Although, in making the above comments, Sessions was clear that marijuana was still illegal in the U.S., he appears to have drawn a box around those types of marijuana-related criminal activities on which federal prosecutors are focused. The above comments are not inconsistent with the Sessions memo of January 4, 2018, and may help clarify what prosecutorial discretion looks like under that memo. Based on the above comments, it would seem that activities conducted pursuant to state marijuana programs are not the types of activities on which federal prosecutors are focused.
Another breakthrough for the cannabis space occurred on Tuesday, February 27, 2018, when Toronto-based Cronos Group Inc. began trading on the Nasdaq Stock Market. (MJN:CN). This marks the first listing of a company focused purely on cannabis on a major U.S. stock exchange. The listing of Cronos comes within two months of the memorandum issued by Attorney General Sessions that rescinded the federal government’s previous guidance regarding enforcement of state-lawful cannabis activities under the Cole Memorandum. That earlier guidance is credited with providing the cannabis space with a window of opportunity for the warp-speed growth the space has seen in recent years. The Sessions memo was intended to slow the growth of the cannabis space, especially with respect to the capital markets. The Nasdaq listing of Cronos suggests that 2018 could be another strong year for cannabis-related investments; 2017 was believed to have resulted in approximately $2 billion in cannabis-related investments in the U.S.
As the values of transactions in the cannabis industry grow, commercial litigation is certain to follow. One reason for this is that lawyers may be more inclined to represent clients on a contingency fee basis. Where the value of a cannabis transaction is small, the expense of litigation may not be worthwhile for an individual or business feeling cheated, and any settlement or judgment would likely not cover the costs of an attorneys’ contingency fee. However, where the value of a cannabis transaction is sufficiently high, say the upper six-figures or more, a lawyer may be more inclined to take the case for a contingency fee because the lawyer’s percentage of any recovery is likely to be greater than the costs the lawyer will incur in litigating the matter. A contingency fee arrangement may also be utilized to the advantage of a party that believes threatened or actual litigation might shift the leverage in negotiations and result in more attractive commercial terms.
A recently filed action captioned Silver v. High Street Capital et al., 2:18-cv-00020 (E.D. PA. 1/3/18), appears to result from the type of high value transaction that might warrant a contingency fee in a commercial litigation. The plaintiff, industry consultant Harris Silver alleges that, in connection with their bid to obtain a license to grow and process cannabis pursuant to Pennsylvania’s Medical Marijuana Program, defendant High Street Capital and other defendants associated with High Street promised Silver a lucrative compensation package, including (a) $180,000 to prepare the license application; (b) a $150,000 cash bonus upon the granting of a license and a 4% non-dilutable equity stake in any licensee; and (c) a salaried position with the licensee. Silver claims that notwithstanding his work on the High Street application, for which a permit was granted, the High Street defendants never paid Silver the valuable consideration that was contingent on the permit being granted. Thus, based on a host of factual allegations detailing various communications he had with the High Street defendants, and other allegations detailing his efforts on their behalf, Harris asserted claims against the High Street defendants for breach of contract, common law fraud, promissory estoppel, unjust enrichment, securities fraud and civil conspiracy. Continue reading Contingency Fees and Commercial Litigation Hit the Cannabis Space→
In his annual budget address yesterday, NY Democratic Governor Andrew Cuomo announced his plan to form a task force to study possible legalization of the adult use of cannabis in the Empire State. Currently the state permits the sale of cannabis only for medical reasons.
Less than a year ago, Cuomo referred to cannabis as a gateway drug and was widely perceived not to be supportive of legalization. Observers believe, however, that politics may be forcing his hand. Neighboring New Jersey’s new Governor Murphy has announced his intention to legalize adult use of cannabis there. In addition, a potential Republican opponent to Cuomo’s reelection this year has announced his support of legalization in New York.
Currently, while cannabis remains illegal under US federal law, eight states and the District of Columbia have legalized adult use. More states are expected to approve legal sales later this year in the November elections. Others, like New Jersey, are considering legalization through legislation as opposed to voter referendum. As we know, California’s adult use program was launched to great fanfare on January 1 of this year.
New York, with nearly 20 million people, is the fourth largest US state. This creates the potential for a significant market for legal cannabis sales, state tax and tourism revenues and job creation. Legalization could be particularly helpful for New York’s struggling upstate region, which has not seen major job growth in the current economic recovery.
Forming a task force is a long way from legalization and the opening of cannabis stores in Times Square. Cuomo will center the proposed study within the NY Department of Health, which currently oversees the medical marijuana program. He is asking that the task force look at the economic and health impact of legalization.
With the election of Phil Murphy as New Jersey Governor in 2017, the possibility of New Jersey becoming one of the next states to pass recreational marijuana legislation became very real, as this was among the issues key to Murphy’s campaign.
On Tuesday, January 9, 2018, less than one week after AG Sessions issued guidance to all US Attorneys rescinding Obama-era policies deprioritizing the federal prosecution of state-lawful cannabis-related activities, that possibility became more of a likelihood, as New Jersey Sen. Nicholas Scutari introduced Senate Bill 830, which would allow for the cultivation, sale and use of marijuana for recreational purposes in New Jersey by those 21 and older.
The legislation proposes adults would be permitted to possess up to 1 ounce of marijuana, 16 ounces of marijuana-infused products in solids, 72 ounces in liquid form, 7 grams of concentrate and up to six immature plants, and establishes a sales tax on marijuana that would rise incrementally from 7 percent to 25 percent over five years.
With New Jersey’s large population, and proximity to Manhattan and Philadelphia, the recreational cannabis market in New Jersey will likely dwarf most other states that have legalized adult-use.
San Francisco Adopts New Rules for Recreational Cannabis
After months of debate and consideration, the San Francisco Board of Supervisors approved new regulations for recreational cannabis activity yesterday. The legislation will come back to the Board next week for a final vote and then will go to San Francisco Mayor Ed Lee to sign it into law. Highlights of the new regulations are outlined below.
Existing Medical Dispensaries Allowed to Sell Recreational Cannabis
Beginning on January 5, 2018, existing medical dispensaries and delivery services currently operating in San Francisco will be allowed to sell recreational cannabis. The existing cannabis dispensaries must obtain a temporary 120-day license in order to participate in recreational cannabis sales.
Eight months after Massachusetts voters approved legal adult use of cannabis,on July 28, 2017, reluctant Republican Gov. Charlie Barker signed legislation to start a year long phase-in of permitting adults to buy and use cannabis. The expectation is that the first stores will be open by next July.
The legislation imposes a 20% tax on adult use cannabis, of which 3% will go to local municipalities. Also, in a unique feature, local governments will have the option to prohibit cannabis stores in their area, unless voters approved the measure in their municipality, in which case voter approval would be required to ban stores. Estimates are that as much as $300 million in taxes might be collected in the state just in the first two years after implementation.
A Cannabis Control Commission has to be appointed by August 1 and the commission will issue regulations by March. As the most populous Eastern state to approve adult use, will Boston and other Massachusetts destinations such as Martha’s Vineyard and Cape Cod see a surge in “cannabis tourism” as Colorado has? Only time will tell.