All posts by David N. Feldman

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.

David Feldman

New York Approves Medical Cannabis as Opioid Alternative

Following guidelines already in place at the New York Department of Health, Gov. Andrew Cuomo signed a bill last month formally adding “acute pain management” to its list of conditions for which medical cannabis can be prescribed. This change is important since it allows doctors to offer cannabis as an alternative to opioids for acute pain, not just chronic pain, which was previously added to the list. Substance use disorder sufferers also would be permitted under the bill to obtain medical cannabis to manage their pain, again with the hope of avoiding the use of opioids.

We need not recite the well-documented human destruction that has been caused by the US opioid epidemic. Not limited to those with addictive tendencies, many are innocently prescribed these drugs following surgeries or with other acute pain and become hooked. Now NY doctors will have a state legal alternative in these situations. And while there are no clear statistics yet, a study published by JAMA in April of this year concludes, “[L]iberalized prescribing of marijuana may result in decreased use of opioids, and hence, fewer subsequent opioid-related overdose events.” In this population-based, cross-sectional study using Medicaid prescription data for 2011 to 2016, medical marijuana laws and adult-use marijuana laws were associated with lower opioid prescribing rates.

As we know, Gov. Cuomo in the last year or so has gone from considering cannabis a gateway drug to appearing to support adult use legislation, which is currently being drafted by a task force he commissioned. If he wins reelection in November, which is widely expected, many believe he will support such legislation if passed. His Republican opponent, Marc Molinaro, previously supported adult use legalization but recently has been stopping short, agreeing with the availability of medical cannabis and decriminalization to avoid cannabis users facing jail time.

David Feldman

Cannabis Stocks: The Thing About Bubbles

Many believe that cannabis stocks are experiencing a “bubble,” meaning that market valuations are unjustified, unrealistic and based on investor hype as opposed to typical fundamental markers such as revenues, assets and profit. Some, like The Motley Fool, believe this is a bubble ready to burst. The Wall Street Journal includes quotes from new entrants in the space suggesting this is much like the Internet stocks of 1997 or 1998, remembering that in 2000 the Internet stocks crashed mightily, taking years to recover after many companies did not survive the shakeout.

The cannabis data analytics company New Frontier Data reports that, year to date, seven of the top 12 cannabis stocks have posted more than 200% gains. The data company also seems to be recommending that, “As cannabis stocks continue to rally, prudent investors should consider taking profits and exercising caution.” The AP just quoted a stock analyst warning, “[i]f there is a bubble, larger investors will protect themselves and won’t overinvest in single companies, but smaller investors who see a chance to get rich quickly could suffer painful losses.”

It is true that, in particular in Canada, cannabis stocks are trading at extremely high valuations relative to the companies’ financial condition and results. One company, for example, with around $20 million in first half revenues, is trading at the same valuation as Macy’s, which has $25 billion in annual revenue. In the US the valuations are a bit more down to earth, but also considered by most to be high given performance.

Many others, including leaders of companies with these high-flying stocks, strongly believe these valuations are justified based on the tremendous future potential of the cannabis industry as we get closer to federal legalization in the US and global growth proceeds as well. They believe that as long as investors continue to believe in the future of the very rapidly growing industry, the valuations will continue to stay strong and be justified, and performance will grow to further support the bubble pricing. But the thing about bubbles…

David Feldman

DEA Proposes Major Increase in Cannabis Research

Earlier this month, surprising many in the industry, the Drug Enforcement Administration announced it is proposing to significantly increase the amount of cannabis it will permit to be grown for research purposes in 2019. The 2018 limit, about 1000 pounds, will be increased to over 5400 for 2019, an over five-fold increase. The proposal remains open for public comment for the next 30 days, then the DEA will make final decisions on the matter.

Until 2016, only the University of Mississippi was permitted to grow cannabis for federally approved research purposes. But very few licenses were approved, and in most cases researchers learned that the low quality of product from Ole Miss made research essentially worthless. The Obama Administration, in its last months, approved a dramatic increase in research and opened up the right for other institutions to apply to grow cannabis for that purpose. Dozens applied, but Attorney General Jeff Sessions, until now, had not let any licenses be approved. Some believe it is relentless pressure on Sessions from the Senate that has led him not to stand in the way of this new action. In a hearing almost a year ago he had even admitted that adding more grow facilities for research could be “healthy.” 

Cannabis medical research has been exploding elsewhere, particularly in Israel. For example, a published, peer-reviewed study earlier this year from there showed that over 95% of thousands of tested cancer patients said their condition improved with the use of cannabis. There is also a state-funded “Center for Medical Cannabis Research” in California that has commenced several studies, including one on the efficacy of CBD on autism spectrum disorder. Another California group is studying whether smoked cannabis can help with post-traumatic stress disorder. Most of these studies, however, are not “double blind” clinical trials given the federal restrictions. Many in the industry hope that the expanded DEA licensing will open the door to more exploration of the potential medical benefits of cannabis.

David Feldman

Hemp Growing Again on Mount Vernon

In a rather symbolic moment in the march to the legalization of industrial hemp, the caretakers at George Washington’s Mount Vernon farm announced in May (although it has only recently received news attention) that they have planted a small crop of industrial hemp. They are doing so under Virginia law and say they are going to use the plant  “as an interpretative tool to help better tell the story of Washington’s role as a farmer.

As many know, hemp was a critical crop in Colonial times and some states, including Virginia, actually required farmers to grow it. Hemp was used particularly to make rope, thread, canvas and sailing cloth. Washington’s primary crop actually was hemp. Thomas Jefferson grew hemp as well.

The Mount Vernon farmers intend to use the hemp they grow to give fiber-making demonstrations at the site, which is owned by the Mount Vernon Ladies Association of the Union. They bought the site from Washington’s descendants in 1858 for $200,000 and now about a million visitors each year tour the facility. Many do not realize that Mount Vernon is not owned by the Federal government and is not a national park.

Hemp, while derived from the cannabis plant, contains no THC and has no psychoactive effects.  In June, the Senate passed a farm bill that included language effectively legalizing industrial hemp. However, the House version of the bill is silent on hemp, and a conference to deal with the differences is being arranged. Senate Majority Leader Mitch McConnell (R-KY) is a strong supporter of legalizing hemp, which many believe will help sway some skeptical House Republicans to support those provisions.