General – Page 7 – Cannabis Industry

September 19, 2023September 19, 2023 by Seth A. Goldberg

Cannabis Banking Ticks Up, But the Industry Needs SAFE Banking

Just ahead of the Senate Banking Committee’s vote on the Secure and Fair Enforcement (SAFE) Banking Act, the Financial Crimes Enforcement Network (FinCEN) has reported that a total of 812 banks and credit unions filed reports in the 2d quarter 2023 indicating they are actively providing banking services to cannabis industry participants, referred to by FinCEN as Marijuana Related Businesses, which is the highest number since FinCEN began reporting on cannabis banking activity in 2014. However, those 800 or so banks are just a fraction of the thousands of FDIC banks that could be providing banking services to the cannabis industry. Even with the increase in banks providing their services to the cannabis industry since 2014, the industry remains burdened by a dearth of banking. Cannabis companies, employees, and consumers are not able to access traditional financing, payroll services, credit cards, ACH, and debit services, which are the lifeblood of other consumer packaged goods industries. Meanwhile, banks are routinely analyzing entering the cannabis space, but deciding against it because of the cost of compliance, among other reasons. SAFE Banking would provide access to critical banking services.

September 12, 2023 by Seth A. Goldberg

California AG Targets Online Sales of Hemp Synthesized Delta-9 Inhalable Products

On September 11, 2023, the California Attorney General’s Office filed a Complaint against a handful of manufacturers of “inhalable hemp products” because they contained hemp-synthesized Delta-9 THC and beta-Myrcene. The Complaint alleges that the sales of such inhalable hemp products violates California’s Proposition 65 and California’s Unfair Competition statutes. Although under California’s AB 45 hemp and cannabinoids, extracts, or derivatives of hemp are permitted to be included in food and beverages , dietary supplements, cosmetics, processed pet food, AB 45 explicitly prohibits the sale of inhalable hemp products in California. Likewise, Prop 65 identifies Delta-9 THC and beta-Myrcene as chemicals known to cause developmental harm, and are thus required to be labeled accordingly; Defendants products were not so labeled. Importantly, none of the Defendants are California residents, and all of the products at-issue appear to have been purchased online and delivered from outside California. Thus, this action should send a strong message to hemp synthesized D-9 manufacturers selling inhalable products into California.

September 7, 2023 by Duane Morris

Webinar: Distressed Cannabis M&A

Duane Morris, in partnership with FTI Consulting, will hold its next Cannabis Webinar, Distressed Cannabis M&A, on Thursday, October 5, 2023, from 1:30 p.m. to 2:30 p.m. Eastern.

Learn more and register on the Duane Morris website.

August 30, 2023 by Brad A. Molotsky

Changes to the Controlled Substances Act for Cannabis to make it a Schedule III Drug – The Winds May Be Blowing this Way

Earlier today, on August 30, 2023, the U.S. Department of Health and Human Services (HHS) officially recommended that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act (CSA) – a landmark recommendation from HHS which indicates that HHS no longer considers cannabis to be a drug with high abuse potential and no medical value.

After completing a scientific review into cannabis per a requested review from the Biden Administration, HHS advised the Drug Enforcement Administration (DEA) that it believes marijuana should be placed in Schedule III of the Controlled Substances Act.

Note, HHS’s recommendation is NOT binding on the DEA but given the report’s findings and growing public sentiment is likely that the DEA agrees with the recommendation and shifts its policy.

Historically, cannabis has been federally prohibited as a Schedule I controlled substance. As noted by many pundits, the rescheduling to Schedule III would have major implications for researchers who have long criticized the Schedule I classification that creates significant barriers to access for studies.

For researchers, this change would likely mean that they would no longer need to go through the onerous registration process with the DEA in order to access cannabis for studies as a Schedule III drug. The shift to Schedule III would also enable various federal tax deductions to become applicable to the cannabis industry and unlock value for them that is currently stuck in an onerous tax structure under the Internal Revenue Code. Schedule III drugs are not subject to the same onerous structure under federal rules.

The cannabis ball is now firmly in the DEA’s court as the DEA has the final authority to schedule a drug as Schedule III rather than Schedule I under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether).

Parting Hits – With Congress due to reconvene after Labor Day, and the Biden Administration looking for a win on moving this issue along, look for pressure to continue to mount for some type of Congressional action in the Banking arena under a SAFE legislation bill and for the DEA to move through their rule making process in a swift and firm manner.

