Tag Archives: Justin Stern

Consumer Class Actions Against CBD Companies Are Hitting a Snag

Seth Goldberg, partner and team lead of Duane Morris’ Cannabis Industry Group, and Justin M. L. Stern, Duane Morris associate, authored the Cannabis Industry Journal article, “Consumer Class Actions Against CBD Companies Are Hitting a Snag.”

Excerpt from the article:

Over the past year, more and more consumer class actions have been filed against manufacturers and distributors of CBD-infused products. These actions typically assert claims based on how the product is marketed, such as whether it (i) contained the advertised amount of CBD, (ii) contained more THC than it should have or (iii) has the ability to provide the therapeutic benefits touted. The marketing of these products is subject to regulation by FDA, which has yet to issue pertinent regulations that have been expected since passage of the 2018 Farm Bill legalizing hemp and CBD products derived therefrom. Thus, in recent months, a number of federal courts have stopped these class actions in their tracks pending further guidance from FDA as to how CBD-infused products should be regulated. This growing body of precedent should be welcome news for the CBD supply chain, as it may provide a disincentive to the plaintiffs’ bar to expend their resources on similar actions until the regulatory framework is clear.

Please visit the Cannabis Industry Journal website to read the full article.

Okla. High Court Marijuana Ruling Provides Preemption Guide

Duane Morris attorneys Justin Stern  and Joseph Pangaro authored the July 1 Law360 article, “Okla. High Court Marijuana Ruling Provides Preemption Guide.”

Stern and Pangaro write:

Adult-use marijuana may be coming to Oklahoma sooner rather than later — barring any unforeseen events, legalization of marijuana for adult use will be on the state’s ballot this year.

On June 23, in the case of In re: State Question No. 807, Oklahoma Supreme Court rejected arguments that the proposed initiative was legally insufficient as preempted by federal laws making marijuana illegal. Interestingly, the court explained that state legalization of marijuana would not be “clearly or manifestly” unconstitutional as preempted by the federal Controlled Substances Act, or CSA, despite the apparent conflict.

To read the full article, visit the Duane Morris website.

Webinar: Civil Litigation and COVID-19 Implications for the Cannabis Industry

On Tuesday, April 21, 2020,  Seth A. Goldberg, partner and team lead of the Duane Morris Cannabis Industry Group, and Justin M. L. Stern, Duane Morris associate, will present at the webinar, “Cannabis 303: Civil Litigation and COVID-19 Implications for the Cannabis Industry: An Unavoidable Consequence of a Maturing U.S. Cannabis Market.”

Please join the attorneys to review the recent landscape of cannabis-related commercial litigation, discuss the potential impact of COVID-19 on marijuana- and hemp-related civil litigation, and learn best practices for businesses with respect to preparing for, and possibly preventing, potentially resource-draining and almost always disruptive civil litigation matters.

REGISTER

 

COVID-19 Forces Cannabis Industry and State Regulators to Evaluate and Improve Methods of Cannabis Delivery and Access

By Justin A. Santarosa, Arletta Bussiere, Joe Pangaro and Justin Stern

Cannabis operators, like all other businesses, are searching for new ways to reach their customers during the COVID-19 pandemic. Cannabis businesses have been generally treated as “essential” under the various state orders that have otherwise closed businesses and ordered people to stay at home. Even though they have been permitted to operate, it is not business-as-usual for these operators as they grapple with CDC workplace restrictions and guidelines for reducing the spread of COVID-19.

As a result of these restrictions, state regulators and cannabis business have begun implementing new policies and procedures such as curbside pick-up, expanded delivery zones and increased use of contactless payment methods. While these changes are viewed as temporary, if properly implemented, cannabis businesses may be able to show regulators that these expanded policies should continue after the crisis has passed. This difficult time presents an opportunity for cannabis retailers to expand their reach and help bolster support for more online ordering, home delivery and other delivery methods.

Below is a summary of how several states have handled the COVID-19 pandemic in relation to the operations of cannabis businesses during the stay at home orders. Continue reading COVID-19 Forces Cannabis Industry and State Regulators to Evaluate and Improve Methods of Cannabis Delivery and Access

A Cannabidiol Catalyst? Recent Events Increase Pressure on FDA to Regulate CBD

By Justin M.L. Stern and Frederick R. Ball

For consumers, the widespread availability of products containing cannabidiol (CBD) is old news. But for those in the cannabis industry—and in particular, those monitoring applicable regulatory developments—the state of CBD remains largely in flux and continues to be marred by uncertainty.

Under the 2018 Farm Bill, the U.S. Food and Drug Administration (FDA) retained its regulatory authority over products derived from hemp, including CBD incorporated into products it traditionally regulates, such as food, dietary supplements, and cosmetics. Unfortunately for the industry, FDA has yet to propose or issue formal regulations concerning the manufacture, distribution, or sale of such products. At the same time, FDA has issued numerous warning letters to producers and retailers incorporating CBD into products operating in the complex gray area between state and federal law. Nevertheless, recent events occurring across all three federal branches of government may reflect an impetus for change in FDA’s approach to CBD products.

