Cannabis Industry

June 16, 2023June 16, 2023 by Duane Morris

Up in Smoke: Cannabis TM Rejection Shows Need for Caution

On May 3, the TTAB affirmed the USPTO’s previous decision to reject an application for ‘Bakked’. The filing was intended to cover an essential oil dispenser and was submitted by cannabis company National Concessions Group (NCG). […]

[T]he USPTO examiner, as the TTAB reaffirmed, found that the “primary intended purpose” was to dispense cannabis-based oil to a vaping or smoking device.

Hazy Descriptions

Christiane Schuman Campbell, partner at Duane Morris in Philadelphia, says the word “primary” is significant. Continue reading “Up in Smoke: Cannabis TM Rejection Shows Need for Caution”

June 16, 2023 by Deanna J. Lucci

NYS Office of Cannabis Management June 2023 Updates

This week, the New York State Cannabis Advisory Board (CAB) and the Cannabis Control Board (CCB) held meetings to discuss the current state of the cannabis industry and proposed regulations and legislation. The CCB is the approval and oversight body of the Office of Cannabis Management and is responsible for approving the regulatory framework for New York’s cannabis industry. This includes licensing cannabis businesses and approving the regulations and rules that will govern the cannabis industry in the state.

Cannabis Advisory Board Meeting

On June 13, 2023, the CAB met at CUNY School of Law in Queens to discuss the revised proposed regulations after receiving 3,500 public comments. These regulations range from focusing on achieving environmental and sustainability targets in the industry to rules for third-party platforms. Current proposals involve allowing the current Registered Organizations (i.e. vertically integrated medical cannabis operators) to co-locate three adult use dispensaries among their eight medical dispensaries. The CCB will vote on the final regulations at its first meeting in September. The CAB and CCB’s hope is to have a live functioning cannabis industry “with all the bells and whistles.”

The Conditional Adult-Use Retail Dispensary (CAURD) License is the first retail dispensary license available to businesses in New York State. These licenses are awarded to justice-involved New Yorkers and their family members. A “justice-involved” individual is someone who has been convicted of certain marijuana-related offenses in New York.

The State hopes to create a foundation to support an equitable industry. The CAB discussed the benefits of being a part of the CAURD Academy, which offers live education, seminars, office-hour meetings, calls with operators from other states, one-on-one mentorship, vendor demos, and access to accountants. Twenty-five licensees have taken part in the Academy thus far.

The CAB also discussed the NY Social & Economic Equity Plan and its recent report analyzing the national landscape of the cannabis market. Between 1980 and 2021, cannabis-related misdemeanor and felony convictions resulted in lost lifetime earnings of approximately $31 billion, and Black and Hispanic people accounted for 83% of those losses.

Acknowledging that it is inherently difficult for small operators to compete against large corporations, regardless of funding, the CAB agreed that New York State must protect its two-tiered market, enforce antitrust laws, protect against predatory practices, and approve regulations that are pro-competition and pro-employee. The CAB noted that cannabis cultivators and farmers want a clear path to licensure, additional Registered Organizations, and a community-driven incubator program.

Cannabis Control Board Meeting

On June 15, 2023, the CCB met in Buffalo to discuss recent Board updates and hear from the public. Chair Tremaine Wright opened the meeting by assuring New York residents that the state is continuing to open more dispensaries, expand access, and further develop New York’s cannabis supply chain.

The CCB approved Resolution No. 2023-23: Consideration of Conditional Adult-Use Retail Dispensaries. This adds 36 CAURD licenses in the Bronx, Brooklyn, Manhattan, Queens, Central NY, Mid-Hudson, and‒for the first time‒the Finger Lakes. Seven dispensaries were approved in the Finger Lakes region. This approval brings the number of CAURD to 251. Wright said these locations will help farmers get more of their product to market.

The Board then presented updates to the market. There are currently 13 open retailers statewide with more than 40 in development. Twenty-one percent of New Yorkers now live in a city with legal cannabis access. Some dispensaries are delivery-only, which is a new form for the state. Consumers are asked to look for a QR code on the window of the dispensary confirming that it is approved by the state. Retail sales are growing; cannabis sales year-to-date are $22.6 million. Some of the dips in sales were attributed to pop-up shops that have transition to brick-and-mortar spaces, which often require a brief shutdown to build out a new space. Product innovations are occurring regularly. Flower sales make up 51% of the revenue, with the rest split between beverages, complex caramels, premium vapes, and more. This widening of product options draws more consumers to the legal market.