Duane Morris has a full service cannabis group that helps clients and investors in a wide array of cannabis-related issues including, but not limited to, licensing, fundraising, intellectual property protection and real estate. If you have any questions, please do not hesitate to contact Brad Molotsky or the attorney with whom you regularly communicate at Duane Morris.

August 25, 2023 by Emily Meehan

Judge Rules that New York’s Discretionary Licensing Process Violates the Law

On August 18, 2023, a New York Supreme Court judge, ruled that the state’s discretionary licensing process violates the law.

A group of disabled military veterans filed a lawsuit against cannabis regulators claiming the initial round of New York licenses were improperly limited to people with prior marijuana convictions, rather than a wider group of service-disabled veterans and other social equity applicants prioritized by New York’s Marihuana Regulation and Taxation Act.

Supreme Court Judge Kevin Bryant upheld the lawsuit and stated, “There is no dispute” that state law says applications “shall be opened for all applicants at the same time.” As a result, Justice Bryant issued an injunction blocking the the state Office of Cannabis Management (OCM) from processing or issuing marijuana dispensary licenses until at least Aug. 25.

This is the latest setback in a series of delays since New York legalized marijuana two and a half years ago. There are only 23 legal dispensaries in the state, with more than 300 farmers and manufacturers in need of a place to sell their goods.

Further arguments on the ruling will be held Aug. 25. The OCM plans to appeal, a spokesperson said in a statement Monday.

August 7, 2023 by Danielle M. Dwyer

Bipartisan House Bill Shows Feds May Be Relaxing Stance on Marijuana in Employment Decisions

Although several states have relaxed their stances on marijuana, and in turn protected employees’ lawful off-duty use of marijuana, employees (and often contractors) of the federal government are usually excluded from these protections. Marijuana remains a Schedule I substance under federal law, and thus is unlawful, without exceptions.

However, the federal government is starting to take steps towards softening its stance on marijuana, which may be welcomed news to many considering that the federal government is the largest employer in the United States.

On July 27, 2023, Representatives Jamie Raskin (D-MD) and Nancy Mace (R-SC) introduced bipartisan legislation in the U.S. House of Representatives that would allow job applicants who are current or former marijuana users to receive federal security clearances and have access to federal job opportunities. The Act, titled the Cannabis Users’ Restoration of Eligibility Act, or the “CURE Act,” would amend the Intelligence Reform and Terrorism Prevention Act to prohibit current or past use of marijuana from being a consideration with respect to a person’s eligibility for security clearances or eligibility for employment with the federal government.

Individuals who are denied security clearance or employment will also be afforded the opportunity to have that decision reviewed by the applicable federal agency under the Act. If it is determined that current or past marijuana use was the reason for the denial, the agency is to reconsider the same.

The Act, in its current form, is silent as to whether federal agencies can continue to test current employees for marijuana, and what actions, if any, agencies can take against current employees who test positive for marijuana.

The CURE Act has a ways to go before it becomes law, and it is likely to meet significant resistance along the way. Nevertheless, the progress marijuana has made in becoming more acceptable and mainstream is evident, and those on Capitol Hill are taking notice.

July 10, 2023July 10, 2023 by Seth A. Goldberg

FDA Issues Warning Letters Against Delta-8 THC Gummies

I previously wrote about the American Trade Association for Cannabis & Hemp’s policy paper that called for the federal and state regulation of hemp -synthesized intoxicants like Delta-9 and Delta-10 THC, issued on June 24, 2023. Last week, the FDA issued warning letter to six different manufacturers of gummies containing Delta-8 THC: Delta Munchies, Dr. Smoke LLC (also known as Dr. S LLC), Exclusive Hemp Farms/Oshipt, Nikte’s Wholesale LLC, North Carolina Hemp Exchange LLC and The Haunted Vapor Room.

The warning letters explain that the products at issue are adulterated under the Food, Drug and Cosmetics Act, because Delta-8 THC has not been authorized by the FDA as a “food additive.” They note that the FDA has received numerous adverse event reports pertaining to products containing Delta-8 THC, especially such products ingested by children, and emphasize the FDA is particularly concerned about the marketing of gummies containing Delta-8 to children. In this connection, the warning letters also claim the products at issue were marketed in a deceptive manner in violation of the FTC Act.

