Cannabis Client Alert - Week of November 1, 2021

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In this week’s edition:

  • Cannabis banking reform would aid federal tax collection, IRS says
  • Pharmacann merges with LivWell, and may soon IPO
  • DEA proposes significant increase in legal production of cannabis and psychedelics
  • Judge allows Texas to continue enforcing ban against Delta-8 THC
  • And more…

Federal

Cannabis Banking Reform Would Aid Federal Tax Collection, IRS official says – At the UCLA Annual Tax Controversy Institute, Cassidy Collins, a senior counsel in the Internal Revenue Service’s Office of Chief Counsel, discussed the “special type of collection challenge” that the agency faces as cannabis remains illegal on the federal level. Importantly, Collins noted that “if the law changed so that the marijuana businesses could have banks, that would make the IRS’s job to collect [taxes] a lot easier. As part of collection, we want the money. That’s our end goal there.”

USPS Releases Final Rule Banning Shipment of Vapes Through US Mail – The US Postal Service released its final rule prohibiting the mailing of vaping devices. The agency specified that while businesses can legally mail up to 0.3 percent of THC, the federal legislation passed in 2020 restricts the mailing of “electronic nicotine delivery systems,” or “any electronic device, through an aerosolized solution” delivering, among other things, “any other substance to the user inhaling from the device.”

DEA Proposes Significant Increase in Legal Production of Cannabis and Psychedelics – In its notice to be published in the Federal Register, the US Drug Enforcement Administration noted a “significant increase in the use of schedule I hallucinogenic controlled substances for research and clinical trial purposes,” and wants authorized manufacturers to meet the increasing demand.

States

AL – The Alabama Medical Cannabis Commission announced that it does not intend to push for medical cannabis cultivation and distribution licenses to be available before 2023 out of concern for the “timelines” for approving rules and regulations, among other timing considerations. Once approved, however, medical cannabis will be available in the state as tablets, capsules, gummies, lozenges, topical oils, suppositories and transdermal patches to treat at least 16 different conditions, including cancer and chronic pain.

CO – As the likelihood of federal cannabis legalization increases, Colorado regulators are reassessing the state’s 15 percent excise tax. Colorado is one of just six states that has an excise tax on wholesale transactions for adult-use cannabis sales. State legislation passed in 2021 requires the Colorado Marijuana Enforcement Division to examine existing tax rules for the recreational markets to ensure that the state’s growers are not at a competitive disadvantage if federal legalization measures include excise taxes.

KS – Empyreal Logistics, a Pennsylvania-based currency transportation company, has filed suit requesting the return of approximately $166,000 in cash proceeds that its driver collected from cannabis dispensaries in Missouri and was seized by Kansas law enforcement. Despite Empyreal’s claims that it was merely transporting cash proceeds from cannabis businesses, federal prosecutors in Kansas claim the money is subject to forfeiture due to violations of a federal law against manufacturing and distributing drugs.

MA – Despite early criticism of Massachusetts’ slow pace of cannabis license approvals, the state has approved more than 900 cannabis licenses in the three years since the first legal cannabis dispensary opened. While more than 100 communities have at least one licensed cannabis dispensary, the state is continuing to receive applications to meet significant remaining demand.

ME – Amid several constitutional challenges to Maine’s residency requirements for owners of medical cannabis businesses, US District Court Judge Nancy Torresen granted a motion to stay the residency requirement during the appeal, prohibiting non-residents from owning cannabis dispensaries in Maine. The judge found compelling the claim by the Commissioner of the Maine Department of Administrative and Financial Services that even a short period of processing non-resident license applications could result in long-term irreparable harm for the state.

MS – Mississippi lawmakers have made further revisions to draft medical cannabis legislation to “allow larger growing facilities, restructure the excise tax on cannabis products and limit the regulatory involvement of the [ ] state Agriculture Department.” Further revisions are expected to ensure cannabis facilities will not receive economic development incentives.

NJ – After significant delays resulting from a lawsuit and agency transition, New Jersey’s Cannabis Regulatory Commission announced the winners of 14 new medical cannabis business licenses. Ten of these licenses went to cultivation sites, while the remaining four went to sites that grow, process and dispense cannabis. The number of licenses approved thus far for cultivation sites is a significant increase from the state’s initial plan, which included only five of these licenses.

OR – As the number and size of illegal cannabis farms increase, county officials have called on Gov. Kate Brown (D) to send in the Oregon National Guard “to assist, as able, in the enforcement of laws related to the production of cannabis,” and have requested additional funding from the state legislature to address the issue. Gov. Brown will not deploy Guard troops for now, but may reconsider next year, according to her office.

PA – According to a new survey from Franklin & Marshall College, more than 60 percent of Pennsylvania voters support adult-use cannabis legalization, the highest recorded support since polling began in 2006. Results from the survey come as Pennsylvania legislators consider several legalization proposals.

RI – Rhode Island lawmakers suggest that they are close to reaching a deal on a bill to legalize cannabis. Although State Sen. Josh Miller (D), a sponsor of one legalization proposal, stated that compromises have been reached on a number of key topics, but legislators are still negotiating key issues, such as number of cannabis business licenses, expungement, and which agency should regulate the adult-use market.

