Consumers will save money if cannabis moves to Schedule III

Leafly interviews a legal expert on the biggest news of the year.

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Three Myths and Three Facts on the HUGE Marijuana Rescheduling Recommendation

Huge news yesterday. Huge! The U.S. Department of Health and Human Services (HHS) has officially recommended that marijuana be rescheduled, from Schedule I to Schedule III of the federal Controlled Substances Act (CSA). This means that the country’s top health agency has finally conceded that cannabis has medical value, and isn’t a drug of abuse on par with fentanyl or heroin. We haven’t yet seen the HHS letter so we’re not sure what changed from the last “medical and scientific” evaluation undertaken by the Food and Drug Administration (FDA) and HHS in 2015, but hey, we’ll take it.

Griffen Thorne in our office recently predicted that administrative action, and not Congressional action, would be the course of reform at hand. Kudos to him and others who shared that view. Rescheduling is not the best possible outcome, however. It’s really not. We’d like to see marijuana descheduled entirely, like alcohol or tobacco– which are demonstrably harmful substances. Still, moving marijuana down to Schedule III would be monumental progress.

The internet is full of hot takes on yesterday’s news, of course. They range from 0% accurate to 100% accurate. This blog post aims to dispel a few myths around rescheduling, and trot out some interesting facts.

Myth 1: It’s a done deal

It’s not a done deal! This all looks pretty good right now, but the Drug Enforcement Administration (DEA) has final say on whether to schedule or reschedule marijuana following the HHS recommendation. As an HHS spokesperson explained:

“While HHS’s scientific and medical evaluation is binding on DEA, the scheduling recommendation is not. DEA has the final authority to schedule a drug under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether) after considering the relevant statutory and regulatory criteria and HHS’ scientific and medical evaluation. DEA goes through a rulemaking process to schedule, reschedule or deschedule the drug, which includes a period for public comment before DEA finalizes the scheduling action with a final rulemaking.”

Here, the spokesperson is paraphrasing the CSA at 21 USC § 811(b). That CSA section references the Attorney General (AG) rather than DEA (and refers to the AG only as a “he”, embarrassingly). In any case, the DEA Administrator reports to the AG (through the Deputy AG). The HHS spokesperson is ultimately correct that DEA will have to instate rulemaking. The AG could then reschedule.

So, will DEA actually commence the rulemaking process? It seems inconceivable that DEA wouldn’t, but DEA has taken many bad positions on controlled substances over the years. This includes ignoring orders from its own administrative law judges to reschedule marijuana back in the day. Without having seen the HHS letter, I strongly believe that DEA will commence rulemaking to reschedule marijuana to III. Biden himself requested this HHS review, after all, for better or worse.

A couple of other, very important questions include: Will DEA drag its feet? How long will the rulemaking process take? What will the proposed rule actually say? How much testimony will be entertained, and from whom? Will the rulemaking be litigated? I could go on. Overall this is not a done deal, and although it feels imminent, this may take some time.

Myth 2: State marijuana businesses would be clear of federal enforcement

Nothing is going to change here, legally speaking. Practically speaking, same story: not much will change on federal enforcement exposure. This is because moving marijuana to Schedule III would have no effect on the federally verboten status of state-licensed marijuana businesses. These businesses would still be in violation of federal law if the AG reschedules, similar to any other business selling Schedule III drugs like methamphetamines or anabolic steroids. For a fuller analysis, check out this old chestnut from 2016.

But would moving marijuana to Schedule III make the risk of federal enforcement even more unlikely? I suppose. Truth be told, we haven’t worried much about federal law enforcement against state-licensed cannabis businesses since the days of notorious cannabis dingus Jeff Sessions. Moving the plant to Schedule III can’t hurt, though.

The only way state-licensed cannabis businesses will become insulated from all risk of federal enforcement is for marijuana to be removed from the CSA entirely, as half of Congress has voted to do and as Senators have recently petitioned the Attorney General to do (citing yours truly). Let’s hope we get there eventually.

Myth 3: Marijuana businesses would be taxed like other businesses

This is almost correct. If marijuana goes to Schedule III, the margins-crushing statute known as IRC § 280E would not apply, and the cannabis industry would change forever. That said, state-level taxation of cannabis will not change. Or, it may change for the worse, as states feel emboldened to raise cannabis-related taxes in the absence of § 280E.

Do states tax cannabis heavily? Yes they do. Although several states have passed laws designed to mute the effects of § 280E at the state return level, most states (and many cities and counties) levy significant taxes on cannabis in some form or other. These taxes usually accrue at the point of sale and are borne by the consumer. They are designed to raise prices, however, and place downward pressure on sales. For that reason, cannabis businesses tend to oppose them.

Still, I cannot emphasize enough that removal of § 280E would change the industry forever. Having worked with cannabis businesses for 13 years, I view taxation as the largest affront to marijuana businesses— more than banking access, intellectual property protection problems, lack of bankruptcy, you name it. This would be HUGE.

Fact 1: Marijuana rescheduling would give industry more leverage with investors

The cannabis industry is depressed and starved for capital. The last big investment spike came in on the COVID wave; since that point equity has been cheap and investors hold all the cards. With § 280E gone, many struggling cannabis outfits should begin producing better financial statements. The most efficient cannabis businesses would look sexy as all get-out.

Cannabis businesses also would have an easier time explaining their models, and we’d see fewer people scheming to do things like move to Puerto Rico or build these types of rats’ nests. It is also worth noting that U.S. small business lending has held up recently despite higher costs of credit. More of those available dollars could flow to cannabis businesses. They would have more value overnight (the pubcos already got a jolt), and should be able to generate financial statements on par with other industries.

Fact 2: Marijuana rescheduling wouldn’t fix the banking thing

The banking thing will not be fixed. At Schedule III, marijuana would still be a controlled substance and state-licensed businesses would still be “trafficking” in a controlled substance, contrary to federal law.

As someone who has advised many banks and credit unions on cannabis, including the federal government, I’m here to tell you that the analysis for financial institutions won’t fundamentally change. We need the perpetually stalled SAFE Banking Act or some other act of Congress to fix this, so long as cannabis remains on any CSA schedule. Even if marijuana is moved to Schedule III, cannabis businesses would be stuck with current options (which aren’t as bad as advertised.)

Fact 3: Marijuana would become easier to research, and subject to the morass of health care regulation (kind of)

These are probably two different facts. Oh well. Due to its Schedule I status, marijuana has always been incredibly difficult to research (see: How to Study Schedule I Controlled Substances). That paradigm changed a bit with passage of the Medical Marijuana and Cannabidiol Research Expansion Act last July, but a move to Schedule III would open the floodgates. Substances on lower schedules are simply more accessible from a DEA licensing perspective.

Related to this, the plant would “officially” have medical value if placed on Schedule III. That would be great and not so great. As a law firm with a substantial ketamine practice, for example, we’ve seen how the morass of health care regulation is brought to bear on controlled substances fit for medical use (ketamine is also a Schedule III drug). Granted, ketamine is an FDA approved drug, but the classification of a substance as something with medical value opens the door to any number of opportunities for medical application and attendant regulation.

The cannabis industry has always been worried about Big Pharma moving in. That fear has been somewhat irrational in my view, especially given the size and staying power of the non-pharmaceutical market. With a Schedule III placement, however, we would see more FDA drug development opportunities, which means more FDA drugs, which means off-label uses, etc. Expect to see a dual-track market for cannabis going forward, including an intensive regulatory structure.

Wrapping up on marijuana rescheduling

Again, really great news. In the absence of descheduling we’ll gladly take it. Keep your fingers crossed for a smooth and speedy process. In the meantime, we’ll continue to share thoughts and track this crucial development, as I’m certain we’ll have much more to say in coming weeks and months. For now, it’s time to celebrate!

