Cannabis Client Alert - Week of January 18, 2021

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In this week’s edition:

  • USDA issues final hemp production rule
  • US Census Bureau announces plans to collect cannabis tax revenue data from states
  • California passes emergency rules addressing cannabis businesses’ access to financial institutions
  • Governors in two states express support for cannabis legalization
  • Mexico publishes rules regulating the use of medical cannabis

Federal

DEA Conducts First Interview for Cannabis Cultivation Permit - Less than one month after finalizing regulations that would expand the number of federally approved cultivators for medical cannabis research, the Drug Enforcement Administration (DEA) held its first interview with Dentons’ client Bright Green Corp.  Currently, the University of Mississippi is the only entity with a federal permit to manufacture cannabis; the DEA is expected to approve an additional 3 to 15 permits in the first half of 2021.  Bright Green Corp., which submitted its application in September 2020, is one of more than 50 companies that have applied for a permit.  

US Census Bureau to Collect State Cannabis Tax Revenue Data - In a notice published in the Federal Register, the Census Bureau announced plans to begin collecting cannabis tax revenue data from states across the country.  The data will be collected on a quarterly basis using an existing data collection form that requires states to break down tax revenue into various categories, such as alcohol, tobacco and utilities.  Advocates believe this will help further federal legalization efforts, legitimizing the cannabis industry and demonstrating the economic opportunities with cannabis.  According to a representative of the National Cannabis Industry Association, this data collection effort “is a sign that the federal government is preparing for eventual interstate commerce, federal regulation, and international market activity.”

Colorado Federal Court Dismisses Lawsuit for Seeking Illegal Relief - Relying on defendants’ argument that a court cannot grant relief compelling a party to violate federal law, a federal court in Colorado dismissed the majority of an investor’s case against the owners of Clover Top Holdings, Inc., a vehicle for investing in cannabis-related businesses in Colorado.  According to the court, the investor’s complaint failed to “explain how relief could be fashioned” in a way “that would not endorse or require illegal activity” under the Controlled Substances Act.  However, because “[c]ase law shows flexibility when relief can be granted in a way that does not implicate the federal marijuana laws,” the court dismissed the claims with leave to amend the complaint. 

State

AZ - The Arizona Department of Health Services issued new rules addressing adult-use cannabis, after voters approved Proposition 207 in November 2020.  The regulations, which became effective on January 15, establish rules for licensing cannabis facility agents, as well as application and operational requirements for cannabis establishments.

CA - California regulators published emergency rules to implement provisions in the Medicinal and Adult-Use Cannabis Regulation and Safety Act addressing cannabis businesses’ access to banking services.  The regulations allow licensees to request and permit licensing authorities to share financial information with their financial institutions, and, conversely, allow financial institutions to request and permit licensing authorities to share financial information of licensees to facilitate the provision of financial services.

CO - Cannabis sales in Colorado topped $2 billion in 2020, the highest annual sales since the state legalized cannabis use in 2014.  The state received over $387 million in taxes and fees last year, which is appropriated to local governments and the state’s education, transportation and cannabis cash tax funds.

CO - In response to the COVID-19 public health emergency, Colorado issued emergency rules allowing cannabis retailers to accept orders from customers over the phone or online and to provide pick-up outside of the licensed premises.  The emergency rules are effective for 120 days or until the applicable executive order is rescinded, withdrawn or expires.

IL - Illinois lawmakers’ efforts to diversify the state’s cannabis industry have failed again after a bill that would have created 75 additional dispensary licenses died in the state’s House of Representatives.  In an effort to address criticisms and controversy surrounding the first round of dispensary licenses, the bill would have permitted applicants from the first round to reapply for the new licenses and would have lowered the criteria for qualifying for a second lottery for dispensary licenses.

MD - Cannabis employees in Maryland can receive a COVID-19 vaccine in the first wave of vaccinations, following a state health department directive stating that registered employees at medical cannabis dispensaries, labs, cultivation sites and processing sites are “registered health care providers.” 

MO - The new head of Missouri’s House Special Committee on Government Oversight indicated that he is open to continuing an investigation into the state’s medical cannabis program, which has been the subject of a number of lawsuits targeting the licensing scoring process and potential conflicts of interest. 

