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.  

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.”

 

 

 

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.      

Class Certification For Wage & Hour Claims Against Cannabis Dispensaries Granted by California State Court

A California Superior Court recently granted class certification relative to a class of hundreds of employees against a group of dispensary defendants where the Plaintiffs presented sufficient evidence that the off-the-clock work claims, meal and rest period claims, and reimbursement of necessary business expenses claims predominated over individual inquiries and were typical of the class.  The Court did not rule on the merits of the integrated enterprise, alter ego, or joint employer arguments, nor did the Court agree with the Defendant’s arguments that the claims were not typical because the Plaintiffs were not employed by each Defendant. Nonetheless, the ruling is important for employers in general and cannabis dispensaries in particular.

To read the full text of this article by Seth A. Goldberg and Nick Baltaxe, please visit the Duane  Morris Class Action Defense Blog.

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. 

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.

 

 

AG Consumer Protection Lawsuits Target Delta-8 and Perceived “Loophole” in 2018 Farm Bill

Seth Goldberg
Seth A. Goldberg

The Nebraska Attorney General and the California Attorney General have filed lawsuits recently under their states’ consumer protection statutes targeting the manufacturers of hemp products containing Delta-8 THC, noting the health and safety risk to consumers of these products.  Such products, known as “hemp synthesized intoxicants” or “HSIs” are often just as intoxicating as the Delta-9 THC in state-legal adult-use and medical marijuana, but may not be subject to the same types of licensure, testing, and packaging/labeling requirements imposed under state cannabis programs. 

As I have previously written, the manufacture and distribution of HSIs appears to be the result of a perceived loophole in the 2018 Farm Bill’s legalization of hemp and its “derivatives, extracts, cannabinoids, isomers.”  Proponents of HSIs assert that, in defining hemp in the 2018 Farm Bill, Congress did not prohibit the chemicals in hemp from being converted into psychoactive compounds.

Opponents of HSIs argue that hemp was legalized as an agricultural commodity, and the 2018 Farm Bill was focused on the production (cultivation) of hemp, not consumer finished products that could be manufactured using its constituents.  They posit that Congress did not intend for the chemicals in hemp to be converted into a host of compounds just as intoxicating as Delta-9 THC. 

State AG consumer protection lawsuits against manufacturers of products containing HSIs are an attempt to curb their proliferation.  Congress may address the perceived loophole that is being exploited to manufacturer HSIs in the forthcoming Farm Bill. 

 

Did Congress Intend to Legalize Intoxicating Hemp Products in the 2018 Farm Bill?

Seth Goldberg
Seth A. Goldberg

The 2018 Farm Bill legalized “Hemp,” defining it as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”  The .3% delta-9 THC threshold  distinguishes hemp from marijuana, which remains a federally unlawful Schedule I controlled substance, based on the psychoactive effect of delta-9 THC.

Today, consumers can walk into convenience stores, gas stations, and the like, or shop online, and purchase an array of cannabis products that have the same psychoactive effects as delta-9 THC in federally unlawful Marijuana, i.e., delta-9 THC at greater than .3% on a dry weight basis, but, because they were manufactured using “derivatives, extracts, cannabinoids, isomers” found in Hemp, their manufacturers claim they are legal.   These products, which contain delta-8 THC, delta-10 THC, and other chemical compounds, are the result of chemical processes that convert the Hemp “derivatives, extracts, cannabinoids, isomers” into compounds that are the functional equivalent of the delta-9 THC in federally unlawful Marijuana.

Manufacturers of delta-8 products believe the 2018 Farm Bill does not prohibit the conversion of the “derivatives, extracts, cannabinoids, isomers” in Hemp into an intoxicating compound, which begs the question: did Congress really intend to legalize intoxicating compounds created from Hemp “derivatives, extracts, cannabinoids, isomers”  that are functionally equivalent to the delta-9 THC in federally unlawful Marijuana?  It would seem that the .3% delta-9 THC distinction between Hemp and Marijuana is about psychoactive effect, not about a particular chemical.

Cannabis Banking Ticks Up, But the Industry Needs SAFE Banking

Seth Goldberg
Seth A. Goldberg

Just ahead of the Senate Banking Committee’s vote on the Secure and Fair Enforcement (SAFE) Banking Act, the Financial Crimes Enforcement Network (FinCEN) has reported that a total of 812 banks and credit unions filed reports in the 2d quarter 2023 indicating they are actively providing banking services to cannabis industry participants, referred  to by FinCEN as Marijuana Related Businesses, which is the highest number since FinCEN began reporting on cannabis banking activity in 2014.  However, those 800 or so banks are just a fraction of the thousands of FDIC banks that could be providing banking services to the cannabis industry.   Even with the increase in banks providing their services to the cannabis industry since 2014, the industry remains burdened by a dearth of banking.   Cannabis companies, employees, and consumers are not able to access traditional financing, payroll services, credit cards, ACH, and debit services, which are the lifeblood of other consumer packaged goods industries.  Meanwhile, banks are routinely analyzing entering the cannabis space, but deciding against it because of the cost of compliance, among other reasons.  SAFE Banking would provide access to critical banking services.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

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

Proudly powered by WordPress