To read the full article, please visit the FDLI website.

FDA Provides Insight on Research and Drug Approval for Cannabis Products

Last week, the U.S. Food & Drug Administration published its current thinking on the research and approval process for cannabis-related drugs. The publication, which among other things recognizes the “increasing interest in the potential utility of cannabis for a variety of medical conditions,” contains critical information for businesses and consumers in the cannabis market—including those wishing to develop new cannabis-related drugs.

Read the full Duane Morris Alert.

U.S. Senators Urge Changes to Testing Requirements Under USDA Interim Final Rule for Hemp Program

When the United States Department of Agriculture released the interim final rule for the hemp program in October 2019, many stakeholders—including businesses and state agencies—were caught off guard by certain testing-related requirements contained in the rule. Because hemp is now legal under the 2018 Farm Bill if it contains no more than 0.3 percent THC concentration, testing for THC levels is critical. However, significant questions and issues with the testing requirements must be clarified.

On November 20, 2019, Senators Ron Wyden and Jeff Merkley, both from the state of Oregon, submitted a letter to the secretary of the USDA, in which they flagged—“in no particular order”—five controversial testing-related requirements and requested modifications to those requirements. Below, we have summarized the senators’ concerns and proposed solutions to three particularly controversial testing-related requirements in the interim final rule.

View the full Alert on the Duane Morris LLP website.

SAFE Banking Act Passes the House – Cannabis Banking May Soon Be Reality

By Joseph J. Pangaro, Justin M. L. Stern, David E. Landau, Seth A. Goldberg and Michael S. Zullo

On Wednesday evening, September 25, by a vote of 321 to 103, the United States House of Representatives took a meaningful step toward easing federal restrictions that have limited the access of cannabis businesses to banking services notwithstanding the growth of the cannabis industry by passing the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”). The public safety concerns resulting from the dearth of cannabis banking has led dozens of state Attorneys General, the American Banking Association, and numerous other voices to urge the passage of legislation like the SAFE Banking Act so that the U.S. cannabis industry, which now exceeds $10 billion in annual sales revenues, not to mention hundreds of millions in state tax revenues, will benefit from the same banking services – checking accounts, payroll, and credit cards, to name a few – that are common to virtually all other U.S. businesses.  Passage of the SAFE Banking Act in the Senate would be liberating for the cannabis industry, as banking services will stimulate even more growth and better business practices, while eliminating the overhang of public safety concerns relating to large cash transactions.  Below is: (i) a brief summary of the history leading to this point; (ii) the key provisions of the SAFE Banking Act of 2019; and (iii) a preview of what comes next.

History of Marijuana Regulation and Banking Implications

  • Controlled Substances Act (“CSA”):[1] Marijuana is a federally unlawful Schedule I drug under the CSA, 21 U.S.C. § at § 841(a), and direct and indirect (conspiracy and aiding abetting) violations carry stiff criminal and civil penalties, including forfeiture. at §§  841(b), 853.
  •  Bank Secrecy Act (“BSA”) and Money Laundering Control Act (“MLCA”): The BSA and MLCA obligate banks to root out financial transactions involving “unlawful” activities and thus banks must comply with BSA reporting requirements for suspicious transactions and must have robust customer diligence and MLCA programs.
  • 2014 FinCEN[2] Guidance: In an effort to stimulate cannabis banking, FinCEN issued Guidance in 2014 that clarified BSA expectations of financial institutions by describing how financial institutions can provide services to cannabis businesses consistent with their BSA obligations. This Guidance included stringent customer due diligence obligations and a special category of suspicious activity reporting (SAR) for marijuana-related businesses. The 2014 Guidance created three types of marijuana SAR filings: (i) “Marijuana Limited”; (ii) “Marijuana Priority”; and (iii) “Marijuana Termination.”

Reluctant Banking and Public Safety Concerns

Notwithstanding FinCen’s Guidance, the CSA, the Bank Secrecy Act, and the MLCA have presented significant obstacles for banks interested in providing their services to cannabis companies that “touch the flower” and even companies that provide ancillary services to the cannabis industry. Most financial institutions, including commercial banks, investment banks, and insurance companies, have avoided the core and ancillary cannabis companies.  For example, FinCen last reported that as of March 2019, only 633 of the 8,700 FDIC insured or supervised financial institutions are servicing marijuana-related business.

This widespread abstention has had a significant impact on the cannabis industry. An overwhelming portion of the $10 billion plus cannabis industry is comprised of cash transactions — purchases are made in cash, employees are paid in cash, accounts payable, including rent and other bills are paid in cash, even state taxes are paid in cash. Cannabis businesses may not have checking accounts or payroll services, cannot process credit cards, and are forced to find private lenders at high interest rates.

