Changes to the Controlled Substances Act for Cannabis to make it a Schedule III Drug – The Winds May Be Blowing this Way

Earlier today, on August 30, 2023, the U.S. Department of Health and Human Services (HHS) officially recommended that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act (CSA) – a landmark recommendation from HHS which indicates that HHS no longer considers cannabis to be a drug with high abuse potential and no medical value.

After completing a scientific review into cannabis per a requested review from the Biden Administration, HHS advised the Drug Enforcement Administration (DEA) that it believes marijuana should be placed in Schedule III of the Controlled Substances Act.

Note, HHS’s recommendation is NOT binding on the DEA but given the report’s findings and growing public sentiment is likely that the DEA agrees with the recommendation and shifts its policy.

Historically, cannabis has been federally prohibited as a Schedule I controlled substance. As noted by many pundits, the rescheduling to Schedule III would have major implications for researchers who have long criticized the Schedule I classification that creates significant barriers to access for studies.

For researchers, this change would likely mean that they would no longer need to go through the onerous registration process with the DEA in order to access cannabis for studies as a Schedule III drug. The shift to Schedule III would also enable various federal tax deductions to become applicable to the cannabis industry and unlock value for them that is currently stuck in an onerous tax structure under the Internal Revenue Code. Schedule III drugs are not subject to the same onerous structure under federal rules.

The cannabis ball is now firmly in the DEA’s court as the DEA has the final authority to schedule a drug as Schedule III rather than Schedule I under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether).

Parting Hits – With Congress due to reconvene after Labor Day, and the Biden Administration looking for a win on moving this issue along, look for pressure to continue to mount for some type of Congressional action in the Banking arena under a SAFE legislation bill and for the DEA to move through their rule making process in a swift and firm manner.

Duane Morris has a full service cannabis group that helps clients and investors in a wide array of cannabis-related issues including, but not limited to, licensing, fundraising, intellectual property protection and real estate.  If you have any questions, please do not hesitate to contact Brad Molotsky or the attorney with whom you regularly communicate at Duane Morris. 

Bipartisan House Bill Shows Feds May Be Relaxing Stance on Marijuana in Employment Decisions

Although several states have relaxed their stances on marijuana, and in turn protected employees’ lawful off-duty use of marijuana, employees (and often contractors) of the federal government are usually excluded from these protections.  Marijuana remains a Schedule I substance under federal law, and thus is unlawful, without exceptions.

However, the federal government is starting to take steps towards softening its stance on marijuana, which may be welcomed news to many considering that the federal government is the largest employer in the United States.

On July 27, 2023, Representatives Jamie Raskin (D-MD) and Nancy Mace (R-SC) introduced bipartisan legislation in the U.S. House of Representatives that would allow job applicants who are current or former marijuana users to receive federal security clearances and have access to federal job opportunities.  The Act, titled the Cannabis Users’ Restoration of Eligibility Act, or the “CURE Act,” would amend the Intelligence Reform and Terrorism Prevention Act to prohibit current or past use of marijuana from being a consideration with respect to a person’s eligibility for security clearances or eligibility for employment with the federal government.

Individuals who are denied security clearance or employment will also be afforded the opportunity to have that decision reviewed by the applicable federal agency under the Act.  If it is determined that current or past marijuana use was the reason for the denial, the agency is to reconsider the same.

The Act, in its current form, is silent as to whether federal agencies can continue to test current employees for marijuana, and what actions, if any, agencies can take against current employees who test positive for marijuana.

The CURE Act has a ways to go before it becomes law, and it is likely to meet significant resistance along the way.  Nevertheless, the progress marijuana has made in becoming more acceptable and mainstream is evident, and those on Capitol Hill are taking notice.

