A video replay of the webinar “Big Money Meets Big Government: Greenlighting Mergers as State and Federal Regulators Step Up Scrutiny” is available to view.
Duane Morris is hosting the webinar, “Big Money Meets Big Government: Greenlighting Mergers as State and Federal Regulators Step Up Scrutiny,” on June 15, 2021, from 12:30 p.m. to 1:30 p.m. Eastern.
Join Duane Morris’ Brian Pandya, former Deputy Associate Attorney General, who will discuss the M&A landscape and other regulatory enforcement challenges and opportunities; American Trade Association for Cannabis and Hemp (ATACH) co-founder Michael Bronstein; and Paul Josephson, former chief counsel to the New Jersey governor and director of the NJ Division of Law and advisor to trade associations and several leading MSOs, for a discussion on how acting and new government personnel affect the policies, landscape and issues related to the big deals that are currently in process.
For more information and to register, visit the event website.
In an April 28th letter authored by the American Trade Association for Cannabis and Hemp (ATACH) and the Policy Center for Public Health and Safety, 24 state-level cannabis trade associations from across the country called on Congress to end the Small Business Administration’s exclusion of cannabis businesses from COVID-19 federal funding relief.
Although a number of states have deemed medical marijuana companies- and in some cases adult use marijuana companies- “essential” businesses, the SBA has excluded them from the Economic Injury Disaster Loans because marijuana is still a prohibited Schedule 1 Controlled Substance. Even worse for the industry, SBA has included ancillary cannabis companies in its prohibition. The cannabis industry is also ineligible for the Paycheck Protection Program and the Employee Retention Credit.
This issue was first flagged by industry groups in early April when they wrote to governors asking them to fill the gap. The industry’s allies in Congress then took up the cause. Almost three dozen members of the U.S. House of Representatives signed a letter to congressional leaders urging that cannabis companies be included in future federal relief packages aimed at stimulating the economy during the COVID-19 outbreak. A group of 10 U.S. senators followed on April 22nd with their own letter urging congressional leaders to include small, state-legal marijuana businesses and ancillary companies in any future coronavirus relief packages. On April 23rd, Reps. Earl Blumenauer and Ed Perlmutter introduced the Emergency Small Business Health and Safety Act which would make cannabis businesses eligible for the SBA programs.
The ATACH letter urges Congress to amend the CARES Act to make cannabis businesses eligible for all available loans tax credits and other pandemic-related assistance. The letter also suggests Congress authorize fixed block grants to each state for non-specific pandemic relief. This would leave it up to the stated to tailor relief efforts and a individual state could make funds available to cannabis businesses.
As a commercial litigator who has handled a broad range of claims in highly regulated industries over the past 20 years — particularly in complex matters such as class actions involving claims brought by consumers and shareholders — and given my experience spearheading the development of Duane Morris’ cannabis industry group, which has included providing regulatory and business advice to a number of businesses and individuals with cannabis-related interests, I have been expecting the maturing cannabis industry to eventually mirror other industries when it comes to using commercial litigation to resolve disputes between businesses and to address claims of injury allegedly experienced by aggreived consumers and shareholders. It appears the time has come. Now, as opposed to even just a few months ago, not a day goes by when the daily legal news outlets that report on litigation matters filed in federal and state courts around the country do not include matters pertaining to adult use marijuana, medical marijuana, and/or hemp.
Today alone, legal news outlets are reporting about a shareholder deriviative action being filed against the manufacturer of cannabinoid-containing transdermal patches, a maker of mobile hemp dryers suing a distributor for alledgedly stealing trade secrets, a publicly-traded company that owns cannabis brands being sued for breach of contract by an MSO arising out of a failed merger agreement. Claims like these are among the many product liability, stock-drop and securities fraud, tradmark infringement, FLSA, and employment litigation matters to be filed in 2020 relating to cannabis; not to mention the federal and state regulatory cannabis-related enforcement actions also commenced. Just as in other industries, COVID-19 is likely to spur litigation in the space because of strains on resources and performance caused by business disruptions and the slower economy. To be sure, the plaintiffs’ bar has cannabis on its radar.
Thus, now more than ever, it is critically important for cannabis businesses to implement the necessary compliance measures, including making sure appropriate insurance coverage, e.g. premises, products, and D&O, has been obtained, that could protect their businesses from the cost and disruption of commercial litigation. Likewise, cannabis-specific nuances, such as the enforceability of contracts and jurisdictional questions, require careful evaluation by experienced counsel advising plaintiffs and defendants who are considering filing, or who have been brought into, a commercial litigation.
Gavin Newsom, Governor of California, released his proposal for the State’s budget today, outlining a number of items of importance for the California cannabis industry.
The most noteworthy proposal is regulatory consolidation. In an effort to improve and simplify regulatory oversight of commercial cannabis activity, the Governor’s office is proposing to consolidate the three licensing entities that are currently within the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health, into a single “Department of Cannabis Control” by July 2021.
Such a change would be welcomed by many operators in the State, especially vertically integrated operators who must now contend with multiple state agencies that have different regulatory requirements and interpretations. This may also boost M&A activity in the state, given that it could lead to more consistent regulations regarding ownership changes and a more efficient regulatory approval process. A single regulatory agency would also streamline fee collections and enforcement. More details on this proposal are expected in the Spring of 2020 and we will be watching closely for those updates.
Additionally, the budget looks to “fix” what many consider to be a broken cannabis taxation regime. The Governor states that the goal of the proposal is to reduce the tax collection burden on the cannabis industry and simplify the tax collection process. The proposed changes move the responsibility for the cultivation excise tax from the final distributor to the first, and for the retail excise tax from the distributor to the retailer.
