In the second edition, and first substantive blog, in my series on Cannabis Beverages, entitled Cannabis Beverages are on Fire!, I am writing about THC limits, which is one of the hot-button issues for cannabis beverage producers and consumers. Given its psychoactive effect, there is no denying that the amount of THC in a beverage should be measurable and limited so that consumers can safely ingest them and obtain the experience they are seeking. This means that a serving size of a beverage might have a THC limit, and so might there be a total container limit.
Cannabis beverage manufacturers are not starting from scratch in this area, however. Popular THC serving size limits in edibles and similar products include 5mg and 10mg could likely be applied to THC beverages, resulting in a total container limit based on the container size and number of servings. The current offerings of cannabis-infused drinks vary and the markets within states offer a wide variety of different THC levels. For example, Cann, a bestselling THC drink, contains 2mg THC and 4mg CBD per 12 ounce can. Cann is available in over 200 California dispensaries. Similarly, Tomato Jane drinks have 10mg THC per 12 ounce bottle. Comparatively, Matt’s High Soda offers an infused beverage called Uncle Arnie’s Iced Tea Lemonade with 100mg of THC per bottle—although each bottle is considered to be 10 servings. As the market for cannabis beverages develops, THC limits are certain to be an issue that gets a lot of attention. In the next installment of this series I’ll touch on cannabis beverage ingredients and labeling.
Want to know where the cannabis industry is going? How about the beverage industry? The answer is cannabis beverages! The hottest new product segment in both markets. Don’t believe me… just run an internet search for “cannabis beverages” and you’ll see cannabis-infused beverages tied to major beverage companies like Constellation Brands, such as Canopy Growth’s Quatreu water, and Molson Coors, with its Truss brand, and dozens of smaller cannabis beverage brands, such as Forth, Kikoko, and Recess.
A cannabis beverage generally contains either THC derived from marijuana grown pursuant to state adult-use marijuana and/or medical marijuana laws, or containing CBD derived from marijuana or derived from hemp grown pursuant to a state’s hemp laws. Given the federal prohibition on marijuana, the federal legality of hemp, and the FDA’s current restriction of CBD in foods and beverages, the federal and state regulatory framework for producing, distributing, and consuming cannabis beverages is complex, to say the least. In the coming weeks I will be covering in a series of short blogs some of these issues, including product labeling, THC and CBD percentages, serving size, and social consumption.
Duane Morris’ Cannabis Industry Group is honored to once again be recognized with the elite law firms and attorneys in the cannabis industry.
Cannabis Industry Group and Attorneys Nationally Recognized by Chambers USA
Duane Morris’ Cannabis Industry Group and team leads Seth Goldberg and Tracy Gallegosreceived national rankings in the Cannabis Law –
Nationwide area.
Chambers Review
What the team is known for: Utilizes cannabis expertise on a nationwide basis and across a broad spectrum of practice areas, with practitioners specializing in IP, corporate transactions and regulatory advice within the sector. Offers expanded capabilities in the wake of the 2018 Farm Bill for clients trading in hemp and hemp-derived CBD products. Also boasts litigators able to handle contentious issues for producers and distributors across the industry.
Strengths: Clients describe Duane Morris as “a very well-regarded and respected firm in this space.” One client acknowledges its “deep bench with a lot of talent and experience in the cannabis industry.” Another adds: “The team as a whole is exceptionally knowledgeable. Its strengths include responsiveness and the ability to collaborate.”
Work highlights: Represented Glass House Group in its acquisition of Los Angeles-based cannabis concentrates manufacturer F/ELD Taste Matters.
Notable practitioners: Seth Goldberg boasts high-level experience advising cannabis businesses throughout their life cycle. “He’s a top-notch lawyer who really knows his stuff.” “He’s consistently responsive and knowledgeable.”
Tracy Gallegos has extensive experience in the cannabis sector. Her practice covers regulatory issues, including licensing, in addition to corporate structuring and transactions.
Seth Goldberg Named a Law Firm Innovator by The Legal Intelligencer
Seth Goldberg, partner and team lead of the Cannabis Industry Group, has been named a Law Firm Innovator in The Legal Intelligencer’s 2021 Professional Excellence Awards. The award honors lawyers “who push the envelope to build their businesses [and] think outside the box and have demonstrated an ability to distinguish their brands in a crowded market.”
Yesterday, a California court federal court judge did not follow other federal courts in staying a consumer class action brought on behalf of CBD product consumers on the basis of the FDA’s primary jurisdiction over the regulation of CBD products. The Court in Rodriguez v. Just Brands USA Inc. et al., 2:20-cv-04829, C.D. Cal., determined that claims that CBD product maker Just Brands’ labeling did not accurately state the amount of CBD in its products could give rise to state law claims for breach of warranty and fraud that should not be stayed because, according to the Court, the FDA’s forthcoming regulations would not alter the expectation that CBD product manufacturers would accurately convey the amount of CBD in their products.
