Tag Archives: Controlled Substances Act

Sessions Draws Lines for US Attorneys in Terms of Marijuana Prosecution

Seth Goldberg
Seth A. Goldberg

In speaking at the Georgetown Law Center on March 10, 2018, AG Sessions said the following:  “We’re not going to be able, even if we desire, to take over state enforcement of routine cases that might occur.  Federal agents are highly paid, highly trained.  They work on cases involving cartels, international organizations, major distribution networks, large amounts of cash. They deal with criminal organizations, RICO type cases, and we’re not out there prosecuting those types of cases everyday.”

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.

Cannabis Trading on Major U.S. Stock Exchange

Seth Goldberg
Seth A. Goldberg

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  The listing of Cronos comes within two months of the memorandum issued by Attorney General Sessions that rescinded the federal government’s previous guidance regarding enforcement of state-lawful cannabis activities under the Cole Memorandum.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.

David Feldman

Court Dismisses Suit Challenging Controlled Substances Act

A potentially groundbreaking federal lawsuit brought last summer was dismissed by New York judge Alvin Hellerstein today. The case, brought by five plaintiffs including two children, two veterans and former NFL player Marvin Washington, all of whom use state legal medical cannabis, claimed that the Controlled Substances Act is unconstitutional as it relates to the plant.

The judge ruled that the plaintiffs should have first complied with administrative processes by filing a petition with the Drug Enforcement Administration, and that the case was not appropriate to bring to court. He was sympathetic to the plaintiffs, however, noting that “this decision should not be understood as a factual finding that marijuana lacks any medical use in the United States, for the authority to make that determination is vested in the administrative process.”

He did, however, rule that it was “not irrational” that the Government deemed cannabis dangerous enough to be listed as a Schedule I drug, as it did for heroin and LSD. Statements by former Nixon Administration officials in the 1990s that they knew they were lying about the drugs at the time of the CSA were not considered dispositive, since Congress passed the law.

News reports indicate that the plaintiffs’ attorneys, Mike Hiller, Joe Bondy and Lauren Rudick, may appeal the decision or ask the judge to reconsider. They claim that the petition process would be futile and that there is substantial evidence that the US government has taken actions supporting the notion that there is medical benefit to cannabis.

Patricia Heer

SCOTUS Could Take Up 280E

There may be no greater thorn in the side of a cannabis producer, processor or retailer than section 280E of the Internal Revenue Code.  Section 280E prohibits businesses engaged in trafficking substances prohibited under the Controlled Substances Act (CSA) from claiming certain deductions and credits on their federal income-tax returns.

In October 2017, a Colorado cannabis retailer, the Green Solution Retail, Inc. petitioned the U.S. Supreme Court to review a decision which held that federal laws, specifically the Anti-Injunction Act and the Declaratory Judgment Act, preclude challenges to the IRS assessments of taxes, as such challenges to disputed sums must be determined in a suit for a refund or deficiency.  Green Solution argues in its petition that its claims against the IRS are not challenging the IRS’s assessment or seeking to restrain it, but rather its claims are challenging the IRS’ administrative authority to make determinations as to whether Green Solution is criminally culpable under the CSA.  Green Solution pleads that it is concerned about the IRS sharing information it gains as part of the assessment with the Department of Justice (DOJ) potentially triggering criminal repercussions for the dispensary under the CSA.  Last week, the Government filed its response to Green Solution’s petition, urging the Supreme Court to deny the request for review.  The Government takes the position that any investigation by the IRS of Green Solution’s activities is part and parcel of its assessment of the retailer’s allowable deductions and tax liability.  Consequently, the Government argues that such a challenge to the IRS’s assessment activities is barred by the Acts.

This is not the only case against government entities involving  cannabis issues before the courts.  A case commenced by Marvin Washington and other plaintiffs seeking to hold the Controlled Substances Act unconstitutional is scheduled to be heard next week (in connection with the Government’s request that the court dismiss that case).  Could these two cases be the pressure at the judiciary level that result in a reevaluation of the social and political positions on federal drug laws criminalizing cannabis? While Justice Neil Gorsuch, during his tenure on the Tenth Circuit, ruled against owners of another dispensary that were fearful of the IRS sharing information with the DOJ in connection with an IRS audit, Justice Gorsuch also stated in that decision that the federal government was sending mixed messages about distribution of cannabis and he was skeptical about the IRS not divulging information with the DOJ.


