Tag Archives: cannabis

Ninth Circuit Punts on Interstate Transportation of Hemp

On September 4, 2019, the Ninth Circuit issued its ruling in Big Sky Scientific LLC v. Jan Bennetts et al, the case involving the seizure of an interstate shipment of hemp that occurred after the enactment of the 2018 Farm Bill. In a three-page opinion, the court sidestepped the substantive issues presented on appeal and held that the parties should pursue their claims in state court.

In January 2019, a hemp cultivator in Oregon attempted to ship a truckload of hemp to a processor in Colorado. But as the cargo passed through Idaho, the Idaho State Police seized the shipment and arrested the driver, alleging violations of Idaho state law. The Idaho police charged the driver with a crime and filed a civil complaint in state court against the hemp itself. The Idaho civil case was stayed pending resolution of the criminal proceeding.

View the full Alert on the Duane Morris LLP website.

DEA Announcement on Improving Access to Marijuana Research

On August 26, 2019, the Drug Enforcement Agency (DEA) issued a press release announcing “it is moving forward to facilitate and expand scientific and medical research for marijuana in the United States.” This announcement comes in the midst of a growing demand for marijuana for medical and scientific research. Several years ago, in an August 11, 2016, press release, DEA first announced its intention to “expand… the number of DEA-registered marijuana manufacturers” because “only one entity was authorized to produce marijuana to supply researchers in the United States: the University of Mississippi.” Since that announcement, 33 entities have applied to DEA for a marijuana manufacturer registration. However, the approval process was stalled during Attorney General Jeff Sessions’ term in office, and to date no new applications have been approved. Meanwhile, the number of entities registered by DEA to conduct research on marijuana, marijuana extracts or marijuana derivatives has jumped from 384 in January 2017 to 542 in January 2019. Thus, while demand for marijuana for research purposes has increased sharply, the number of suppliers has remained stagnant.

View the full Alert on the Duane Morris LLP website.

It Is Permissible for Federally Insured Credit Unions to Bank Hemp Businesses

Photo of attorney Michael Zullo
Michael S. Zullo

“Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership,” says the National Credit Union Administration (NCRU) in its recently released guidance 19-RA-02.

While this is a significant step for hemp businesses seeking banking outlets, it is far from the relief proposed by Secure and Fair Enforcement Act (“SAFE Banking Act”) and does not represent a blanket permission.  Still, the NCRU Guidance signals a recognition of the growing Cannabis industry and the practical need to provide financial services to businesses in the industry.  Here are some key takeaways.

First, the guidance only applies to Federally Insured Credit Unions, not national banks.

Second, the guidance explicitly relates to credit unions serving “hemp” businesses as defined in the Agricultural Improvement Act of 2018 (2018 Farm Bill), which removed hemp from Schedule I of the Controlled Substances Act.[1]  Marijuana remains a Schedule I drug, which restricts banking access of marijuana businesses.

Third, because the USDA has yet to promulgate regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill, credit unions must ensure members in hemp-related business are operating under the industrial hemp pilot provisions of the Agricultural Act of 2014 (2014 Farm Bill).

Fourth, credit unions that elect to bank hemp-related businesses must maintain robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs.  This includes:

  • Maintaining appropriate due diligence procedures for hemp-related accounts and complying with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity.
  • Remaining alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
  • Staying on top of state and tribal laws, regulations, and agreements under which each member that is a hemp-related business operates.
  • Verifying that the member is part of the pilot program created in the 2014 Farm Bill.
  • Adapting ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
  • Being familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.

In sum, banking hemp-related businesses is permissible for credit unions.  But they must be diligent in crafting BSA/AML policies.  This is not a complete solution to the existing banking problems facing the Cannabis industry, but it does evidence a growing regulatory desire to provide access for the industry, which could sway policy makers down the road.

[1] The 2018 Farm Bill defines “hemp” as: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

NYC Council Passes Cannabis Resolutions Protecting Parents

At the end of last month, on July 23, 2019, the New York City Council passed two cannabis reform resolutions focused on issues facing parents. These were two resolutions out of ten that were first introduced on February 13, 2019.

The first resolution (Res. No. 740) calls on the New York City Administration for Children’s Services to implement a policy that states that a parent’s mere possession or use of marijuana does not itself create an imminent risk of harm to a child that would serve as the basis for a child’s removal from the parent’s custody.