The Executive Director reported next that under a newly enacted law, the Office of Cannabis Management (OCM) and the taxing authorities began raids on unlicensed businesses since June 7, 2023. This law allows OCM to take action against businesses selling cannabis without licenses, bolsters OCM authority by conducting regulatory inspections, utilizes court orders to padlock doors if necessary, and allows OCM to seize illicit cannabis.

Each location inspected is issued a notice of violation for selling cannabis without a license. The maximum penalty is $10,000 per day, plus potential additional penalties and consequences if sales continue.

Finally, during the closing comments, board member Reuben McDaniel resigned, presumably as a result of the perceived conflict of interest of his being both a CCB board member and also as the president of DASNY.

June 15, 2023 by Tracy Gallegos

Cannabis Consumption Lounges Delayed in Nevada – Again

In June 2022, the Nevada Cannabis Compliance Board (CCB) approved regulations pertaining to the licensing and operation of cannabis consumption lounges in accordance with its authority under Assembly Bill 341 (2021). Following the CCB’s implementation of the regulations, the license application window was opened from October 14 – October 27, 2022. During the application period, the CCB received ninety-nine applications, and on November 30, 2022, the CCB identified forty applicants who would be prospective holders of consumption lounge licenses. Of the total forty applicants identified, twenty were applicants that already held cannabis retail licenses in Nevada and intended to operate consumption lounges attached to their retail dispensaries, ten were social equity applicants that intended to operate standalone consumption lounges, and ten were non-social equity applicants that intended to operate standalone consumption lounges.

While cannabis consumption lounges seemed to be moving in the right direction in Nevada, prospective operators have experienced hurdles that have delayed the opening of consumption lounges, including changes to the regulations. Now, those prospective operators are faced with more challenges, including concerns regarding indoor air quality at consumption lounges. Specifically, the regulations include stringent air quality standards that require, among other things, that air be circulated every two minutes – a requirement that is even more stringent than those imposed on cigar bars, taverns and hookah lounges. Installing ventilation systems that meet the requirements set forth in the regulations would be a costly undertaking for an operator, with some industry experts estimating that a compliant HVAC system would cost nearly half a million dollars to install. Moreover, monthly utility bills are expected to be in the thousands of dollars. With cannabis operators already experiencing difficulties accessing capital due to the status of cannabis under federal law, and the volatility in the economic market as a whole further exacerbating capital constraints, some prospective operators simply do not have the capital required to build out a consumption lounge that complies with the strict regulations.

Some operators who are already in the build-out phase have been forced to pause construction while they attempt to raise the funds required to address the air quality requirements. Other operators have elected to halt construction until a final version of the regulations has been adopted, in order to avoid having to revise their build-out plans if the regulations are further revised.

When the CCB first approved the regulations, many predicted that consumption lounges would be open in Las Vegas as early as the end of 2022. That time line was subsequently pushed back to the second quarter of 2023, with many hoping that consumption lounges would open by 4/20 and, if not, by early summer in time for the tourists flocking to Sin City for their summer vacations. As prospective operators struggle to complete their build-outs, industry insiders have again revised the time line to sometime in the third or fourth quarter of 2023.

For now, the only consumption lounge where tourists can legally consume cannabis products is NuWu Cannabis Marketplace, which also includes a retail dispensary. Because it is located on tribal land, it is not required to obtain a consumption lounge license from the state.

June 1, 2023 by Deanna J. Lucci

Minnesota Becomes 23rd State to Legalize Recreational Cannabis

This week, Minnesota Gov. Tim Walz signed into law a bill that legalizes recreational cannabis for adults 21 and older. The law goes into effect on August 1, 2023, and will permit adults to have up to two pounds of marijuana at home and two ounces while in public. The law also creates a new regulatory framework for licenses to cultivate, manufacture and sell cannabis at retail dispensaries. Until the regulations are drafted and licenses are issued, the sale of cannabis in Minnesota remains illegal without a license. Licensed retail dispensaries are expected to open within 12-18 months.

Under the law, non-felony cannabis offenses will be automatically expunged and a board will be established to review more serious crimes involving cannabis.

In the wake of the new law, the St. Paul, MN office of the federal Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) issued an advisory warning that Minnesotans who use cannabis cannot legally own firearms. This is because cannabis remains a Schedule I controlled substance under federal law.

The ATF warning said, “Until marijuana is legalized federally, firearms owners and possessors should be mindful that it remains federally illegal to mix marijuana with firearms and ammunition.”

May 3, 2023May 30, 2023 by Robert Davydov

Cannabis Highlights in the NBA’s New Collective Bargaining Agreement

On April 26, 2023, the National Basketball Association (NBA) announced the ratification of its new, seven-year Collective Bargaining Agreement (CBA) with the National Basketball Players Association (NBPA). The CBA will take effect on July 1, 2023, and will run through the 2029-30 season. The CBA provides, among other things, certain key changes to cannabis-related matters, particularly in connection with the NBA’s Anti-Drug Program and NBA players’ business opportunities.

