Cannabis Group Weekly Alert - July 2019 #4

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This week:

  • A Senate hearing on cannabis banking legislation;
  • FDA sends Curaleaf a letter alleging that certain CBD products are unapproved and misbranded drugs in violation of the FD&C;
  • While states continue to embrace industrial hemp.

Federal

The Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing entitled, “Challenges for Cannabis and Banking: Outside Perspectives.” The hearing came despite public statements from Chairman Crapo (R-ID) that he is reluctant to loosen restrictions on financial institutions wishing to work with cannabis-related businesses. The witnesses included pro-cannabis industry Senators Cory Gardner (R-CO) and Jeff Merkley (D-OR); Rachel Pross, Chief Risk Officer, Maps Credit Union; Joanne Sherwood, President and CEO, Citywide Banks; Garth Van Meter, Vice President of Government Affairs, Smart Approaches to Marijuana; and John Lord, CEO and Owner, LivWell Enlightened Health. Sen. Crapo used the hearing as opportunity to criticize an Obama-era program, known as Operation Choke Point, which was intended to discourage banks from doing business with legal gun sellers and payday lenders and other companies believed to be at higher risk for fraud and money laundering—signaling that if legislation moves forward it may include other provisions less politically acceptable to Democrats.

House Judiciary Chairman Jerry Nadler (D-NY) and Senator Kamala Harris (D-CA) introduced the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) to remove cannabis from the Controlled Substances Act, decriminalize cannabis at the federal level, and require expungement or resentencing of certain past convictions. The bill also calls for a five percent tax on cannabis and cannabis-derived products, to be used to fund job training, legal aid, and state and local licensing efforts. The legislation joins a growing list of bills designed to address social justice issues relating to cannabis.

After leaving the Republican party earlier this month, Representative Justin Amash (I-MI) introduced the States Rights Cannabis Bill (H.R. 3754) to prevent the federal government from enforcing federal cannabis restrictions on individuals and entities operating legally in their states. The bill is similar to the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, but unlike the latter, does not require the federal government to study the effect of state legalization on impaired driving.

Senator Bob Menendez (D-NJ) introduced legislation to protect insurance companies that offer coverage to cannabis businesses that are operating legally in states. Known as the “CLAIM” Act, the bipartisan legislation would allow insurance companies to cover cannabis businesses and other associated businesses, such as law firms and landlords. The bill was introduced to coincide with the Senate Banking Committee’s hearing on banking issues associated with the cannabis industry in states.

A bipartisan group of House members introduced legislation to encourage medical cannabis research. The Medical Marijuana Research Act of 2019 creates a new registration process specifically for cannabis that reduces approval wait times and, once researchers have been approved, makes it easier for researchers to obtain the cannabis they need for their studies. The bill also allows for the private manufacturing and distribution of cannabis solely for research purposes. Currently, the only cannabis available for use in research legally comes from a single contract the National Institute on Drug Abuse holds with the University of Mississippi.

States

Alaska: Cannabis cultivators are asking the state to alter its cannabis tax system from one solely based on weight to one that combines excise and sales taxes like the systems in Nevada and Colorado. 

Arizona: Cannabis industry leaders have banded together to pursue an adult-use ballot initiative in 2020. MedMen, Curaleaf and Harvest Health & Recreation all contributed to forming the Smart and Safe Arizona campaign to support legalizing adult-use cannabis in 2020.

California: State regulators in California have turned to civil enforcement efforts to shut down unlicensed cannabis farmers. So far in 2019 the Humboldt County Planning and Building Department has sent out 148 cannabis-related “Notices to Abate” to property owners growing without a license. Possible fines are as high as $10,000 per day with a maximum fine of $900,000.

California: The California State Auditors Office examined the operations of the California Department of Consumer Affairs and the Bureau of Cannabis Control. The report acknowledged that the Bureau has effectively established a structural foundation for implementing and monitoring cannabis operations but that “the current status and location of personnel is not sustainable to provide effective and comprehensive oversight of cannabis activities throughout California.”  The Bureau only has one headquarters office, one field office, and 75 of the 219 authorized positions filled.

Massachusetts: Boston will soon have its first adult-use cannabis store. Pure Oasis was granted a provisional license to operate in the Dorchester neighborhood. The provisional license is also the first to go to members of the state’s economic empowerment program, which favors licenses for people from communities disproportionately affected by cannabis criminalization.

New Jersey: The Department of Health announced plans to expand the state’s medical cannabis program. The department is seeking to approve up to 24 additional ATCs (alternative treatment centers) across the state. The Department also stated that physicians in the state’s medical cannabis program can now authorize patients for up to 3 ounces of medical cannabis per month for up to 12 months. Finally, the state Supreme Court is set to consider whether an employee and medical cannabis patient was discriminated against in violation of the state’s Compassionate Use Medical Marijuana Act when his employer fired him after a drug test.