The post Three Myths and Three Facts on the HUGE Marijuana Rescheduling Recommendation appeared first on Harris Bricken Sliwoski LLP.

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Leafly Buzz: 13 top cannabis strains of August 2023

Including The 26, Sherb Haze, and Mom’s Spaghetti

The post Leafly Buzz: 13 top cannabis strains of August 2023 appeared first on Leafly.

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California Cannabis Repeal? A Humboldt County Study

It’s no secret that the cannabis industry is on a steep decline in a variety of states, including California. We have time and again written about the specific woes plaguing the California cannabis industry. High taxes, a staggering credit crunch and collections problems, receiverships, rampant local prohibition, overregulation by the state, and the raging illegal market are just a few. Now, queue the California cannabis voters who may have initially supported this democratic experiment but are now thinking twice about local laws and rules permitting commercial cannabis activity in their borders. Cannabis repeal may be on the horizon.

Cannabis NIMBYs

The term “Not In My Backyard” neighbor (“NIMBY“) has obvious negative connotations. Of course, cannabis NIMBYs are not unique to California. They’re everywhere in cannabis.

Years ago, we wrote a post about how to deal with them and their tactics. See here. Essentially, NIMBYs thrive on confrontation and manufacturing lots of arguments to eliminate or stop progress when it comes to cannabis business development. They’ll even go so far as to form plaintiff groups to sue local government and cannabis businesses on any possible grounds, including (and usually) alleged environmental issues or violations of due process rights in the creation of cannabis laws.

In turn, cannabis businesses are wise to be as transparent as possible with all of their neighbors as well as their local government, and to keep constant contact with regulators in order to avoid inadvertent regulatory violations. But what happens when you make it past the initial NIMBYs only to find yourself at their mercy again years after you’ve set up shop?

California cannabis repeal

When I was practicing in Washington State, there were several instances where a city or county initially embraced cannabis legalization, welcoming all kinds of businesses to set up shop. Then, a couple of years down the line, you’d see some of these local governments re-think those decisions and enact subsequent moratoria. In some cases, these jurisdictions even pulled or denied conditional permitting in order to completely stamp out cannabis businesses (yes, that can be done depending on local laws).

Now, I’m seeing some rumblings in California of certain cities and counties going back on their initially warm and fuzzy cannabis feelings. And a lot of that is driven by fed up and annoyed local constituents.

Humboldt County

I recently read this article by Lester Black from SF Gate. The Emerald Triangle in California is universally known for its cannabis quality and generational cannabis farmers, and that especially includes Humboldt County. It was one of the first local governments to regulate cannabis farmers in the state post-legalization back in 2018. Now though, its entire local industry is going to face a potential death knell posed by a March 2024 vote on a new initiative that heavily restricts the existing industry, while essentially eliminating any more farms from setting up.

Here’s a copy of the initiative. According to the initiative website, the proposed amendments would “Reduce the cannabis cultivation footprint, promote healthy environments and rural communities, ensure public involvement, and protect truly small-scale, environmentally-minded cannabis farmers”. Backers of the initiatve state on their website that, due to the County’s initial planning and current laws,

“There are now over 1000 legally permitted operations, most of which are in stark contrast to the small-scale, organic ‘hippy’ farming, of previous decades. The newly emerging cannabis culture represents a more industrialized ‘mega-grow approach’, with heated and ventilated grow houses, 24/7 lights, extensive use of water, and loud generators.”

Further, per the initiative’s website,

“. . . incursions of mega-grows into rural residential, agricultural, and woodland areas have been received with considerable anger and bitterness by the rural public. One reason for this is that the county’s ordinance 2.0 precludes most affected rural residents from being notified that a mega-grow would be setting up next door to them.  Such disregard has been taken to be demeaning and disrespectful, leaving residents little if any recourse to complain, or to go through the pain of expensive and difficult litigation.  Residents cite issues of health, safety, welfare, dangerous traffic, harassment by growers, and harm to the environment and natural beauty.  Of particular concern has been diversion of stream and well water that takes critical water away from residents and ranchers, as well as from watersheds and ecosystems, where water deprivation impacts animal and plant habitats.  Strong objections have been made about the constant night lights and generator noise that disrupt residents’ lives and that impact wildlife, including the Northern Spotted Owl.”

Humboldt industry reaction

The proposed, 38-page initiative (called the Humboldt Cannabis Reform Initiative) represents a massive overhaul to existing Humboldt County cannabis laws. Perhaps most importantly, this initiative would limit cannabis farms to no more than 10,000 square feet, which would make about 400 currently permitted farms non-conforming uses under the initiative; and the number of permits issued would be capped at no more than 1,200, valid only for one year before renewal. Further, a business could not have multiple cultivation permits on a single parcel. No generators would be allowed except for one for emergency use only, and all neighbors of a cultivation site would have to be notified beforehand that a grow was coming in. Lastly, for existing growers to come into compliance with the proposed initiative, they’d have to enact a laundry list of expensive changes or be rendered non-conforming and eventually shut down.

The County’s reaction to de facto cannabis repeal

The County Planning Department’s  analysis of the initiative is incredibly interesting. Early in its analysis, the Planning Department writes “The [initiative] purports to ‘…protect the County’s residents and natural resources from harm caused by large-scale cannabis cultivation…’ It does this by developing a regulatory system that renders most existing permitted farms non-conforming.” The analysis goes on to state:

“The largest farms in Humboldt County range between 7 and 8 acres. There are four farms this size. For comparison, in Lake County there are farms in excess of 60 acres and in Santa Barbara and San Bernadino Counties there are farms in excess of 100 acres. In a statewide market context, Humboldt County does not have large scale farms.”

Essentially, the County is claiming that there are no real “mega farms” in Humboldt County at this point in time, and that:

“the public does not understand what this initiative would do and signed the petition thinking that ‘large scale’ cannabis farms should not be in Humboldt County without recognizing that most of the so-called ‘large-scale farms’ that would be outlawed if the [initiative] passed are the very farms that have existed in Humboldt County for decades”.

It seems then that the County Planning Department does not support the passage of the initiative, and that’s what it relayed to the County Board of Supervisors.

What’s next in Humboldt

Undoubtedly, between now and March, both proponents and opponents of this initiative will undertake education campaigns for and to the public. The big legal takeaway though is that Humboldt will not be the last stand or instance where local voters initially embraced cannabis legalization, only to change their minds down the road. We could see major overhauls or total eliminations of local cannabis industries in California as a result.

Perhaps most importantly, if the Humboldt Cannabis Reform Initiative passes in March, other motivated, well-capitalized, angry, and annoyed local voters could use this process as a blueprint for their own cannabis repeal campaigns. I will definitely be watching in March when this vote goes down, as it could have huge implications for other local cannabis programs in California.

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Everything you need to know about THCA flower from Kandy Boy

For smokers hoping to get good and stoned from their hemp flower, high-THCA flower presents an impressively potent option that ships right to your door nationwide.

Kandy Boy is one of the producers on the cutting edge of the new hemp flower market. They specialize in top-shelf high-THCA flower strains, all grown in their state-of-the-art indoor facility.

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Taste the Injunction: Unsweet Ending for Skittles Infringer

This post written by Harris Bricken attorney Fred Rocafort was originally published on July 20, 2023 on The Trademark Lawyer website and is republished here with their permission.

