Racial Discrimination in the Legal Cannabis Space: New Industry, Same Old Story???

Seth Goldberg

Attend any of the conferences or trade shows springing up in the emerging legalized recreational and medical marijuana space, and one thing you’ll notice is an absence of racial diversity.  Why?

There are a number of possible explanations for the comparatively low number of minorities participating in the space, including, high start-up costs and restricted access to capital, especially given the reluctance of commercial banks to enter the fray, and limited political ties in a highly politicized system. Those reasons alone could be creating barriers for minorities to enter the market as owners and investors

However, there is a clear reason African-Americans may be disenfranchised with respect to the cannabis space, and that is inherently discriminatory cannabis regulations that may be preventing African-Americans from ownership and investing, but, even more importantly, are unquestionably barring African-Americans from obtaining jobs in the cannabis space.

In particular, most states that have legalized cannabis for recreational and/or medical use have included in their legislation strict requirements that owners, investors and employees in cannabis growing, processing and dispensing operations not have a criminal record, especially marijuana possession offenses.  Because African-Americans are almost 3.75 times more likely to be arrested for marijuana possession than whites, these restrictions appear to be a gating issue that is keeping African-Americans out of the space.

At the same time, the cannabis industry is creating thousands of new jobs in the US each year, and is projected to continue to do so.  In fact, one analyst (New Frontier Data) has determined that the cannabis industry in Colorado has resulted in 18,000 new jobs since 2014, and projects the US cannabis industry will create approximately 280,000 new jobs by 2020.

Given the potential for the cannabis industry to employ so many, and the disparate rate at which African-Americans are arrested for marijuana possession, it is obvious that states should reconsider regulations that make marijuana possession offenses a bar to employment in the legal marijuana industry.  If those changes are not made, a mature cannabis industry may be saddled with the same institutional racial discrimination that plagues almost all other industries.

Because of the federal prohibition of cannabis, the cannabis space is unlike a new business idea or development in an established industry that has become institutionalized.  It has an opportunity to emerge without discriminatory restraints that have become the norm.  Hopefully, those involved in establishing the cannabis space will make an early effort to protect it from being another source of disenfranchisement for minorities.

 

The Federal Antitrust Laws May Not Protect Competition and Consumers In The Cannabis Industry

Seth Goldberg

To assert a federal antitrust claim, a plaintiff must have standing under Article III of the U.S. Constitution and must also have suffered an injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants acts unlawful. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).  The Brunswick standard generally benefits consumers who have paid artificially high prices as a result of a defendant’s anticompetitive conduct, or a competitor of a defendant that abused its market power to compete unfairly.

The federal antitrust laws, including the Brunswick standard, are one of the many protections intended to keep competitors on an even playing field and striving to beat one another by offering the optimal combination of quality and price to consumers, and to protect consumers from overreaching and opportunistic manufacturers that use nefarious means to impose a price they would be otherwise unable to charge.  These laws have been critical in shaping industries.

However, it may be that the federal antitrust laws are among the federal laws unavailable to cannabis industry participants, as the federal antitrust laws are limited to commerce “among the states,” i.e., interstate commerce.  Because cannabis is still prohibited under the Controlled Substances Act, its legal manufacture and distribution is generally limited to intrastate activities.  Thus, competition for legal cannabis is, by and large, necessarily intrastate.   Fortunately, most states have antitrust laws that mirror federal antitrust laws, and borrow from the federal judicial precedent they have generated.  However, as a general matter, the federal courts and federal judges are more experienced than the state courts in the complex economics underlying most antirust matters.

For the burgeoning cannabis industry, this may be yet another problem arising out of the federal prohibition of cannabis.  It means that consumers of cannabis products, such as cannabis, vapes, edibles, and possibly ancillary flower-touching products, may not be protected from inflated prices resulting from anticompetitive conduct, such as price-fixing agreements or agreements to allocate markets, and competitors for those products may not be able to ensure a level playing field with the largest companies, allowing the powerful companies to take advantage of their position by inflating prices.

The bottom line is that as the cannabis industry continues its growth at breakneck speed, manufacturers of cannabis, cannabis-infused, and cannabis-related products, may be tempted to engage in the types of anticompetitive conduct the federal antitrust laws are best able to correct, with the help of experienced federal judges, and consumers of those products may unfortunately be exposed to artificially inflated price increases flowing from such conduct left unchecked.  While not all cannabis manufacturers or cannabis-related products are limited to competing in a single state, the bulk are.

To this point, the role the  federal antitrust laws (or state for that matter) can play in shaping the cannabis industry has not been tested.  That day may be on the horizon, however, as some companies continue to grow into industry giants, while others struggle to compete.  Cannabis space participants, especially the larger players, should be aware of the compliance measures taken in other industries to protect themselves from the possibility of antitrust claims brought by their competitors or consumers.