FDA Issues Warning Letters Against Delta-8 THC Gummies

Seth Goldberg
Seth A. Goldberg

I previously wrote about the American Trade Association for Cannabis & Hemp’s policy paper that called for the federal and state regulation of hemp -synthesized intoxicants like Delta-9 and Delta-10 THC, issued on June 24, 2023.   Last week, the FDA issued warning letter to six different manufacturers of gummies containing Delta-8 THC:  Delta Munchies, Dr. Smoke LLC (also known as Dr. S LLC), Exclusive Hemp Farms/Oshipt, Nikte’s Wholesale LLC, North Carolina Hemp Exchange LLC and The Haunted Vapor Room. 

The warning letters explain that the products at issue are adulterated under the Food, Drug and Cosmetics Act, because Delta-8 THC has not been authorized by the FDA as a “food additive.”  They note that the FDA has received numerous adverse event reports pertaining to products containing Delta-8 THC, especially such products ingested by children, and emphasize the FDA is particularly concerned about the marketing of gummies containing Delta-8 to children.   In this connection, the warning letters also claim the products at issue were marketed in a deceptive manner in violation of the FTC Act.  

The manufacturers were told to cease and desist the sale of the allegedly offending Delta-8 containing products.  The warning letters will likely result in further investigation by the FDA and a process by which the manufacturers will work with the FDA to resolve the issues raised in the warning letters.

ATACH Calls for the Regulation of Hemp-Synthesized Intoxicants

Seth Goldberg
Seth A. Goldberg

Since the legalization of Hemp under the 2018 Farm Bill, a market has grown  for products that synthesize Hemp-derived compounds into intoxicants that provide a high for consumers.  Manufacturers of such products claim they are legal because they were synthesized from federally legal Hemp.  Because FDA and most states do not have regulations specifically addressing such Hemp-synthesized intoxicants, products containing Delta-8, Delta-10 and a synthesized version of Delta-9 are being marketed widely, and with little, if any, federal or state regulation.  Consequently, such products propose a health and safety risk to consumers, and undermine state-legal cannabis programs throughout the U.S.  Last week, the American Trade Association for Cannabis & Hemp issued a comprehensive policy paper calling for the regulation of Hemp-synthesized intoxicants.  ATACH urged federal and state lawmakers, as follows:

    • Amend the definition of hemp to account regulation for final product

    • Adopt standards for all intoxicating cannabinoids, whether from marijuana or hemp

    • TTB should regulate intoxicating products in adult-use settings

    • FDA should provide a pathway for non-intoxicating cannabinoids such as CBD

    • State labs should be provided with federal technical assistance

    • Retail sales should be limited to adults 21 or over anywhere intoxicants are available

    • Intoxicating cannabinoid products should be regulated in marijuana programs

    • Regulators should adopt uniform testing and labeling standards

    • Enforcement efforts should be supported, and regulations should promote public health and safety

 

 

Cannabis Highlights in the NBA’s New Collective Bargaining Agreement

On April 26, 2023, the National Basketball Association (NBA) announced the ratification of its new, seven-year Collective Bargaining Agreement (CBA) with the National Basketball Players Association (NBPA).  The CBA will take effect on July 1, 2023, and will run through the 2029-30 season.  The CBA provides, among other things, certain key changes to cannabis-related matters, particularly in connection with the NBA’s Anti-Drug Program and NBA players’ business opportunities.

Anti-Drug Program

According to a summary of the agreement as reported by Law360, the NBA decided to remove cannabis from its Prohibited Substances List.  However, NBA players are still subject to random drug tests.  The NBA has authority to conduct up to 1,925 random urine tests each season.  In addition, teams may refer players to a treatment program if they suspect them of (1) being under the influence of cannabis while participating in league activities, or (2) experiencing a dependency on cannabis.

Furthermore, the NBA may still discipline players for violating the law or for being under the influence during league or team activities.  Players who neglect or fail to comply with the Anti-Drug Program will be banned from league activity.  Nevertheless, players may now apply for reinstatement of eligibility after one year, as opposed to the two-year rule enforced since 1983.