Candymaker Wrigley and Terphogz, LLC have reached a settlement in a high-profile lawsuit over Terphogz’s use of the mark ZKITTLEZ on cannabis products and other merchandise such as clothing (WM. Wrigley Jr. Co. v. Terphogz, LLC, No. 21-CV-02357 (N.D. Ill. July 3, 2023)). Wrigley argued that Terphogz infringed on its SKITTLES trademarks, including its tagline TASTE THE RAINBOW and its S logo. As part of the settlement agreement, Terphogz has agreed to immediately cease all use of the ZKITTLEZ marks, including TAZTETEHZTRAINBRO, ZKITTLEZ HEMP, and ZKITTLEZ HEMP & Cloud Design.

Wrigley’s suit, filed in 2021, alleged trademark infringement, false designation of origin, unfair competition, trademark dilution under both federal and Illinois law, and violation of the Federal Anti-Cybersquatting Consumer Protection Act as well as the Illinois Uniform Deceptive Trade Practices Act. Also named in the lawsuit were five businesses allegedly reselling products bearing the ZKITTLEZ marks. Pursuant to the parties’ agreement, the court enjoined Terphogz from using the ZKITTLEZ marks.

This case is just one of many involving the use of famous candy or snack brands on cannabis products. The Federal Trade Commission (FTC) and the US Food and Drug Administration (FDA) recently issued joint cease-and-desist letters to six companies “marketing edible products containing Delta-8 tetrahydrocannabinol (THC) in packaging that is almost identical to many snacks and candy children eat, including Doritos tortilla chips, Cheetos cheese-flavored snacks, and Nerds Candy” (Press Release, FTC, FTC Sends Cease and Desist Letters with FDA to Companies Selling Edible Products Containing Delta-8 THC in Packaging Nearly Identical to Food Children Eat, July 5, 2023). In 2022, Nerds-maker Ferrara sued Akimov LLC over its use of the NERDS and TROLLI trademarks on cannabis-related goods (Ferrara Candy Co. v. Akimov LLC, No. 22-CV-80768-RAR (S.D. Fla. Oct. 27, 2022)). As in the Wrigley case, the court enjoined the defendant from using Ferrara’s trademarks.

Despite similar outcomes, there are significant differences between the Wrigley and Ferrara facts. In Ferrara, some of the defendant’s products featured marks identical to those registered by Ferrara. Akimov’s products included “THC-0 Apple Rings” that prominently displayed the TROLLI mark and a “Medicated Nerds Rope”. In contrast, Terphogz did not utilize any SKITTLES marks on their products. Furthermore, the infringing products in Ferrara were “THC-infused candy products”; Terphogz did not sell any cannabis-infused candy (or indeed any candy) bearing the ZKITTLEZ marks.

Akimov’s use of NERDS and TROLLI marks presents grave risks both to Ferrara and consumers. For Ferrara, sales of the infringing products could result in lost revenues and reputational issues. Meanwhile, there is a clear potential for confusion on the part of consumers, particularly considering the genuine Nerds and Trolli products’ appeal to children. As Ferrara noted in its complaint that its candy products are marketed “as a fun and enjoyable treat for children of all ages,” hence it “would never condone or authorize the use of the Ferrara Trademarks and Ferrara Trade Dress in connection with products that could be harmful to children.”

Wrigley on the other hand presents a more nuanced situation. While the allusion to the Skittles brand is clear, using a punny mark like ZKITTLEZ is not the same as using an identical mark without authorization. It can be reasonably argued that there is not likelihood of confusion between SKITTLES and ZKITTLEZ. In fact, the US Patent and Trademark Office (USPTO) allowed Terphogz’s application to register the mark ZKITTLEZ HEMP & Cloud Design (Application Serial No. 88703451) in connection to clothing, despite Wrigley’s previous registration of the SKITTLES mark for clothing (Wrigley has since filed an opposition to the registration of Terphogz’s mark with the Trademark Trial and Appeal Board (TTAB)).

Differences between the two cases aside, a clear message emerges for cannabis businesses considering the use of marks inspired by established brands: Do not! While this is sound advice for any business, the cannabis industry must expect heightened scrutiny of their activities. Brands might not mind names that riff on their marks if used on run-of-the-mill products – but they might object if cannabis is involved.

The post Taste the Injunction: Unsweet Ending for Skittles Infringer appeared first on Harris Bricken Sliwoski LLP.

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Tourist tips for a weed-filled weekend in Boston

Smoke good, eat good, be good.

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The best-rated weed dispensaries in Vermont for 2023

Vermont’s reputation as one of the most progressive states in the country was solidified after the state legalized recreational marijuana in 2018. Although it wouldn’t be until 2022 when recreational dispensaries first opened, the Green Mountain State has welcomed recreational cannabis retailers with open arms. If you visit Vermont today, you’ll have your pick of […]

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Oregon Cannabis: CIAO Wins Round One on Aspergillus Testing Rule!

Oregon marijuana growers dreading the new aspergillus testing rule can exhale (for now). That’s because on Friday, August 25, the Oregon Supreme Court stayed enforcement of the new aspergillus testing rule pending a final hearing on the merits. This is a big deal! Kudos the Cannabis Industry Alliance of Oregon (CIAO) and the co-petitioners who filed a petition against the Oregon Health Authority (OHA) and Oregon Liquor & Cannabis Commission (OLCC) seeking judicial review of the new aspergillus testing rule. Kevin Jacoby, who represents the petitioners, did an excellent job. We’ve covered the aspergillus testing rule before here, here, and discussed the lawsuit here. We were not optimistic about the odds of success, but are quite pleased for our numerous clients who grow marijuana in Oregon.

Let’s dive into the ruling and what it means.

How did we get here?

In March 2023, the Oregon Health Authority (“OHA”) promulgated a new rule that required testing marijuana for certain microbiological contaminants, including for aspergillus. On July 28, 2023, the CIAO and others filed a lawsuit challenging the OHA’s new aspergillus testing rule. The petitioners seek to stop the OHA from enforcing the rule and when they filed suit they also filed a motion for emergency relief from the new aspergillus testing rule.

A litigant who seeks emergency relief compelling or preventing another litigant from doing something is fighting an uphill battle. Here, the petitioners had to establish to the Supreme Court that “irreparable injury probably would result” if a stay is denied. The Supreme Court also considers the likelihood that petitioners will prevail on the merits and the likelihood of harm to the public if a stay is granted.

Petitioners offered evidence that the harm to them from enforcement of the aspergillus testing would be “devastating and irreparable.” This evidence included petitioner’s showing that at least one of them would be out of business and causing a “risk of total business failure as soon as this fall” to numerous other marijuana growers if the stay was denied. Respondents (OHA & OLCC) argued the impact of the aspergillus testing rule was “highly exaggerated” but did not argue petitioners failed to show irreparable harm. The Court found petitioners made the required showing of irreparable harm.

The Court turned to whether petitioners demonstrated a likelihood of success on the merits, and ruled they did. Petitioners argued that the OHA exceeded its statutory authority in promulgating the aspergillus testing rule by failing to consider “less restrictive alternatives” as required by Oregon Statute 475C.544(8)(b).  Petitioners directed the Court to evidence showing the OHA was aware of less restrictive alternatives adopted in other states and argued the aspergillus testing rule was more restrictive than necessary to protect public health. Respondents (the OHA), said the Court, did not raise a “clear response” to this argument. Because the legislature directed that the OHA standards “may not” be more restrictive than reasonably necessary, the Court ruled that petitioners have shown a likelihood of success on judicial review.

Finally, the Court examined whether staying enforcement of the aspergillus testing rule would negatively affect public health. Petitioners argued it would not. They pointed to Oregon’s eight-year track record of recreational marijuana and twenty-five year history of medical marijuana use. In all that time, explained petitioners, there has been no data linking cannabis consumption to higher rates of aspergillosis in Oregonians. The Court found this persuasive and made no mention of any evidence or argument presented by the OHA or OLCC.

What does the ruling mean?

