Duane Morris is pleased to be a sponsor of the 2025 Benzinga Cannabis Capital Conference in Chicago from June 8-10, 2025.
Use code DUANEMORRIS20 for a 20 percent discount on registration. Hope to see you there!
SB 3 Rolls into the Texas House of Representatives
After an hour and a half of debate on the Senate floor, Senate Bill (SB) 3 is engrossed. The bill received 24 ayes and 7 nos.
Senators who support the bill told stories of children and young adults losing all function after ingesting products containing intoxicating hemp. They emphasized how important it is for law enforcement officers to be able to immediately tell whether a product is illegal during a traffic stop, rather than make an assumption.
Opponents of the bill requested regulation instead of a total ban and raised the issue of veterans and other individuals who rely on these products rather than relying on alcohol and opioids for relief. Senator Charles Perry assured them that physician-prescribed hemp products will be more accessible under the Texas Compassionate-Use Program after a corresponding bill—SB 1505—is introduced and passes this Legislative Session.
Continue reading “SB 3 Rolls into the Texas House of Representatives”Pennsylvania Legislature Weighs Possibility of Adding Recreational Cannabis to the Purview of the Liquor Control Board
Pennsylvania state representatives Dan Frankel (D-Allegheny) and Rick Krajewski (D-Philadelphia) plan to propose a bill in the House of Representatives that would legalize recreational cannabis. Under their proposal, cannabis would be controlled by the state’s Liquor Control Board, the name of which would be changed to the Liquor and Cannabis Control Board. Cannabis would be sold at existing state liquor stores; meanwhile, private businesses would be permitted in the industry in cultivation and consumption sites, similar to bars.
However, there has been debate about the merits of this state-run system for liquor sales, and Republican members of the state legislature have made efforts to privatize liquor sales in the past.
Proponents of the state-run system argue that this system provides stable jobs, including consistent benefits and reliable pensions, for over 5,000 Pennsylvanians, while also returning millions of dollars in profits to the state. Furthermore, this system gives the state more control to prevent underage liquor sales.
Opponents of this system argue that Pennsylvanians should have more freedom over decisions regarding liquor sales. They also hypothesize that privatizing liquor sales would allow more stores to arise and more sales to occur, which would increase tax revenue for the state. For example, less than three years after Washington State privatized liquor sales, the number of liquor stores increased by approximately 327%, and the industry’s revenue collections increased by approximately 18%.
Despite this debate, Pennsylvania’s state-run system for liquor sales has remained in place. However, a state-run system for cannabis dispensaries may run into a separate issue: the potential conflict with federal law. Cannabis remains a controlled substance under Schedule I of the Controlled Substances Act, and Section 280E of the Internal Revenue Code disallows all tax deductions or credits for amounts paid or incurred in carrying on trade or business that consists of “illegally trafficking” a Schedule I controlled substance. As recently as June 2024, the IRS has issued reminders that this section applies to businesses selling marijuana, even if they operate in states which have legalized the sale of cannabis. It remains to be seen whether state-run dispensaries would be subject to this same provision.
Representatives Frankel and Krajewski’s bill would also provide for the possibility of expungement for people charged with cannabis-related crimes, invest revenue into communities impacted by prohibition policies, implement public health protections, and assist minority business owners in entering the industry.
The legislators have not officially proposed the bill but did release a memorandum to all House members seeking co-sponsors on December 2, 2024.
Employers Must Engage in the Interactive Process with Medical Marijuana Users and Cannot Refuse to Hire a Job Applicant Based on Marijuana Use Alone.
By: Kathleen O’Malley and Danielle Dwyer
Recently, Attorney General Matthew J. Platkin announced a Finding of Probable Cause by the New Jersey Division on Civil Rights (DCR) against Prince Telecom LLC (Prince) for declining to hire a medical marijuana user as a cable installation technician. The DCR found the job applicant was subject to disability discrimination in violation of the New Jersey Law Against Discrimination (LAD). The basis for the DCR’s determination was Prince’s rescission of a job offer after the applicant, a medical marijuana user, tested positive for cannabis in connection with a pre-employment drug screen.
