Yesterday, Senators Elizabeth Warren (D-Mass) and Cory Gardner introduced bipartisan legislation that, if passed, would make the regulation of marijuana a state issue. Comments by Senator Gardner show public safety issues resulting from the dearth of banking providing services to the industry are a focus of the newly-proposed legislation. The Hill reports Gardner stating when introducing the legislation:
“This city of Denver, the state of Colorado, can collect taxes … they can take it to the bank,” Gardner said. “But if you’re in the business, if you work for the business, you can’t get a bank loan or set up a bank account because of the concern over the conflict between the state and federal law. We need to fix this public hypocrisy.”
It was widely reported on April 13, 2018, that President Trump promised to Senator Gardner that he would support a states’ rights approach to marijuana, which promise appears to have resulted in this proposed legislation. A lot has to happen before this bill reaches Trump, but if it does, a veto may be unlikely. Such states’ rights legislation could then pave the way for more banks to service the industry.
While the Cole Priorities were in place, that guidance provided a clear path for banking cannabis industry participants adhering to the Cole Priorities. FinCen’s guidance is still in place, and banking cannabis is still possible, but confusion about how to do so without the Cole Priorities as guideposts has caused greater reluctance on the part of banks.
Enter proposed legislation in California, SB-930, which passed in the California Senate yesterday. Not a complete solution to the banking problem by a long shot, but progress nonetheless. If it becomes law SB-930, would result in the establishment of a California-chartered bank that would permit California cannabis industry participants to deposit the proceeds of their state-lawful cannabis activities, and would provide to them limited banking services that would allow for payment of taxes and vendors by check.
As reported in the Sacramento Business Journal, the Bill’s sponsor, Sen. Bob Hertzberg (D-Van Nuys), characterized SB-930 as an attempt alleviate the public safety concerns resulting from the federal government’s current hands off approach to banking cannabis. As Herzog stated, “It’s not only impractical from an accounting perspective, but it also presents a tremendous public safety problem. This bill takes a limited approach to provide all parties with a safe and reliable way to move forward on this urgent issue.”
Authored by Robert Prince, Ph.D, https://www.duanemorris.com/attorneys/robertwprince.html
On Thursday April 18, 2018, at 8:00AM-12:30PM EST, an FDA advisory panel will consider whether to recommend or not recommend approval of GW Pharmaceutical’s cannabis-based drug Epidiolex ® for use in treating two rare types of epilepsy in children- Dravet syndrome and Lennox-Gastaut syndrome. Epidiolex is an oral formulation of a purified form of cannabidiol (CBD) a component found in cannabis. CBD does not have any psychoactive effects as compared to another component of cannabis tetrahydocannabinol (THC). Epidiolex has less than 0.1 percent of THC.
If approved, Epidiolex would be the first botanical cannabis product approved in the U.S. for any indication. The FDA has approved Marinol® and Syndros® for uses in the U.S. for the treatment of anorexia associated with weight loss in AIDS patients. Both products contain dronabinol, a synthetic delta-9-tetrahydrocannabinol. Another FDA approved drug Cesamet® contains nabilone, which is a synthetic drug with a structure similar to THC that is used to treat nausea and vomiting.
The FDA released briefing documents on April 17, 2018, which did not seem to raise any major issues with Epidiolex, resulting in the share price of GW Pharmaceuticals to rise sharply- up 2.27%. The Center for Drug for Drug Evaluation and Research (CDER) indicates that it plans to provide a free of charge, live webcast of the April 19, 2018 meeting of the Peripheral and Central Nervous System Drugs Advisory Committee. Information regarding the webcast, including the web address for the webcast, will be made available at the following website: http://www.fda.gov/AdvisoryCommittees/Calendar/default.htm. At the time of writing this note, the FDA has not provided any login information for the webcast.
On April 5, 2018, Phase 2 of the PA Department of Health’s permitting for commercial medical marijuana cultivation and dispensary operations will begin.
13 Grower/Processor permits will be available, two in each of the six DOH regions, and the 13th going to the highest scorer. 23 Dispensary permits will be available, nine in Region 1, three in Regions 2 and 3, two in Regions 4 and 6, and four in Region 5. Applications will be available online at www.medicalmarijuana.pa.gov on April 5, and the submission deadline will be May 17.
In June 2017, 12 Grower/Processor and 27 Dispensary permits were granted. According to April Hutcheson of DOH:
25,573 patients have registered to participate in the PA program;
9,020 patient certifications have issued;
7,000 of those patients have purchased their ID cards;
6,683 patients have bought medical marijuana in a PA dispensary;
866 physicians have been registered to participate in the program; and
473 of the registered physicians have been approved.
Given the very real possibility that PA will approve the use of dry flower products, i.e., smoking and edibles, this summer, the PA market is positioned for strong performance over the next few years.
Although, in making the above comments, Sessions was clear that marijuana was still illegal in the U.S., he appears to have drawn a box around those types of marijuana-related criminal activities on which federal prosecutors are focused. The above comments are not inconsistent with the Sessions memo of January 4, 2018, and may help clarify what prosecutorial discretion looks like under that memo. Based on the above comments, it would seem that activities conducted pursuant to state marijuana programs are not the types of activities on which federal prosecutors are focused.
