Should We or Shouldn’t We? – That Is the Question

Over the past few years the number of states that have legalized marijuana in some form has grown substantially to the point where, as of this writing, 29 states and the District of Columbia have legalized marijuana for either medical or recreational use. This recent acceptance of marijuana by a significant number of states has created a brand new industry, which is estimated to generate approximately $7.0 billion in 2017 and $24.5 billion by 2025. This industry is clamoring for acceptance into a financial system that allows participants to bring the cash generated into the secure environment afforded by our banking system. This will not only provide security to the marijuana related businesses (“MRBs”), but will also permit better accounting, monitoring, and taxing of funds generated by those businesses.

To read the full text of this article, please visit the Duane Morris LLP website.

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.  Continue reading “Racial Discrimination in the Legal Cannabis Space: New Industry, Same Old Story???”

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.

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.

Another Positive Development for the Medical Marijuana Industry

Just one week after the DEA and FDA reiterated the federal government’s willingness to allow broader research into the health benefits of cannabis, the Ninth Circuit Court of Appeals issued a decision barring the DOJ from using federal funds to prosecute individuals and businesses conducting activities in compliance with state medical cannabis laws and regulations.

In U.S. v. McIntosh, No. 15-10117, (9th Cir. 2016), the Court determined that a rider (§ 542) to the appropriations act that funded the government through September 30, 2015, which provided that funds made available under that act could not be used “to prevent [] States from implementing their own State laws that authorize the use, distribution, possession. of cultivation of medical marijuana,” was to be read as prohibiting the federal government from prosecuting individuals and businesses acting pursuant to those state laws and regulations because such prosecution would effectively prevent the states from implementing their cannabis laws and regulations.

As the Court explained, “DOJ, without taking any legal action against the Medical Marijuana States, prevents them from implementing their laws that authorize the use, distribution, possession, or cultivation of medical marijuana by prosecuting individuals for use, distribution, possession, or cultivation of medical marijuana that is authorized by such laws. By officially permitting certain conduct, state law provides for nonprosecution of individuals who engage in such conduct. If the federal government prosecutes such individuals, it has prevented the state from giving practical effect to its law.”

The Court was also careful to warn industry participants that cannabis-related conduct falling outside a state’s cannabis laws and regulations would not be protected from federal prosecution:  “We conclude that § 542 prohibits the federal government only from preventing the implementation of those specific rules of state law that authorize the use, distribution, possession, or cultivation of medical marijuana. DOJ does not prevent the implementation of rules authorizing conduct when it prosecutes individuals who engage in conduct unauthorized under state medical marijuana laws. Individuals who do not strictly comply with all state-law conditions regarding the use, distribution, possession, and cultivation of medical marijuana have engaged in conduct that is unauthorized, and prosecuting such individuals does not violate § 542.”