PA Gov. Shapiro Calls for Adult-Use Legislation Now!

Seth Goldberg
Seth A. Goldberg

Citing the facts that Pennsylvania (i) is bordered almost entirely by states that have legalized cannabis for adult use; (ii) loses millions to the black market for cannabis annually; and (iii) projects hundreds of millions in annual revenue gains,  in his budget address for 2024 Pennsylvania Governor Josh Shapiro called on Pennsylvania’s legislature to deliver by July 1, 2024, legislation that would legalize cannabis for adult-use in Pennsylvania:

“Well, last year, 57 percent of voters in Ohio supported an initiative to legalize recreational marijuana.  And now, Ohio, New York, New Jersey, Delaware, and Maryland – practically all of our neighbors – have legalized marijuana.  We’re losing out on an industry that, once fully implemented, would bring in more than 250 million dollars in annual revenue.  And our failure to legalize and regulate this only fuels the black market and drains much needed resources for law enforcement.  It’s time to catch up.  I ask you to come together and send to my desk a bill that legalizes marijuana.  But that bill should ensure the industry is regulated and taxed responsibly.  That we create jobs and build wealth here in Pennsylvania, especially in the communities that have been disproportionately harmed by criminalization.  And that those who have been convicted for nonviolent possession of small amounts of marijuana have their records expunged.  Let’s stop hamstringing ourselves and start competing.”

Governor Shapiro’s urgency is not surprising.  Pennsylvania should have been leading the way in legalizing cannabis for adult-use, given its successful medical marijuana program, but instead other states have spring-boarded ahead of Pennsylvania.  Those states are now enjoying the revenues, job growth and overall economic benefits of legal cannabis, including even profiting from Pennsylvania residents crossing the border to buy their cannabis.  It truly is time for Pennsylvania “to catch up” and “start competing” in the legal cannabis market for the good of all Pennsylvanians.   

Delta-8 Products Targeted by CT AG for Safety Concerns

Seth Goldberg
Seth A. Goldberg

I have previously written about lawsuits filed against manufacturers and sellers of hemp-synthesized intoxicants (HSI), such as Delta-8 THC, by the Attorneys General of California and Nebraska, as well as warning letters issued by the FDA, to stop the marketing and sale of HSIs.  Add to those, recent enforcement actions by the Attorney General of Connecticut against seven HSI manufacturers/sellers, which claim they have violated the CT’s unfair competition laws by marketing and selling unregulated cannabis products. 

The key point of all of the above actions is the unregulated nature of HSIs, which creates public safety concerns.  As the CT AG explained:  “Cannabis is legal for adults in Connecticut, but it’s not a free-for-all—retailers must be licensed and legal cannabis products must comply with strict safety standards. . . None of these products have been subject to Connecticut’s rigorous testing standards or contain appropriate warnings. Some are sold in dangerous and misleading packaging designed to appeal to children. These products are designed to deceive consumers into believing they are safe, tested, and regulated—that is false. ” 

HSIs can be just as intoxicating, if not more so, than cannabis products regulated under a state’s medical or adult-use cannabis laws and regulations.  However, in many states HSIs are not regulated and thus may not have undergone safety testing or be accurately labeled, posing health and safety risks to consumers.   While, as I have previously written, the cannabis and hemp industries may debate whether the 2018 Farm Bill legalized HSIs, there should not be any real debate about the need for product safety or the right of states to protect their citizen consumers.  

Cannabis Beverage Companies Need to be Aware of PFAS in Local Water Supplies

Ethan Feldman

Imagine that a cannabis beverage manufacturer’s plant draws water from a public watershed that is contaminated with a synthetic chemical or chemicals that are classified as probable human carcinogens.  Unbeknownst to the manufacturer, the advertising and labeling for their beverage products include a marketing campaign focused around the phrases “organic” or “all natural.”  This scenario is more than a hypothetical.  Synthetic compounds known as per- and polyfluoroalkyl substances (PFAS) are found in public water supplies across the United States.  There are about 15,000 different chemical compounds that fall under the PFAS umbrella.  The International Agency for Research on Cancer (IARC) has classified certain of these chemicals carcinogenic, as well as possibly carcinogenic to humans.

PFAS are commonly known as ‘forever chemicals’ because of the time it takes for them to degrade.  Not only have PFAS been linked to cancer, but also to immunodeficiencies, reproductive harm, and developmental defects in children.

According to the Centers for Disease Control, exposure to PFAS can occur from eating food packaged in PFAS-containing material, eating food grown or raised near places that used or made PFAS, but, most significantly, from drinking water.  Here is a link to PFAS contamination sites in the United State as of November 28, 2023, and it is estimated that drinking water for 26 million U.S. citizens may be contaminated with PFAS.

PFAS litigation is on the rise.  The past few years have seen many lawsuits filed by attorneys general and private citizens against PFAS manufacturers stemming from public water supply contamination.  Additionally, over the past few years, the Environmental Protection Agency (EPA) has worked to establish uniform permissible PFAS levels as it pertains to public water supplies.