Prince, a company that constructs and maintains telecommunications and cable systems, offered a technician job to the applicant pending a drug test. The applicant informed the company that he had a medical marijuana prescription and used marijuana to treat a disability. When the applicant tested positive for cannabis, he provided his medical marijuana prescription card to the company, after which Prince rescinded the job offer. Prince maintained that it could not provide the applicant with any accommodation given the safety-sensitive nature of the job duties of the position (such as, driving company vehicles, operating machinery, working with electrical wires, climbing ladders and lifting 50 pounds or more). According the DCR, Prince assumed that hiring a medical marijuana user to perform such tasks would expose the company to “enormous” liability.
The DCR issued a Finding of Probable Cause because Prince did not ask the applicant for additional information about the nature of his disability; how often and what time of day the applicant used marijuana; and what effect, if any, his medical marijuana use might have on him during work hours. By failing to initiate discussions of that nature with the applicant, the DCR concluded that Prince did not meet its obligation to engage in the interactive process. Under the LAD, employers have an affirmative duty to consider reasonable accommodations for applicants and employees. Broadly speaking, this means an employer should have a dialogue with a disabled applicant or employee and should ask questions to determine whether the individual can perform the essential functions of the job with or without a reasonable accommodation. Once the employer has sufficient information from the individual and/or the individual’s healthcare provider about the disability and any proposed accommodations, the employer can evaluate whether it is able to offer a reasonable accommodation without posing an undue burden on the company. Employers who fail to engage in this interactive process violate the LAD—which is exactly what the DCR has accused Prince of doing.
While the LAD protects individuals with disabilities, it is also worth noting that both medical and adult marijuana use are legal in New Jersey and the state has enacted protections for the use of marijuana. The Jake Honig Compassionate Use Medical Cannabis Act (CUMCA) prohibits an employer from taking an adverse employment action against an employee or applicant (e.g., terminating or refusing to hire) based on the fact that the employee is registered as a medical marijuana user. The Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (CREAMMA) protects adult use of marijuana and prohibits employers from taking adverse employment actions due solely to a positive drug test for cannabis. CREAMMA also has specific and stringent protocols with respect to drug testing in the workplace. Because CREAMMA went into law after Prince rescinded the applicant’s job offer, the DCR did not review Prince’s conduct to determine whether it violated that statute as well.
Notably, the DCR did not find that Prince had to accommodate the applicant’s use of marijuana in workplace or that it had an obligation to hire him. The agency found that Prince had an obligation to engage in the interactive process—to gather information sufficient to consider whether it could have reasonably accommodated the applicant’s disability. If Prince had learned the applicant used medical marijuana after work hours and would not be impaired or under the influence when reporting for duty, Prince may have been able to reasonably accommodate the applicant’s disability. The laws in New Jersey are clear that employers have a right to maintain a drug-free workplace and do not have to accommodate use of medical marijuana in the workplace or during work hours. Based on the DCR’s finding, Prince’s error was that it made too hasty a decision and did not gather any information from the applicant to determine whether it could have accommodated his disability.
Of note, a Finding of Probable Cause is not a final determination on the merits. It means the DCR determined that there is sufficient evidence to warrant further proceedings against Prince. The parties will now have the opportunity to resolve the case voluntarily through conciliation. If the parties cannot resolve the matter, the case will move to the Office of Administrative Law or the Superior Court for further adjudication.
Federal Court Affirms Crackdown on Intoxicating Substances Synthesized from Hemp
In the absence of federal enforcement action, state legislatures have stepped into the breach, enacting laws regulating products containing intoxicating substances that are chemically synthesized versions of chemicals in hemp. Those substances are referred to here as hemp-synthesized intoxicants or HSIs. Challenges to state authority to regulate HSI are being filed. In a recent decision that may foreshadow what is to come, a federal court declined to enjoin Wyoming’s hemp law.
