The Roll-up #189: New York and New Mexico go legal

This week's show considers America's two newest legal states.

The post The Roll-up #189: New York and New Mexico go legal appeared first on Leafly.

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Breaking News – Facebook v. Duguid: Is this the End of TCPA Litigation?

The Facebook v. Duguid Supreme Court decision is here:

“To qualify as an ‘automatic telephone dialing system’ under the TCPA, a device must have the capacity either to store a telephone number using a random or sequential number generator, or to produce a telephone number using a random or sequential number generator.”

Let’s back up. On Thursday, the Supreme Court unanimously ruled Facebook did not violate the TCPA when it sent unsolicited text messages without consent. Why? Because in order to have violated the TCPA, the defendant must have used an “automatic telephone dialing system” or “ATDS.” The TCPA defines an ATDS as equipment that can “store or produce telephone numbers to be called, using a random or sequential number generator.” What qualifies as an ATDS was the core issue of the case, which we discussed back in this post when oral arguments went down.

Duguid had argued the TCPA was enacted to respond to consumer complaints and its breadth was intended to cover any use of stored numbers to make automatic calls. Conversely, Facebook had argued the TCPA only encompassed dialing systems that generate random or sequential phone numbers (which are now largely obsolete and rarely used). Because it had sent texts to phone numbers that were stored in a database, not phone numbers that were truly randomly generated, Facebook argued it hadn’t used an ATDS and therefore, hadn’t violated the TCPA. Ultimately, the Supreme Court agreed with Facebook.

The opinion is broken down into two parts:

1. A breakdown of the text. This gets really linguistically technical so I’ll spare you a discussion (but feel free to access the decision at the link above if you’re interested).
2. A review of the statutory context. Justice Sotomayor points out the TCPA was designed to target a unique type of telemarketing equipment that risked dialing and tying up emergency lines. She also expresses concern that Duguid’s proposed interpretation would encompass virtually all modern cell phones, which all have the capacity to store numbers, and dial those numbers.

So what does this mean for the future of TCPA claims and litigation? Well, clearly, in all the cases where the plaintiff only asserted the defendant made phone calls or sent text messages from lists of customer data, rather than through truly randomly generated numbers, those claims are pretty much gutted. Given that most businesses don’t use the now-narrowed definition of an ATDS, I think it’s safe to assume this area of really intense litigation is going to phase out over the year.

However – this does not mean all businesses are now completely safe and free to get really aggressive and/or careless with their marketing strategies. Those bounty hunter attorneys aren’t going anywhere, and claims aimed at securing quick settlements are always going to exist. To foreclose any possibility of being accused of violating the TCPA, these practices are still recommended.

We’ll continue to monitor as the lower courts grapple with how to apply the new Facebook precedent in their own cases, and we’ll report on any interesting developments or trends.

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What You Need to Know When Buying a Cannabis Business, Part 1: Overview

Cannabis businesses are unlike typical businesses in large part due to the significant tension between federal and state laws and regulations. This tension creates some uncertainty for every licensed cannabis business and every other business and individual involved in the marketplace: owners, financiers, employees, ancillary service providers, and even accountants and attorneys.

In this forthcoming series of blog posts, I will provide guidance to attorneys and first-time cannabis company buyers who need to understand how cannabis M&A work differs from normal M&As and even M&As in other highly regulated industries.

How Soon Can We Close?

The state and federal interplay uncertainty and the highly regulated nature of the cannabis marketplace create an often slow-moving environment, which is something first time prospective buyers and their attorneys may not be expecting. Depending on the state, a typical acquisition could range from as few as three months to as many as twelve months after the buyer and seller are prepared to close the transaction.

A closing could occur on the shorter end of the time range where the buyer already owns a license in the target market and is merely expanding its market presence by acquiring another license or licensed business.

Why Do Transactions Fall Apart?

Transactions that stretch to a year and beyond often occur due to one or more of the following: (a) significant undisclosed regulatory violations in the target company; (b) a pattern of regulatory violations in the target company; (c) a pattern of regulatory violations in the buyer company; or (d) buyer’s inability to satisfy the state’s licensing requirements, including providing satisfactory proof of funds from legal or permitted sources.

Deal Structure Permutations

This uncertainty regarding the closing timeline rarely slows down a motivated buyer, and the industry players and attorneys routinely adapt transactions to fit the facts of the acquisition and the needs of the parties.

Generally, in an asset purchase, this means structuring the transaction so that at closing the buyer can take immediate possession of all business assets except the license, which will be retained by the seller until the governing regulatory body has approved the license transfer.

In a stock or membership interest acquisition, this means that all assets other than the license will be transferred to another seller entity, and the buyer will first acquire the ownership interests of the non-licensed target company and then acquire the licensed entity after regulatory approval.

Transaction attorneys counseling buyers and sellers should prepare their clients for lengthy transaction timelines and a significantly higher number of transaction agreements than a typical transaction. Buyers and sellers should expect their operational and transactional costs will increase in proportion to the complexity of the transaction.

Where Do We Go From Here?

In the following post we will do a deep dive into these parts of a cannabis acquisition:

1. Understanding the Target Market’s Regulatory Environment
2. Preparing to Represent a Cannabis Client for the First Time
3. The Letter of Intent and Transaction Structuring
4. Conducting Due Diligence
5. The Transaction Documents
6. Initial Closing and the Final Closing

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THC Edibles in Candy Bags Highlight Risks of Depriving Cannabis Businesses of Trademark Protection

Florida officials are on “high alert” as THC edibles “are making their way into the hands of children and teens.” Of particular concern is the fact that the goods in question “bear a striking resemblance to ordinary candy.”