Neither the OHA nor the can OLCC enforce the aspergillus testing rule at this time. Specifically, the court stayed enforcement, pending completion of judicial review, of the provisions of OAR 333-007-0390 relating to testing for “Aspergillus flavus, A fumigatus, A niger and A terreus.” The court did not stay the portions of the rule relating to “Shiga toxin producing Escherichia coli and Salmonella species,” which were not challenged in this case.

The Oregon aspergillus testing fight is not over

This is a big victory for cannabis growers in Oregon. But the case is not over. The case now proceeds to a full hearing where the parties may offer more evidence. Essentially, the Court decided to stay enforcement of the rule on an emergency basis, but the final decision comes later.

Aspergillus testing won’t be required this fall harvest

We highly doubt the case will progress in the next few months. That means, until further notice, the aspergillus testing rule cannot be enforced as described above.

Petitioners have the upper hand so far

This ruling is a boon for petitioners and Oregon marijuana growers. Reading between the lines of the opinion, the Court found petitioners presented very strong evidence and arguments that the OHA’s rule goes far beyond what may be needed to protect the public from aspergillus. Perhaps this will cause the OHA and OLCC to entertain discussions with the CIAO and others on how to rewrite the rule to protect both marijuana growers and satisfy the public health concerns that led them to adopt this rule.

Again, great work on behalf of the industry by the CIAO and others.

The post Oregon Cannabis: CIAO Wins Round One on Aspergillus Testing Rule! appeared first on Harris Bricken Sliwoski LLP.

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New York Cannabis: CAURD Injunction Update

On August 9, 2023, we wrote about the temporary injunction ordered by Judge Kevin Bryant in New York Supreme Court, County of Albany which occurred on August 7, 2023. That injunction provided, in sum, that the New York Cannabis Control Board (“CCB”) and Office of Cannabis Management (“OCM”) are restrained from awarding or further processing any more Conditional Adult-Use Retail Dispensary (“CAURD”) licenses. They are also constrained from conferring operational approval upon any more provisional or existing CAURD licenses, pending further order of the Court.

On Friday, August 18, 2023, Judge Bryan granted the preliminary injunction (the “Order”) against the CAURD licensing program, finding, inter alia, that the CCB and OCM exceeded their legal authority by creating a new licensing class that excluded specific minorities – namely disabled veterans – who were specifically prioritized in the 2021 state law that legalized recreational marijuana – the Marijuana Regulation and Taxation Act (“MRTA”).

The Order prevents, the OCM and CCB from further processing or awarding more CAURD licenses. The Order provides an exception for many of the CAURD licensees who have already passed basic inspections and are ready to open.

The Order had the following implications:

1. It prohibited the OCM and CCB from processing or awarding any additional CAURD licenses.
2. However, it provided an exception for CAURD licensees who had met all requirements for licensing before August 7, 2023, including site plan approval from the CCB and, where applicable, local municipalities.

Judge Bryant’s decision was influenced by the fact that the OCM had made questionable decisions, such as creating the CAURD program and proceeding with licensing despite facing legal challenges– including the Variscite case and another lawsuit brought by the Coalition for Access to Regulated and Safe Cannabis. These challenges had the potential to invalidate the entire CAURD program.

“It was Defendant that decided to move forward and accelerate the CAURD program in the face of unresolved litigation and they were undeniably on notice of the alleged constitutional defects at issue,” Bryant wrote. “Despite this notice, Defendants encouraged potential licensees to incur significant expenses in reliance on a program that Defendants knew was at issue in pending litigation.

That language, Bryant wrote, was that the retail license period “be open to all applicants at the same time,” and that the OCM had no legal authority to create CAURD licenses, since those permits were not explicitly enumerated in state law.

In essence, the Order allows some existing CAURD licensees to continue their operations and open up dispensaries pending certain approval during the ongoing legal proceedings. However, it also suggests that the entire CAURD program may ultimately face significant challenges and potentially be invalidated.

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America’s tastiest THC vapes of Labor Day 2023 and beyond

You’re doing too much, America. Labor Day is coming up—it’s time to lengthen that weekend, pack the cooler, and honor American Labor’s achievements by chilling out.  THC vape carts and pods require the least work to get lifted. If you can use a straw, you can sip and rip on the purified essence of the […]

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Put your penny to use with Kandy Boy hemp D-9 THC gummies

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How Quick Fix synthetic urine keeps it real

There’s no subbing America’s favorite urine substitute. The name of the game is accuracy in the fake pee space, and nobody does it better than Quick Fix. Spectrum Labs, the makers of Quick Fix, have earnestly built their reputation as a reputable source in a field where cheap knock-offs run rampant. Quick Fix is known […]

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How To Wind Up a Cannabis Company

Most cannabis companies are not wound up properly, some cannabis companies (and their owners) suffer repercussions for this, and all cannabis companies (and their owners, and investors!) are well served by an orderly wind-up. This blog post will cover some basics on the cannabis business wind-up process.

First, though, I want to address a point of frequent confusion– “dissolving” and “winding up” a company are two different  things. Dissolution occurs when a company representative files Articles of Dissolution, or similarly named paperwork, with the relevant Secretary of State. Dissolution may also ensue “administratively” by a Secretary of State, absent company input, if a Company fails to pay taxes or fees. Dissolution is just one step in the wind-up process, and it often occurs early in that process. “Winding up”, conversely, is putting the whole thing to bed.

Step 1: Face the facts and get your affairs in order

There comes a point in the lifecycle of most cannabis businesses when it no longer makes sense to proceed. Most businesses eventually fail. According to BLS statistics aggregators, 20.8% of private sector U.S. businesses fail within a year, 48.8% fail within 5 years and 65.1% fail within 10 years. In the cannabis industry, I guarantee you those numbers are higher.

Sometimes it’s hard to admit defeat. In many cases, owners hang on longer than they should, exposing the company and its assets to greater and greater risk. Timing the wind-up is key, more so with bankruptcy out of the question for cannabis outfits. It’s easier to know when to bail if your recordkeeping is sound, data is current, and when company ownership is aligned in its thinking. (Most closely-held company agreements require unanimous owner approval to dissolve.)

Step 2: Vote and paper any decision

A cannabis company considering dissolution should properly notice a meeting, discuss the topic, vote, and paper any decision. The “paper” authorizing dissolution and windup would be a consent resolution or some variation of minutes. It’s important to follow company agreements to a T here; or, if the company lacks governance documents, to abide by statutory strictures in the relevant state. Where I sit in Oregon, for example, unless a corporation’s bylaws state otherwise, the corporation may be dissolved: a) on the written consent of all shareholders, or b) by the board, but only if the board proposes dissolution and a majority of shareholders agree.

Typically, the consent resolutions will cover some or all of the following:

• Recitals laying out the unfortunate milieu (this needn’t be gory, or too detailed)
• A resolution to dissolve the company
• A resolution authorizing certain key activities: e.g., the filing of Articles of Dissolution, closing of certain accounts
• A resolution appointing of a representative (usually within the company) who is authorized to oversee the final disposition of all company assets, obligations and other liabilities (known and unknown, matured and contingent), once operations cease
• A resolution to set aside a certain amount of cash for activities outlined above

These critical resolutions will be propounded by directors, or shareholders, or both, in a corporation. In an LLC, it is members, or members and managers, who do the deed. Again, see company agreements and/or statutes.

Step 3: Final payments and actions

Once the dissolution is approved and wind-up commences, ideally the business has enough cash lying around to pay down creditors and wriggle out of any ongoing obligations (e.g. buying out a lease, paying taxes eventually owed). Typically, the order of payments required in a windup is something like this:

• First, to the extent permitted by law, to creditors (including owner-creditors), in satisfaction of liabilities of the company
• Second, to owners of the company for any income tax liabilities, if the governance agreements required that
• Third, to owners of the company as distributions or dividends
• Fourth, to the establishment of any reserves deemed appropriate for winding up the company’s affairs

Again, company agreements are crucial to follow here. If the company lacks governance agreements, consult the relevant statutes at play.