As we have previously reported, the passage of the Agriculture Improvement Act, commonly referred to as the 2018 Farm Bill, opened the floodgates to unregulated intoxicating hemp products across the country. Though the 2018 Farm Bill authorized the U.S. Food and Drug Administration to regulate hemp-derived products intended for human consumption, the FDA has yet to promulgate rules for such products or HSIs. In the absence of federal regulations, states have begun to enact their own rules.
In Green Room LLC, et al. v. State of Wyoming, et al., a group of HSI wholesalers, retailers, and manufacturers filed a federal suit challenging amendments to Wyoming’s hemp laws and requesting a preliminary injunction. In pertinent part, the amendments expanded the definition of THC to include any psychoactive structural, optical, or geometric isomers of THC, encompassing both CBD and the popular Delta-8 THC. Because cannabis remains illegal in Wyoming, the amendments effectively prohibited the possession, sale, transport, and production of intoxicating substances synthesized from hemp. The plaintiffs argued, in part, that the amendments were unconstitutional because they were preempted by the 2018 Farm Bill, which they claim legalized all hemp substances, including intoxicating substances synthesized from hemp, for intrastate and interstate purposes.
On July 19, 2024, the federal court denied plaintiffs’ request to enjoin enforcement of the new law, finding that they do not have a substantial likelihood of success on the merits.
Specifically, the court found that the 2018 Farm Bill does not prevent states from regulating HSIs. The court found the 2018 Farm Bill did not confer any right on plaintiffs to manufacture or sell intoxicating products resulting from hemp, but merely redefined the term hemp. Most important, it held the 2018 Farm Bill contains an express “no preemption” clause permitting states to regulate hemp more stringently than federal law. The no preemption clause expressly permits a state to enact laws regulating intoxicating substances synthesized from hemp in a manner “more stringent” than the 2018 Farm Bill. The court further concluded that Wyoming’s amendments do not violate the dormant commerce clause, do not amount to a regulatory taking, and are not unconstitutionally vague or overbroad.
Green Room is not the first challenge to state restrictions on HSIs. In Bio Gen LLC et al. v. Sanders et al., the State of Arkansas appealed a trial court decision enjoining Arkansas regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC. In Northern Virginia Hemp and Agriculture LLC, et al. v. Commonwealth of Virginia, et al., the plaintiffs, an HSI product manufacturer/distributor and consumer, appealed a trial court decision that denied their motion to enjoin the State of Virginia from enforcing Virginia regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC.
Those pending appeals present the possibility of a federal circuit split on the question whether the 2018 Farm Bill legalized intoxicating substances that could be derived from hemp. On behalf of the American Trade Association for Cannabis & Hemp, Duane Morris filed an amicus brief in each case that asserts that the 2018 Farm Bill did not legalize hemp-synthesized intoxicants, and it reserved for states the right to regulate such substances in the interest of public safety.
As more states roll out new restrictions on intoxicating hemp products and operators, we expect to see more challenges. Though not a final ruling on the merits of the suit, the court’s decision suggests these plaintiffs and others challenging state intoxicating hemp laws have an uphill battle ahead.
Cases We’re Watching: Constitutionality of State Restrictions on Cannabis Advertising
By Paul Josephson and James Hearon
State cannabis advertising bans are getting their day in court, albeit before the federal Fifth Circuit, a court that has been increasingly hostile to regulation.
In February 2022, Mississippi enacted the Medical Cannabis Act, legalizing medical marijuana within the state. The Act granted the Mississippi Department of Health (“MDOH”) authority to establish and promulgate rules and regulations governing the advertising of medical cannabis.
The Act made clear that any proposed rules or regulations could not prohibit a cannabis operation from engaging in certain types of marketing and advertising, including displaying appropriate signage on the licensed premises, listing in business directories and other publications, or displaying logos or other branding materials. In promulgating its proposed regulations, MDOH prohibited licensees from advertising or marketing in any form of media (i.e., broadcast, electronic, print, etc.)
