Cannabis Group Weekly Alert - August 2019 #4

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In this week’s edition:

  • US Customs and Border Protection may impose permanent visitation ban on Canadian woman who attempted to enter US with CBD oil
  • A new report reveals that adolescent cannabis use in the US has remained stable and low in recent years, when many states have legalized cannabis use.
  • The CDC is investigating hundreds of cases of reported lung illness potentially related to e-cigarette and “vaping” device use.
  • Michigan regulators suspended the license of a medical cannabis testing facility for inaccurate results and/or unreliable testing and reporting practices.
  • Introducing “What Dentons experts are saying about,” a new feature which debuts with a look at Canada’s Regulations Amending the Cannabis Regulations.
  • And more…

Federal

A Canadian woman caught at the US border with CBD oil could face a lifetime ban on visiting the United States, imposed by the US Customs and Border Protection (“CBP”).  While some forms of CBD oil were removed from the Controlled Substances Act by the passage of the Agriculture Improvement Act of 2018 (the “Farm Bill”), the CBP has not finalized how the Farm Bill provisions will be applied to travelers.  Until such regulations are finalized, permission to enter the US will continue to be at the sole discretion of the US customs officers on duty, who have great latitude to determine the admissibility of any foreign national.

Two top drug officials with the White House Office of National Drug Control Policy (“ONDCP”), including Director and Trump appointee James Carroll and Senior Adviser Anne Hazlett, said in separate interviews that it is up to states to decide whether they should legalize cannabis, a drastic change from prior statements which may reflect an evolving understanding of the federal government’s role in imposing prohibition on the states.

The Federal Bureau of Investigation’s recent announcement that it is probing public corruption in the legal cannabis industry has received mixed reactions from industry players.  Some view it as another example of how the legal cannabis industry is unfairly targeted.  Others believe that increased scrutiny to uncover illicit influence on licensing decisions could be a good thing.

States

California raised the second-least amount of revenue from cannabis taxes during the second quarter among states with legal sales. Only Massachusetts fared worse.  Specifically, California cannabis excise taxes brought in $74.2 million in revenue during the second quarter of 2019, while the cultivation tax generated $22.6 million.  Experts postulate that these underwhelming results are likely not due to California’s higher tax rates.  Rather, they attribute the state’s low performance to a combination of factors, including unrealistic tax revenue expectations; the small number of cannabis stores, which limits revenue potential of the legal market; and the state’s long history of permitting semi-legal or illegal cannabis operations to exist.

California's top cannabis regulator, the Bureau of Cannabis Control (“BCC”), applauded Weedmaps' announcement that it would restrict its platform to only licensed businesses and no longer advertise illegal cannabis businesses.  Calling it "a step forward for the legal California cannabis industry," state officials’ said Weedmaps’s announcement “will aid customers in identifying licensed cannabis businesses when looking to purchase safe cannabis.”  The BCC continues its enforcement activities against businesses not complying with cannabis advertising laws.

In a unanimous decision, the California Supreme Court held that a San Diego ordinance regulating medical cannabis shops satisfies the definition of “project” under section 21065 of the California Environmental Quality Act (CEQA), and that the ordinance’s grant of conditional use permits to medical marijuana dispensaries to operate in certain industrial and commercial zones in the city is subject to CEQA review. Union of Medical Marijuana Patients, an advocacy group, challenged the ordinance, arguing that it should be considered a “project” under CEQA because of possible environmental impacts associated with the locations selected.  The Court agreed and remanded the case back to the trial court for further proceedings.  It is unclear, however, how this decision will impact the status of the ordinance.

Denver, Colorado, officials announced that the Denver Department of Public Health & Environment will randomly select about 25 cannabis dispensaries from which to evaluate products on store shelves for contaminants.  Each sample will be tested for pesticides and total yeast and mold by a state- and-ISO-certified cannabis testing facility. 

A federal court in Connecticut dismissed a lawsuit by a former police officer who claimed he was wrongfully suspended for being a medical cannabis patient.  The plaintiff filed suit against the Bridgeport Police Department, asserting that his suspension violated a state law prohibiting employees from being discriminated against for using medical cannabis.  The court disagreed and held that, regardless of state law protections, federal law bars medical cannabis patients from owning firearms, which precluded the plaintiff from serving as a police officer.

A proposed cannabis legalization measure was submitted for inclusion on Florida’s 2020 ballot.  Make It Legal Florida—a new political committee chaired by an official from multistate dispensary chain MedMen—filed the proposed measure, which would allow medical cannabis dispensaries to sell cannabis to adults over 21.  Notably, the proposed language does not include provisions for home cultivation.  Make It Legal Florida will be competing against at least one other campaign seeking to legalize cannabis in Florida. Sensible Florida, another advocacy group, announced last month that it had collected enough signatures to prompt a state Supreme Court review of its ballot language.