While no changes to the tax rates are specified, the proposed budget does state that the Governor will consider other changes to the existing cannabis tax structure, including the number of taxes and tax rates. The California tax burden is viewed as one of the major inhibitors of the growth and success of the cannabis market in the state.
We will continue to monitor these developments as they unfold, so please check back for further updates and analysis.
New Jersey’s top lawmakers have decided to let voters decide on legalization of cannabis during the 2020 presidential elections.
The constitutional amendment introduced today, November 18, 2019, by Senate President Stephen Sweeney and Senator Nicholas Scutari would legalize the use of recreational marijuana for anyone at least 21 years of age, and establish a Cannabis Regulatory Commission to oversee the new market.
The amendment does NOT detail the taxation rate, which was $42 an ounce in the original bill. It is also not clear if the commission will have 5 members, like the original bill.
According to NJBiz., Gov. Phil Murphy and legislative leadership long-resisted pursuing legalization via a ballot question because any, inevitable, changes to the program would have to go before voters in yet another ballot referendum.
“We made further attempts to generate additional support in the Senate to get this done legislatively, but we recognize that the votes just aren’t there,” reads the joint statement from Sweeney, D-3rd District, and Scutari, D-21st District.
To appear on the 2020 ballot as a constitutional amendment, both houses would need to pass the measure by a super-majority by the summer, or they would need to pass it 2x in both houses by a simple majority for 2 years in a row.
Just hours earlier, several progressive and social justice groups made a plea to legislative leadership to push through a legalization bill, pointing to a growing increase in low-level cannabis offenses which have disproportionately affected people of color.
On June 25, Illinois Gov. J.B. Pritzker (D) signed into law the Cannabis Regulation and Tax Act, making Illinois the 11th state in the country to legalize cannabis and the first to have a legislature approve commercial sales without a voter referendum.
Legalizing marijuana in Illinois is expected to generate revenue to help restore poverty-and crime-ridden communities and fund substance abuse, mental health, and law enforcement services. Adult-use cannabis sales could net Illinois about $500 million in tax revenue annually, according to some experts. The act takes effect Jan. 1, 2020.
The Illinois law will end cannabis prohibition and replace it with a comprehensive and highly regulated system to tax and regulate cannabis for adults 21 and over.
The New Jersey Senate voted 33-4 yesterday (Thursday) to advance a bill that is intended to increase medical marijuana sales and likely create new business opportunities in the state.
Per Marijuana Business Daily, before the vote, the Senate amended Assembly Bill 10 to allow marijuana workers to become union members.
The Bill will now return to the NJ Assembly for a vote to approve the Senate’s modification.
If the Bill is ultimately signed, the measure will:
– Create a new regulatory commission for medical marijuana.
– Pave the way for the state to issue additional business licenses.
– Allow cannabis home delivery.
– Ease restrictions on the process for recommending medical marijuana.
Currently there are 12 vertically integrated medical cannabis licenses that have been granted in NJ.
We will continue to track this development and report back as it get’s closer to passage in the Assembly. -Brad
Duane Morris partner Rick Ball was a guest speaker on The Cannabis Reporter Radio Show, hosted by Snowden Bishop, on May 20, 2019. The episode is titled “How to Free CBD from the FDA’s Grasp: Tell Congress to Call It GRAS,” and can be found on The Cannabis Reporter website.
About the Episode
When Congress legalized agricultural hemp with the passage of the 2018 Farm Bill, it seemed like the hemp industry would finally be out of the woods from a regulatory standpoint. So, it defies logic that the FDA is creating obstacles for hemp CBD producers and that every-day people are still being arrested for possession of hemp biomass and extracts.
Just last week, a 67-year-old great grandmother was arrested at the happiest place on earth when a Disney World employee discovered a bottle of CBD in her purse after a routine inspection at the park entrance. You may recall the truck driver who was arrested in Idaho with a load of freshly harvested hemp on its way from Oregon to a processing plant in Colorado just weeks after the hemp measure was signed into law.
Incidents like that leave most of us scratching our heads, considering that hemp is now legal at the federal level and hemp-derived CBD is a harmless molecule that is naturally produced in our own bodies when we’re young.
Let’s face it, legal hemp seems to be an oxymoron. Minutes after the hemp measure was signed into law, the FDA blindsided the elated industry with its stern warning that only one CBD product has ever been approved for sale in the U.S. and that all other hemp CBD products would remain illegal to sell until they can be approved by the FDA. The only exceptions would apply to the manufacturing and sale of CBD limited to states that had included CBD provisions in their state marijuana policy measures.
To read more about this episode and listen to the interview with Duane Morris attorney Rick Ball, please visit The Cannabis Reporter Radio Show page here.
The CA Senate voted 35-1 to allow banks and credit unions to accept cash deposits from marijuana retailers.
Per reporting from the Star Tribune, those banks would be permitted to issue special checks to the retailers that could only be used for certain purposes, including paying taxes and California-based vendors.
State lawmakers are of the view that such banks would make it easier for licensed cannabis retailers to pay their taxes, which fell far short of expectations in the first year after legalization.
“This is as close as we can get until the federal government changes its policy,” said Sen. Bob Hertzberg, a Van Nuys Democrat and the author of the bill that now goes to the Assembly.
Per the Marijuana Law Reporter, Marijuana has been legal in California since January 2018, but it’s still illegal under federal law under the Controlled Substances Act.
-Brad A. Molotsky, Esquire