In November 2023, Tru Source Medical Cannabis, LLC challenged MDOH’s advertising restriction as a violation of the First Amendment. In January 2024, the Northern District of Mississippi federal court upheld the advertising ban and dismissed the lawsuit, entitled Cocroft, et al. v. Graham, et al., in its entirety. The district court relied extensively on the Montana Supreme Court’s analysis in Montana Cannabis Industry Association v. State of Montana, 368 P.3d 1131 (Mont. 2016), rejecting a similar challenge to cannabis ad regulations. The district court agreed that “an activity that is not permitted by federal law—even if permitted by state law—is not a ‘lawful activity’” and, thus, does not qualify for commercial speech protection. Tru Source appealed this ruling to the Fifth Circuit.
We are closely watching the Fifth Circuit’s decision to see whether antipathy for cannabis or regulatory overreach will prevail. The circuit, which embraces Texas, Louisiana and Mississippi, has been making headlines lately for rulings hemming in the authority of federal agencies. In recent cases, the Fifth Circuit rejected FDA rules permitting use of the abortion-inducing drug mifepristone (just overturned by the Supreme Court late last week), tossed out the SEC’s system for adjudicating enforcement cases, and declared the Consumer Financial Protection Bureau’s funding mechanism unconstitutional (also reversed by the Supreme Court). The Fifth Circuit has been in the legal spotlight, and its rulings have been keeping the Supreme Court busy.
The Fifth Circuit’s decision is also likely to implicate a much broader and unsettled legal question; that is, whether constitutional protections apply to state-legal, but federally prohibited, conduct. In 2022 and 2023, we saw a number of constitutional challenges to residency requirements in state cannabis regulations alleging that such requirements discriminate against out-of-state operators and violate the Dormant Commerce Clause.
Several courts, including the First Circuit and the Eastern District of Michigan, have held that discriminatory residency requirements likely violate the Dormant Commerce Clause. Other federal courts, such as the Western District of Washington and the District of Maryland, have found that, because cannabis is federally illegal, the Dormant Commerce Clause likely does not apply—the same rationale relied on by the district court in Cocroft.
The Fifth Circuit’s recent history as a venue where regulators have fared poorly suggests Mississippi’s outright ban on commercial speech by state-legal businesses will get a hard look. Briefing will be complete shortly, and we would expect oral argument and a decision before year end.
DEA Rescheduling, Pa. Legalization Efforts May Breathe New Life Into Cannabis Practices
Duane Morris cannabis industry group team lead Paul Josephson spoke with The Legal Intelligencer on Pennsylvania cannabis legalization as the Drug Enforcement Administration has officially moved to reschedule marijuana from a Schedule I to a Schedule III substance.
“There’s not a legal practice area that hasn’t touched or worked for our cannabis practice here,” he said, although he and other attorneys emphasized the potential growth in financing work should rescheduling and local legalization efforts go through.
“Removing this from Schedule I … it provides immediate tax relief to companies in the cannabis business,” Josephson said, explaining that as the law currently stands, cannabis businesses aren’t allowed to deduct business expenses when they calculate and pay taxes, resulting in razor-thin profit margins. “When rescheduling happens, when that monkey comes off the back of the industry, it will improve cashflows for everyone in the business and allow for more investment.” Read more on the Duane Morris website.
EEO-1 Filing Deadline Is Fast Approaching for Large Cannabis Employers
Having just submitted your company’s tax returns for 2023—no easy feat as a cannabis business—you may be hoping for a break from regulatory filings. If your business has 100 or more employees, however, you may need to assemble 2023 data for an entirely different purpose as another federal filing deadline looms in June of 2024.
The Equal Employment Opportunity Commission (EEOC), the federal agency that enforces workplace anti-discrimination and anti-harassment laws, requires private employers that had 100 employees in the fourth calendar quarter of 2023 (October 1- December 31) to file an EEO-1 Component 1 report. The report consists of specific workforce data, including job titles and sex, race and ethnicity demographics. Continue reading “EEO-1 Filing Deadline Is Fast Approaching for Large Cannabis Employers”
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.
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.