All posts by David N. Feldman

David Feldman

Cuomo Plans Multi-State Cannabis Coordination; Vape Ban on Hold

In comments last week, NY Governor Andrew Cuomo has called for a multi-lateral meeting with his counterparts in neighboring states, including New Jersey, Connecticut and Pennsylvania, to discuss legalizing adult use of cannabis. As reported by Politico, the Governor noted, “The federal government is doing nothing, what can we do? And what can we do together? Because it makes no sense to pass one set of rules in New York, where they can drive across the border to Connecticut and have a different set of rules and vice versa.” The Governor noted that he believes the states “can do more together than by working alone,” The group plans to meet on October 17.

A multi-state approach could have the benefit of harmonizing the approach to legalization but has the risk of enhancing the political challenges in achieving the goal of these states approving adult use of cannabis. New York and New Jersey both attempted and failed to pass adult use legislation earlier this year despite Democrat control of both state houses and legislatures. Both states’ Governors have indicated their desire to take up the measures again next year. Nearby Massachusetts approved legalizing  adult use in a 2016 referendum.

Separately, on Thursday this week a NY appeals court temporarily blocked Gov. Cuomo’s plan to ban flavored vaping products. The ban was set to begin yesterday. The temporary restraining order only puts the ban on hold for a week to allow vape companies to seek a more permanent injunction stopping the ban. Cuomo and his Health Commissioner have expressed significant concern about respiratory issues connected to vaping.

A  number of industry advocates believe that moving towards a legalized and regulated market for cannabis and vaping could be the most effective approach to the vaping issues that have arisen. Recent reports indicate that over 1000 people have been made sick apparently from vaping. The e-cigarette manufacturers have claimed the issues result from illicit products with additives that state-legal manufacturers generally do not add, but scientific conclusions have not yet been reached.

David Feldman

Trump Reaffirms Support of States Rights in Cannabis

President Donald Trump on Friday reiterated his support of states choosing whether to legalize cannabis. When asked on the White House lawn by a Washington Examiner reporter whether cannabis would become legal during his Administration, Trump stated, “We’re going to see what’s going on. It’s a very big subject and right now we are allowing states to make that decision. A lot of states are making that decision, but we’re allowing states to make that decision.”

While Trump does change positions on issues, he has been consistent on the legalization of cannabis since the 2016 campaign. He has stated he is “100%” in favor of legalizing medical marijuana, and has said a number of times that recreational use should be decided by the states. Of course Republicans tend to favor states’ rights as supporters of federalism.

Trump confirmed back in April 2018 to Sen. Cory Gardner (R-CO) that he would sign a bill that permitted states to decide for themselves on legalization. Gardner and Sen. Elizabeth Warren (D-MA) subsequently introduced a bill to remove cannabis as a controlled substance within states that have legalized it. Many believe that Senate leaders Mitch McConnell and Lindsay Graham have been blocking attempts to move that bill forward in the current Congress.

Trump’s comments seem to echo Attorney General William Barr’s recent statements that his department is effectively operating under the 2014 Cole Memorandum which deemphasized prosecution against state legal cannabis enterprises in most cases.

David Feldman

Cuomo Signs NY Cannabis Decriminalization Bill

New York Governor Andrew Cuomo yesterday signed a cannabis decriminalization and expungement statute, a sort of second prize following the state’s failure to pass legalization of adult use of cannabis in June. The bill takes effect in 30 days and provides just a violation (like a traffic ticket) for possession of up to two ounces of marijuana. The new law also sets up a procedure for those convicted of possession of small amounts of cannabis to seek expungement of their records. The fine for possession of less than an ounce will be $50, or $200 if you possess between one and two ounces.

Many were disappointed when the Democrat-controlled legislature failed to complete legalization with its Democrat Governor. Key legislators blamed the Governor for his apparent unwillingness to be more hands on in pressuring some Senators to support the bill. Cuomo, for his part, said that if the majority support was not there, it was not for him to push. Much of the disagreement related to how far to take embedding social justice efforts into the law and how to use tax revenues to help communities long impacted negatively by the war on drugs. Many hope there will be an opportunity to revisit the issue when the legislature next convenes in January.

