Kelly Bonner Reviews How to Legally Implement CBD Products and Services into the Spa Industry

Duane Morris associate Kelly Bonner shares legal insight on CBD products and services in the January issue of DaySpa magazine.

From the publication:

  1. Consider the source. CBD can be derived from both hemp and marijuana, which have different definitions in U.S. law and are subject to different statutory and regulatory requirements. Hemp-derived CBD products are not illegal to sell and possess under federal law, as long as they contain no more than 0.3 percent tetrahydrocannabinol (THC). Marijuana has more than 0.3 percent THC, and is a Schedule I controlled substance under the federal Controlled Substances Act.
  2. Get proof. Given the current lack of federal testing requirements for CBD products, it can be difficult to ensure that those purchased from third-party vendors contain no more than the permitted level of THC. So it’s extremely important that spas get anything containing CBD from a trustworthy supplier who can verify ingredients, confirm THC levels with third-party labs and/or provide certifi cates of analysis.
  3. Act locally. While the 2018 Farm Bill lifted the federal ban on the commercial cultivation of hemp and derivatives that contain no more than 0.3 percent THC, the ability to manufacture, market and sell CBD products is still heavily regulated at the state level, and changing rapidly.
  4. Make no promises. The U.S. Food and Drug Administration (FDA) has issued warning letters to a number of CBD companies that have touted their products as having certain health benefi ts in their promotional materials and on packaging or websites. Spas should ensure that any products or services offered don’t come with false or misleading claims.
  5. Handle with care. Although research into the risks of CBD use is ongoing, the FDA has noted potential adverse health effects linked to the use of cannabis products containing THC by pregnant or lactating women. Even though CBD topicals typically contain very low levels of THC, spas should be up front with clients about potential risks.

To read the full text, read the January issue of DaySpa magazine.

Seth Goldberg Predicts What 2020 Will Bring to the World of Weed

Seth Goldberg, Duane Morris partner and Cannabis Industry Group team lead, is quoted in The Philadelphia Inquirer article, “Reading the tea leaves: What 10 cannabis bigwigs predict 2020 will bring to the world of weed.”

Mr. Goldberg says:

We’ll see adult-use in Illinois. While vaping bans are likely to be removed, additional restrictions around THC vaping could be imposed by states.

The hemp space seems situated to expand as the regulations become more clear, and the federal banking regulators have recently announced that hemp can be banked like any other legal product.

A lot is contingent on the federal government. If the STATES Rights Act or SAFE Banking Act were to pass, the latter of which seems to have the best chance in 2020, there will be a boost. Conversely, tightening of enforcement by the federal government could have the opposite effect. FDA regulations around vaping and CBD as a drug, dietary supplement, food/beverage may also be issued in 2020, which would shape the market for those products.

Bottom line, businesses and individuals in 2020 must remain mindful of the differences between the federal and state regulatory framework and the state-by-state regulatory patchwork, and be nimble in responding to changes.

To read the full article, visit The Philadelphia Inquirer website.

NIH-Funded Study Reveals Historic Rise in THC Vaping Rates Among Adolescents

One day after a federal judge dismissed a lawsuit challenging the U.S. Food and Drug Administration’s (FDA) regulatory authority over e-cigarettes, a published study funded by the National Institutes of Health (NIH) reported that more than 20% of High School seniors in the U.S. reported vaping THC (the psychoactive cannabinoid found in marijuana) in 2019.

According to the study, 20.8% of 12th graders reported marijuana vaping in the past 12 months, while 14% reported marijuana vaping in the past 30 days. (These figures, in 2018, were 13.1%, and 7.5%, respectively.) According to the report, the absolute increases from 2018 to 2019 in 12th graders who reported vaping marijuana within the previous 30 days were “the second largest … ever tracked by Monitoring the Future for any substance in its 45-year history[,]” only outpaced by the increase in nicotine vaping from 2017 to 2018.

Other age groups showed increases in THC vaping as well; the percentage of 10th graders who reported marijuana vaping in the past 12 months increased from 12.4% in 2018 to 19.4% in 2019 and the percentage of 10th graders who reported marijuana vaping in the past 30 days increased from 7% in 2018 to 12.6% in 2019. Moreover, the percentage of 8th graders who reported vaping marijuana in the past 12 months increased from 4.4% in 2018 to 7% in 2019; for use in the past 30 days, the percentage increased from 2.6% to 3.9% over the same time period.