Anti-Drug Program

According to a summary of the agreement as reported by Law360, the NBA decided to remove cannabis from its Prohibited Substances List. However, NBA players are still subject to random drug tests. The NBA has authority to conduct up to 1,925 random urine tests each season. In addition, teams may refer players to a treatment program if they suspect them of (1) being under the influence of cannabis while participating in league activities, or (2) experiencing a dependency on cannabis.

Furthermore, the NBA may still discipline players for violating the law or for being under the influence during league or team activities. Players who neglect or fail to comply with the Anti-Drug Program will be banned from league activity. Nevertheless, players may now apply for reinstatement of eligibility after one year, as opposed to the two-year rule enforced since 1983.

Business Opportunities

NBA players are also now permitted to: (1) invest in companies that make CBD-infused products, and (2) hold a passive, non-controlling interest in companies that make products with more substantial concentrations of THC. Although players may now promote companies that make CBD-infused products, the NBA continues to prohibit players from promoting cannabis companies and marijuana products.

May 2, 2023May 2, 2023 by Michael D. Schwamm

Does SAFE Banking Have a Chance

Great analysis of the chances that the SAFE Banking Act becomes law from Howard Penney at Hedgeye Risk Management:

The MSOs rallied 7% last week on the back of a bipartisan group of lawmakers reintroducing the SAFE Banking Act. The bill has a 0% chance of passing without hearing from Senator Mitch McConnell. In reality, SAFE does not change much for the industry. Other reform elements around 280e taxes, interstate commerce, and an updated Cole memo are more impactful to the industry’s fundamentals. Unfortunately, lawmakers in Washington, DC, have had difficulty passing modest cannabis reform for several reasons, including the following:

- Playing Politics: The cannabis reform issue has become highly politicized, with Democrats typically favoring legalization and Republicans generally opposing it. This is because cannabis reform has become a highly controversial topic, with politicians more concerned with political posturing and pleasing their base than with finding common ground; this can make it difficult to pass any meaningful reform measures.
- No consensus: Even among people who favor cannabis reform, there may be differing opinions regarding the strategy that should be utilized. Some people may push for marijuana to be fully legalized, while others may merely favor incremental reform measures such as decriminalization or the legalization of medical marijuana. Because of this, it may be challenging to arrive at a consensus that has the potential to gain enough support to enact legislation.
- A seemingly insurmountable conflict: even though several states have decriminalized cannabis in some form, the drug is still Schedule 1, making it against the law on the federal level. Because of this, there is a potential for legislation at the state and federal levels to contradict one another, making it more challenging to enact effective rules and regulations.
- Lobbying and special interests: The cannabis sector in prohibition is in its infancy and rapidly undergoing change; as a result, a significant number of conflicting interests and stakeholders are involved. Lobbying efforts by these organizations (esp. pharma, tobacco, and alcohol) can sway legislators’ attitudes about the matter at hand and make it more challenging to enact reform measures that might not serve the interests of the lobbying organizations.

In general, achieving cannabis reform in D.C. is a complicated subject incorporating various elements, including political, social, and economic considerations. Even while there may be widespread popular support for cannabis law reform, D.C. is unlikely to change the challenging process actually to bring about significant change.

April 20, 2023 by Duane Morris

Employee Numbers up at Some Cannabis Msos Despite Challenging Conditions

News of widespread layoffs at cannabis companies across the United States has dominated headlines, but an analysis of employee counts at America’s largest multistate operators shows several actually grew their payrolls last year.

The fact that employee payrolls were up for some marijuana MSOs at the end of 2022 but down for others underscores how several factors can play a role in determining a company’s health.

Those factors include geographic footprint, taxes, operating costs and capital availability, experts said.

“The present moment is the Great Rationalization for the industry,” Paul Josephson, a New Jersey-based partner and leader of the cannabis industry group at the Duane Morris law firm, told MJBizDaily via email.

“Price compression and profitability varies tremendously by state and even within a state. So smart operators are taking a hard look at where they are investing their human capital.”

That means winding down operations in some areas and investing in others with more opportunity for revenue growth.

To read the full text of this article, please visit the MJBizDaily website.

April 17, 2023 by Michael D. Schwamm

New York City Introduces Several Local Laws Aimed at Helping to Control the Unlicensed Cannabis Industry in NYC

Two pieces of legislation were recently introduced in the New York City Council aimed at controlling the unlicensed cannabis market in New York City.

