The Controlled Substances Act defines “marijuana” as: all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.
Just like THC-containing products that are lawful under a state’s marijuana laws, CBD that may be lawful under a state’s marijuana laws, is still federally unlawful if sourced from the parts of the plant included in the definition of marijuana.
The US Senate, by an overwhelming 86-11 vote, last week approved the sweeping Farm Bill containing language which fully legalizes industrial hemp. As we know, hemp, which is derived from cannabis plants, is used to make products from rope to clothing and does not contain THC, the psychoactive part of the plant. In colonial days hemp was so crucial that farmers, like George Washington, were legally required to grow it.
Most believe the House will follow suit. Hemp has not been legal on a federal level since federal criminalization of cannabis in the 1930s. Many believe that occurred in part because of fears of hemp competing with powerful timber interests and DuPont’s then new patent on nylon. After the 1930s bill was declared unconstitutional in 1968, the Nixon Administration helped orchestrate passing the Controlled Substances Act. That law, still in force, declared all parts of the cannabis plant as Schedule I drugs, as dangerous as heroin and LSD. A top Nixon aide later admitted, “Did we know we were lying about the drugs? Of course we did.” Constitutional challenges thus far have been unsuccessful.
Legalization of hemp could yield a variety of products that previously could only be produced with imported hemp. These could include food, building materials, paper products and many others. Currently, it it believed that China is the largest producer of hemp, since it is legal to do so in a number of Chinese provinces. They started farming it during the Vietnam War to make more breathable uniforms for their soldiers in the intense heat. This Senate vote is indeed a significant step towards relaxation of federal cannabis regulation.
Just weeks after Senators Elizabeth Warren (D-Mass) and Cory Gardner (R-Colo) introduced bi-partisan legislation to make marijuana lawful under a state’s marijuana laws also lawful under the Controlled Substances Act (CSA), Senate Minority Leader Chuck Schumer (D-NY) introduced legislation removing marijuana from the CSA altogether on Wednesday, June 27. Schumer’s bill also comes just one day after Oklahoman’s passed legislation legalizing medical marijuana in their traditionally red state, and one day before the U.S. Senate passed legislation legalizing hemp for all purposes, including extracts from hemp, such as cannabidiol.
By removing from the purview of the CSA, state-legal cannabis and proceeds derived therefrom, the Warren/Gardner legislation, if passed, would likely have the effect of nationwide legalization, but state operators and consumers would still need to be concerned about marijuana’s Schedule 1 status under the CSA, whereas the Schumer bill, if passed, would eliminate those concerns by removing marijuana from the CSA.
Senators Cory Gardner (R-CO) and Elizabeth Warren (D-MA) today introduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. While we have not seen the text yet, Sen. Warren has published a summary. The bill would amend the Controlled Substances Act (CSA) saying it no longer applies to anyone acting in compliance with state (or tribal) laws relating to the manufacture, production, possession, distribution, dispensation, administration or delivery of cannabis. It also legalizes industrial hemp and removes it from the CSA. In addition to other provisions, the bill prohibits the distribution or sale of cannabis to anyone under 21 other than for medical purposes.
There are a number of pending bills promising various levels of cannabis legalization or decriminalization. This bill is important because it is the result of conversations between Sen. Gardner and the President. When Attorney General Jeff Sessions rescinded the 2014 Cole Memo which de-emphasized cannabis enforcement against legal state actors, Sen. Gardner angrily stopped approving new judicial nominations. That led to Trump’s commitment to Gardner to support “states rights” legislation if brought to him. Advocates hope this bill has a chance to move quickly as a result.
While not listed in the summary, according to MJBizDaily, the bill also would repeal tax code Section 280E which prohibits cannabis companies from deducting their ordinary business expenses, and also would allow federally insured banks greater ease in accepting cannabis customers. Stay tuned!
Authored by Robert Prince, Ph.D, https://www.duanemorris.com/attorneys/robertwprince.html
On Thursday April 18, 2018, at 8:00AM-12:30PM EST, an FDA advisory panel will consider whether to recommend or not recommend approval of GW Pharmaceutical’s cannabis-based drug Epidiolex ® for use in treating two rare types of epilepsy in children- Dravet syndrome and Lennox-Gastaut syndrome. Epidiolex is an oral formulation of a purified form of cannabidiol (CBD) a component found in cannabis. CBD does not have any psychoactive effects as compared to another component of cannabis tetrahydocannabinol (THC). Epidiolex has less than 0.1 percent of THC.
If approved, Epidiolex would be the first botanical cannabis product approved in the U.S. for any indication. The FDA has approved Marinol® and Syndros® for uses in the U.S. for the treatment of anorexia associated with weight loss in AIDS patients. Both products contain dronabinol, a synthetic delta-9-tetrahydrocannabinol. Another FDA approved drug Cesamet® contains nabilone, which is a synthetic drug with a structure similar to THC that is used to treat nausea and vomiting.
The FDA released briefing documents on April 17, 2018, which did not seem to raise any major issues with Epidiolex, resulting in the share price of GW Pharmaceuticals to rise sharply- up 2.27%. The Center for Drug for Drug Evaluation and Research (CDER) indicates that it plans to provide a free of charge, live webcast of the April 19, 2018 meeting of the Peripheral and Central Nervous System Drugs Advisory Committee. Information regarding the webcast, including the web address for the webcast, will be made available at the following website: http://www.fda.gov/AdvisoryCommittees/Calendar/default.htm. At the time of writing this note, the FDA has not provided any login information for the webcast.
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.
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.
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.
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.