California Cannabis: State and Feds Team Up to Target Illegal Public Land Grows

The Law on CBD-Infused Alcoholic Beverages

This past year, the country has witnessed widespread interest in the use of cannabis in its nutraceutical (when added to food or drinks) form. Cannabidiol (“CBD”), the non-psychoactive chemical compound found in the cannabis plant, has gained great popularity among alcohol beverage companies. The growing popularity of CBD-infused products combined with their mainstream nature has given alcohol beverage companies the false impression that blending CBD into their products is an easy process. This post bursts the myth by highlighting the regulatory labyrinth into which alcohol beverage manufacturers must venture to enter this growing, popular market.

Alcoholic beverages are regulated by federal and state law. Consequently, beer, wine and spirits producers are generally accustomed to navigating rules, various forms of licensure, and modes of compliance related to their industry. Their familiarity with comprehensive regulations makes alcohol beverage companies well equipped to navigate the intersection between alcohol and cannabis, which is heavily regulated at the state level.

Unlike alcohol, though, many forms of cannabis are strictly federally prohibited. As such, “marijuana” and “tetrahydrocannabinols” (THC) are listed on Schedule I of the Controlled Substances Act (“CSA”). The CSA defines “marijuana” as:

“all parts of the Cannabis sativa L. plant whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.”

The CSA exempts certain parts of the cannabis plant from the definition of marijuana, including hemp-derived CBD products that are manufactured with hemp grown as part of a Farm Bill-authorized state pilot program. Accordingly, only CBD derived from industrial hemp (“Hemp” or “Hemp-CBD”) is allowed in the formulation of CBD-infused alcoholic beverages.

The U.S. Alcohol and Tobacco and Trade Bureau (“TTB”)’s 2000 Hemp Policy (the “Policy”) dictates how manufacturers may use Hemp-CBD in their alcohol products. The Policy sets forth the requirements for formulas and statements of process producers may use. Although the TTB permits the use of Hemp derivatives in alcohol products, the federal agency strictly prohibits producers from using “depictions, graphics, designs, devices, puffery, statements, slang, representations, etc. implying or referencing the presence of hemp, marijuana, and other controlled substance; or any psychoactive effects.” In other words, producers should refrain from using the term “CBD” in their formula or statement of process as the TTB seems to interpret the term as unlawful under federal law.

In addition to submitting the list of ingredients and the method of manufacture they intend to use, producers must provide the TTB with an analysis conducted by a U.S. lab of the hemp components that will be used in the product. A detailed description of the method employed by the U.S. lab must also be presented to the TTB.

The TTB will approve the formula or statement of process if the finished product does not contain a controlled substance. Once the hemp components have been tested for controlled substances, producers must ensure that detailed records are kept at the manufacturing premises for inspections, which we hear may occur as early as within the first month of production.

Once a producer receives TTB approval, which may take up to two years, the producer must then comply with state rules and regulations. In Oregon, for example, manufacturers must provide proof to the Oregon Liquor Control Commission (“OLCC”) that they have met the TTB formula requirement and meet the OLCC labeling requirements before they can manufacture and sell the infused beverage in the state. Oregon beverage producers who intend to sell their infused product outside of Oregon must also show the OLCC that they comply with the TTB labeling requirements.

As this post underlines, obtaining approval for the manufacture and sale of hemp-CBD infused alcoholic beverages is a complex process, due primarily to the uncertain nature of hemp-CBD laws. Therefore, it is crucial for any company intending to enter this market to consult with an experienced, well-versed law firm (like us!) prior to moving into this trending space.

source https://www.cannalawblog.com/the-law-on-cbd-infused-alcoholic-beverages/

California, CDTFA and Proposed Cannabis Tax Regulations

 

On July 20, 2018, the CDTFA released its discussion paper on proposed rulemaking regarding the administration of the cannabis cultivation and excise taxes. This blog post highlights the issues addressed in the proposed regulation.

By way of background, on August of 2017 the CDTFA promulgated two emergency regulations. The first, Regulation 3700, Cannabis Excise and Cultivation Taxes, was promulgated to ensure that essential guidance was available when California’s regulated cannabis market became operational on January 1, 2018. The second, Regulation 3701, Collection and Remittance of the Cannabis Excise Tax, was promulgated to clarify the imposition, collection, and reporting of the Cannabis Excise Tax. We previously discussed these regulations here, and we a discussed the Cultivation and Excise Tax here and here.

The CDTFA will not take action on Regulation 3701. However, the CDTFA has proposed many revisions to Regulation 3700. We summarize them below, and provide some commentary throughout.