The first bill bill would prohibit knowingly leasing commercial premises to a tenant who uses the premises for distribution or sale of cannabis or cannabis products without a license. The first time that an unlicensed cannabis seller is found to be operating in leased commercial premises, the Sheriff, Police Department, or any other relevant agency would issue a warning to the owner of the premises. If an unlicensed cannabis seller is later found to be operating in the same commercial premises, the owner would be liable for civil penalties. https://legistar.council.nyc.gov/LegislationDetail.aspx?From=Alert&ID=6165428&GUID=33A0F77B-950A-4A9E-8033-F0316A346404&Options=ID%7CText%7C&Search=cannabis

The second bill would require the Department of Health and Mental Hygiene to collaborate with the Department of Consumer and Worker Protection and any other relevant agency to create and implement a public awareness campaign on the dangers of purchasing cannabis or cannabis products from unlicensed cannabis retailers. The campaign would target minors and young adults and focus on the risks of consuming cannabis products adulterated with synthetic cannabinoids and other harmful substances and the risk of purchasing such products from unlicensed cannabis retailers .https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=6165413&GUID=59A6FC8D-E54A-43D2-B621-906AA1B706A2&Options=&Search=

April 17, 2023May 30, 2023 by Robert Davydov

Chicago Cubs Partner with CBD Beverage Company Under New MLB Sponsorship Rules

On April 7, 2023, the Chicago Cubs announced a partnership with MYND DRINKS, a Chicago-based cannabis beverage company. This historic partnership recognizes the Cubs as the first Major League Baseball (MLB) team to collaborate on a business venture with a cannabis company.

Background

Back in December 2019, MLB modified its list of abusive drugs by removing cannabis to implement a more treatment-based approach. The league’s updated drug policy allows players to use natural cannabinoids for medical purposes, such as to help relieve pain, improve quality of sleep, and manage stress or anxiety.

A couple years later, on June 22, 2022, MLB announced a landmark decision to approve CBD sponsorships. However, the sponsorships must satisfy two requirements:

CBD companies must receive the NSF Certified for Sport® designation, a certification designed to:
1. favor products infused with CBD, a non-psychoactive compound found within the hemp plant, and
2. disfavor products infused with psychoactive levels of THC, which pose a risk of drug-induced sensations to consumers, and
MLB teams must receive approval from the Commissioner’s office.

MYND DRINKS produces 100% plant-based, CBD-infused, sparkling beverages. The three beverage flavors—Lemon Ginger, Elderberry Passionfruit, and Orange Mango—each satisfied MLB’s safety measures to obtain NSF certification. The CBD company promotes wellness and recovery, and aspires to change the world “one MYND at a time.”

Partnership & Opportunities

The partnership between the Cubs and MYND DRINKS includes, among other things, on-field signage at Wrigley Field stadium, certain in-game features, and international marketing rights in the United Kingdom.

Furthermore, MLB’s Chief Revenue Officer stated that the league is open to featuring jersey patch sponsorships for the 2023 season. Since opening day, on March 31, 2023, a handful of MLB teams debuted sponsorships with a company logo adorned on the sleeve of players’ jerseys. Cannabis companies are permitted to participate in such deals as well. However, a company interested in this arrangement must “have a brand that represents sports.” CBD brands supporting wellness and recovery, like MYND DRINKS, will likely receive a green light from the league’s administration.

Cannabis Market Trends

Market competition is intensifying due to the increasing therapeutic properties of cannabis and continuing legalization of markets. As a result, there has been a rise in demand for cannabis-infused beverages, edibles, and other related products. The global cannabis market was valued at about $13 billion in 2022 and is projected to grow at a compound annual growth rate of 22% to reach over $66 billion by the end of the decade. Cannabis companies are thus eager to establish a position in this rapidly expanding market.

Therefore, this CBD partnership will be revolutionary for MLB and other professional sports leagues across the globe.

Read the full text of the article on Law360.

April 10, 2023 by Duane Morris

International Arbitration and Cross-Border Disputes in the Cannabis Industry

As continued legalization of cannabis across jurisdictions in the U.S. and foreign countries causes the industry to become increasingly lucrative, determining proper avenues for dispute resolution controlling underlying agreements and investments has become a critical consideration for business-owners and foreign investors alike. Foreign investment in businesses involving cannabis is subject to a complex web of oversight that could include any combination of local and foreign laws, agreements, regulations, and practices. Many foreign investors in the cannabis industry have turned to international arbitration as a method for navigating these complexities and resolving disputes that may arise from such investments and business relationships. This post explores high-level considerations for foreign investors in the cannabis industry when assessing the viability of arbitration as a means for dispute resolution.

To read the full post by Duane Morris attorney Ramsey Schultz, please visit the Duane Morris International Arbitration Blog.