Patricia Heer

FDA Accepting Comments on CBD for UN Commission Meeting

The Food and Drug Administration (FDA) is accepting comments to help formulate the United States’ position on the World Health Organization’s recommendations on certain drug substances, including cannabis extracts and cannabidiol (CBD), in preparation of a meeting of the United Nations Commission on Narcotic Drugs (Commission) to be held on March 2018.

In November 2017, after the WHO Expert Committee for Drug Dependence (Expert Committee) met, the Expert Committee issued its recommendations for scheduling various substances under international control, pursuant to international treaties such as the 1971 Convention on Psychotropic Substances (1971 Convention) and the 1961 Single Convention on Narcotic Drugs (1961 Convention).  The Expert Committee did not include CBD among those substances, stating instead that “there is no evidence that CBD as a substance is liable to similar abuse and similar ill-effects as substances in 1961 or 1971 Conventions.”  The Expert Committee concluded that the current information does not justify scheduling of CBD.

The Expert Committee went on, however, to note that CBD is produced for pharmaceutical purposes as an extract of cannabis, and cannabis extracts and tinctures are included in the 1961 Convention.  In that regard, cannabis extracts are listed in Schedule I of the 1961 Convention which contains drugs subject to the least stringent controls, unlike Schedule I of the US Controlled Substances Act (CSA) which contains substances subject to the most stringent controls.  The requirements for substances identified on Schedule I of the 1961 Convention, such as cannabis extracts, include import and export authorization, licensing of manufacturers/ distributors, recordkeeping requirements, medical use prescriptions, annual estimates of needs, quotas and statistical reporting, and limitations on use for medical and scientific purposes.  As part of its recommendations report, the Expert Committee advised that it will conduct a pre-review of cannabis extracts and tinctures at its next meeting in May 2018, and it recommend that it also carry out at that meeting a critical review of cannabis extracts and preparations that contain almost exclusively CBD. Continue reading FDA Accepting Comments on CBD for UN Commission Meeting

2018 Should Be The Year Cannabis Ends The Opioid Crisis…. Fingers Crossed!

Seth Goldberg
Seth A. Goldberg

Articles appearing this week in the LA Times and the Philadelphia Inquirer, among other recent articles, highlight the horrors of the opioid crisis and the need for research into cannabis as a possible solution.  While the federal government warns about the spiraling toll of the opioid epidemic, it refuses to grant the applications of world-renowned scientists at major universities and research centers seeking to explore the ways in which the well-documented therapeutic properties of cannabis can alleviate the pain and suffering – physical, emotional and financial – being caused by opioid abuse.  There is no shortage of deep pockets willing to fund the research, and US-based scientists are ready, willing and able to get to work, yet the federal government refuses to depart from its antiquated “reefer madness” established in the early 20th Century.  2018 should be the year the federal government stops blocking cannabis research so that scientists can determine if and how cannabis can stem the opioid crisis.  Fingers crossed!



Hemp Research Expansion in Pennsylvania

Seth Goldberg
Seth A. Goldberg

On December 7, 2017, Pennsylvania Governor Tom Wolfe expanded the Commonwealth’s Hemp Research Pilot Program to allow up to 100 licensed growers and more than 5,000 acres to be grown under the Hemp Research Pilot Program in 2018. The expansion from 30 licensed growers and just 50 acres allowed in 2017, reflects the strong success of the program in it’s inaugural year.

Although a member of the family of cannabis sativa that includes marijuana, hemp does not contain levels of THC that produce psychoactive effects, so it is regulated differently than marijuana. Whereas growing, processing, distributing and consuming marijuana are still federally prohibited under the Controlled Substances Act, industrial hemp has seen a revival around the U.S. because its growth, processing and distribution for research purposes is permitted under the 2014 Federal Farm Bill.

Importantly, the expansion of Pennsylvania’s industrial hemp program, and the industrial hemp programs in other states that traditionally raised large tobacco crops, may be helpful to local economies that have been impacted by declines in tobacco growth.

There are more than 25,000 products and/or uses derived from industrial hemp. Research under the PA program includes, among other things, planting methods, such as seed variety trials, fiber or seed yields, optimum fertility levels, pest management; harvesting techniques or product marketing options; or conservation, remediation or biofuel.

Those interested in participating in 2018 must apply for a permit by January 19, 2018 and meet the requirements of the program.  More information can be found at the PA Dept. of Agriculture’s website: 


David Feldman

Lawsuit: Cannabis Criminalization is Unconstitutional

Former NFL star Marvin Washington and others yesterday filed a lawsuit in New York against the US Government and Attorney General Jeff Sessions. The suit is seeking to declare the Controlled Substances Act (CSA), which makes cannabis illegal under federal law, unconstitutional as to its classification of cannabis as a Schedule I drug, deeming it as dangerous as heroin. If successful, the suit could result in the immediate national federal legalization of cannabis. Many don’t realize that the CSA replaced another law, the Marihuana Tax Act of 1937, which also was declared unconstitutional in the late 1960s after activist Timothy Leary was arrested for marijuana possession and successfully challenged the law’s validity.