As the fourth largest state with 19 million people, New York legalizing adult use would be a major step for the industry. New Jersey also failed to pass adult use legislation this year and intends to put it up for a voter referendum in 2020. New York law does not permit referendums short of a Constitutional convention. Empire State voters decide on whether to hold a convention every 20 years, and voted down the effort in 2017. The industry was pleased when Illinois, the sixth largest US state with almost 13 million people, passed adult use legalization last month, the 11th state to fully legalize cannabis.

David Feldman

Capital Markets Broaden for US Cannabis Companies

The last few months have witnessed a number of dramatic developments for American companies seeking capital in the fast-growing cannabis industry. In total, these changes portend greater access to funding for these companies. Here is more on these notable deals. (Note: none of the companies mentioned is a client of our law firm).

Greenlane. In April, Greenlane Holdings, a vape distributor, completed an IPO onto the Nasdaq with underwriters led by Cowen & Co., raising $102 million. This was the first time the national exchange listed a US company admitting it was in the cannabis industry. It had previously listed Canadian-based companies since they were operating in a federally lawful manner there. This also was the first underwritten IPO for a US cannabis company, and the first entry by an investment bank of Cowen’s tier.

Akerna. In June, a “special purpose acquisition corporation,” or SPAC, completed its merger with MJ Freeway, the purveyor of the widely used seed-to-sale software for which the company is named. That merged company, now known as Akerna, also is trading on Nasdaq. This was the first SPAC merger with a US cannabis company, and the second to be approved for trading by Nasdaq.

cbdMD and India Globalization. Not to be forgotten, the New York Stock Exchange and its lower tier exchange known as NYSE American have agreed to continue the listings of two companies that have announced their entry into the CBD market. In May, cbdMD, formerly Level Brands, best known as supermodel Kathy Ireland’s company, changed its name and symbol to reflect its move into cannabidiol-based products. India Globalization, which shifted its focus to CBD, was initially delisted. When the company appealed, the exchange reversed the decision and relisted the company back in February.

Arcview deal. In a relatively small deal just this month, the investor network Arcview Group (disclaimer: I am a proud member) raised about $8 million from two key investors, one of which was a well-known cannabis based fund. The other, Trivergance, is a traditional private equity firm that has invested over $1 billion, none in the cannabis space until now. As reported by MJBizDaily, while some traditional funds have invested in the space, this deal is notable because Trivergance served as a lead investor. The move of venture and private equity firms from the sidelines and into cannabis now has begun.

Implications? First, these developments likely will lead to fewer US companies feeling the need to go public in Canada, where previously companies believed capital was easier to access. Second, the growers and sellers of cannabis in the US, those that “touch the plant,” have not yet been permitted to list their shares on a national exchange. It will be interesting to see if and when the exchanges relent on their reticence to list these now large and fast-growing entrepreneurial enterprises as the march to US legalization continues. In the meantime, capital as fuel for growth is more and more available to these US businesses.

David Feldman

NYC to Ban Pre-Employment Cannabis Testing

Last week, the New York City Council overwhelmingly approved a new local law to prohibit city employers from testing potential employees for marijuana use. This weekend Mayor Bill de Blasio indicated he will sign the bill. There are certain exceptions, permitting marijuana testing for police, construction workers, child care workers and some others. It also does not prohibit testing of current employees or firing someone for cannabis use. The bill, which would not take effect until one year after the Mayor signs it, applies to any employers in the city, even if their headquarters is elsewhere. The few Republicans who did not support the bill argued that employers should have the freedom to decide whom they wish to hire.

It appears no measure like this that has passed elsewhere, even in states that have legalized adult use of cannabis. Some states’ laws do prohibit discrimination against employees solely because they use medical marijuana. New York’s current proposed cannabis legalization bill, for example, would treat possessing a medical cannabis card as a disability, entitling the holder to certain benefits and protections. This bill, however, also prohibits testing of those using cannabis recreationally.

NYC has been readying itself for the expected passage of legal adult use cannabis in the State at some point this year. While previously opposed to legalization, the Mayor now supports it. Following an embarrassing New York Times story, the Mayor also recently banned the NYPD from arresting folks solely for using marijuana in public. Only traffic tickets can be issued now. Will the Big Apple lead the way in supporting the legal use of cannabis? This new law appears to be an important step in that direction.