The decision in Rodriguez should be on the radar of the entire cannabis industry, as it demonstrates how products liability and consumer class action lawsuits may be brought under state statutory and common law to seek damages for improperly labeled cannabis products. Cannabis – hemp and marijuana – product manufacturers should be sure to build into their internal compliance safeguards against such claims.
Relatedly, on the radar for hemp-derived CBD is legislation proposing to categorize CBD as a dietary supplement under the FDA’s regulatory regime for drugs, dietary supplements and foods and beverages under the Food, Drugs and Cosmetic Acts. That bill will be introduced today by Sens. Ron Wyden (D-Ore.), Rand Paul (R-Ky.), and Jeff Merkley.
With the explicit support of the American Banking Association, and after passing in the House during the last congress, the SAFE Banking Act was reintroduced in the House on March 18, and a companion Act is expected to be introduced in the Senate next week. The proposed legislation would allow financial institutions to provide their services to cannabis – marijuana and hemp – clients without fear of federal sanctions. The proposed legislation enjoys bi-partisan support, and is in “position A” for passing in 2021.
Given the billions of dollars of revenues, including tax dollars, generated by the industry, which are generated by cannabis companies and companies that provide services to the industry, cannabis banking is truly a public concern. The very laws that seek to create transparency as to the public fisc, such as the Bank Secrecy Act, have forced cannabis to be a cash business, which means not all of the cannabis dollars may be accounted for as in other industries, thereby undermining the objectives of those laws. The SAFE Banking Act would resolve those concerns by allowing core and ancillary companies to utilize all of the electronic banking, checking, payroll, and accounting functionality that businesses in all other industries enjoy. There is no question the passage of this legislation would provide a game-changing boost to the cannabis space.
Senators Dan Laughlin (R) and Sharif Street (D) are introducing legislation that would legalize marijuana for adult recreational use in Pennsylvania. This is the first time a republican senator has backed such a bill. The proposed legislation will attempt to generate revenue for the commonwealth and to promote social equity by way of increasing the number of licenses to operate, imposing a 6% sales tax, and imposing a 10% excise tax that would go toward a Cannabis Business Development Fund to provide aid, grants, and technical assistance to businesses and individuals in areas that have been disproportionately impacted by criminal prosecution for cannabis violations. Expungement of cannabis crimes would also be available.
Laughlin’s pragmatic views may encourage his republican colleagues in PA’s legislature to join him. As Laughlin stated during a press conference: “Our proposal prioritizes safety and social equity. And furthermore, it will let Pennsylvania’s robust agricultural industry participate in marijuana cultivation.” And both Laughlin and Street encouraged PA legislators to keep pace with lawmakers in New Jersey and New York, stating in their co-sponsorship memo: “This year our neighbors in New Jersey have signed adult use marijuana into law and our neighbors in New York are likely to legalize. It is our duty to taxpayers to seize the initiative and legalize marijuana concurrently with bordering states. Failure to do so risks permanently ceding hundreds of millions of dollars of new tax revenue as well as thousands of jobs at a time when taxpayers can least afford it.”
During his confirmation hearing on February 22, 2021, Attorney General nominee Merrick Garland’s comments hearkened back to the Obama-era de-prioritization of enforcement against marijuana-related crimes under the Cole memorandum, stating: “This is a question of the prioritization of our resources and prosecutorial discretion… It does not seem to me a useful use of limited resources that we have, to be pursuing prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. I don’t think that’s a useful use.”
In addition, Garland explained that social justice warranted such deprioritizing, acknowledging that people of color are arrested for non-violent marijuana-related crimes at far greater rates than white people. According to Garland, the federal government should not be expending resources criminalizing non-violent marijuana related crimes, as doing so in the past “has disproportionately affected communities of color and damaged them after the original arrest because of the inability to get jobs.”
While proposed legislation such as the MORE Act and the SAFE Banking Act could provide greater certainty for the cannabis industry, until such time as laws like those are passed, the establishment of priorities regarding federal enforcement of state-legal cannabis would encourage greater participation in the cannabis industry, as the risks of federal enforcement would become more clear and thus easier to weigh against the rewards of entering the still emerging market. The DOJ has been largely hands off of the state-legal cannabis market since the Cole memorandum, even though it was rescinded by AG Session, but clarity from Merrick Garland would nonetheless be very well-received by industry participants.
In connection with a crackdown on CBD manufacturers pursuant to its “Operation CBDeceit,” the FTC announced today settlements with six CBD-infused product manufacturers who, according to the FTC, allegedly made a “wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others.” Under the settlements of the respective Complaints against them, each of the manufacturers will be required to pay a fine, and cease making “unsupported health claims” in connection with the marketing of their products.