• Expands the definition of cannabis flower to include trimmed or untrimmed flower but excludes leaves and stems removed before sale. The consequence of this proposed change is to assure that even trimmed flower will be taxed at the highest tax rate of $9.25 per dry weight ounce.
• Clarifies that “fresh cannabis plant” must be identified as fresh cannabis plant and recorded in the upcoming track-and-trace system. Until the track-and-trace system come online, a paper invoice or manifest must indicate that “fresh cannabis plant” is being transferred. This documentation is important. Fresh cannabis plant is taxed at the lowest rate of $1.29 per ounce; the proposed change clarifies what information is required to support paying tax at the lowest cultivation tax rate.
• Prohibits separately stating the cannabis excise tax on the receipt provided to a retail cannabis customer. Instead, the regulations require the invoice to state “The cannabis excise taxes are included in the total amount of this invoice”. Retailers purchasing from third-party distributors must compute the excise tax based on their wholesale cost plus 60% mark-up as determined by the CDTFA. Separately stating the excise tax allows a consumer to determine the wholesale cost of a cannabis retailer. The proposed prohibition does not provide retailers the flexibility to disclose the computation of the tax to its customers.
• Clarifies that transactions between two distributors must document that no cannabis excise tax was collected or remitted on the transaction. That is, the distributor that sells cannabis to the cannabis retailer is the one responsible for collecting and remitting the cannabis excise tax to the CDTFA.
• Clarifies that invoices documenting the cultivation tax must disclose the weight and category of the cannabis that entered the commercial market. This change is to assure that the receipt a manufacture provides to a cultivator includes the weight and category (i.e., cannabis flower, cannabis leaves, or fresh cannabis plant) of cannabis transferred. The weight and category must match the information in the track-and-trace system.
• Requires a manufacture to provide a distributor (or next party in the transaction) an invoice or manifest that documents the weight and category of cannabis used to produce the cannabis product. This change is to assure that a distributor has the necessary information to properly collect and remit the cultivation tax to CDTFA.
• Clarifies that a cannabis accessory is not subject to the 15% excise tax. When a cannabis product is sold with a cannabis accessory, the cannabis retailer must segregate the wholesale cost of cannabis from the wholesale cost of the cannabis accessory on the customer receipt. If a cannabis retailer is unable to segregate the wholesale cost, the cannabis excise tax will include the wholesale cost of the cannabis accessory in the computation. The proposed regulation places the burden on the retailer to segregate its wholesale costs to avoid including the cost of a cannabis accessory from the excise tax paid by a cannabis consumer.
• Clarifies that a 50% penalty is imposed for unpaid taxes. The 50% penalty is added to the cultivation or excise tax not paid by the due date.  For example, the tax payment for the third quarter of 2018 is due October 31, 2018.  A payment on November 1, 2018 would subject the distributor to the 50% penalty. Although the penalty can be waived for reasonable cause, a best practice is to always file and pay your cultivation and excise taxes on time.
• Introduces proposed Regulation 3702 which requires the following information to be entered into the California track- and-trace system including: name of originating seller of cannabis; name of retailer purchasing cannabis; unique identifying number of cannabis supplied to the retailer; and the retailers wholesale cost. The CDTFA intends to use the track-and-trace system to collect real data to assist in their determination of the appropriate mark-up used in determining the average market price the computation of the excise tax.

The regulations discussed above are only proposed and may change as CDTFA considers comments and another stakeholder input.  Nonetheless, many of the recommendations contained in the proposed regulations are already on the CDTFA website. For example, the CDTFA website provides that “the flower category includes all dried flowers of the cannabis plant, whether trimmed or untrimmed”. So some of these provisions seem very likely to stick.

California cannabis businesses should continue to monitor these regulations as the CDTFA considers stakeholder comments and likely revises some portion of the proposed regulation. As the regulations develop, business owners should also revisit their tax strategies and operational protocols for tax efficiency.

For more on California’s cannabis tax regime, check out the following:

• California Sales Tax: Good News for the Cannabis Manufacturer
• California Cannabis Taxes and IRC 280E
• California Sales Tax: Good News for Cultivators! 
• California’s LATEST Cannabis Tax Regulation: No Free Lunch
• California’s NEW Cannabis Tax Regulations: The Rules of the Road

source https://www.cannalawblog.com/california-proposed-cannabis-tax-regulations/

FDA Approves Drug Trial for Psylocibin (Magic Mushrooms)

California Cannabis Advertising: Changes Coming?

Is Oregon’s Cannabis Industry Really “Out of Control”?

Arizona Court Prohibits Cannabis Extracts for Medical Use

California Cannabis Wake Up Call: Labeling and Proposition 65

Washington Cannabis Employment: Family Medical Leave Act Changes Coming

The Washington Family and Medical Leave Act (“WFMLA”) is getting some major changes beginning in 2019. Why does this matter to Washington cannabis businesses? Because all of those businesses, regardless of type or size, will be required to collect and pay premiums under the revised law beginning January 1. These companies will also be required to provide wage replacement for eligible employees beginning in 2020.

Last year, the Washington legislature became just the fifth state to approve paid family and medical leave. Paid family and medical leave is a statewide insurance program that will provide eligible employees with partial wage replacement while on qualifying leave. Paid family and medical leave will be paid from a state fund, funded by premiums collected by employers. Premium collection begins January 1, 2019. The premium is equal to 4% of an employee’s wages, and the burden is shared between the employer and the employee.

