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.
Pennsylvania’s Cannabis Market: What Investors And Entrepreneurs Need To Know
Duane Morris partner Seth Goldberg was quoted in an article on Benzinga:
Seth Goldberg, a partner and team leader at Philadelphia-based law firm Duane Morris‘ cannabis department, said PA’s program has remained stable during its three years of operation. He added that the state’s marijuana department has “worked out the administrative program kinks” to create a smooth-running program.
Goldberg highlighted achievements, including over 400,000 registered MMJ patients and soaring tax revenue, both of which help boost public support for the program.</blockquote?
To read the full text of the article, please visit the Benzinga website.
SAFE Banking Act Reintroduced in the House with Broad Support
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.
Cannabis – Proposed Federal Bill, the CLAIM Act, to ease access to insurance for Cannabis Related Businesses
Earlier this week (March 18, 2021), U.S. Senators Jeff Merkley (R-KY), Bob Menendez (D – NJ) and Rand Paul (R – KY) introduced a law, the Clarifying Law Around Insurance of Marijuana Act of 2021 (the “CLAIM Act“) to enable access to insurance coverage for cannabis businesses.
Named the “Clarifying Law Around Insurance of Marijuana Act of 2021“, the bill is intended to ease federal restrictions around insuring businesses related to cannabis growth, processing and dispensing.
Per NJ BIZ, 44 states have enacted some type of legal cannabis – whether medical, recreational or both. This past election season saw voters in New Jersey, Arizona, Montana, Mississippi and South Dakota approve legal adult use cannabis; and last month, New Jersey enacted legislation to officially legalize and regulate adult use cannabis.
The goal of the CLAIM Act according to Senator Paul is to stop legitimate businesses from being shut out from obtaining basic business protections.
Insurance Products – Under the proposed CLAIM Act, cannabis businesses would be permitted full and legal access to insurance products such as worker’s compensation, property, casualty and title insurance. Currently, state-authorized cannabis businesses are often denied access to the insurance market because the businesses could be prosecuted or face penalties under the Controlled Substances Act (a federal law).
Policy Limitations – Under the proposed CLAIM Act, insurers couldn’t be penalized or discouraged from providing coverage to a state-sanctioned and regulated cannabis business or ancillary business; and policies could not be limited solely because the insurer engaged with a cannabis-related business.
Supervisory Actions – Under the proposed CLAIM Act, according to NJ Biz, the federal government wouldn’t be able to take any adverse or corrective supervisory action on a policy to an owner or operator of a cannabis-related business or real estate or equipment that is leased to a cannabis-related business, solely because the owner or operator is engaged with cannabis or cannabis-related business.
The CLAIM Act represents a big step for cannabis related and ancillary businesses and would enable them to more easily access insurance related products that up until this point have been denied to them.
Duane Morris has an over 62 person Cannabis Practice Group that focuses on regulatory licensing, funds creation and raising, structuring, real estate related lease and ownership issues and intellectual property matters in the Cannabis arena.
If you have questions regarding the above post, please do not hesitate to contact Brad A. Molotsky, Tracy Gallegos, Christiane Schuman Campbell, Paul Josephson or Seth Goldberg or any other attorney you regularly contact at the firm.
Be well and stay safe.
FTC Approves Consent Orders Against CBD Manufacturers
As I previously wrote, in December 2020 the FTC announced consent agreements reached with CBD manufacturers 1) Bionatrol Health, LLC; 2) Epichouse LLC (First Class Herbalist CBD); 3) CBD Meds, Inc.; 4) HempmeCBD; 5) Reef Industries, Inc.; and 6) Steves Distributing, LLC, in connection with a “crackdown” the FTC termed “Operation CBDeceit” for allegedly spurious health claims. The FTC today followed up that announcement with an announcement that those consent orders have been approved by the FTC in unanimous votes as to each. These manufacturers will now be required to comply with the consent orders, which could include fines and ceasing to make “unsupported health claims” in connection with the marketing of their products.
Bipartisan Adult-Use Bill To Be Introduced in Pennsylvania
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.”
NJ – Governor Murphy signs Adult Use Cannabis Bill – Now Adult Use Cannabis is Law of the Garden State
Earlier today, February 22, 2021, NJ Governor Murphy signed legislation to create an adult use/recreational marijuana marketplace, decriminalize cannabis and loosen certain penalties for underage possession of the drug and alcohol. NJ joins 13 other states (and the District of Columbia) which have legalized adult use marijuana including Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Oregon, South Dakota, Vermont, Washington and Washington, D. C.
The Assembly and Senate passed a compromise bill to address most of Governor’s concerns that had held up the signing of the Bills – these areas mostly focused on easing penalties on underage possession of both alcohol and marijuana.
Under the law, NJ adults may legally purchase and possess up to 1 ounce of marijuana; retail sales will be taxed with 70% of such revenue being dedicated to lower income communities; a Cannabis Regulatory Commission will be established and oversee licensing; NJ will allocate 37 new grower licenses over the next 2 years; and currently licensed medical cannabis retail operations will be eligible to sell adult use cannabis.
The firm has an active Cannabis and Hemp practice, with over 65 lawyers who counsel businesses and investors in the regulatory and licensing area, the funds formation and fund raising arena, the leasing and acquisition of real estate fronts and the patents, trademarks and IP area of the cannabis and hemp industry.
We can be reached at any of the following email addresses and will direct your inquiry to the appropriate person within our Cannabis and Hemp Taskforce – bamolotsky@duanemorris.com; tagallegos@duanemorris.com; ppjosephson@duanemorris.com; or sagoldberg@duanemorris.com.
Be safe.
FTC Ratchets Up Enforcement Against “Spurious” CBD Health Claims
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.
House Passes Bill To Legalize Marijuana at the Federal Level
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.
State-Legal Marijuana a Clear Winner in 2020 Voting
Voters in the five states where the legalization of marijuana was on the ballot voted in favor.
In the populous states of New Jersey and Arizona, voters legalized marijuana for recreational use by adults over the age of 21. Given New Jersey’s proximity to New York and Pennsylvania, where medical marijuana programs have been popular, legalization in New Jersey could have a domino effect in the northeast, especially considering the tax revenue that will be gained by New Jersey from New York and Pennsylvania residents who travel there every day for work, the Jersey shore and casinos, and other reasons.
Voters in South Dakota and Montana also voted to legalize marijuana for recreational purposes, South Dakota voters also approved medical marijuana, and voters in Mississippi voted to legalize marijuana for medical purposes to treat 22 qualifying health conditions.
Seth Goldberg is a Team Lead of the Cannabis Industry Practice at Duane Morris.