Step 4: Tax returns

This is really part of Step 3, but I’m giving taxes its own category because that’s typically the last thing a dissolved cannabis company does, just before closing any bank accounts and distributing final proceeds. There are different rules for when returns are due, depending on the type of company at issue:

• a dissolved corporation must file a final return by the 15^th day of the fourth month after the date of dissolution
• a dissolved S corporation or partnership (most LLCs) must file a final return by the 15^th day of the third month after the date of dissolution

Sometimes, a dissolved entity cannot file using official forms since the current year’s forms aren’t yet available. Still, early dissolvers must comply with filing instructions. Many of these companies choose to file an extension request at dissolution, taking into account the final return’s due date and when the current year’s tax forms will be available.

Conclusion

I hope you never have to wind up your cannabis company. Or if you do, I hope it’s because you sold all your assets to a well-heeled buyer, and it’s a simple dissolution where you file returns and ride off into the sunset. For everyone else, the best advice is: a) exit before things get to dire (if possible), b) follow the protocols set forth in relevant company agreements and/or relevant statutes (always) and c) seek help where needed. Best of luck.

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Protecting Yourself in Cannabis Litigation: The Writ of Attachment

On the heels of my last post discussing the limited situations under which a lawsuit can be filed against a cannabis business owner, today’s post will kick off a series of other ways you can protect yourself and exert leverage in a lawsuit. This is a key question as so many in the cannabis industry are hurting and have limited capacity to litigate OR to settle their disputes – it’s imperative now more than ever to make sure your strategies and tactics are efficient and effective. One potent tool in this arena is the writ of attachment, a prejudgment remedy that can offer substantial leverage and protection.

Understanding the mechanics of attachment

A writ of attachment is a legal instrument that empowers a creditor, often the plaintiff, to establish a lien on the assets of the defendant during the pendency of a lawsuit. The lien acts as a security interest, providing the creditor with priority over potential future creditors that may emerge as the case unfolds. This can be a powerful incentive for defendants to engage in settlement negotiations and avoid long (think 2-3 years) legal battles.

Qualifying for a writ of attachment

While the benefits are clear, it’s important to recognize that obtaining a writ of attachment in cannabis litigation — as in any litigation — is no small feat. The process is marked by stringent statutory requirements and technical intricacies. These vary by state, but you can expect to need to prove some or all the below:

• Contractual Basis: To initiate the pursuit of a writ of attachment, the claim must be founded upon an express or implied contract.
• Quantifiable Amount: The claim must be of a fixed or readily ascertainable amount exceeding $500. This stipulation ensures that damages can be computed with a reasonable degree of certainty.
• Secured by Personal Property: The claim must not be secured by real property; instead, it should be either unsecured or secured by personal property.
• Commercial Nature: The claim is required to be commercial in nature, aligning with business transactions rather than personal disputes.

Benefits of obtaining a writ of attachment

• Leverage for Settlement: A writ of attachment can significantly tip the scales in favor of the plaintiff, compelling the defendant to engage in settlement negotiations to protect their assets.
• Priority Creditor Status: By securing a lien on the defendant’s assets, you position yourself as a priority creditor, ensuring that you stand ahead of potential future claimants.
• Enforcement of Future Judgments: In the event that a favorable judgment is obtained, the attached assets can be seized and liquidated to satisfy the awarded damages, streamlining the enforcement process.

Conclusion

A writ of attachment can be a formidable tool in cannabis disputes, providing security and leverage in the face of a pending lawsuit. While it may not make sense to pursue one in all cases because of the extensive process, it’s perfect in certain situations and can be the single difference between getting a favorable settlement quickly, or not.

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Craft cannabis’ tide rises in Boston at Rooted In

A Leafly video review of Rooted In.

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The best-rated weed dispensaries in New York state for 2023

New York is where cannabis dreams are made. Since 2016, New Yorkers have enjoyed the perks of legal medical cannabis. But after recreational dispensaries were legalized in 2022, the demand for cannabis soared to new heights. Unfortunately, the roll out of recreational cannabis in New York has been sluggish. While there were supposed to be […]

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FREE Webinar September 21: Cannabis Trademarks and Litigation

As the U.S. cannabis industry expands, high-profile lawsuits involving cannabis brands and the use of trademarks “inspired” by well-known companies have emerged. One recent example is popular candy brand Skittles’ lawsuit against a cannabis company for using the name “Zkittlez” on various products.

Please join us on Thursday September 21st at 12:00pm PT, for a lively and informative conversation about the legal issues surrounding cannabis trademarking. The presenters will focus on recent litigation, but will also cover best practices for protecting your cannabis brand’s trademarks.

REGISTER HERE 

Webinar Topics:

• The legal status of cannabis trademarks in the United States.
• Factors courts consider when determining trademark infringement.
• Recent lawsuits involving cannabis trademarks.
• Best practices for protecting your cannabis brand’s trademarks.

Questions prior to this webinar are strongly encouraged and can be submitted through the registration link.

We welcome anyone involved in the cannabis industry, including cannabis business owners, lawyers, and entrepreneurs. 

Panel

The event will feature cannabis-focused Intellectual Property Attorneys Paul Coble and Fred Rocafort as speakers, and Chair of HB Litigation Practice Jihee Ahn as moderator.

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The best-rated weed dispensaries in Portland, OR for 2022

The dream of legal cannabis is very much alive in Portland. If you’ve yet to visit the City of Roses, prepare to be overwhelmed by all there is to do. We’re talking arcade bars, incredible nature, and whatever you want to call the sugary monstrosities that Voodoo Donut bakes daily. Additionally, Portland is also home […]

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A CLE Webinar on Cannabis Users and Constitutional Rights Presented by Griffen Thorne

Join Harris Bricken partner Griffen Thorne this coming September 20th (Wednesday) at 9:00am PST for a CLE webinar on cannabis users and firearms.

REGISTER HERE or HERE 

This CLE will explore several key topics at the intersection of constitutional principles, controlled substances, and firearm laws in the United States. It will specifically focus on the Second Amendment and state law preemption, as well as the Controlled Substances Act and the regulation of cannabis at both the federal and state levels.

Additionally, the CLE will examine the complexities of Federal Firearm Laws and Regulations, including recent landmark US Supreme Court cases related to the Second Amendment. Griffen will further examine the ever-evolving landscape of state cannabis laws and their implications for individuals who exercise their Second Amendment rights. Finally, attendees can expect thought-provoking discussions about the future of firearm regulation for cannabis users.

Through comprehensive analysis and rigorous discussions, this CLE aims to provide participants with a deeper understanding of the legal intricacies surrounding these essential topics.

Key topics to be discussed:

• Constitutional Principles (Second Amendment, state law preemption, etc.)
• Controlled Substances Act and regulation of cannabis
• State cannabis laws
• Federal firearm laws and regulations
• Recent US Supreme Court 2nd Amendment cases
• Future of firearm regulation for cannabis users

Date / Time: September 20, 2023

• 12:00 pm – 1:00 pm Eastern
• 11:00 am – 12:00 pm Central
• 10:00 am – 11:00 am Mountain
• 9:00 am – 10:00 am Pacific

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Chalice Receivership Update: Weak Market, Insiders Pounce

I’ve been writing about the Chalice receivership process since late May, when Chalice Brands Ltd. (OTCMKTS: CHALF) filed an Oregon Circuit Court complaint. In that Oregon lawsuit, Chalice brought claims against five local subsidiaries to drive them into receivership, claiming some $35 million owed. This lawsuit was orchestrated with a parallel Canadian proceeding. In that one, Chalice and its affiliates received protection from creditors, while the company attempts to reorganize without filing bankruptcy.