In issuing its press release today the FTC attached the Consent Agreement and the FTC’s findings of violations of the FTC Act, which are set forth in a draft Complaint. These documents illustrate the FTC’s procedures in actions like these, and highlight the FTC’s concerns regarding allegedly misleading representations about CBD-containing products in violation of the FTC Act. Specifically, the FTC views health claims in connection with marketing such products to be misleading unless they “rely upon competent and reliable scientific evidence that is sufficient in quality and quantity based on standards generally accepted by experts in the relevant disease, condition, or function to which the representation relates, when considered in light of the entire body of relevant and reliable scientific evidence, to substantiate that the representation is true.”
Significantly, the FTC has not required the settling manufacturers to remove their products from the shelves and to cease selling them. They must, however, remove any unsupported health claims. Moreover, it would not be surprising if the announcement of these settlements spawns consumer fraud litigation against the manufacturers, which is often a much more serious concern to the business.
It is unclear how “Operation CBDeceit” will be implemented when the Biden administration takes over. For now, however, CBD manufacturers should continue to be mindful of their packaging, labeling and other marketing materials.
Today, the House of Representatives passed the groundbreaking MORE Act – legalizing marijuana at the federal level. The bill passed by a vote of 228 to 164.
As we previously discussed in our November 10th and September 4th blog posts, the MORE Act (Marijuana Opportunity Reinvestment and Expungement Act of 2019 – H.R. 3884) legalizes marijuana and cannabis at the federal level, by removing them from the Controlled Substances Act and eliminates some cannabis criminal records.
While the bill represents a first step toward legalizing cannabis, states would need to adopt similar measures to fully decriminalize its use – currently, 15 states and the District of Columbia have legalized (or recently voted to legalize) cannabis for adult recreational use, and 35 states and the District of Columbia have legalized medical cannabis.
The bill also makes other changes, including:
Replaces statutory references to marijuana and marihuana with cannabis,
Requires the Bureau of Labor Statistics to regularly publish demographic data on cannabis business owners and employees,
Establishes a trust fund to support various programs and services for individuals and businesses in communities impacted by the war on drugs,
Imposes a 5% tax on cannabis products and requires revenues to be deposited into the trust fund,
Makes Small Business Administration loans and services available to entities that are cannabis-related legitimate businesses or service providers,
Prohibits the denial of federal public benefits to a person on the basis of certain cannabis-related conduct or convictions,
Prohibits the denial of benefits and protections under immigration laws on the basis of a cannabis-related event (e.g., conduct or a conviction), and
Establishes a process to expunge convictions and conduct sentencing review hearings related to federal cannabis offenses.
While Sen. Kamala D. Harris (D-CA), the Vice President-Elect, introduced a counterpart bill (S.2227) in the U.S. Senate, its passage in the chamber is unlikely this Congress as Senate Majority Leader Mitch McConnell (R-KY) has declined to endorse the bill.
While this legislation is unlikely to pass the Senate this Congress, proponents of cannabis legalization have hailed the House vote as historic, and an important first step toward generating the momentum and support needed to favorably position the measure for future congressional consideration. And whether the measure would be approved by the next Congress likely depends on the outcome of the two Georgia Senate runoff elections scheduled for January 5, 2021. If both Democratic Senate candidates, Jon Ossoff and Rev. Raphael Warnock, win the runoffs, then the Democrats will control both the House and Senate, with Vice President-Elect Kamala Harris casting the tie-breaking vote.
However, it is unclear if President-Elect Joe Biden would sign the bill since he has proposed rescheduling cannabis as a schedule II drug so researchers can study its positive and negative impacts as opposed to removing it entirely from the list of scheduled substances. While Biden has expressed support for decriminalization of marijuana, expungement of prior cannabis use convictions, and legalizing cannabis use for medical purposes – he has said he wants to leave decisions regarding adult recreational use to the individual states. Nonetheless, marijuana legalization advocates believe this symbolic vote on the legislation could send a strong signal to the Biden administration that this is a Democratic priority.
Even though federal legalization may not be on the immediate horizon, the passage of the MORE Act in the House, and the legalization of adult-use and/or medical marijuana in five more states on November 3, 2020, could influence a Biden-appointed attorney general’s views on enforcement of marijuana related activities. While AG Sessions attempted to reverse the liberal Obama administration marijuana policies set forth in the Cole Memorandum, and AG Barr has reluctantly acknowledged that the Cole priorities have been relied on and should thus be followed, an AG appointed by Biden, given the current pro-legalization wave, Biden’s favoring of state’s rights on this issue, and Kamala Harris’s favoring of decriminalization, might endorse an approach consistent with, if not even more liberal than, the Cole priorities. Thus, while the appointment of AG Sessions sent shockwaves through the cannabis industry, market participants and those who have been standing on the sidelines eager to get on the field seem to have a lot to look forward to.