An image shared by the Charlotte Country Sheriff’s Office shows bags prominently featuring the trademarks of well-known candy brands such as Skittles and Nerds. At first glance, these items look just like genuine products. However, irregularities emerge upon closer examination. For instance, a “Cheetos” bag has a small label indicating THC content, as well as a triangle with a cannabis leaf.

Given these telltale signs, it is reasonable to assume that the target market for these products is not the regular consumer of the candy or snacks in question. The main purpose of the infringements appears to be the concealment of the true nature of the products from parents, teachers, and other authority figures. Of course, there are still risks that someone will ingest these THC edibles by accident. For instance, a person might recognize the Skittles brand, but not know what real Skittles look like. Moreover, some consumers might conclude that brands like Cheetos and Nerds are entering the cannabis market. In fact, Frito-Lay (the makers of Cheetos) felt the need to clarify that the company “does not manufacture edible cannabis snack products and any packaging containing THC claims is not associated with our company or brands.”

The use of iconic brands’ trademarks is likely to trigger alarms for many consumers. However, companies in the cannabis space arguably face greater risks. Consider a scenario where THC edibles of unknown provenance were introduced in bags that looked like those used by a legitimate company that sells hemp CBD edibles. In that case, the risk of confusion would be much greater than where famous brands are infringed, yet the hemp CBD company will have less protection against counterfeits than a snack maker like Frito-Lay. As it notes in its cannabis guidance, the United States Patent and Trademark Office (USPTO) “refuses to register marks for goods and/or services that show a clear violation of federal law, regardless of the legality of the activities under state law.” That includes hemp CBD edibles, since, as USPTO explains,

The use in foods or dietary supplements of a drug or substance undergoing clinical investigations without approval of the U.S. Food and Drug Administration (FDA) violates the FDCA [Federal Food, Drug, and Cosmetic Act]. 21 U.S.C. §331(ll); see also 21 U.S.C. §321(ff) (indicating that a dietary supplement is deemed to be a food within the meaning of the FDCA). The 2018 Farm Bill explicitly preserved FDA’s authority to regulate products containing cannabis or cannabis-derived compounds under the FDCA. CBD is an active ingredient in FDA-approved drugs and is a substance undergoing clinical investigations.

It can be argued that the public interest is not well-served by the USPTO’s current stance. Ultimately, a product subject to regulation by a state government is much less likely to present safety issues than one subject to no regulation at all. At the very least, cannabis companies operating legally at the state level should be afforded some legal tools to defend themselves against counterfeiters of cannabis products, if only because by doing so they are also helping protect consumers.

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Colorado Benefit Concert To Honor The Memory Of Charlotte Figi

Rock the RoC will be live streamed next Friday, April 7, 2021.

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The Future for Smokable CBD Products is Not Great: Part 2

Back in January, I published the first part of this article, which, not surprisingly, is all about how bad the law is getting for hemp CBD vape companies. Since then, things have, also not surprisingly, gotten even worse. Let’s just jump right into it and see what’s happening.

First off, California recently proposed a law (AB-45) that would ban all smokable hemp products, including vapes. There’s been a lot of backlash already and, in my opinion, the law is unlikely to pass if it contains these provisions. But assuming it does, California will join a growing number of states that are banning smokable hemp or hemp-derived vapes in one form or another.

Second, the FDA sent out another warning letter since the first post in this series was published, and in part made allegations concerning vape products as follows:

Furthermore, [the vape] product is particularly concerning to the agency because the ingredients and potential impurities in oral inhalation products may trigger laryngospasm and bronchospasm and may be toxic to the tissues in the upper or lower airways. Inhalation products that are intended to act locally in the respiratory system also may be absorbed and exert undesirable systemic effects, such as increased heart rate or elevated blood pressure.

These statements from the FDA seem to reflect a growing dislike of CBD vape products, and we’ve seen the FDA take issue with hemp vape products now a number of times in written letters despite not taking the same strong position against vapes that it has with, say, CBD-containing foods.

Finally, and likely most importantly for now, is the new PACT Act modifications. The PACT Act is a federal law (the Prevent All Cigarette Trafficking Act) that has been on the books for a long time and was recently modified to address vape products. Essentially, the PACT Act requires that persons who sell and ship cigarettes to undergo certain state/federal registrations and reporting, and imposes additional requirements on B2C sellers.

Amendments to the PACT Act that were tacked onto a December 2020 congressional spending bill modified the PACT Act to include electronic nicotine delivery systems (ENDS), which is a broadly defined term that essentially includes any electronic device capable of allowing a user to inhale a substance from that device, AND components, liquids, or parts for those devices. This is a breathtakingly broad requirement and brings a host of different CBD vape products and accessories within the purview of the PACT Act, requiring all sorts of different compliance measures.

But even more of an issue is the fact that businesses that could comply with the PACT Act may be effectively prevented from doing so. The USPS recently came out with proposed rules that clarify that ENDS cannot be mailed unless one of a small handful of narrow exceptions applies, and these exceptions generally require applications and other compliance. So even if businesses can comply with the PACT Act’s requirements, they may not be able to ship products anyways (and non-compliance with these rules can even lead to criminal penalties). To boot, leading private carriers have also apparently announced that they won’t ship vape products either.

The business opportunities for hemp CBD vape companies, and smokable hemp products generally, keep getting narrower and narrower. Stay tuned to the Canna Law Blog for more developments.

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NYPD Will No Longer Stop and Search Over Cannabis Smell

Driving while high is still illegal, but having cannabis in your car is not.

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