Another breakthrough for the cannabis space occurred on Tuesday, February 27, 2018, when Toronto-based Cronos Group Inc. began trading on the Nasdaq Stock Market. (MJN:CN). This marks the first listing of a company focused purely on cannabis on a major U.S. stock exchange. The listing of Cronos comes within two months of the memorandum issued by Attorney General Sessions that rescinded the federal government’s previous guidance regarding enforcement of state-lawful cannabis activities under the Cole Memorandum. That earlier guidance is credited with providing the cannabis space with a window of opportunity for the warp-speed growth the space has seen in recent years. The Sessions memo was intended to slow the growth of the cannabis space, especially with respect to the capital markets. The Nasdaq listing of Cronos suggests that 2018 could be another strong year for cannabis-related investments; 2017 was believed to have resulted in approximately $2 billion in cannabis-related investments in the U.S.
As the values of transactions in the cannabis industry grow, commercial litigation is certain to follow. One reason for this is that lawyers may be more inclined to represent clients on a contingency fee basis. Where the value of a cannabis transaction is small, the expense of litigation may not be worthwhile for an individual or business feeling cheated, and any settlement or judgment would likely not cover the costs of an attorneys’ contingency fee. However, where the value of a cannabis transaction is sufficiently high, say the upper six-figures or more, a lawyer may be more inclined to take the case for a contingency fee because the lawyer’s percentage of any recovery is likely to be greater than the costs the lawyer will incur in litigating the matter. A contingency fee arrangement may also be utilized to the advantage of a party that believes threatened or actual litigation might shift the leverage in negotiations and result in more attractive commercial terms.
A recently filed action captioned Silver v. High Street Capital et al., 2:18-cv-00020 (E.D. PA. 1/3/18), appears to result from the type of high value transaction that might warrant a contingency fee in a commercial litigation. The plaintiff, industry consultant Harris Silver alleges that, in connection with their bid to obtain a license to grow and process cannabis pursuant to Pennsylvania’s Medical Marijuana Program, defendant High Street Capital and other defendants associated with High Street promised Silver a lucrative compensation package, including (a) $180,000 to prepare the license application; (b) a $150,000 cash bonus upon the granting of a license and a 4% non-dilutable equity stake in any licensee; and (c) a salaried position with the licensee. Silver claims that notwithstanding his work on the High Street application, for which a permit was granted, the High Street defendants never paid Silver the valuable consideration that was contingent on the permit being granted. Thus, based on a host of factual allegations detailing various communications he had with the High Street defendants, and other allegations detailing his efforts on their behalf, Harris asserted claims against the High Street defendants for breach of contract, common law fraud, promissory estoppel, unjust enrichment, securities fraud and civil conspiracy. Continue reading Contingency Fees and Commercial Litigation Hit the Cannabis Space→
With the election of Phil Murphy as New Jersey Governor in 2017, the possibility of New Jersey becoming one of the next states to pass recreational marijuana legislation became very real, as this was among the issues key to Murphy’s campaign.
On Tuesday, January 9, 2018, less than one week after AG Sessions issued guidance to all US Attorneys rescinding Obama-era policies deprioritizing the federal prosecution of state-lawful cannabis-related activities, that possibility became more of a likelihood, as New Jersey Sen. Nicholas Scutari introduced Senate Bill 830, which would allow for the cultivation, sale and use of marijuana for recreational purposes in New Jersey by those 21 and older.
The legislation proposes adults would be permitted to possess up to 1 ounce of marijuana, 16 ounces of marijuana-infused products in solids, 72 ounces in liquid form, 7 grams of concentrate and up to six immature plants, and establishes a sales tax on marijuana that would rise incrementally from 7 percent to 25 percent over five years.
With New Jersey’s large population, and proximity to Manhattan and Philadelphia, the recreational cannabis market in New Jersey will likely dwarf most other states that have legalized adult-use.
Articles appearing this week in the LA Times and the Philadelphia Inquirer, among other recent articles, highlight the horrors of the opioid crisis and the need for research into cannabis as a possible solution. While the federal government warns about the spiraling toll of the opioid epidemic, it refuses to grant the applications of world-renowned scientists at major universities and research centers seeking to explore the ways in which the well-documented therapeutic properties of cannabis can alleviate the pain and suffering – physical, emotional and financial – being caused by opioid abuse. There is no shortage of deep pockets willing to fund the research, and US-based scientists are ready, willing and able to get to work, yet the federal government refuses to depart from its antiquated “reefer madness” established in the early 20th Century. 2018 should be the year the federal government stops blocking cannabis research so that scientists can determine if and how cannabis can stem the opioid crisis. Fingers crossed!
Although a member of the family of cannabis sativa that includes marijuana, hemp does not contain levels of THC that produce psychoactive effects, so it is regulated differently than marijuana. Whereas growing, processing, distributing and consuming marijuana are still federally prohibited under the Controlled Substances Act, industrial hemp has seen a revival around the U.S. because its growth, processing and distribution for research purposes is permitted under the 2014 Federal Farm Bill.
Importantly, the expansion of Pennsylvania’s industrial hemp program, and the industrial hemp programs in other states that traditionally raised large tobacco crops, may be helpful to local economies that have been impacted by declines in tobacco growth.
There are more than 25,000 products and/or uses derived from industrial hemp. Research under the PA program includes, among other things, planting methods, such as seed variety trials, fiber or seed yields, optimum fertility levels, pest management; harvesting techniques or product marketing options; or conservation, remediation or biofuel.