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 The listing of Cronos comes within two months of the memorandum issued by Attorney General Sessions that rescinded the federal government’s previous guidance regarding enforcement of state-lawful cannabis activities under the Cole Memorandum.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.
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!
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:
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???
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.
An article in The Philadelphia Inquirer reported about the reluctance of major banks to participate in the marijuana industries in those states that have legalized marijuana for recreational and/or medicinal purposes because marijuana is still a Schedule 1 controlled substance under the federal Controlled Substance Act. I have previously written that lawyers in those states share similar concerns because the rules of ethics prohibit lawyers from assisting clients in illegal activities.
The conflict between state legalization and federal criminalization of marijuana thus appears to be depriving the businesses and individuals, such as investors, growers, manufacturers, dispensaries, physicians, patients, and consumers, currently or potentially participating in the emerging marijuana industry from the two resources – lawyers and bankers – that are arguably the most important to the establishment and sustained growth of an emerging, regulated industry. This is especially concerning given the importance to all citizens of the careful implementation of marijuana legislation. Continue reading Bankers, Lawyers, and the Conflict Between State and Federal Marijuana Laws