In the wake of Florida’s recent legalization of hemp, the Broward County State Attorney is requiring a three-gram minimum for the prosecution of misdemeanor cannabis cases.  The prosecutor office’s issued a formal memorandum to law enforcement recommending that juvenile and adult misdemeanor cases be referred to a local diversion program, civil citation or similar program, rather than criminally prosecuted.

In a related matter, the US Attorney’s Office for the Northern District of Florida said he won't focus on low-level cannabis cases or prosecute medical cannabis-related businesses that comply with state law. After last week’s offer to prosecute cannabis cases that state DAs in the Northern District won’t because of their claimed inability to tell the difference between the illegal Schedule 1 drug and the legal hemp, US Attorney Larry Keefe’s office clarified that it will focus its efforts on cases at the intersection of cannabis and violent crime or involving cannabis dealers who engage in large-scale sales.

Louisiana regulators released a list of pesticide active ingredients that have been approved for use on medical cannabis plants.  Manufacturers are required to register their pesticide products on an annual basis.

Michigan regulators issued a formal complaint against, and summarily suspended the license of, Iron Laboratories, a medical cannabis safety compliance facility, for inaccurate results and/or unreliable testing and reporting practices.  The regulators have not been made aware of any adverse product reactions in conjunction with product tested by Iron Laboratories, but they continue to investigate and are advising patients to use caution when using products tested by Iron Laboratories. 

The Michigan Department of Environment, Great Lakes, and Energy issued environmental compliance guidance, including air quality, materials management and water guidance, for the cannabis industry.

Missouri regulators received more than 2,100 applications for medical cannabis business licenses, including nearly 800 applications in the last 24 hours of its application period. Applications will be approved or denied within 150 days of their submission date.  All applications will be scored by a third-party blind scorer and, based on the scoring results, Missouri will license 60 cultivation facilities, 192 dispensaries, 86 medical cannabis-infused manufacturing facilities and 10 testing laboratory facilities.

New Jersey regulators said they received at least 198 permit applications for 24 alternative treatment centers (i.e., cultivation, dispensing and vertically integrated) permits over two days.  The application period closed in late August.

Oklahoma Governor Kevin Stitt signed off on emergency medical cannabis regulations that will update current regulations and establish new license categories per statutory amendments made during the 2019 legislative session.  The emergency rules will be effective September 14, 2019.

Hemp/CBD

The US Environmental Protection Agency (“EPA”) received 10 applications for pesticides to be used on hemp and is seeking public comment.  The list of pesticides is found in the Federal Register notice.  Once public comments are received, the agency anticipates it will make a decision about the possible use of the products specified in the application on hemp before the end of 2019 to help growers make informed purchasing choices for the upcoming growing season.

According to new data from the US Department of Agriculture, “American farmers more than quadrupled the land planted with hemp in the past year, from 27,424 acres to 128,320 acres.”  The number of industrial hemp crops planted in the US increased by 368 percent in the past year.

New York City health officials forced 15 businesses that did not comply with a citywide ban on the sale of edible CBD products that took on July 1 to destroy edible CBD products on their shelves.  Starting October 1, the New York City Health Department will begin assessing transgressors fines ranging from $200 to $650.

The North Carolina House of Representatives passed its annual farm bill, which included a ban on smokable hemp as of May 1.  Law enforcement supports the ban because smokable hemp looks and smells like cannabis, making it difficult, if not impossible, to differentiate.  The bill now returns to the North Carolina Senate, where a similar version of the bill already passed.

South Dakota Governor Kristi Noem and her administration continue to push back against hemp legalization.  “When it comes to industrial hemp, we still have more questions than answers,” Governor Noem said.  “South Dakota must lead by example.  Let’s learn from the mistakes of other states and find these answers together before we commit to something we don’t know everything about.  The safety and health of the next generation is worth finding these answers,” Noem concluded.

Washington State regulators issued a notice banning CBD as a food ingredient.  The notice recognizes that while the 2018 US Farm Bill removed hemp from the Controlled Substances Act, it explicitly preserved the FDA’s authority to regulate hemp and hemp extracts, such as CBD in food. The FDA has not yet approved CBD as an ingredient in food. 

International

Lawmakers in the Czech Republic are considering legislation requiring public insurance to cover medical cannabis.  If the measure is approved, 90 percent of the cost of cannabis would be covered by public health insurance.

Jamaica’s Cannabis Licensing Authority (“CLA”) has issued at least 40 cannabis business licenses and recently opened a competitive bidding process to identify a qualified organization to provide a seed-to-sale software tracking system that will “capture data, collate, manage, store and produce reports on individual cannabis plants as they move through the supply chain from cultivation, retail, transportation, processing or research and development.”  The CLA will accept bid submissions until September 25, 2019.

Mexico's Supreme Court ordered the Health Ministry to issue regulations on medical cannabis use within 180 days, saying the Ministry’s failure to do so after legalization in 2017 has put patients’ rights at risk.  The Ministry has agreed to comply with the Court’s order.

