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.  

What Rescheduling Could Mean For Cannabis Bankruptcies

Lawrence J. Kotler, Seth A. Goldberg and Ryan Spengler authored the Law360 article, “What Rescheduling Could Mean For Cannabis Bankruptcies.”

More than 75% of the U.S. population lives in states that have legalized cannabis for adult and/or medical use. Pursuant to a 2022 directive from President Joe Biden, a 2023 recommendation of the U.S. Department of Health and Human Services, and a scientific review released in January supporting the HHS’s recommendation, the U.S. Drug Enforcement Administration is now evaluating whether to reclassify cannabis as a Schedule III drug.

Read the full article. 

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.”

 

 

 

PA Gov. Shapiro Calls for Adult-Use Legislation Now!

Seth Goldberg
Seth A. Goldberg

Citing the facts that Pennsylvania (i) is bordered almost entirely by states that have legalized cannabis for adult use; (ii) loses millions to the black market for cannabis annually; and (iii) projects hundreds of millions in annual revenue gains,  in his budget address for 2024 Pennsylvania Governor Josh Shapiro called on Pennsylvania’s legislature to deliver by July 1, 2024, legislation that would legalize cannabis for adult-use in Pennsylvania:

“Well, last year, 57 percent of voters in Ohio supported an initiative to legalize recreational marijuana.  And now, Ohio, New York, New Jersey, Delaware, and Maryland – practically all of our neighbors – have legalized marijuana.  We’re losing out on an industry that, once fully implemented, would bring in more than 250 million dollars in annual revenue.  And our failure to legalize and regulate this only fuels the black market and drains much needed resources for law enforcement.  It’s time to catch up.  I ask you to come together and send to my desk a bill that legalizes marijuana.  But that bill should ensure the industry is regulated and taxed responsibly.  That we create jobs and build wealth here in Pennsylvania, especially in the communities that have been disproportionately harmed by criminalization.  And that those who have been convicted for nonviolent possession of small amounts of marijuana have their records expunged.  Let’s stop hamstringing ourselves and start competing.”

Governor Shapiro’s urgency is not surprising.  Pennsylvania should have been leading the way in legalizing cannabis for adult-use, given its successful medical marijuana program, but instead other states have spring-boarded ahead of Pennsylvania.  Those states are now enjoying the revenues, job growth and overall economic benefits of legal cannabis, including even profiting from Pennsylvania residents crossing the border to buy their cannabis.  It truly is time for Pennsylvania “to catch up” and “start competing” in the legal cannabis market for the good of all Pennsylvanians.   

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.

 

 

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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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