Based on the results of the just-released study, Judge Guirola’s opinion–in which the court held that the delegation of authority to the FDA under the Family Smoking Prevention and Tobacco Control Act was not unconstitutional–could be afforded renewed significance. Both the federal court’s order and the NIH-funded study documenting the rise in THC vaping among adolescent come in the midst of heightened scrutiny of e-cigarette and vaping products generally, in light of the widely reported lung-related health issues stemming from use of certain vaping products.

Given the new data from the NIH-funded study and the FDA’s recently confirmed regulatory authority over the products alleged to be causing the lung-related illnesses, it appears likely that calls for regulators to scrutinize and crack down on the manufacture and sale of e-cigarettes and vaping products will only grow.

 

Duane Morris Honored in Cannabis 50 Impact Report

Duane Morris is recognized in the inaugural Cannabis 50 Impact Report, presented by MGO | ELLO.

The report honors a wide range of people, organizations and entities making an impact across the cannabis, hemp and CBD culture. Duane Morris is featured in the Knowledge and Health category as a business “pushing the boundaries of our understanding and sharing the complexities of cannabis, hemp, and CBD with the world” and for “providing legal education and guidance to cannabis.”

From the report:

Duane Morris was the first Am Law 100 firm to engage cannabis on a national platform. Their legal teams support clients across the cannabis supply chain, assisting with regulations, financial transactions, and general litigation. The practice is led by Partners and Cannabis Team Leaders, Jennifer Briggs Fisher and Seth Goldberg. They extend support to the entire cannabis community with their regular series of informational webinars exploring regulatory, business and financial complexities.

For more information, visit the Cannabis 50 website.

Spate of FDA and FTC Warning Letters Sets Stage for Wave of False Advertising Consumer Class Action Lawsuits

Since the 2018 Farm Bill passed in December 2018, removing hemp from the Controlled Substances Act and thus legalizing it under federal law, consumer goods containing the hemp-derivative cannabidiol (CBD) have become exceptionally popular. With that growing popularity among consumers has come increased scrutiny by federal regulators whose mission is consumer safety and protection, such as the Food and Drug Administration and Federal Trade Commission, and now by the plaintiffs’ bar, which files consumer class actions based on advertising. As the recent spate of warning letters and consumer class actions demonstrate, hemp-derived CBD product manufacturers and others in the supply chain for those products have to be mindful of the claims they make to consumers about their products.

View the full Alert on the Duane Morris LLP website.

Cannabis Patent Review: Extraction and Purification

In this first article of his Cannabis Patent Review series, Duane Morris partner Vince Capuano reports on the patenting of technology related to cannabis extraction and cannabinoid purifications.

He writes:

One of the more active areas in the patenting of cannabis technology in 2019 is the related fields of cannabis extraction and cannabinoid purification.  Cannabis operators now must educate themselves and navigate an emerging landscape of U.S. cannabis extraction and purification patents for freedom to operate, while also looking for opportunities to patent their own innovations. So far in 2019, the U.S. Patent and Trademark Office (USPTO) has granted over 30 patents with claims directed to cannabis extraction technologies and many others related to distillation of cannabinoid components and techniques for obtaining active compounds from marijuana and hemp. Dozens more are pending.

Read Mr. Capuano’s full analysis on this topic.

Duane Morris Partner Tracy Gallegos Named a Top Woman of Influence by MyVegas Magazine

Duane Morris partner Tracy Gallegos is featured in MyVegas magazine as one of the Top 100 Women of Influence. The list recognizes women who have made a “huge positive impact … and continue to change the shape of Las Vegas on a daily basis[.]”

Ms. Gallegos has a multifaceted practice that touches upon corporate, real estate, cannabis, sports and entertainment law for clients ranging from startup companies to established businesses. Her clients include cannabis companies involved in retail, manufacturing and cultivation, as well as companies providing ancillary services to the cannabis industry in both California and Nevada.

Read Ms. Gallegos’ profile in the publication. For more information, visit the MyVegas magazine website.