David Feldman

The World is Slowly Legalizing Cannabis

A fascinating article in Wikipedia scours the globe to see which countries have taken action to legalize or decriminalize the use of cannabis. While we focus heavily on the dramatic trend here in the US, with 29 states and the District of Columbia having legalized at least medical marijuana, it is happening elsewhere too. The most dramatic thus far have been Uruguay, which has fully legalized marijuana, and Canada, which is implementing nationwide legal adult use cannabis next year. South Africa’s prohibitions on private cultivation and use of marijuana were declared invalid this year, so it is now legal there. Possession for personal use of up to 22 grams of marijuana has been legal in Colombia since 1994.

While the majority of countries still prohibit and criminalize the production or sale of cannabis, dozens of nations have decriminalized it, so you just pay a fine if you are caught. Over a dozen countries have legal medical marijuana, and more are considering legal adult use. Here is a list (from the Wikipedia article) of which countries are which.

Legal medical marijuana: Australia, Canada, Colombia, Croatia, Czech Republic, Germany, Israel, Macedonia, Mexico, Phillipines, Poland, Turkey, Uruguay

Legal adult use marijuana: Canada (coming), Colombia, India (only in several provinces), South Africa, Spain (with limitations), Uruguay

Marijuana use decriminalized: Belgium, Bolivia, Cambodia, Chile, Costa Rica, Ecuador, Georgia, Greece, Israel (coming), Jamaica (personal use cultivation legal), Luxembourg, Malta, Mexico, Moldova, Netherlands, Paraguay, Peru, Portugal, Russia, Slovenia, Spain, Switzerland, Ukraine, US Virgin Islands

David Feldman

Florida Implements Legal Medical Marijuana

Florida Gov. Rick Scott signed legislation this past Friday to implement the legalization of medical marijuana there. Over 70% of Florida voters approved a constitutional amendment last fall setting up the new regime. Scott, a Republican, opposed the  constitutional amendment, but signed the bill without making any statement.

The new law bans smoking of medical marijuana, but permits the use of vapes, which New York, for example does not. It authorizes the state to license up to 17 companies to grow cannabis in the state. Lawsuits apparently are planned to fight the ban on smoking, along with a ban on growing your own cannabis.

There is a limited list of permitted ailments qualifying patients for medical marijuana, but the state apparently gives a bit of latitude to doctors (who must undergo 2 hours of training before being qualified to dispense marijuana) to go beyond the list if they feel it is appropriate.

David Feldman

Bill to End Federal Ban on Medical Marijuana Reintroduced

A bipartisan group in Congress last week reintroduced the Compassionate Access, Research Expansion and Respect States (CARERS) Act to the legislature. The bill, originally introduced in 2015 in much broader form, would, among other things, amend the Controlled Substances Act to end the federal prohibition of medical marijuana in the currently 29 states, plus the District of Columbia, that have legally permitted it.

The bill also would allow VA Hospital physicians to prescribe medical marijuana to veterans in states that have legalized it. It further would expand the availability of cannabis for much needed medical research. The bill also permits states to import cannabidiol (CBD), a non-psychoactive compound contained in cannabis, removing CBD from regulation under the Controlled Substances Act. CBD  is used, among other things, to treat epilepsy and can be prescribed to children.

Recent polls show more than 90% of Americans support the legal availability of medical marijuana. Until now, however, prior attempts to pare back federal regulation have not progressed in Congress. This bill, by limiting its benefit from its original version only to medically supervised use, may actually have a chance to begin the process of removing federal restrictions on cannabis growth, sale and use.

PA Governor To Defend PA’s Medical Marijuana Program Against Federal Attack

Seth Goldberg

In a letter to U.S. Attorney General Sessions dated June 15, 2017, Pennsylvania Governor Tom Wolf strenuously objected to the possibility of the federal government attempting to curtail Pennsylvania’s medical marijuana program, which is scheduled to launch with the issuance of grower, processor and dispensary permits in the coming weeks.  As Governor Wolf stated in the letter:

Your action to undo the protections of the Rohrbacher-Farr amendment, which prevents the use of federal funds to disrupt states’ efforts to implement “their own State laws that authorize the use, distribution, possession or cultivation of medical marijuana” is misguided… If you seek to further disrupt our ability to establish a legal way to deliver relief of medical marijuana to our citizens, I will ask the Attorney General of Pennsylvania to take legal action to protect our residents and state sovereignty.

Governor Wolf’s letter was in response to a letter that Sessions sent to Congress on May 1, 2017, regarding the Rohrbacher-Farr amendment, in which Sessions stated :

I believe it would be unwise for Congress to restrict the discretion of the Department to fund particular prosecutions, particularly in the midst of an historic drug epidemic and potentially long-term uptick in violent crime.

On May 5, 2017, President Trump  extended the Rohrbacher-Farr amendment through September 30, 2017.