I haven’t been following the Canadian proceeding, but things are coming into focus here in Oregon. I’ll share two takeaways today. First, the bid and sale process shows that the market for Oregon cannabis businesses remains depressed and unattractive, even at steep discounts. Second, the proposed sale of the Oregon subsidiaries’ assets won’t sit well with many people. This is because the sale is teed up for the bargain basement price of $3 million, to buyers who could be fairly called Chalice “insiders.”

The market for Oregon cannabis assets is awfully weak

We didn’t need a Chalice faceplant to know things were bad. Here in the Portland office, we’ve spent much of 2023 helping clients sell, or attempt to sell, Oregon cannabis businesses and related assets. On offer are whole verticals we helped purchase in the COVID run-up. There just aren’t a lot of buyers right now, especially at scale.

Chalice was a relatively large outfit. At the outset of this Receivership, the Chalice subsidiaries held 22 Oregon cannabis licenses, including 16 retail licenses. All 22 licenses remain “active” today, although some aren’t operating per OLCC dispensation. As of May 23, 2023, Chalice subsidiaries also owned four inactive licenses in Nevada; and a single, active California license. A bit more on those below.

Following the Oregon Receiver’s appointment, he went about marketing the Oregon assets energetically, including the 22 cannabis licenses. A mere four offers were received by the bid deadline. (In full disclosure, we represent one of the bidders, and other interested parties.) Following a period of negotiation with the high bidder (not our client), and following what the Receiver has described as extensive creditor negotiation and outreach, he picked a winner. They negotiated some, landing at a sale price of $3 million for all locations save three undesirable stores.

During the bid process, interested parties who were willing to sign a nondisclosure agreement gained access to a data room. Presumably, that data room contained revenue and other performance metrics for the businesses at issue. I did not visit the data room and can only speculate as to the revenues these 22 businesses were generating. I do feel fairly confident though, in opining that the $3 million sticker price looks like a helluva deal. To wit, Chalice announced the acquisition of just four of the stores on offer for $6.5 million just one year ago.

Granted, some of the Oregon assets aren’t operating at this time. The buyers have also agreed to pay cash at close, which bolsters the offer, and would allow the receiver to clear out tax liabilities and some portion of monies owed to secured creditors. Under the draft asset purchase agreement I’ve reviewed, the buyer should also receive the five Nevada licenses (but not the California license), whatever those are worth, as part of the $3 million purchase price. The buyer would not be assuming any liabilities.

At this point, we should ask who is getting screwed here, if the Court approves this sale? In my view, it’s primarily smaller, Oregon cannabis businesses and third parties (e.g. landlords, service providers), whom the Chalice subsidiaries owe money that will never be repaid. To wit, the initial Complaint in the Oregon litigation alleged that the Chalice subsidiaries “… owe approximately $3.7 million in the aggregate in trade payables…” (ouch) as well as a “significant amounts of indebtedness to third parties” (awfully vague).

A second group of disadvantaged parties is arguably the shareholders of Chalice Brands– or most of them. It appears the parent company will never receive the $35 million that the subsidiaries allegedly owe to their investment vehicle. Today, the company’s stock price is deservedly in the toilet at $.0000010 USD, down from a 52-week high of .27 USD. Arms-length investors took a bath.

So, who is about to benefit? Read on.

The familiar faces buying Chalice assets

The winning bidder is an entity called APCO LLC, a newly formed Delaware entity owned in whole or in part by familiar parties, William Simpson and Gary Zipfel. Many readers may recall that Simpson founded Chalice Farms in 2014. He sold to Golden Leaf in 2017 and became its CEO as part of that deal. Simpson left or was ousted at the end of 2018, long before the company renamed itself Chalice Brands. Finally, in January of this year, Simpson was appointed as Advisor to the Chalice Board. He was described by CEO Jeff Yapp as a “major shareholder” in the announcement.

The other APCO owner listed as an purchase agreement signatory, Gary Zipfel, was appointed to the Board of Directors of Chalice Brands at the same time Simpson resurfaced. Like Simpson, Zipfel was also described as a “major shareholder.” In Court filings, the Receiver has been careful to describe APCO as “a good faith-purchaser, in that Purchaser demonstrated honesty in fact and fair dealing in negotiating its bid.” Maybe so, at least in that certain capacity. On the other hand, the Receiver has distanced himself, prudently and cautiously, from activity occurring prior to his appointment. In his August 2 report to the Oregon Court, for example, the Receiver wrote:

Prior to the CCAA filing in Canada, and the initiation of the Receivership in Oregon, the Board of Directors of Chalice formed a Special Committee to initiate a strategic review to determine if there was a potential buyer of the assets of Chalice. The Special Committee spent several weeks actively soliciting buyers for all of its Canadian and U.S. holdings, including speaking with investment bankers to determine if their clients had any interest in acquiring Chalice’s assets. The Receiver is generally advised that these efforts were quite robust, and while no sale was completed during this strategic review, many of those interested parties did submit bids and/or complete due diligence during the CCAA and Receivership process.

Interesting! Parties affected by this proposed sale to APCO may be interested in getting information from Chalice on:

• the run-up to this “robust” outreach process, starting with Chalice’s apparent decision to stop paying vendors before bringing on Simpson and Zipfel, and throughout their tenures
• whether the Special Committee solicited offers only for “all of its Canadian and U.S. holdings”, excluding any piecemeal sell-off of subsidiary assets, as the Oregon litigation requires
• a summary of the “many bids” received by the Special Committee, and whether any of those bids outclassed the $3m in cash that APCO and its owners now propose to pay
• who served on the Special Committee, and the rationale in refusing any or all of the “many bids”
• why this process lasted only “several weeks” (an incredibly compressed timeline)
• the involvement of Zipfel and Simpson in the offering process, in their respective capacities as Advisor and Director of the Chalice Board, or otherwise

This could be a bunch of smoke with no fire. I don’t know. Fairness also requires an acknowledgement that the Chalice insiders’ company brought more cash to the table than other bidders in this hapless Oregon process. Still, I hope that someone digs into this: right now it feels like we are sitting on half a story. The proposed sale optics are problematic in that all of these Chalice assets are teed up for transfer to Chalice insiders, and for a song. Meanwhile unpaid farmers, landlords and everyone else would take it in the shorts upon Court approval.

We will keep tracking this one as it works its way through the Receivership process. Until then, for previous posts on Chalice check out the following:

• Chalice Goes Down
• Oregon Cannabis Round-Up: Chalice Receivership, New Tax Rules, New Laws

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Fear not—Maryland still has plenty of weed to go around

Over a month into legal sales that totaled nearly $90 million, Maryland operators still have plenty of cannabis and cannabis products in stock.

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Cannabis companies begin fundraising for Maui disaster relief

Hawaii’s island of Maui will need billions of dollars in relief and reconstruction funds in the coming years after the US’ worst wildfire in a century turned the town of Lahaina to ash. Authorities have confirmed more than 100 dead, with perhaps 1,000 missing. You can donate directly to The Red Cross, according to former […]

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Oregon Governor Vetoes Marijuana State Bank Bill

Oregon’s governor recently vetoed an effort to create a state bank for marijuana businesses, in another blow to the struggling industry. The lack of consistent, equitable access to banking has been recurring issue for Oregon marijuana businesses and those in other states. Federal reform through the Secure and Fair Enforcement Banking Act (SAFE Act) has languished in the Senate for years. Again, the SAFE Act would “permit financial institutions to provide banking services to cannabis-related businesses even though marijuana remains federally illegal. Despite the tidal wave of legalization at the state level, financial institutions remain wary of providing banking services to these businesses because of the state/federal conflict of law and these institutions innate risk-avoidant nature.” But it has gone nowhere and we question if it ever will. Probably not.