SD – A South Dakota legislative committee advanced a draft bill to legalize adult-use cannabis. The bill must be approved by the executive board before it is formally recommended to the full legislature in 2022. The state Supreme Court is still considering the constitutional challenge to the cannabis legalization initiative passed by voters in 2020. Given the uncertainty surrounding the proposed legislation and constitutional challenge, advocates plan to continue to pursue a new ballot initiative next year. 

VT – One year ahead of adult-use cannabis sales, Vermont’s Cannabis Control Board is prioritizing a small-scale, local and equitable industry. According to Board Chair James Pepper, the board will try to meet the state’s demand for retail cannabis solely with small growers, which include indoor operations no larger than 1,000 square feet. Additionally, companies will only be permitted to hold one license in each category, prohibiting any franchise opportunities.

Hemp/CBD

Texas Judge Upholds Delta-8 THC Ban – In October, the Texas Department of State Health Services revised its hemp policy, announcing that it had classified delta-8 THC as a Schedule I controlled substance. Hometown Hero, a Texas cannabis company, sought to halt enforcement of the ban as the court considers legal challenges against the revised policy. Last week, a Texas judge denied this request, ruling that the state can continue to ban hemp products containing more than 0.3 percent delta-8 THC.

Louisiana Moves to Regulate Delta-8 THC and Allow It in Food – Licenses for manufacturing foods containing cannabinoids will be required and can be obtained through the state's Department of Health. As the popularity of Delta-8 THC has risen, 18 other states have enacted bans on the substance.

International

Singapore – The Supreme Court of Singapore rejected Omar Yacob Bamadhaj’s request for appeal and reversal of his conviction and death sentence for allegedly bringing to Singapore from Malaysia at least 2.2 pounds of cannabis. Bamadhaj was sentenced to death by hanging.

United Arab Emirates – Former British semi-professional football player, Billy Hood, has been convicted and sentenced to 25 years in prison in Dubai for drug trafficking with intent to supply after four bottles of vape liquid containing cannabis oil were found in his car.

Switzerland – Switzerland’s public health and welfare government agency announced that cannabis should be comprehensively regulated as opposed to banned, so the National Council will create a framework and an integrated cannabis medical and recreational infrastructure starting in the country’s capital and largest city Zurich.

Canada – The Ontario Cannabis Store, originally intended to serve as the sole e-commerce distributor and retailer of cannabis in Ontario only until brick-and-mortar stores could be built, continues to be the sole distributor of licensed stores three years later, creating a virtual monopoly and undercutting retailers.

Business/Technology

AFC Gamma Raising $100 million to Finance Cannabis Loans – Nasdaq-listed cannabis lender AFC Gamma (NASDAQ: AFCG) priced an offering of $100 million aggregate senior notes to qualified institutional investors, last week. The company will use proceeds from the offering to fund loans to existing borrowers and for companies operating in the cannabis industry.

Pharmacann Merges with LivWell and May Soon IPO – Pharmacann has entered into a merger with Colorado based multi-state operator LivWell Holdings, Inc. The new combined entity will operate roughly 60 dispensaries and 11 cultivation and production facilities across 8 states. Meanwhile, Pharmacann, which holds 10 original cannabis licenses in New York state, may soon issue an IPO valued at over $1 billion, according to industry observers.

Canopy Growth Acquires US Wana Brands for $300 million – Canadian cannabis company Canopy Growth has entered into an agreement to acquire US-based Wana brands, contingent upon US legalization of cannabis. The deal is similar to the one Canopy entered into with Acreage Holdings, which was also contingent upon US legalization of cannabis.

Wall St. Banks No Longer Requiring Cannabis Drug Test – Top Wall Street banks are changing their policies to no longer require testing for cannabis use as part of their employee onboarding processes. The move takes into account widespread legalization of cannabis at the state level, and growing support among the majority of Americans for legalization of cannabis.

New Cannabis Certification Pilot Program Debuted – ASTM announced a new certification program for cannabis and hemp operators known as ASTM International's CANNQ/HEMPQ Certification Program. It is the first independent certification of its kind for the hemp and cannabis industry. "This effort coincides with the work of ASTM International's cannabis committee (D37) which includes over 900 members and governments from 28 different countries,” said Tricia Hock, director of certification operations for Safety Equipment Institute, an affiliate of ASTM International. “As an accredited body, we believe delivering the first certification program for cannabis and hemp is a critical step.”

New Survey Shows Americans Support Tamper-Proof Cannabis Labeling – A new nationwide study of over 2,000 US adults shows broad support for providing secure, tamper-proof labeling of cannabis products to verify their legitimacy and safety in the marketplace. Additionally, the study, commissioned by SICPA and conducted by the Harris Poll, suggests that Americans are willing to pay a premium for cannabis products with secure, tamper-proof labeling.

Medical

Florida Medical Cannabis Patients Reduce Reliance on Prescription Drugs, study finds – A new study examined the demographics of Florida medical cannabis patients by surveying 157 patients. Investigators found that these patients most commonly used medical cannabis to treat their symptoms of anxiety, pain and stress. A majority of patients also reported a reduction or discontinuation of at least one prescription or over-the-counter drug.

Dentons speaks

CLE Seminar for In-House Counsel – Dentons partner and Co-Head of the US Cannabis Group Kathryn Ashton and Dentons senior managing associate Joanne Caceres provided timely updates on cannabis law considerations for in-house counsel.

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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