Ugandan Prime Minister Ruhakana Rugunda said his government plans to issue cannabis cultivation licenses.  This is welcome news since the Uganda government halted the approval of cannabis licenses until a regulatory process was in place.  It is unclear the extent to which such regulatory processes have been implemented.

Business

Cresco Labs Inc. reported quarterly revenue of $29.9 million, up 253 percent from a year ago, and a net loss of $3.9 million The increase in revenue was driven by expansion into new markets and continued growth in existing markets.

Organigram Holdings Inc., a licensed cannabis producer, will begin trading its common shares on the Toronto Stock Exchange on August 22.  To effectuate a seamless transition for its shareholders, the company’s common shares will be delisted from the TSX Venture Exchange, effective August 21.

Despite a heterogeneous customer base, a recent report from Yahoo! Finance suggests that cannabis companies lack diversity.  The Alliance for Board Diversity found 3.1 percent minority board representation at the 10 largest publicly traded cannabis companies, compared with 20 percent minority board representation among the Fortune 100.

The Wall Street Journal examined how the black market is proving more resilient than anticipated in states and countries that have legalized cannabis.  For instance, Canada, which legalized recreational cannabis about a year ago, reported that in the first quarter of 2019 just 27 percent of total cannabis sales were made through licensed channels.

Tilray Inc., “a global pioneer in cannabis research, cultivation, production and distribution,” announced an agreement with Cannamedical Pharma GmbH to ship $3.3 million worth of medical cannabis from its campus in Portugal to Germany.  “We are pleased to enter into an agreement with a partner who shares Tilray’s commitment to product quality and safety and patient access,” says Sascha Mielcarek, Tilray’s managing director for Europe. “This initial shipment will be the first of many from our EU Campus in Portugal to Germany as well as other European and international markets.”

Many CBD companies, particularly small businesses, continue to report difficulty maintaining a bank account.  For instance, a cannabis entrepreneur reported that Bank of America closed his bank account because of his New Jersey-based CBD smoke shop.

GCH, Inc., a company co-founded by Willie Nelson and his wife, is launching a new brand to its portfolio.  Willie’s Rescue, offers a line of hemp products for dogs, cats and horses. CBD has gained popularity amongst professional golfers, such as Bubba Watson and Scott McCarron who have endorsement deals with CBD manufacturers. The PGA Tour, however, remains wary.  Earlier this year, the PGA Tour cautioned players that some CBD products might contain THC, which could show up in drug testing. 

Medical/Health

A study published in Complementary Therapies in Medicine on the effectiveness of cannabis’ pain-relieving properties found that “whole Cannabis flower was associated with greater pain relief than were other types of products, and higher tetrahydrocannabinol (THC) levels were the strongest predictors of analgesia and side effects prevalence across the five pain categories.” The Therapeutic Advances in Medical Oncology conducted a review of cannabis’s role in cancer care and concluded that “there is a reasonable amount of evidence to consider cannabis for nausea and vomiting, loss of appetite, and pain as a supplement to first-line treatments . . . promising evidence to treat chemotherapy-induced peripheral neuropathy, gastrointestinal distress, and sleep disorders" and that "cannabis has multifaceted potential bioactive benefits that appear to outweigh its risks in many situations.” However, further research is required to optimize cannabis preparations and doses for specific populations affected by cancer.

The Centers for Disease Control and Prevention is investigating nearly 200 cases of severe lung illness, primarily among adolescents and young adults, that appear to be potentially associated with e-cigarette product use or “vaping” devices. 

A study published in the American Journal of Perinatology concluded that while maternal cannabis exposure was associated with low birth rate and small gestational age, “recreational marijuana legalization and availability did not have direct impact on newborns' risk of [low birth weight] or [small for gestational age].”

The 2018 National Survey on Drug Use and Health, an annual report produced by the federally funded Substance Abuse and Mental Health Services Administration, demonstrates that youth cannabis use in the US is lower now than when states began legalizing cannabis.  According to the survey, 12.5 percent of the adolescents interviewed in 2018 said they used cannabis in the last month, compared to 13.5 percent in 2012.  “The survey results suggest that marijuana use among youth has remained stable and low in recent years, even as more states legalize medical and adult use,” stated Sheila Vakharia, PhD, deputy director of the Drug Policy Alliance’s Department of Research and Academic Engagement. 

What Dentons’ experts are saying…

Henry Chang, a partner in our Toronto office, provides analysis of Canada’s new cannabis regulations.  Health Canada published its final amendments to the Cannabis Regulation which regulate edibles, extracts and topicals, effective October 17, 2019.  However, because Canada’s cannabis regulations require that a licensed processor provide 60 days’ notice before a new cannabis product can be sold, these new products likely will not be available for consumer purchase until at least December 2019.

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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