This legislative session, Oregon considered creating a State Public Bank Task Force in HB 2673. The bill directed the task force to study and make recommendations concerning the establishment of a public state bank. The bill expressly directed the task force to investigate the provision of financial services for cannabis businesses. As we wrote previously, “a state public bank could be a real boon for licensed Oregon cannabis businesses.” But we doubted Oregon would actually follow through with providing marijuana businesses access to reliable, efficient banking services through a state bank.

Unfortunately, Governor Kotek vetoed the legislation, citing so-called “logistical challenges.”  A blurb on the state government website gave the following explanation: “Reason for possible objection: While the Governor supports exploring the creation of a state bank, this bill has several logistical challenges, including directing the Oregon Business Development Department (OBDD), which already manages over 80 programs, to manage a new task force, establish an RFP process, and finalize a substantive report on an abbreviated timeline.”

While the veto is bad news in the near term, all may not be lost if Governor Kotek truly does support creating a state bank. Legislators may be able to craft legislation next session that addresses her concerns. But that session and the report is a long way off in “business years” and is just the first step toward creating a state bank that would serve marijuana businesses.

The veto is another blow to Oregon’s struggling marijuana industry. Cannabis businesses and their owners face significant difficulties in finding cost-effective financial solutions. This goes way beyond simple debits and credits to a bank account. The lack of government support to providing financial services to the billion dollar marijuana industry affects the ability to raise capital, the ability to expand, and even—in some circumstances—the ability of owners to obtain financing to purchase a home. Even businesses indirectly connected to the marijuana industry have found it difficult to maintain banking relationships.

The bill would have required the task force to submit findings and recommendations by September 1, 2024. To the extent Governor Kotek objected to this timeline as “abbreviated,” her office ought to have reached out to the sponsors of HB 2673 and other legislators to propose changes to the bill before it was sent to her desk. Once again, the State of Oregon appears disinterested in taking actions to support an industry that generates hundreds of millions in tax revenue and supports many hundreds of livelihoods.  Too bad.

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The best-rated weed dispensaries in New Mexico for 2023

New Mexico has a little something for everyone. There’s delicious food (hello hatch chilis), perfect snow for skiing, and most importantly, good weed. If you find yourself in the Land of Enchantment, there’s a good chance you’re not too far from a dispensary. In fact, New Mexico has added over 600 recreational cannabis dispensaries since […]

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Why Cannabis Product Review is So Important

Over the last five years, I’ve done countless compliance reviews for cannabis product and CBD product labels, packaging materials, and products themselves. In all cases – not most, all – cannabis product labels needed at least one change. Product type, shape, and ingredients often needed work. And even packaging material has had plenty of issues. Sometimes an entire label needed reworking or product needed redesigning for compliance. Today I want to talk about why cannabis product compliance review is so key.

Every state that regulates cannabis has complex cannabis product requirements. Generally, they fall into three categories – product regulations, packaging regulations, and label regulations. Product regulations generally contain ingredient restrictions, product type and shape restrictions, or THC/cannabinoid content maximums or restrictions. For example, California prohibits most dairy products but allows cannabis beef jerky, Alabama regulators believes gummies should only be peach flavored, Washington is cool with parallelogram shapes but apparently not nonagons, and a whole lot of states got pissed off that Mike Tyson made ear-shaped gummies. It can get pretty obscure.

Packaging regulations can also be pretty challenging. Let’s just look at California. The applicable regulations require cannabis products to have child resistant packaging (CRP), in some cases for the life of a product. What does it mean to be CRP? Well, that also depends on a few things. In some cases, you’d have to look to the federal Poison Prevention Act to determine whether a product was certified. Otherwise, you’re left with basically two choices listed out in the regulations. This can get pretty complicated, and the state has some guidance (here and here) on packaging compliance. But looking at the guidance may not be enough as it simply summarizes regulatory obligations, which could change.

By and large though, the most complex and annoying of the regulations tend to be cannabis product label regulations. Here again, I’ll also focus on just California. The main reason for this (besides living and working here) is that California has some of the most strict label regulations in the country if you consider Prop. 65, a topic we’ve covered extensively elsewhere. Like with packaging, California has guidance for manufactured and nonmanufactured products. And here too, review of the guidance may not be enough.

When I do a label review, I generally have a cannabis product label pulled up on one screen and the cannabis regulations and Prop. 65 regulations on the other. Going through the applicable regulations, I usually find a number of key things that are wrong with the labels. Some of the repeat offenders are:

• No or insufficient Prop. 65 warnings
• Weight in only metric or imperial (you need both!)
• Primary panel info on the informational panel
• Inadequate description of product
• No disclosure of manufacturer
• Improper cannabinoid content labeling
• The wrong governmental warning (California has one for manufactured products and another for nonmanufactured products, and they are different!

This is just a highlight of some of the key things I see wrong with labels on a frequent basis. There are certainly lots more I’ve seen over the years. The point here is that in every single case I can remember, I’ve seen at least one thing (and often a few) that need fixing. And in many cases, this was after a compliance team put the cannabis product label together.

While I’ve got you here, I should also address CBD product labels. CBD product label review is even more complicated than cannabis product label review. CBD products are often sold in e-commerce in multiple states without varying the label content. Because there’s no federal standard and the FDA basically says CBD products are illegal, this means that it is nearly impossible to comply with the laws in all 50 states. There are typically some key things to look for that extend to states that regulate CBD product labels the hardest (such as Utah or Indiana), and of course Prop. 65 will still apply in California. But for the most part things are all over the map in the patchwork of state regulations, making label review a mess.

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Cannabis product and CBD product review – for product, packaging, and label compliance – is really necessary for businesses that want to avoid regulatory penalties or lawsuits by class action firms. It doesn’t need to be expensive or overly time consuming, and is something that qualified counsel can do in a reasonably short time frame and often for flat fees. But without it, cannabis and CBD companies really roll the dice on administrative penalties, which is never a good thing.

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The best-rated weed dispensaries in Boston for 2022

This Leafly List will point recreational and medical shoppers to the perfect dispo for their needs Boston residents: worry not. There’s no need to be overwhelmed by the endless selection of Boston dispensaries. This Leafly List will help shoppers pinpoint the dispo of their dreams based on location, quality, service, atmosphere, and more. Cannabis has […]

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The best-rated weed dispensaries in Oklahoma for 2022

Navigate the prairieland like a pot pro with our guide to the Sooner State’s best medical cannabis stores. The national landscape of today’s cannabis industry includes states with recreational markets, medical-only laws, and jurisdictions where the plant remains entirely outlawed. Oklahoma falls into the middle category, meaning you’ll need to be a licensed medical marijuana […]

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Yet Another Court Strikes Cannabis Gun Control Law

The Fifth Circuit Court of Appeals is the most recent court to find that federal cannabis gun control legislation is unconstitutional. The case, United States v. Daniels, was published on August 9, 2023. The court joins a growing list of courts which have all found these restrictions unconstitutional.

Federal law prohibits cannabis users from buying or owning guns. A 2022 U.S. Supreme Court case, New York State Rifle & Pistol Association, Inc. v. Bruen, held that the test for determining whether a gun control law is constitutional is (1) whether the affected person has Second Amendment rights, and (2) whether the restriction is “consistent with the Nation’s historical tradition of firearm regulation.”