NM - New Mexico Gov. Michelle Lujan Grisham (D) announced that cannabis legalization is a legislative priority for her administration in 2021.  Legalization is part of the Governor’s broader plan to bolster the economy and increase revenue to the state after a challenging year.  While there have been several failed attempts at legalization in the past, lawmakers are hopeful that it will pass this year due to rising public support and increased pressure from legalization efforts in bordering states.  

VA - Virginia Gov. Ralph Northam (D) announced an adult-use cannabis legalization plan that would permit sales to begin in 2023.  The proposal, which is expected to receive broad support from lawmakers, would impose a 21 percent excise tax and provide some licensing preferences for individuals and entities harmed by the war on drugs.  Like many other states, Virginia is pursuing cannabis legalization as a way to address economic losses from the coronavirus pandemic.

Hemp/CBD

US Department of Agriculture Issues Final Rule for Domestic Hemp Production - The USDA published a final rule regulating the domestic production of hemp, which includes changes to the 2019 interim final rule based on almost 6,000 public comments and lessons learned during the 2020 growing season.  Overall, the final rule, which addresses licensing, recordkeeping, testing procedures, disposal requirements, compliance provisions, and procedures for handling violations, is more favorable to the hemp industry than the interim final rule.

US Department of Agriculture - The USDA has announced grant funding under the Supplemental and Alternative Crops grant program to support the “breeding, testing and development” of “superior performing” hemp varieties.  The program, which also supports research for operations growing canola for oil, is intended to “adapt these multiple-purpose crops to diverse growing regions . . . so that domestic canola oil and industrial hemp production can be significantly increased and be profitable nationwide.”

US Food and Drug Administration - In a recent statement, FDA leadership warned that, despite an increase in the interest and availability of CBD products, “we still have a limited understanding of the safety profile of CBD and many other cannabis-derived compounds, including potential safety risks for people and animals.”  The FDA noted that more data about adverse reactions and the risks of long-term use from longitudinal studies are needed for health agencies to make informed decisions.  While some industry experts see the statement as “resetting expectations around the regulation of CBD by the FDA,” others criticize it as “nothing more than an end-of administration desk-clearing exercise from an FDA that has failed to lead in this crucial policy area.”

US Postal Service - The USPS issued a reminder to postal workers that “customers are permitted to send certain hemp-based products in the mail when in compliance with all applicable laws.”  Mailers must comply with all laws pertaining to hemp production, processing, distribution and sales, and retain records pursuant to such laws.  Postal employees are not responsible for ensuring the mailer’s compliance.

International

Mexico - Mexico’s health ministry published rules regulating the use of medical cannabis.  The regulations permit pharmaceutical companies to begin medical research on cannabis products and also address cultivating and harvesting cannabis for medicinal purposes.  While businesses may now legally grow cannabis in Mexico, exports of Mexican-grown cannabis remain prohibited.  Legalization of recreational use is expected to pass in the next period of Congress.

United Kingdom - More than 20 years after issuing the first permit to cultivate medical-grade cannabis to GW Pharmaceuticals, the UK has awarded its second permit to Northern Leaf. Jersey-based Northern Leaf will supply THC-rich cannabis to drug makers in Great Britain, Germany, Denmark, Spain and Portugal by the end of 2021.

Business

UFC Changes Anti-Doping Policy - The UFC, the world’s largest mixed martial arts promotion, will no longer punish fighters who test positive for cannabis unless it believes the fighter used cannabis intentionally to enhance performance.  While this policy change does not affect the rules of other state athletic commissions and international governing bodies, Las Vegas-based UFC hopes to start a broader discussion and prompt more widespread tolerance for cannabis use among the various commissions.

Dentons speaks

Eric Berlin, Dentons’ US Cannabis group co-chair, was quoted in a Benzinga article discussing market confusion over cannabis special-purpose acquisition companies.

Eric Berlin will participate in a panel discussion on the “Cannabis Industry Outlook 2021” sponsored by Expert Webcast on January 21.  Registration for the panel is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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