit.

The measure of misappropriation damages is calculated by the “market price” – the amount of money the defendant would have had to pay for the same or similar celebrity (of stature and success) if that celebrity would have been willing to allow the use. Furthermore, because Solar not only misappropriated Mr. Cohen’s image but also his image as the copyright-protected character, Borat, the calculation necessarily also includes damages owed to the character copyright owner. That figure is typically the same amount (at a minimum) that it would be required to pay the celebrity. So here, Solar is looking at double damages for the same image. Citing instances involving Kim Kardashian and Michael Jordan, as well as past advertisement offers to Mr. Cohen himself, the Complaint alleges this combined damages figure is easily in the millions of dollars.

As copyright infringement cases tend to be, this should be another lesson in the importance of vetting and signing off on all those marketing efforts that seem to get many companies in a lot of trouble. We’ll follow along and see what Solar has to say, but this one looks like a pretty clear example of what not to do.

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Justin Bieber, let us help you budget for weed

The Biebs drops $1,000 on weed and we are so not surprised. Justin, we can help you stretch your dollar.

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The Psychedelic Landscape: Pharma, Tech, Decrim, Other

We’ve been writing about psychedelics on this blog now for three years. I believe the first article I wrote covered Food and Drug Administration (FDA) approval of Compass Pathway’s drug trial for COMP360, a psilocybin formulation that eventually was patented. Since that time, a LOT has happened in the space, and we have seen all sorts of people pile in (for better or worse). At this point, psychedelics are having a cultural renaissance.

Today I’d like to step back and look at what is happening in this space, big picture, because it’s a lot more complex and fragmented than people tend to understand. I think about psychedelics as three big areas: the pharma space, the technology space and the decriminalization space. And then “other”. I’ll give some thoughts on each below.

The Pharma Space

This is now a land rush. By my count, we have a grand total of 28 distinct drugs in the approvals pipeline, introduced or sponsored by a broad mix of nonprofit, private and public companies. The breakdown is as follows:

• one drug in an ongoing Phase 3 trial
• seven drugs in ongoing Phase 2 trials
• eight drugs in announced Phase 2 trials
• three drugs in Phase 1/2 (dose escalation) trials
• four drugs in ongoing Phase 1 trials
• five drugs in announced Phase 1 trials

That is a lot of drugs, and a lot of trials, and we will see more soon. These trials look at scheduled molecules including psilocybin, LSD, ayahuasca, DMT, ibogaine, ketamine and MDMA, as well as their variants and analogues. (I realize people argue about whether MDMA and ketamine are “true psychedelics”, but I’m counting them.) The trials target treatment of everything from drug abuse to depression to eating disorders, and the subject populations include everyone from stroke victims to alcoholics and autistic adults.

In all, scientists, advocates, investors and even government are betting that psychedelic drugs hold tremendous potential for treating a panoply of ills. Which of these drugs end up making it across the finish line, and when, remains an open question. For now it seems certain we’ll see an MDMA drug in circulation in two years or less, with more to follow.

The Technology Space

People are working hard right now to optimize the production and manufacture of psychedelic drugs, inside and outside of drug design. This space is being innovated heavily. Five years from now, when people are growing psilocybin mushrooms at scale under licensure here in Oregon—and have been for a while—setups will be different than anything out there today. Innovation will not be limited to the production side, however. Technologies and methods involving dose moderation, delivery systems (including nano-methods), digital therapeutics, biometric protocols, data tracking and any number of applications will have advanced. Much of this technology will be bought, sold, reconfigured and reapplied for other purposes and applications, as well.

The Decriminalization Space

People often confuse the concepts of drug decriminalization and legalization. With decriminalization, restrictive laws remain on the books but are generally not enforced. With legalization, those laws are removed altogether. In the context of controlled substances, like psilocybin or cannabis before it here in Oregon, criminal laws are replaced with a regulatory regime.

It has been over two years since the City of Denver first decriminalized psilocybin. Since then, other cities and states have followed suit, with Oregon going as far as decriminalizing all drugs entirely. In March, when we last surveyed the national landscape, a dozen cities and states had made significant progress on at least some aspect of drug decriminalization. That number has since ticked up.

Efforts are also underway through the courts to remove legal obstacles to psychedelic drug access, albeit in narrower circumstances. Today, doctors are suing DEA for permission to prescribe psychedelic drugs to terminal patients. Other plaintiffs have notched wins against state actors in the context of religious use exemptions. These lawsuits raise awareness, but they also have practical effect.

Other

There are many opportunities for individuals and businesses in the psychedelics space that do not fit neatly into any of the categories listed above. Outside of our busy ketamine practice, we have worked and consulted with businesses and individuals in a variety of psychedelic pursuits. This has involved everything from public company acquisition of a mushroom substrate business, to clearance work for a Hollywood film studio wishing to document the use of MDMA. Broad segments of society are now interested in the use of psychedelic drugs. This means that opportunities for players in this space will continue to expand.

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