The manufacturers were told to cease and desist the sale of the allegedly offending Delta-8 containing products. The warning letters will likely result in further investigation by the FDA and a process by which the manufacturers will work with the FDA to resolve the issues raised in the warning letters.

July 7, 2023July 10, 2023 by Seth A. Goldberg

Bi-Partisan Legislation to Legalize Cannabis in Pennsylvania Proposed

Pennsylvania Senators Dan Laughlin (R) and Sharif Street (D) have proposed legislation to legalize cannabis in Pennsylvania. Senate Bill 84 includes an 8% sales tax, 5% excise tax, restrictions on marketing to youth, expungement of prior cannabis convictions, and other social justice measures, such as social and economic equity licenses. Given the legalization of cannabis in Pennsylvania-border states, such as New York, New Jersey, Delaware, Maryland, and Ohio, the legalization of cannabis in Pennsylvania is necessary to ensure PA cannabis consumers purchase their products in state, which will allow the Commonwealth to enjoy the associated tax revenue, and PA residents to enjoy the economic benefits, such as more jobs and construction, associated with expanding the current medical marijuana program.

July 7, 2023July 10, 2023 by Seth A. Goldberg

ATACH Calls for the Regulation of Hemp-Synthesized Intoxicants

Since the legalization of Hemp under the 2018 Farm Bill, a market has grown for products that synthesize Hemp-derived compounds into intoxicants that provide a high for consumers. Manufacturers of such products claim they are legal because they were synthesized from federally legal Hemp. Because FDA and most states do not have regulations specifically addressing such Hemp-synthesized intoxicants, products containing Delta-8, Delta-10 and a synthesized version of Delta-9 are being marketed widely, and with little, if any, federal or state regulation. Consequently, such products propose a health and safety risk to consumers, and undermine state-legal cannabis programs throughout the U.S. Last week, the American Trade Association for Cannabis & Hemp issued a comprehensive policy paper calling for the regulation of Hemp-synthesized intoxicants. ATACH urged federal and state lawmakers, as follows:

- Amend the definition of hemp to account regulation for final product
- Adopt standards for all intoxicating cannabinoids, whether from marijuana or hemp
- TTB should regulate intoxicating products in adult-use settings
- FDA should provide a pathway for non-intoxicating cannabinoids such as CBD
- State labs should be provided with federal technical assistance
- Retail sales should be limited to adults 21 or over anywhere intoxicants are available
- Intoxicating cannabinoid products should be regulated in marijuana programs
- Regulators should adopt uniform testing and labeling standards
- Enforcement efforts should be supported, and regulations should promote public health and safety

June 28, 2023June 28, 2023 by Paul P. Josephson

Expanded Equity Funding for NJ Licensees Heads to Governor’s Desk

A sea change in the funding of New Jersey cannabis businesses has been approved by New Jersey’s Legislature and is pending on Governor Murphy’s desk awaiting his signature. Duane Morris attorneys assisted in the conception and drafting of this legislation.

That legislation, A4151, will allow far greater levels of investment in minority, women and disabled veteran owned adult use cannabis businesses by those best positioned to invest in them on equitable terms – current licensees and cannabis funds. The bill will increase the equity stake a licensee or investment fund may have in these diversely owned businesses from 5% to 35%, and allow them to invest in up to 7 diversely owned licensees. This will also allow capital stacks to rely more heavily towards equity, reducing the debt component at high interest rates that burn cash flow new operators need to get their businesses on solid footing. To date, these terms have only been available to New Jersey small universe of diversely owned medical cannabis licensees.

The bill protects against predatory conduct by preventing investors from acquiring a majority interest in the diversely owned business, even in cases of default. In the event of default, majority ownership by diverse interests must be maintained. Terms must be commercially reasonable as determined by the Cannabis Regulatory Commission.

Context: Hundreds of New Jersey conditional licensees are struggling to raise the $250,000 to $1 million initial investment they need to fund even a simple dispensary given high real estate, labor, tax and compliance costs in New Jersey. Without funding, they simply cannot complete the steps needed to convert to annual licensure (i.e., secure real estate and municipal approval and complete their operational plans and SOPs) and open for business.

Without funding, many of those conditional licensees will be forced to abandon their efforts and in many cases wipe out their personal investments to date, which often are funded out of 401(k) and other savings accounts.

Diversely owned cannabis businesses and equity investors alike interested in learning more about this opprtunity should contact Paul Josephson, Tracy Gallegos, or Michael Schwamm.