The resolution cites reports of racial inequity in the enforcement of marijuana laws and identifies NYPD guidance from 2011 that recommends an individual in possession of small amounts of marijuana be issued a court summons instead of being arrested. The Council acknowledged that New York State has legalized medical marijuana and decriminalized the possession of small amounts of marijuana. Given the trend to accept cannabis usage in New York and beyond, the Council passed this resolution, in part, to ensure that the child welfare system is consistent with this emerging acceptance.

The second resolution (Res. No. 746) calls on the New York State Legislature to pass, and the Governor to sign, a law requiring the New York State Department of Health to create clear and fair regulations for hospitals on drug testing pregnant or birthing parents. The resolution states that these regulations should include the requirement for hospitals to inform patients of their rights before discussing drug use or testing with the patient.

The Council stated that the current policy for hospitals allows them to drug test patients who are giving birth and report positive tests to the Statewide Central Register of Child Abuse and Maltreatment (“SCR”), such report  would be required if the patient tested positive for marijuana alone. This mandated report triggers a child welfare investigation by the NYC Administration for Children’s Services.  Currently, the hospital has discretion over the individuals it chooses to test and it is unclear whether the hospitals are notifying patients that there are potential child welfare ramifications for drug tests and the disclosure of drug history to their health care provider. Similar to the first resolution, the Council is calling on the State to ensure a fair policy for drug testing patients that aligns with the legalization and decriminalization of cannabis.

Ohio Governor Signs Sweeping Hemp and CBD Legislation

On July 30, 2019, Ohio Gov. Mike DeWine signed into law S.B. 57, legislation that overhauls Ohio’s laws concerning hemp. Significantly, the bill also contains an emergency provision, meaning that the bill, some critical aspects of which are discussed below, takes effect immediately.

One of the most important aspects of the emergency bill is its amendment of the definition of the word “marihuana” under the state’s Controlled Substances Act to expressly exclude hemp and hemp products. The bill defines “hemp products” broadly, providing that the term includes “cosmetics, personal care products, dietary supplements or food intended for … human consumption” as well as any other product containing hemp-derived cannabinoids (such as CBD), provided the product contains a THC concentration of no more than 0.3%. Moreover, the bill clarifies that the addition of hemp or a hemp product to any other product does not render the other product “adulterated.”

Further, the bill provides that the state shall issue licenses for the cultivation and processing of hemp in the state. However, because the process of license application and issuance has not yet been established, and further because the regulations implementing the new law have yet to be promulgated, Ohio farmers are unable to start growing hemp for the time being. That said, the Ohio Department of Agriculture stated that its “goal is to have farmers licensed and able to plant the crop by spring of 2020.”

In any event, the delay to be experienced by farmers is not likely to apply to retailers—according to the ODA, “[i]t is now legal to sell properly inspected CBD products in Ohio. The Ohio Department of Agriculture will be testing all CBD products for safety and accurate labeling to protect Ohio consumers.”

Duane Morris Welcomes Corporate Partner Tracy A. Gallegos in Las Vegas and San Francisco

Tracy A. Gallegos has joined Duane Morris LLP as a partner in the firm’s Corporate Practice Group. She will be resident in the Las Vegas office and also practice in San Francisco. Gallegos further enhances the firm’s corporate, real estate and cannabis law capabilities. Prior to joining Duane Morris, Gallegos was a partner at Fox Rothschild LLP.

“Tracy brings a big-picture understanding of the issues affecting businesses in the real estate, sports, cannabis and entertainment industries,” said Matthew A. Taylor, CEO and Chairman of Duane Morris. “Her collaborative, client-focused approach is a perfect fit with our culture at Duane Morris.”

To read the full press release about Duane Morris partner Tracy A. Gallegos, please visit the Duane Morris website.

After Legalization: Many Remain Imprisoned For Now-Legal Pot

Neville BilimoriaImagine for a moment that you are arrested for alcohol possession back when alcohol was illegal. Then, imagine you served a sentence in prison for that possession, perhaps an inordinately severe incarceration sentence. Then imagine that you get out of prison and find it almost impossible to find a job, find housing or obtain a loan due to your criminal record. Then imagine, to make things worse, that alcohol is now legal, yet you are still saddled with this criminal history which leaves you no room for social advancement.

Imagine also that in spite of your lack of chances to obtain a job, that the very illegality you were arrested for not only becomes legal through legislation, but also fosters a burgeoning industry in the prohibited substance, primarily by nondiverse corporate entities and persons. Sounds a little bit like a nightmare, but that is exactly the scenario that is developing around cannabis and medical cannabis across the country.