David Feldman

Senior Trump Officials Support Congressional Action on Cannabis

In the last week both the US Attorney General and the Treasury Secretary have encouraged Congress to take action towards easing US cannabis prohibition. Yesterday, in testimony before Congress, AG William Barr seemed to support the currently pending Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, while still opposing legalization. He was concerned about the continuing conflict between federal and state laws in the area, saying: “The situation that I think is intolerable and which I’m opposed to is the current situation we’re in, and I would prefer one of two approaches rather than where we are. Personally, I would still favor one uniform federal rule against marijuana but, if there is not sufficient consensus to obtain that, then I think the way to go is to permit a more federal approach so states can make their own decisions within the framework of the federal law and so we’re not just ignoring the enforcement of federal law…I would much rather that approach—the approach taken by the STATES Act—than where we currently are.”

Separately, many have been disappointed by the lack of action by Secretary Steven Mnuchin’s Treasury Department. In February 2018 he said that addressing the challenge of cannabis businesses’ access to commercial banking was at the “top of the list” of his priorities. Since then the Department has taken no action on the issue. On Tuesday of this week, Mnuchin announced in Congressional testimony, essentially, that his hands are tied and he believes he cannot solve the cannabis banking problem administratively. He urged Congress to address the issue with new laws “on a bipartisan basis.” Mnuchin spoke of the need to build “cash rooms” at Treasury to hold taxes that cannabis companies pay in cash. The SAFE Banking Act of 2019, which would effectively eliminate most restrictions on banks taking cannabis companies as customers, has passed the House Financial Services Committee and is expected to pass the full House as well. It’s fate in the US Senate is less clear. The STATES Act also would address the banking issue.

Politically, it appears we are closer than ever to Congressional action in this area. Every Presidential candidate, including all the Democrats, Trump and his current Republican contender Bill Weld, favors some form of legalization or allowing states to decide on the matter. Between the growing public support for legalization, the taxes and jobs pouring into cannabis-legal states and the desire to right the wrongs of the War on Drugs, it is becoming both more politically acceptable and politically expedient to support easing of federal criminal restrictions. The current holdup? The US Senate, where Lindsey Graham and Mitch McConnell continue to appear to desire to stonewall further legalization efforts. Stay tuned.

 

With Gottlieb Leaving FDA, Uncertainty Over CBD and Hemp Regulation Remains

David Feldman, a Duane Morris partner and team lead of the firm’s Cannabis Industry Group, was quoted in the Corporate Counsel article, “With Gottlieb Leaving FDA, Uncertainty Over CBD and Hemp Regulation Remains.”

“There is tremendous confusion in the marketplace right now concerning what is and isn’t legal in hemp and CBD,” Feldman said. “We are comfortable as to knowing what we know is true. There is a lot of uncertainty as to what operators can and can’t do.”

Feldman said he is telling clients that there will be a path for legal hemp and legal CBD products, but that path does not yet exist. He said there is a process in place already for companies seeking approval for drugs with CBD in them, however there is still a question of what the approval process will be for food and beverages containing CBD.

To read the full article, visit the Corporate Counsel website (subscription required).

David Feldman

New York Proposes Legalizing Adult Use Cannabis

On Tuesday, NY Gov. Andrew Cuomo released draft adult use cannabis legislation. Called the Cannabis Regulation and Taxation Act, it is just a few hundred pages long. The bill would set up a new “Office of Cannabis Management” (OCM) to oversee regulation. The office would operate under the Division of Alcoholic Beverage Control, taking control from the Department of Health, where it currently sits for the existing NY medical cannabis program.

The OCM’s Executive Director would get to decide how many licenses for growing, processing and selling cannabis it will grant. It would also decide the “standards of cultivation and processing” of cannabis and be permitted to conduct inspections and exact civil penalties on rule breakers. In a nod to those historically disadvantaged by the war on drugs, the OCM would be authorized to offer low or zero interest loans to “qualified social equity applicants.” The OCM would also take into account whether a license applicant is minority or woman-owned or owned by a service-disabled veteran or a disadvantaged farmer, and must implement a plan to “actively promote racial, ethnic, and gender diversity when issuing licenses.” Businesses would be prohibited from taking “adverse employment action” against an employee just for conduct which the bill permits unless their job performance is impaired. Three different taxes would be imposed on cultivation and sale, including a 22% combined state and county tax on a sale from a wholesaler to a retailer. The state estimates this could yield as much as $300 million in annual tax revenues. Taxes would be used for traffic safety, small business and substance abuse services.

