The American Lawyer Features Duane Morris on Cannabis Rescheduling

Seth Goldberg, partner and team lead of Duane Morris’ Cannabis Industry Group, spoke with The American Lawyer about how the firm is preparing for cannabis rescheduling.

“What makes reclassification a watershed event is that it frees up capital and allows for more growth and allows for potential consolidation and more successful companies, more competition with respect to multistate operators and get back to a place of equity investment,” said Goldberg.

“We have been preparing for that, and lawyers in each of our practice areas—whether IP, corporate, employment—who have cannabis practices are already thinking about how they‘re going to advise clients in the cannabis industry and also outside of the cannabis industry with respect to how reclassification impacts that type of law.” […]

The combined impact on cannabis businesses of tax liabilities and lack of access to financing “can’t be overstated,” Goldberg said. Removal of 280E “will have an immediate impact on operator balance sheets,” he said. Continue reading “The American Lawyer Features Duane Morris on Cannabis Rescheduling”

DEA Recommendation to Reschedule Cannabis is Imminent

Seth Goldberg
Seth A. Goldberg

Multiple news sources reported today that the DEA will be recommending rescheduling cannabis to a Schedule III drug.  The recommendation will then lead to a public comment period and then a Final Rule will be issued, so the actual reclassification of cannabis is months away.  However, as with recent moves toward rescheduling, such as the HHS recommendation and President Biden’s directive to study whether to reschedule, today’s news and the forthcoming recommendation will boost the cannabis market, as operators and investors look forward to a better performing industry resulting from the reclassification.  The actual reclassification will have an immediate impact on operator profitability, as IRS Code 280E, which prevents cannabis operators from deducting normal business expenses, will no longer apply to cannabis businesses.  This is just one of the very significant changes to the industry that will spur more capital and more growth.  Banks and other sources of capital that have been reluctant to enter the space may finally get off the sidelines and join the game, which would obviously be the shot in the arm the industry has needed for some time.  

Attorney Generals Ask Congress to Fix Farm Bill “Loophole”

Seth Goldberg
Seth A. Goldberg

In a letter to Congress,  20 state Attorney Generals urge steps be taken in the upcoming Farm Bill to correct the loophole in the 2018 Farm Bill’s definition of hemp that has been exploited by those producing and distributing products chemically synthesized from hemp that are just as intoxicating, if not more so, than the cannabis sold under state-regulated cannabis programs.  Noting the public health and safety concerns of such hemp-synthesized intoxicants (HSIs), and the fact that their legalization was not intended by way of the 2018 Farm Bill, the AGs suggest the Farm Bill expected this year explicitly reserve for the states the power to regulate HSIs.   

Duane Morris client the American Trade Association for Cannabis & Hemp has taken a similar position in amicus briefs filed in the Eighth and Fourth Circuit Court of Appeals in Bio Gen LLC et al. v. Sanders et al. and Northern Virginia Hemp and Agriculture, LLC et al v. Commonwealth of Virginia et al.

Delta-8 THC Public Health and Safety Concerns Mount

Seth Goldberg
Seth A. Goldberg

Public health and safety concerns about delta-8 THC appear to be on the rise. A study published by JAMA this week showed that approximately 11% of all 12th graders in the US reported using products containing D-8 THC, with a higher prevalence in states that do not have existing D-8 THC regulations., and a related JAMA editorial, entitled “The Public Health Challenge of Δ8-THC and Derived Psychoactive Cannabis Products,” noted that D-8 THC products pose a risk to public health and safety because they are largely unregulated, in contrast to state-regulated medical and adult use marijuana.  As the authors of that editorial explain:

“The weak regulatory infrastructure for Δ8-THC has led to manufacturing, advertising, and sales practices that are inconsistent with public health and safety.Δ8-THChas been marketed to consumers as a low-risk medicinal cannabinoid product despite limited evidence for effectiveness. It has also been sold directly to minors through brick-and-mortar and online vendors, some of which do not restrict sales based on age. Inaccurate content labeling and potentially harmful adulterants are serious problems in the unregulated cannabinoid market. Products sold under the Δ8-THC designation vary considerably with regard to dosing and constituent ingredients.13 In an analysis of 20 commercial products marketed as Δ8-THC, authors observed that 5% of the products did not contain Δ8-THC and, among samples that did contain Δ8-THC, the quantities in each product varied markedly from advertised values.13 There is also evidence that products sold as Δ8-THC contain unlabeled constituents that may be dangerous for consumers.14 It is not known whether the constituents were added during manufacturing processes or whether they were added intentionally or because of poor
quality control procedures.”

The editorial’s authors note the need for more rigorous manufacturing, advertising, and sales standards for D8-THC and other intoxicating cannabis-related products, and encourage federal legislators to use the next Farm Bill to address the loophole in the 2018 Farm Bill that has resulted in the proliferation of D8-THC and other intoxicating substances chemically synthesized from hemp: 

“Given the potential harms posed by the widespread availability of Δ8-THC and other derived psychoactive cannabis products, more rigorous standards for manufacturing, advertising, and sales are warranted. The 2018 Agriculture Improvement Act is set to expire in September 2024, and legislators may take the opportunity to strengthen the regulatory infrastructure for derived psychoactive cannabis products or exclude certain derivative products from the statutory definition of hemp.”

 

 

 

Delta-8 Products Targeted by CT AG for Safety Concerns

Seth Goldberg
Seth A. Goldberg

I have previously written about lawsuits filed against manufacturers and sellers of hemp-synthesized intoxicants (HSI), such as Delta-8 THC, by the Attorneys General of California and Nebraska, as well as warning letters issued by the FDA, to stop the marketing and sale of HSIs.  Add to those, recent enforcement actions by the Attorney General of Connecticut against seven HSI manufacturers/sellers, which claim they have violated the CT’s unfair competition laws by marketing and selling unregulated cannabis products. 