Business Opportunities

NBA players are also now permitted to: (1) invest in companies that make CBD-infused products, and (2) hold a passive, non-controlling interest in companies that make products with more substantial concentrations of THC.  Although players may now promote companies that make CBD-infused products, the NBA continues to prohibit players from promoting cannabis companies and marijuana products.

CANNABIS INDUSTRY THE LATEST FRONTIER FOR LABOR ORGANIZING EFFORTS

As legal adult-use cannabis continues to spread across the country, so does a movement to unionize cannabis workers.  The need for dispensary and cultivation workers has rapidly increased, along with the demand for higher wages, improved benefits, diversity and inclusion efforts, and more.

To date, 21 states and the District of Columbia have legalized adult use marijuana.  Bills to legalize adult use marijuana are pending in several other states.  According to Forbes, cannabis sales in the United States are estimated to reach $57 billion by 2030.  The industry shows no signs of slowing down.  Labor unions have taken notice and have seemingly set their sights on the cannabis workforce.

The efforts of labor unions have been buoyed by labor peace agreement (LPA) laws.  While LPA laws vary by state, they generally require cannabis companies to take a hands-off approach to union organizing efforts as a condition of doing business in the state.  This means the company cannot interfere with organizing efforts.  However, unions typically also agree via the LPAs not to interfere with the operations of the business.  Alternatively, some LPA laws offer preferential status in licensing applications for companies that enter into LPAs.

California, New York, New Jersey, and Virginia all have varying degrees of requirements with respect to LPAs in their states.  Pennsylvania and Illinois do not require LPAs, but the states offer certain advantages to companies who enter into LPAs.  Several other states, such as Massachusetts, Connecticut, and Minnesota, are contemplating enacting their own LPA requirements.

The apparent enthusiasm of organizing efforts largely paid off for unions in 2022.  According to Bloomberg Law’s NLRB Election Statistics report, unions prevailed in 76% of overall elections in 2022, one of the highest success rates on record. The United Food and Commercial Workers Union, which has dubbed itself “the Cannabis Workers’ Union” representing more than 10,000 cannabis members, won 70% of representation elections in 2022.  They are not the only ones.  The International Brotherhood of Teamsters, which has unionized some cultivation workforces, won 66% of representation elections in 2022.

While there has been some litigation surrounding LPAs and organizing efforts, to date, most cannabis companies do not appear to be challenging these requirements.  This has the strategic benefit of allowing cannabis businesses to get licenses and begin operations, rather than engage in what could be a prolonged legal battle.  However, as unions expand and tighten their grasp on cannabis workforces, industry groups may start to fight back.

Pennsylvania Almost Surrounded With Adult-Use Cannabis

Cannabis had a decent day at the polls yesterday, with voters in Maryland and Missouri legalizing adult-use, bringing the number of adult-use states to 21, but voters in Arkansas and the Dakotas voted against adult-use. With Maryland legalizing adult-use, Pennsylvania, which has a medical marijuana program, is getting closer to being surrounded by states where adult-use is legal. Across it’s northern, eastern, and southern borders Pennsylvania is now adjacent to adult-use states – New York, New Jersey, and Maryland. All three states are predicted to generate billions each in cannabis sales.

The election of Josh Shapiro as Pennsylvania Governor would guarantee the passage of adult-use legislation should it pass in the Pennsylvania senate. However, notwithstanding the tax revenues, job growth, and overall economic boost expanding from medical marijuana to adult-use would create in Pennsylvania, most believe state legislators are not there. Perhaps revenues lost from Pennsylvanians crossing the border to buy cannabis in New York, New Jersey, and Maryland will make the difference.