Medical cannabis availability would be expanded to include, among other things, autism, and the OCM can add to the list in their discretion. Hospitals would be able to dispense medical cannabis. The current “registered organization” model for medical cannabis companies would continue, with the bill requiring at least 10 such ROs (there currently are 10 licensees). Non-NY licensed medical cannabis operators could receive licenses here without going through the rigorous application process if the OCM is satisfied with the regulations in the state of the original license. In fact the proposal requires giving a preference to these companies that are licensed elsewhere. This would likely favor the larger multi-state operators. Medical patients would be permitted to grow up to four plants at home.

Current ROs would be permitted to apply for adult use licenses, and the OCM would be able to conduct an auction of those licenses among the current ROs, with money used to make those low or no interest loans. Qualifying for medical cannabis would be deemed a disability under NY law. Retail pricing of medical cannabis would be approved by the OCM. CBD growers and extractors would also be able to obtain licenses, but food from hemp and hemp that is not intended for consumption generally would be subject to normal agriculture laws. Cannabis testing labs, cannabis brokers, truckers, delivery services, CBD retailers, caterers serving cannabis and warehouses also would be licensed by the OCM.

Regarding adult use, companies would not be required to be “vertically integrated” – a business can be growing, processing, distributing, selling or transporting cannabis or operating an “on-site consumption” location, which would be permitted. Cultivators would only be permitted one license each. Processors would be able to receive up to three licenses. Growers, processors and distributors (other than existing ROs) would not be permitted to own an adult use dispensary, and no one would be allowed more than three adult use dispensaries. Public smoking and outdoor growing of cannabis would not be permitted, but growing in greenhouses would be. Adult use would be permitted for those aged 21 and older.

Municipalities where adult use dispensaries would be located would have the right to express their opinion on the matter, which the OCM can take into account. Larger counties and cities would have the right to opt out of adult use cannabis. One controversial provision requires companies with more than 25 employees to sign union agreements. Advertising would be permitted but regulated. No importing or exporting of cannabis would be permitted unless federal law changes. Licenses would not be transferable. There’s an interesting provision prohibiting state law enforcement agencies from cooperating with the Federal Government in enforcing the Controlled Substances Act against people complying with the proposed law. Licensees’ principal officers and directors do not have to be NY residents, but must be US citizens or permanent residents.

Remember this is just a proposed bill. It still has to go through the NYS legislature, though both of those houses are currently controlled by Cuomo’s Democrats. The Governor has stated he would like to pass legislation by mid-April.

 

David Feldman

Rohrabacher-Blumenauer Amendment Expired with Shutdown

A long standing legal prohibition on federal enforcement against state legal medical cannabis operators expired on December 21, 2018 when the U.S. Government partially shut down. The amendment had been renewed and extended multiple times through that date.

First adopted in 2014, the amendment to annual appropriations bills known as the Rohrabacher-Blumenauer Amendment is expected to be reimplemented when the Government is reopened and the current budget stalemate resolved. In the meantime, however, technically, federal enforcement against state legal medical cannabis companies is possible. That said, most of the government agencies who could pursue such enforcement remain unfunded and shut down.

Most commentators also do not expect to see any change in federal enforcement activity as public sentiment, Congressional activity and state legalization efforts are all moving in the direction of ultimately eliminating prohibition on the medical and adult use of cannabis.

 

David Feldman

Cuomo Announces Plan for 2019 NY Adult Use Legalization

New York Governor Andrew Cuomo today said that he will support legalization of adult use of cannabis as a key part of the 2019 legislative agenda. In fact news reports suggest he wants to get this done within the first 100 days of his new term next year.

In his remarks on the subject he focused on reversing the stigma of cannabis use and eliminating the targeting of people of color in enforcement of anti-cannabis laws. According to ABC News, in New York City, Comptroller Scott Stringer estimated  that legalizing cannabis could yield as much as $1.3 billion in annual tax revenue for the state and about $350 million for New York City alone.

In August the Governor commissioned a work group to focus on drafting the legislation, following the advice of a task force that the benefits of legalization outweigh the risks. The work group has been conducting “listening sessions” throughout the state.

As recently as 2017 the Governor had called cannabis a gateway drug. Given the national trend to legalization and the fact that New York’s neighbor, New Jersey, is about to pass adult use legislation, however, Cuomo has felt political pressure to move ahead.