To read the full text of this article written by Duane Morris attorney Neville M. Bilimoria, please visit the Duane Morris website.

FDA Issues Warning Letter to Curaleaf about CBD Products

Seth Goldberg
Seth A. Goldberg

On July 22, the FDA issued a Warning Letter to Curaleaf with regard to Curaleaf’s “CBD Lotion,” “CBD Pain-Relief Patch,” “CBD Tincture,” and “CBD Disposable Vape.”  The Warning Letter explains FDA’s view that Curaleaf’s CBD products are effectively “unapproved new and misbranded human drug products” because the claims Curaleaf has made about them on Curaleaf’s website and social media accounts demonstrate “they are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or any function of the body,” but Curaleaf has not obtained prior approval from the FDA to market them as such.  The Warning Letter also explains the FDA’s view that the subject products are not “dietary supplements” because (i) CBD has already been approved as an active pharmaceutical ingredient (epidiolex), (ii) CBD was not marketed as a dietary supplement or a conventional food prior to such FDA approval of CBD as an API; and (iii) the subject products are not “intended for ingestion,” which is a requirement of a dietary supplement. The FDA also warned about Curaleaf’s products with respect to animals, which I have not summarized.  The FDA provided Curaleaf 15 days to establish a corrective action plan and to report such plan to the FDA.  The Warning Letter demonstrates the FDA is actively monitoring CBD manufacturer websites and social media for over the line claims, and that CBD manufacturers need to follow the FDA’s guidance given the unsettled regulatory structure with respect to CBD.

 

 

David Feldman

Capital Markets Broaden for US Cannabis Companies

The last few months have witnessed a number of dramatic developments for American companies seeking capital in the fast-growing cannabis industry. In total, these changes portend greater access to funding for these companies. Here is more on these notable deals. (Note: none of the companies mentioned is a client of our law firm).

Greenlane. In April, Greenlane Holdings, a vape distributor, completed an IPO onto the Nasdaq with underwriters led by Cowen & Co., raising $102 million. This was the first time the national exchange listed a US company admitting it was in the cannabis industry. It had previously listed Canadian-based companies since they were operating in a federally lawful manner there. This also was the first underwritten IPO for a US cannabis company, and the first entry by an investment bank of Cowen’s tier.

Akerna. In June, a “special purpose acquisition corporation,” or SPAC, completed its merger with MJ Freeway, the purveyor of the widely used seed-to-sale software for which the company is named. That merged company, now known as Akerna, also is trading on Nasdaq. This was the first SPAC merger with a US cannabis company, and the second to be approved for trading by Nasdaq.

cbdMD and India Globalization. Not to be forgotten, the New York Stock Exchange and its lower tier exchange known as NYSE American have agreed to continue the listings of two companies that have announced their entry into the CBD market. In May, cbdMD, formerly Level Brands, best known as supermodel Kathy Ireland’s company, changed its name and symbol to reflect its move into cannabidiol-based products. India Globalization, which shifted its focus to CBD, was initially delisted. When the company appealed, the exchange reversed the decision and relisted the company back in February.

Arcview deal. In a relatively small deal just this month, the investor network Arcview Group (disclaimer: I am a proud member) raised about $8 million from two key investors, one of which was a well-known cannabis based fund. The other, Trivergance, is a traditional private equity firm that has invested over $1 billion, none in the cannabis space until now. As reported by MJBizDaily, while some traditional funds have invested in the space, this deal is notable because Trivergance served as a lead investor. The move of venture and private equity firms from the sidelines and into cannabis now has begun.

Implications? First, these developments likely will lead to fewer US companies feeling the need to go public in Canada, where previously companies believed capital was easier to access. Second, the growers and sellers of cannabis in the US, those that “touch the plant,” have not yet been permitted to list their shares on a national exchange. It will be interesting to see if and when the exchanges relent on their reticence to list these now large and fast-growing entrepreneurial enterprises as the march to US legalization continues. In the meantime, capital as fuel for growth is more and more available to these US businesses.

Paul Josephson Named to Insider 100: Policymakers by Insider NJ

Paul Josephson
Paul Josephson

Duane Morris partner Paul Josephson was named to the 2019 “Insider 100: Policymakers” list by Insider NJ, which described him as “an expert on transportation and casino issues – and cannabis.” Mr. Josephson was also named to the 2017 and 2018 lists.

“The list assembles names listed … because of the rigorous quality of their public policy minds,” according to the publication.

To read the 2019 “Insider 100: Policymakers” publication, please visit the Insider NJ website.