 

Cannabis Industry Sees Rise in Consumer Fraud Class Actions, With More To Come With Interstate Sales

Consumer Protection

Cannabis products – such as vapes, pre-rolled joints, tinctures, gummies, and beverages – are consumer packaged goods that are required under state law to be marketed with packaging and labeling that demonstrates their safety to consumers. Although the U.S. state-licensed cannabis industry has been one of the fastest-growing industries in the U.S. over the past decade, consumer fraud lawsuits arising out of alleged packaging and labeling problems, which are a common risk for CPG manufacturers in other industries, have, until now, not been a major consideration for the cannabis supply chain.  However, that is changing. As three recent lawsuits suggest, consumer fraud class actions may be on the rise in the industry. Given the media attention cases like these attract, and the potential for damages for thousands or millions of potential consumers, the cannabis supply chain should take notice. As we discuss in the full text of this post, this is going to be especially true once cannabis products are permitted to be sold interstate.

To read the full text of this post by Duane Morris partners Seth GoldbergGerald L. Maatman, Jr., and Jennifer A. Riley, please visit the Duane Morris Class Action Defense Blog.

President Biden’s Pardon for Simple Marijuana Convictions

Seth Goldberg
Seth A. Goldberg

Today, President Biden took executive action and pardoned those convicted of simple possession of marijuana under the federal Controlled Substances Act, and encouraged state governors to issue similar pardons to those convicted of simple marijuana possession under their state’s laws.  In issuing the pardon, President Biden explained: “Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities. And while white and Black and brown people use marijuana at similar rates, Black and brown people have been arrested, prosecuted, and convicted at disproportionate rates.”  He also asks the Secretary of Health “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law,” noting that marijuana is scheduled higher than fentanyl and methamphetamine.  The executive action could mark the real beginning of the ending of the federal prohibition on marijuana.  As President Biden stated, “Too many lives have been upended because of our failed approach to marijuana.  It’s time that we right these wrongs.”
 

 

 

Long-Awaited Marijuana Legalization Bill Introduced in the U.S. Senate

More than a year after introducing a first draft, U.S. Senators Chuck Schumer (D-N.Y.), Cory Booker (D-N.J.) and Ron Wyden (D-OR) finally introduced their proposed marijuana legislation, the Cannabis Administration and Opportunity Act (CAOA) on Thursday, July 21.

The CAOA is a comprehensive bill that would not only permit cannabis companies to access the banking system but would legalize and decriminalize recreational cannabis with an eye toward supporting communities that have been most impacted by the war on drugs. The CAOA also provides for cannabis industry workers’ rights, a federal responsibility to set an impaired driving standard, expungements of criminal records and penalties for possessing or distributing large quantities of marijuana without a federal permit. It would also create a new federal definition for hemp that would increase the permissible THC by dry weight to 0.7 percent from the current 0.3 percent, and the definition would include all THC isomers, not just delta-9 THC. Other features of the bill include grant programs for small business owners hoping to enter the industry who come from communities that were disproportionately affected by the war on drugs, increased funding for law enforcement for illegal cultivation, and cannabis marketing restrictions.

Under the proposal, the Drug Enforcement Administration would no longer have jurisdiction over cannabis and would be regulated by the U.S. Food and Drug Administration and the Alcohol and Tobacco Tax and Trade Bureau (TTB) within the Treasury Department. The bill proposes a 5% to 12.5% excise tax for small and mid-sized cannabis producers. It would charge an initial tax of 10% on larger cannabis businesses and gradually increase it to 25%.

The Senate Judiciary Subcommittee on Crime and Terrorism chaired by Booker scheduled a hearing for Tuesday, July 26 titled, “Decriminalizing Cannabis at the Federal Level: Necessary Steps to Address Past Harms.”

While the bill is unlikely to garner the required 60 votes to pass in the Senate, many see it as a first step toward opening the cannabis debate on Capitol Hill and passing incremental reform that could finally end the federal prohibition on cannabis.

As we have previously reported, the U.S. House of Representatives has passed legislation multiple times in the past few years that would decriminalize cannabis and allow cannabis businesses to access the federal banking system. However, none of those measures have yet made it to the Senate floor.

 

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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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