Public safety is at risk due to the volume of cannabis cash that is going untracked by the U.S. banking system.  There is an increased risk of theft, and there have even been claims for ransom and violent crimes. Businesses may not carry enough insurance for their premises and products. Accurate record-keeping, accounting, and the calculation and payment of state and local taxes is challenged. Most importantly, the transparency objectives of the BSA are undermined, as cannabis companies often engage in corporate structuring intended to provide some access to banking, even if not directly. In addition, it is widely understood that some FDIC banks simply turn a blind eye, and provide services to cannabis businesses without reporting.

Key SAFE Banking Act Provisions

Although the SAFE Banking Act contains numerous important provisions, below are three of the most significant.

SAR Filings

The SAFE Banking Act does not do away with the requirement to file SARs. However, it does mandate that FinCEN issue revised guidance concerning SAR filings that “is consistent with the purpose and intent of the SAFE Banking Act of 2019 and does not significantly inhibit the provision of financial services to a cannabis-related legitimate business or service provider in a State.”

Protections for Financial Institutions

Further, the SAFE Banking Act would protect financial institutions against adverse actions by federal banking regulators—such as limiting or terminating the insurance provided under the Federal Deposit Insurance Act or the Federal Credit Union Act—taken solely on the basis of the financial institutions’ provision of banking services to cannabis businesses operating in accordance with state law or their service providers. The bill also prohibits regulators from discouraging institutions from providing financial services to such businesses or from incentivizing banks or credit unions to refuse, terminate, or downgrade accounts held by those engaged in the cannabis industry (such as owners or employees of cannabis businesses). Similarly, the bill provides that banks or other financial institutions providing financial services to legitimate cannabis businesses in states or jurisdictions where the cannabis business is lawfully operating will not, because of their dealings with such cannabis businesses, be held liable under federal law either for providing the financial services or for investing income derived from the provision of such services. The result of these protections is that financial institutions would, under the SAFE Banking Act, be able and thus more willing to provide cannabis businesses with routine services that companies in other industries take for granted, i.e., the processing of credit card transactions, the maintenance of operating and payroll checking accounts, etc.

Protections for Ancillary Businesses

The bill also provides protections for so-called “ancillary” businesses; under the SAFE Banking Act, receipt of money by a legitimate business or service provider, through a transaction with a cannabis business, would not on that basis result in the ancillary business’ violation of 18 U.S.C. §§ 1956 and 1957, concerning transactions involving the proceeds of illegal activity. This protection would extend to ancillary business service providers such as accountants, lawyers, bankers, and landlords, as well as to sellers of goods or services to cannabis businesses, such as cable and internet providers.

Conclusions – What to Expect

Having passed the House, the bill now moves to the Senate where, despite its bipartisan support, its fate is unclear. Senator McConnell, the Senate Majority leader who was instrumental in the passage of the 2018 Farm Bill, has not shown much interest in the bill yet. Yet Senator Crapo, Chairman of the Banking Committee, however, has hinted he may be interested in the legislation. Given the strong vote count with which the House passed the bill, pressure may start to mount for Senate action, particularly in light of the broad based coalition that came together to pass the House bill. The Senate should have the very real public safety concerns resulting from the dearth of cannabis banking in plain view when it votes.

[1] 21 U.S.C. § 801 et. seq.

[2] Financial Crimes Enforcement Network

Cannabis Vapor Sales Fall in Midst of Health Scare, Though CDC Revises Scope of Inquiry

Over the last few weeks, numerous media reports have focused on the alleged though unverified link between vaping products and certain health-related issues, including what have been described as “lung illnesses.”

While reactions have surfaced quickly (among them President Trump’s statement this week that his Administration will move to restrict the sale of certain e-cigarettes), the blowback can also be seen in the market, too. According to a new report by Marijuana Business Daily, “since the first vape-related death was reported in late August,” there has been a significant drop-off in purchases of vaping-related cannabis products among consumers in the adult-use cannabis space.

According to the report, based on a study conducted by Seattle-based Headset, the percentage of vaping-related cannabis products in the adult-use (or recreational) cannabis market fell in California from 32.8% (just before the first vape-related death) to 28.9% (as of September 11)–amounting to about a 12% drop in market share. In Colorado, the drop was from 19.5% to 15.4%–a slide of more than 20%. The two other states covered in the study were Nevada, whose drop-off was from 22.3% to 19.2% and Washington, whose drop-off was from 17.8% to 14.6%.

It’s worth noting that the fall of sales in the vaping category appears to have been matched with an increase in sales of other cannabis-related merchandise, including flower and pre-roll products. Further, as the chart contained in the report shows, while the sale of vape-related cannabis products as a percentage of sales does fluctuate from week to week, the recent drop-off reflects a significant departure from the normal ebb and flow.

Finally, all of this comes amidst the CDC’s recent announcement narrowing the parameters of its vape-related health inquiries. Whereas reports last week indicated that the CDC was reviewing 450 possible cases of vaping-related health issues, the CDC’s announcement on Thursday clarified that “[t]here are 380 cases of lung illness reported” and acknowledged that the CDC does “not yet know the specific cause of these illnesses” nor has the inquiry “identified any specific e-cigarette or vaping product (devices, liquids, refill pods, and/or cartridges) or substance that is linked to all cases.”