All or virtually all courts that have dealt with the federal cannabis gun control law agree that cannabis users have Second Amendment rights. And nearly all courts agree that the federal cannabis restriction is not “consistent with the Nation’s historical tradition of firearm regulation.” Now, we can add the Fifth Circuit to that list:

[O]ur history and tradition may support some limits on an intoxicated person’s right to carry a weapon, but it does not justify disarming a sober citizen based exclusively on his past drug usage. Nor do more generalized traditions of disarming dangerous persons support this restriction on nonviolent drug users. As applied to Daniels, then, § 922(g)(3) violates the Second Amendment.

I’ll keep this post very brief and not analyze every aspect of the Daniels decision, since I’ve written about many of the other federal cannabis gun control cases (see below) and the analysis here is very similar. Three things are important to keep in mind following the Daniels decision:

1. The ruling is an “as applied” ruling, meaning that the law was found to be unconstitutional as applied to the defendant. So the ruling is narrower than it could have been. This is similar to what happened in the Third Circuit Court of Appeals decision in Range v. Attorney General of the United States of America, which was also as-applied. For what it’s worth, Range wasn’t a cannabis case – it was a case based on gun control restrictions due to a prior disqualifying misdemeanor conviction (which is one of the other many gun control restrictions).
2. Earlier this year, a federal court in Texas decided a case on very similar grounds, in  United States v. Connelly. I wrote about that case here. The federal district courts in Texas are part of the Fifth Circuit, meaning that if Connelly is appealed, it will likely end up with the same or similar outcome to Daniels.
3. While this is the first Fifth Circuit case applying the Bruen test to federal cannabis gun control laws, it’s not the first case to apply the Bruen test to other federal gun control laws. Earlier this year, the Fifth Circuit decided United States v. Rahimi, holding unconstitutional (under Bruen) federal restrictions on gun possession by persons subject to civil domestic violence restraining orders. Rahimi was recently appealed to the U.S. Supreme Court, which agreed to hear the case in the upcoming term. Rahimi is not a cannabis case, but it is certainly possible that the U.S. Supreme Court’s ruling could affect the sea of cannabis gun control cases pending in federal court now.

In sum, Daniels is just one of many federal cases that are chipping away at gun control restrictions. This raises the chances, yet again, that people won’t have constitutional rights stripped away just because they consume cannabis to help with debilitating illnesses or even recreationally.

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For some of my other posts on cannabis gun rights, please see this list:

• Arkansas Passed a Cannabis Gun Rights Law. It Won’t Work.
• Feds May Restrict Cannabis Users’ Gun Rights Even After Changes in Law
• ATF Clings to Cannabis Gun Rights Restrictions
• Yet Another Federal Court Decision on Cannabis Gun Rights
• State Cannabis Gun Right Laws Won’t Work
• A Cannabis Gun Control Circuit Split is Coming
• Will Gun Control Laws Soften for Cannabis Users?

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Predictions for Future Federal Cannabis Laws

Most Americans favor federal cannabis legalization. Nearly all Americans support medical cannabis legalization. This is not a new development. It has been that way for years. And it is a rare non-partisan issue. Over the past few years while support has been its highest, well, ever, a series of federal election cycles have come and gone. You’d think that with a unicorn non-partisan issue with majority and super- or even ultra-majority support, the federal government would have figured something out by now. But nope.

Federal cannabis legislation isn’t going to happen

Back in 2018, when California opened up for recreational cannabis licensing, all I heard was how federal cannabis legalization was around the corner. In fact, a lot of businesses bet their business model on federal cannabis legalization actually happening. Remember how the MORE Act, or the PREPARE Act, or the States Reform Act, or the Cannabis Administration and Opportunity Act, or H.R. 420, or any other legalization bill was “about to happen”? Yeah, about that…

What a lot of cannabis advocated didn’t realize is that support for cannabis legalization at the 30,000 foot level is hard to translate into actual legislation that can garner bipartisan support. The federal government can’t just legalize cannabis – it has to create some kind of legal framework to do that. And that is where the shit hit the fan. In order to reach a compromise, Democrats needed to give up on some equity provisions, while Republicans needed to give up on some business provisions. And nobody seemed to be able to compromise.

So instead of federal cannabis legalization, what we got was a series of misguided attempts to do piecemeal legalization, most notably the SAFE Banking Act, which, even as I write this, is suffering the above fate due to inability of Congress to reach a basic compromise in spite of herculean lobbying efforts.

So here is my first prediction: even though federal cannabis legalization should be low hanging fruit, it won’t happen. At least not in Congress, and at least not before the 2024 general election.

Federal cannabis administrative changes probably will be a thing

That brings me to the administrative side of things. Last October, President Biden pardoned some retroactive cannabis simple possession offenses, and also announced the following:

I am asking the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.  Federal law currently classifies marijuana in Schedule I of the Controlled Substances Act, the classification meant for the most dangerous substances.  This is the same schedule as for heroin and LSD, and even higher than the classification of fentanyl and methamphetamine – the drugs that are driving our overdose epidemic.

Since then, the federal government has apparently taken this missive seriously. For example, I spoke with MJBizDaily recently about how states are sharing medical cannabis data with the federal government as part of this process. And at least some folks are suggesting that rescheduling happens later this year.

With that, here is my second prediction: the federal government will reschedule cannabis, but not remove it from the Controlled Substances Act (CSA) altogether. My preference would be for complete descheduling and deferral to the states (see here and here), but that seems unlikely for a few reasons. First off, Biden’s announcement (if you read between the lines) essentially asks for rescheduling as opposed to rescheduling. Second, Biden (the guy we gave a “D” rating on cannabis) himself has called for moving cannabis to schedule II. Third, the federal government is looking for medical data from the states, which is relevant to determining the proper CSA schedule.

So all of that is to say that federal cannabis rescheduling probably will happen, just not through Congress.

Schedule II (bad) or schedule III (less bad)

My third prediction is that cannabis will end up on schedule II or III. Either way, not much will change from the state regulatory point of view. No state’s regulatory program will comply with federal laws if cannabis is on any CSA schedule. Just think about someone selling anabolic steroids with a state license but no DEA registration. Nope! Likewise, rescheduling won’t necessarily ease up restrictions on consumers. Illegally purchased prescription drugs are illegal, and so illegally purchased cannabis would be too.

The biggest change, however, would be to federal tax laws. This is because of section 280E of the Internal Revenue Code, which provides:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Businesses that “traffic” in controlled substances ON SCHEDULES I OR II cannot make standard tax deductions. This is one of the top reasons, if not THE top reason that the cannabis industry is up against the ropes now. If cannabis is rescheduled onto schedule II, the tax burden won’t change. If it goes onto III or (less likely) IV or V, the tax problem is mitigated, at least going forward.

If 280E goes away, you will see a sea change in the cannabis industry. Razor thin margins will be less razor thin. Investments, which have largely dried up, will come back with force. And so on. It will be a game changer. But only if cannabis gets down to schedules III or below.

Something will happen in before the general election

Not to be cynical (okay, I am totally cynical), but I predict that the rescheduling will happen around the time of the 2024 election. Why? Because it will give the current administration a bump. And with a number of swing states like Pennsylvania that have embraced cannabis, that’s exactly what the current administration needs to do to keep control of the government.

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It’s really hard to predict how federal cannabis laws will shake out and I usually refrain from joining the “legalization is around the corner crowd.” The U.S. Congress is perhaps the most inept it’s ever been, and we’re dealing with a government that still treats cannabis the same way as heroin and more intensely than opioids. But with an election cycle and an administrative process that’s already in motion, I think it’s safe to say that something will happen in the next year. Whether that something ends up being good or bad though is anyone’s guess.

The post Predictions for Future Federal Cannabis Laws appeared first on Harris Bricken Sliwoski LLP.

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