In 2018, the cannabis beverage market was valued at over $900 million, and is projected to grow by 17% until 2033.  The emulsification process used to create cannabis infused beverages involves creating water-soluble cannabinoids that are then mixed into water-based solutions, and the final product can appear in the form of a soda, sparkling water, or juice, to name a few.

The EPA, state and local governments, and plaintiffs’ attorneys are keeping a close eye on the evolution of PFAS, and additional litigation is almost certain.  The scenario presented above may potentially lead to not only personal injury claims, but also presents a classic situation on which consumer fraud class actions are based.

Cannabis beverage manufacturers must be vigilant in complying with not only state regulations pertaining to cannabis manufacturing, but also must be mindful to appropriately handle PFAS contaminated water the company uses to manufacture cannabis beverages.

FDA Warning Letter Targets Delta-8 THC

Seth Goldberg
Seth A. Goldberg

On December 5, 2023, FDA issued a warning letter to a manufacturer (Hemp XR) of food products, such as gummies, cookies, etc., that contain delta-8 THC.  The warning letter notes that delta-8 THC has not been generally recognized  as safe (GRAS) for use in food, and has not received pre-market approval to be used as a food ingredient, which requires data demonstrating safety.  As a result, FDA warns that the interstate marketing of the food products at issue violates the Food, Drugs and Cosmetics Act.  The warning letter makes similar assertions with respect to the manufacturer’s food products containing CBD. 

FDA notes that its concerns with respect to delta-8 THC include:  “1) Delta-8 THC products have not been evaluated or approved by FDA for safe use and may be marketed in ways that put the public health at risk; 2) FDA has received adverse event reports involving Delta-8 THC containing products; 3) Delta-8 THC has psychoactive and intoxicating effects; 4) FDA is concerned about the processes used to create the concentrations of Delta-8 THC claimed in the marketplace; and 5) FDA is concerned about Delta-8 THC products that may be consumed by children, as some packaging and labeling may appeal to children.”

As I have previously written, manufacturers of products containing delta-8 THC are exploiting an ambiguity in the definition of hemp under the 2018 Farm Bill that they assert legalized chemical substances converted from hemp cannabinoids through chemical processes on the notion that such substances were “derived” from hemp.      

Class Certification For Wage & Hour Claims Against Cannabis Dispensaries Granted by California State Court

A California Superior Court recently granted class certification relative to a class of hundreds of employees against a group of dispensary defendants where the Plaintiffs presented sufficient evidence that the off-the-clock work claims, meal and rest period claims, and reimbursement of necessary business expenses claims predominated over individual inquiries and were typical of the class.  The Court did not rule on the merits of the integrated enterprise, alter ego, or joint employer arguments, nor did the Court agree with the Defendant’s arguments that the claims were not typical because the Plaintiffs were not employed by each Defendant. Nonetheless, the ruling is important for employers in general and cannabis dispensaries in particular.

To read the full text of this article by Seth A. Goldberg and Nick Baltaxe, please visit the Duane  Morris Class Action Defense Blog.

Another Lawsuit Challenging State Regulation of Hemp Synthesized Intoxicants

Seth Goldberg
Seth A. Goldberg

Another lawsuit challenging state regulations that attempt to curb the use of hemp-synthesized intoxicants (HSI) in consumer products was commenced last week.

In a complaint filed in federal court in Alaska on November 2, 2023, AK Industrial Hemp Assoc. et al. v. Alaska Department of Natural Resources, et al, the plaintiffs challenge the constitutionality of Alaska regulations that prohibit the sale in Alakska of hemp products for human consumption that contain delta-9 THC or synthetic cannabidiol.

There are now more than half a dozen lawsuits challenging state regulations that target HSIs, which further demonstrates the need for Congress to make clarifying changes to the definition of hemp in the 2023/24 Farm Bill to correct the loophole that has resulted in the proliferation of these intoxicating and potentially unsafe substances.

On November 17 at 12:00 eastern, Duane Morris will be hosting a webinar about the “loophole” in the definition of hemp in the 2018 Farm Bill that has led to the proliferation of HSIs, including the science behind HSIs; litigation challenging state regulation of HSIs; and the 2023/24 Farm Bill and HSI policy. 

Virginia’s Restriction of Hemp Synthesized Intoxicants Upheld by Federal Court

Seth Goldberg
Seth A. Goldberg

On October 30, 2023, in Northern Virginia Hemp and Agriculture LLC, et al., v. The Commonwealth of Virginia, the U.S. District Court for the Eastern District of Virginia  refused to enjoin a Virginia statute, SB 903, aimed at curbing the production and distribution of products containing intoxicating chemical compounds derived from federally lawful hemp (“Hemp Synthesized Intoxicants” or “HSIs”).  SB 903 imposes upon hemp products,  including edibles and smokables, industrial hemp extracts, and any other consumable substance, a limit of no greater than .3% total THC concentration and no more than two milligrams of total THC per package or amount of cannabidiol that is no less than 25 times greater than the amount of total THC per package.

This restriction, referred to as a “Total THC Standard,” is intended to prevent the sale to consumers of ingestible, smokable, and otherwise consumable products that contain intoxicants derived from federally lawful hemp that are the functional equivalent of the delta-9 THC in federally unlawful marijuana. Such products have proliferated since the 2018 Farm Bill because chemical processes can be used to convert the chemicals in hemp into intoxicating compounds like delta-8 THC.