The key point of all of the above actions is the unregulated nature of HSIs, which creates public safety concerns.  As the CT AG explained:  “Cannabis is legal for adults in Connecticut, but it’s not a free-for-all—retailers must be licensed and legal cannabis products must comply with strict safety standards. . . None of these products have been subject to Connecticut’s rigorous testing standards or contain appropriate warnings. Some are sold in dangerous and misleading packaging designed to appeal to children. These products are designed to deceive consumers into believing they are safe, tested, and regulated—that is false. ” 

HSIs can be just as intoxicating, if not more so, than cannabis products regulated under a state’s medical or adult-use cannabis laws and regulations.  However, in many states HSIs are not regulated and thus may not have undergone safety testing or be accurately labeled, posing health and safety risks to consumers.   While, as I have previously written, the cannabis and hemp industries may debate whether the 2018 Farm Bill legalized HSIs, there should not be any real debate about the need for product safety or the right of states to protect their citizen consumers.  

FDA Warning Letter Targets Delta-8 THC

Seth Goldberg
Seth A. Goldberg

On December 5, 2023, FDA issued a warning letter to a manufacturer (Hemp XR) of food products, such as gummies, cookies, etc., that contain delta-8 THC.  The warning letter notes that delta-8 THC has not been generally recognized  as safe (GRAS) for use in food, and has not received pre-market approval to be used as a food ingredient, which requires data demonstrating safety.  As a result, FDA warns that the interstate marketing of the food products at issue violates the Food, Drugs and Cosmetics Act.  The warning letter makes similar assertions with respect to the manufacturer’s food products containing CBD. 

FDA notes that its concerns with respect to delta-8 THC include:  “1) Delta-8 THC products have not been evaluated or approved by FDA for safe use and may be marketed in ways that put the public health at risk; 2) FDA has received adverse event reports involving Delta-8 THC containing products; 3) Delta-8 THC has psychoactive and intoxicating effects; 4) FDA is concerned about the processes used to create the concentrations of Delta-8 THC claimed in the marketplace; and 5) FDA is concerned about Delta-8 THC products that may be consumed by children, as some packaging and labeling may appeal to children.”

As I have previously written, manufacturers of products containing delta-8 THC are exploiting an ambiguity in the definition of hemp under the 2018 Farm Bill that they assert legalized chemical substances converted from hemp cannabinoids through chemical processes on the notion that such substances were “derived” from hemp.      

Another Lawsuit Challenging State Regulation of Hemp Synthesized Intoxicants

Seth Goldberg
Seth A. Goldberg

Another lawsuit challenging state regulations that attempt to curb the use of hemp-synthesized intoxicants (HSI) in consumer products was commenced last week.

In a complaint filed in federal court in Alaska on November 2, 2023, AK Industrial Hemp Assoc. et al. v. Alaska Department of Natural Resources, et al, the plaintiffs challenge the constitutionality of Alaska regulations that prohibit the sale in Alakska of hemp products for human consumption that contain delta-9 THC or synthetic cannabidiol.

There are now more than half a dozen lawsuits challenging state regulations that target HSIs, which further demonstrates the need for Congress to make clarifying changes to the definition of hemp in the 2023/24 Farm Bill to correct the loophole that has resulted in the proliferation of these intoxicating and potentially unsafe substances.

On November 17 at 12:00 eastern, Duane Morris will be hosting a webinar about the “loophole” in the definition of hemp in the 2018 Farm Bill that has led to the proliferation of HSIs, including the science behind HSIs; litigation challenging state regulation of HSIs; and the 2023/24 Farm Bill and HSI policy. 

Why Hemp-Synthesized Intoxicants Need Uniform Regs

Dylan Anderson and Seth Goldberg authored the Law360 article “Why Hemp-Synthesized Intoxicants Need Uniform Regs.”

They write, “The next time you find yourself at a gas station loading up for a road trip on your snack or energy drink of choice, you may notice a surprising offering at the counter: products made from cannabis that have an intoxicating effect, but that are not governed under a state’s recreational or medical marijuana laws and regulations.” Read the full article.

Virginia’s Restriction of Hemp Synthesized Intoxicants Upheld by Federal Court

Seth Goldberg
Seth A. Goldberg

On October 30, 2023, in Northern Virginia Hemp and Agriculture LLC, et al., v. The Commonwealth of Virginia, the U.S. District Court for the Eastern District of Virginia  refused to enjoin a Virginia statute, SB 903, aimed at curbing the production and distribution of products containing intoxicating chemical compounds derived from federally lawful hemp (“Hemp Synthesized Intoxicants” or “HSIs”).  SB 903 imposes upon hemp products,  including edibles and smokables, industrial hemp extracts, and any other consumable substance, a limit of no greater than .3% total THC concentration and no more than two milligrams of total THC per package or amount of cannabidiol that is no less than 25 times greater than the amount of total THC per package.

This restriction, referred to as a “Total THC Standard,” is intended to prevent the sale to consumers of ingestible, smokable, and otherwise consumable products that contain intoxicants derived from federally lawful hemp that are the functional equivalent of the delta-9 THC in federally unlawful marijuana. Such products have proliferated since the 2018 Farm Bill because chemical processes can be used to convert the chemicals in hemp into intoxicating compounds like delta-8 THC.

The Court in No. VA Hemp determined that the plaintiffs were unlikely to succeed on the merits of their claims because, among other things, the 2018 Farm Bill did not preempt states from regulating hemp products sold in their states.

 

 

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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