Federal Banking Regulators Take Steps to Allow Financial Services for Hemp-Related Businesses

Banking has been an impediment for the cannabis industry because the Bank Secrecy Act of 1970 (BSA) and related regulations―which seek to prevent money laundering and other financial crimes―place onerous requirements on banks when a transaction is suspected to involve illegal activity. 12 C.F.R. Section 21.11. Notwithstanding billions of state-legal cannabis dollars exchanging hands, the commercial banking industry, which is largely federally regulated, is virtually nonexistent in the cannabis space. In 2014, the Treasury’s Financial Crimes Enforcement Network (FinCEN) provided guidance intended to enhance the banking of cannabis-related monies by establishing a category of suspicious activity reporting for “marijuana related businesses.” But, according to FinCEN, as of June 30, 2019, just 553 commercial banks and 162 credit unions had filed an SAR for a “marijuana-related business.”

View the full Alert on the Duane Morris LLP website.

Canadian Securities Regulators Signal Increased Scrutiny for Cannabis M&A Disclosures

On November 12, 2019, the Canadian Securities Administrators (CSA), the organization that oversees securities regulations in the 10 Canadian provinces, released Multilateral Staff Notice 51-359 Corporate Governance Related Disclosure Expectations for Reporting Issuers in the Cannabis Industry (the “Guidance”). The Guidance specifically relates to the disclosures required in merger and acquisition transactions. The CSA expressed concern over the perceived inadequate transparency relating to the cross-ownership of financial interests involved in such transactions.

The rapid growth of the cannabis industry and the heightened pace of mergers and acquisitions has resulted in many cannabis companies and their directors and executive officers having a higher than usual crossover of financial interests. Often times these interests are intertwined within various management companies, leasing companies, real estate companies and across numerous license holders, as well as interests in investment advisory services entities and other transaction service providers that are receiving compensatory transaction fees.

The Guidance reiterates that in the disclosure document filed in connection with the transaction, the acquiror and/or the acquiree should disclose all relevant and material the cross-ownership of financial interests held by either by the acquirer, the acquiree, or either of their directors or executive officers.

“Investors need to understand the conflicts of interest that could arise when issuers have crossover of financial interests, because those conflicts could have implications for the possible M&A transaction,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers.  We would advise, to avoid potential shareholder litigation, that the disclosure should go beyond the Canadian disclosure requirements and adhere to the more stringent related party transaction disclosure required under U.S. securities laws as many of the cannabis companies have US shareholders or dual listings in the US.

The second issued raised by the Guidance is the determination of director independence as a result of such cross-ownership of financial interests. The CSA stated that they have, “observed instances where cannabis issuers have identified board members as being independent, without giving adequate consideration to potential conflicts of interest or other factors that may compromise their independence.”  Again, the cross-over relationships should be reviewed to make a full independent determination.

It is important for reporting issuers to review closely all disclosures made in connection with a merger and acquisition. As a result of the release of the Guidance, the review conducted by the reporting issuer and its counsel is more critical than ever.  The board of the reporting issuer should review closely all potential conflicts among its members and should consult with its code of business conduct and ethics to ensure that all procedures have been followed relating to conflicts of interest, as well as considering the jurisdiction rules of its shareholder base.

The importance of proper disclosures has been highlighted by a recent proposed class action lawsuits filed against Canopy Growth and Aurora Cannabis, each lawsuit alleging that the companies made false and misleading statements or withheld material information in their securities filings. While the lawsuit is not related to statements in connection with an M&A transaction, these lawsuits do highlight the importance of reviewing closely all disclosures made in US and Canadian securities filings.

By: Nanette C. Heide and Justin A. Santarosa

U.S. Senators Urge Changes to Testing Requirements Under USDA Interim Final Rule for Hemp Program

When the United States Department of Agriculture released the interim final rule for the hemp program in October 2019, many stakeholders—including businesses and state agencies—were caught off guard by certain testing-related requirements contained in the rule. Because hemp is now legal under the 2018 Farm Bill if it contains no more than 0.3 percent THC concentration, testing for THC levels is critical. However, significant questions and issues with the testing requirements must be clarified.

On November 20, 2019, Senators Ron Wyden and Jeff Merkley, both from the state of Oregon, submitted a letter to the secretary of the USDA, in which they flagged—“in no particular order”—five controversial testing-related requirements and requested modifications to those requirements. Below, we have summarized the senators’ concerns and proposed solutions to three particularly controversial testing-related requirements in the interim final rule.

View the full Alert on the Duane Morris LLP website.