The Court in No. VA Hemp determined that the plaintiffs were unlikely to succeed on the merits of their claims because, among other things, the 2018 Farm Bill did not preempt states from regulating hemp products sold in their states.

 

 

AG Consumer Protection Lawsuits Target Delta-8 and Perceived “Loophole” in 2018 Farm Bill

Seth Goldberg
Seth A. Goldberg

The Nebraska Attorney General and the California Attorney General have filed lawsuits recently under their states’ consumer protection statutes targeting the manufacturers of hemp products containing Delta-8 THC, noting the health and safety risk to consumers of these products.  Such products, known as “hemp synthesized intoxicants” or “HSIs” are often just as intoxicating as the Delta-9 THC in state-legal adult-use and medical marijuana, but may not be subject to the same types of licensure, testing, and packaging/labeling requirements imposed under state cannabis programs. 

As I have previously written, the manufacture and distribution of HSIs appears to be the result of a perceived loophole in the 2018 Farm Bill’s legalization of hemp and its “derivatives, extracts, cannabinoids, isomers.”  Proponents of HSIs assert that, in defining hemp in the 2018 Farm Bill, Congress did not prohibit the chemicals in hemp from being converted into psychoactive compounds.

Opponents of HSIs argue that hemp was legalized as an agricultural commodity, and the 2018 Farm Bill was focused on the production (cultivation) of hemp, not consumer finished products that could be manufactured using its constituents.  They posit that Congress did not intend for the chemicals in hemp to be converted into a host of compounds just as intoxicating as Delta-9 THC. 

State AG consumer protection lawsuits against manufacturers of products containing HSIs are an attempt to curb their proliferation.  Congress may address the perceived loophole that is being exploited to manufacturer HSIs in the forthcoming Farm Bill. 

 

Cannabis Banking Ticks Up, But the Industry Needs SAFE Banking

Seth Goldberg
Seth A. Goldberg

Just ahead of the Senate Banking Committee’s vote on the Secure and Fair Enforcement (SAFE) Banking Act, the Financial Crimes Enforcement Network (FinCEN) has reported that a total of 812 banks and credit unions filed reports in the 2d quarter 2023 indicating they are actively providing banking services to cannabis industry participants, referred  to by FinCEN as Marijuana Related Businesses, which is the highest number since FinCEN began reporting on cannabis banking activity in 2014.  However, those 800 or so banks are just a fraction of the thousands of FDIC banks that could be providing banking services to the cannabis industry.   Even with the increase in banks providing their services to the cannabis industry since 2014, the industry remains burdened by a dearth of banking.   Cannabis companies, employees, and consumers are not able to access traditional financing, payroll services, credit cards, ACH, and debit services, which are the lifeblood of other consumer packaged goods industries.  Meanwhile, banks are routinely analyzing entering the cannabis space, but deciding against it because of the cost of compliance, among other reasons.  SAFE Banking would provide access to critical banking services.

Changes to the Controlled Substances Act for Cannabis to make it a Schedule III Drug – The Winds May Be Blowing this Way

Earlier today, on August 30, 2023, the U.S. Department of Health and Human Services (HHS) officially recommended that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act (CSA) – a landmark recommendation from HHS which indicates that HHS no longer considers cannabis to be a drug with high abuse potential and no medical value.

After completing a scientific review into cannabis per a requested review from the Biden Administration, HHS advised the Drug Enforcement Administration (DEA) that it believes marijuana should be placed in Schedule III of the Controlled Substances Act.

Note, HHS’s recommendation is NOT binding on the DEA but given the report’s findings and growing public sentiment is likely that the DEA agrees with the recommendation and shifts its policy.

Historically, cannabis has been federally prohibited as a Schedule I controlled substance. As noted by many pundits, the rescheduling to Schedule III would have major implications for researchers who have long criticized the Schedule I classification that creates significant barriers to access for studies.

For researchers, this change would likely mean that they would no longer need to go through the onerous registration process with the DEA in order to access cannabis for studies as a Schedule III drug. The shift to Schedule III would also enable various federal tax deductions to become applicable to the cannabis industry and unlock value for them that is currently stuck in an onerous tax structure under the Internal Revenue Code. Schedule III drugs are not subject to the same onerous structure under federal rules.

The cannabis ball is now firmly in the DEA’s court as the DEA has the final authority to schedule a drug as Schedule III rather than Schedule I under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether).

Parting Hits – With Congress due to reconvene after Labor Day, and the Biden Administration looking for a win on moving this issue along, look for pressure to continue to mount for some type of Congressional action in the Banking arena under a SAFE legislation bill and for the DEA to move through their rule making process in a swift and firm manner.

Duane Morris has a full service cannabis group that helps clients and investors in a wide array of cannabis-related issues including, but not limited to, licensing, fundraising, intellectual property protection and real estate.  If you have any questions, please do not hesitate to contact Brad Molotsky or the attorney with whom you regularly communicate at Duane Morris. 

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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