Utah: The state’s Department of Agriculture and Food scrapped proposed regulations to impose a residency restriction on medical cannabis cultivation licenses. More than 80 businesses have applied for one of the 10 available growing licenses.

Wisconsin:  Governor Tony Evers (D) used Twitter to express his support for medical cannabis in the state.

Hemp / CBD

The Senate Agriculture Committee has scheduled a hearing to examine hemp production since enactment of the 2018 Farm Bill. The hearing is scheduled for July 25 and will feature witnesses from the Department of Agriculture, the Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA).

FDA sent a letter to Curaleaf, Inc., stating that stating that several of CuraLeaf’s CBD products contain unapproved health claims, such as “for chronic pain,” “CBD can successfully reduce anxiety symptoms,” and “CBD has also been shown to be effective in treating Parkinson’s disease,” rendering them unapproved new drugs sold in violation of the Federal Food, Drug, and Cosmetic Act. The letter also stated that the “FDA has concluded based on available evidence that CBD products are excluded from the dietary supplement definition…of the FD&C Act.”  The FDA’s action is consistent with its previous guidance, but raises questions about the breadth of the FDA’s enforcement and the immediate future of hemp-derived CBD products.

Kansas Governor Laura Kelly (D) highlighted her visit to an industrial hemp manufacturing firm in a tweet, and Kentucky Governor Matt Bevin (R) praised the opening of a $6 million CBD extraction facility operated by International Farmaceutical Extracts LLC. Both are prime examples of Midwest states embracing hemp and CBD as new economic drivers in areas characterized by slow economic recovery in the decade since the Great Recession.

Ohio has become the latest state to embrace hemp, with the state legislature passing a bill allowing farmers to plant hemp and permitting retailers to sell CBD products. The legislation removes hemp and CBD from the state’s controlled substance list and is awaiting signature from Governor Mark DeWine (R).

International

Canada’s Ministry of Justice has finalized a new roadside test to identify the presence of drugs. The Abbott SoToxa test can identify recent cannabis use in an individual, allowing law enforcement officials to confirm suspicions of impairment in a driver. To date, the Canadian judicial system has not ruled on whether the test passes legal muster.

British Virgin Islands Agricultural Minister Natalio Wheatley is optimistic that legislation to legalize cannabis will gain momentum in the legislature. The legislation is still in draft form and will set regulations restricting cannabis use by age and prohibiting operation of heavy machinery under the influence of THC.

India’s judicial system will consider a petition challenging the prohibition of cannabis use. The petition has been filed before Delhi’s High Court and challenges the criminalization of cannabis under the Narcotic Drugs and Psychotropic Substances Act, 1985 and Narcotic Drugs and Psychotropic Substances Rules, 1985. The High Court is set to consider the matter on July 29.

Mexico’s President Andres Manuel Lopez Obrador has directed government officials to provide an explanation for delays in regulations governing the country’s medical cannabis program. The Congress of Mexico passed legislation approving a medical cannabis program but government regulators have failed to issue regulations to govern the program. 

Switzerland’s Federal Court in Lausanne issued a ruling declaring that possession of under 10 grams of cannabis is not a punishable criminal offense. The ruling confirmed that Swiss youth and adults will not face criminal charges for possession of minor amounts of cannabis if they lack the intent to distribute.

United Kingdom’s Health Secretary Matt Hancock recently announced that medical cannabis will not need to undergo randomized controlled trials before becoming eligible for licensing. He also stated that the Medicines and Healthcare products Regulatory Agency had already started the licensing process for medical cannabis, with a decision expected this fall. A recent survey of UK adults shows growing support for cannabis legalization, with 48 percent supporting recreational use and 77 percent supporting medicinal use.

Business

The West Hollywood Business License Commission has approved an application by Lowell Herb Co. to open the first cannabis café in the US. The café is slated to open in August and will feature a THC and CBD-infused food and drink menu in addition to a cannabis smoking area. Licenses have been issued to 15 other companies in West Hollywood to operate cannabis consumption lounges, with more openings expected in 2019 and 2020.

Curaleaf Holdings announced that it has acquired Grassroots Cannabis for $875 million. By acquiring Grassroots Cannabis, Curaleaf expands its US operations into Illinois and Michigan just as both states prepare for legalized recreational cannabis starting in 2020. The deal expands Curaleaf’s US footprint to 19 states and 68 dispensaries nationwide.

Havas has become the first advertising holding company to launch a cannabis consultancy practice. Dubbed Havas ECS, the new unit will be led by Rob Dhoble and its priority mission is to advance the understanding of cannabinoid health and wellness, with science-based education and communication programs that elevate the conversation around the human endocannabinoid system (ECS).

Jim Belushi has announced plans to launch a “Blues Brother” cannabis brand in Illinois starting in 2020. The long-time cannabis business owner will expand operations to Illinois when recreational cannabis becomes legal in 2020 as part of a coordinated effort to launch a national cannabis brand.

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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