The lawyers behind the suit are well-known in NY cannabis circles and believe they have a legitimate case. Quoted in MJBizDaily, Michael Hiller says bluntly that the CSA “doesn’t make any rational sense, and the federal government knows it.” In addition to Washington, the plaintiffs include two young children, a US veteran and a cannabis industry association all claiming harm by the CSA.

The suit argues that the CSA, or how it was adopted, violated the Due Process Clause, the First Amendment and the Commerce Clause of the Constitution. They claim, among other things, that the main purpose the Nixon Administration pushed for marijuana as a Schedule I drug was to incarcerate African Americans and war protesters, believing they were heavy users of cannabis. In the past the US Supreme Court has upheld the right of the federal government to criminalize cannabis, so there is no way to determine whether their efforts will pay off. Interesting stuff.

Racial Discrimination in the Legal Cannabis Space: New Industry, Same Old Story???

Seth Goldberg

Attend any of the conferences or trade shows springing up in the emerging legalized recreational and medical marijuana space, and one thing you’ll notice is an absence of racial diversity.  Why?

There are a number of possible explanations for the comparatively low number of minorities participating in the space, including, high start-up costs and restricted access to capital, especially given the reluctance of commercial banks to enter the fray, and limited political ties in a highly politicized system. Those reasons alone could be creating barriers for minorities to enter the market as owners and investors.  Continue reading Racial Discrimination in the Legal Cannabis Space: New Industry, Same Old Story???

The Federal Antitrust Laws May Not Protect Competition and Consumers In The Cannabis Industry

Seth Goldberg

To assert a federal antitrust claim, a plaintiff must have standing under Article III of the U.S. Constitution and must also have suffered an injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants acts unlawful. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).  The Brunswick standard generally benefits consumers who have paid artificially high prices as a result of a defendant’s anticompetitive conduct, or a competitor of a defendant that abused its market power to compete unfairly.

The federal antitrust laws, including the Brunswick standard, are one of the many protections intended to keep competitors on an even playing field and striving to beat one another by offering the optimal combination of quality and price to consumers, and to protect consumers from overreaching and opportunistic manufacturers that use nefarious means to impose a price they would be otherwise unable to charge.  These laws have been critical in shaping industries.

However, it may be that the federal antitrust laws are among the federal laws unavailable to cannabis industry participants, as the federal antitrust laws are limited to commerce “among the states,” i.e., interstate commerce.  Because cannabis is still prohibited under the Controlled Substances Act, its legal manufacture and distribution is generally limited to intrastate activities.  Thus, competition for legal cannabis is, by and large, necessarily intrastate.   Fortunately, most states have antitrust laws that mirror federal antitrust laws, and borrow from the federal judicial precedent they have generated.  However, as a general matter, the federal courts and federal judges are more experienced than the state courts in the complex economics underlying most antirust matters.

For the burgeoning cannabis industry, this may be yet another problem arising out of the federal prohibition of cannabis.  It means that consumers of cannabis products, such as cannabis, vapes, edibles, and possibly ancillary flower-touching products, may not be protected from inflated prices resulting from anticompetitive conduct, such as price-fixing agreements or agreements to allocate markets, and competitors for those products may not be able to ensure a level playing field with the largest companies, allowing the powerful companies to take advantage of their position by inflating prices.

The bottom line is that as the cannabis industry continues its growth at breakneck speed, manufacturers of cannabis, cannabis-infused, and cannabis-related products, may be tempted to engage in the types of anticompetitive conduct the federal antitrust laws are best able to correct, with the help of experienced federal judges, and consumers of those products may unfortunately be exposed to artificially inflated price increases flowing from such conduct left unchecked.  While not all cannabis manufacturers or cannabis-related products are limited to competing in a single state, the bulk are.

To this point, the role the  federal antitrust laws (or state for that matter) can play in shaping the cannabis industry has not been tested.  That day may be on the horizon, however, as some companies continue to grow into industry giants, while others struggle to compete.  Cannabis space participants, especially the larger players, should be aware of the compliance measures taken in other industries to protect themselves from the possibility of antitrust claims brought by their competitors or consumers.