Like with FICA and federal income tax, the employer is responsible for collecting the employee’s portion of WFMLA tax through payroll. If you want to be a model cannabis business, the law allows employers to cover the employee portion of the premium. Note that employers with less than 50 employees are not required to pay their portion of premium, but must still collect the employee’s portion and remit it to the state.

Employees become eligible for paid family leave once they have worked 820 hours for a Washington-based employer during the previous year. Employees can take paid leave for their own medical condition, bonding with a child, caring for family members, and certain military-related events. Eligible employees can receive up to 12 weeks of wage replacement with a weekly minimum of $100 and a weekly maximum of $1,000. The amount of wage replacement the employee receives is based on the employee’s earned wages, the state median income, and other factors. Employees can begin applying for benefits on January 1, 2020.

But what about the paid sick leave marijuana employers are required to provide in Washington? The WFMLA does not affect the requirement for employers to provide paid sick leave to employees in Washington.  Paid sick leave, unlike paid medical and family leave, does not require the payment of premiums. Further, employees accrue at least one hour of paid sick leave for every 40 hours worked under the Washington sick leave law.

Cannabis businesses should get ready for the new premium assessments beginning January 1, 2019, and budget for those new costs now. If you’re worried about compliance, our cannabis business and employment attorneys here at Harris Bricken can help you formulate a plan to ensure you comply with WFMLA and related laws.

source https://www.cannalawblog.com/washington-cannabis-employment-family-medical-leave-act-changes-coming/

California Cannabis: Industrial Hemp Regulation Moves Ahead

California Cannabis Distributors and Motor Carrier Permits

Oftentimes in the marijuana industry, licensees forget or don’t believe that existing federal, state, and local laws apply to their cannabis operations. For example, things like ADA and OSHA compliance get overlooked where the thinking can be, “I’m already violating one federal law, so I don’t have to comply with other, existing federal or state laws.” Of course, that line of thinking is incorrect and is only going to lead to pain and suffering when it comes to legal violations, fines, and penalties.

Our California cannabis business lawyers are seeing many licensees in these early days of legalization continue to ignore existing state and federal laws, though we see that many are also striving to keep up both with the state’s rules and all other existing federal and state laws. On that note, one of the stickiest areas of compliance in California hasn’t really had anything to do with cannabis–it’s been whether distributors, specifically those who self-distribute, need a motor carrier permit (“MCP”) from the Department of Motor Vehicles. And the answer is: It depends.

Generally, California requires any “motor carrier of property” transporting goods with a “commercial motor vehicle” to obtain and maintain a MCP from the state. California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) and the Bureau of Cannabis Control (BCC) regulations specifically provide that “[a]ll vehicles transporting cannabis goods for hire shall be required to have a motor carrier permit pursuant to . . . the Vehicle Code.” What the term “for hire” means is not defined either by MAUCRSA or the BCC (which oversees distributors).

California’s Vehicle Code provides that “a motor carrier of property shall not operate a commercial motor vehicle on any public highway in this state, unless it . . . holds a valid motor carrier permit issued to that motor carrier by the department.” For purposes of that statute: “‘motor carrier of property’ means any person who operates any commercial motor vehicle,” and “‘commercial motor vehicle’ means:

1. Motortrucks of three or more axles that are more than 10,000 pounds gross vehicle weight rating;
2. Truck tractors;
3. Vehicles transporting hazardous materials;
4. Any motortruck of two or more axles that is more than 10,000 pounds gross vehicle weight rating; and
5. Any other motor vehicle used to transport property for compensation.

Whether a vehicle operator must obtain a MCP basically depends on: (1) the type and size of vehicle, and (2) whether the vehicle is “used to transport property for compensation.”

Distributors transport cannabis in three main scenarios: between licensees before testing, for testing purposes, and between licensees post-testing (including for remediation in the event of a failed cannabis quality assurance test). If a distributor is using vehicles it owns to conduct transport activities that it pays for and that benefit the distributor, with no form of compensation, that distributor will not need a MCP. However, if the distributor, let’s say, hires another distributor to move the cannabis around, that distributor is going to be a “for-hire motor carrier of property,” and the first distributor isn’t responsible for obtaining MCPs because the vehicles in that scenario are not owned by that first distributor. And if a distributor is getting paid for its transportation of cannabis goods, even to cover the costs of transportation, a MCP is in order.

Ultimately, in almost all scenarios, whether a distributor has to get a MCP in California will come down to the transportation terms and conditions between licensees.  If a distributor obtains any kind of compensation for transporting products, this triggers the MCP requirements. If the distributor is performing transportation services gratis though, no MCP is necessary.

source https://www.cannalawblog.com/california-cannabis-distributors-and-motor-carrier-permits/

What if You Break the Rules? Oregon Cannabis Administrative Litigation and Settlement

California Cannabis Leasing: Landlord Pitfalls

Trademark Considerations for Your Celebrity Cannabis Licensing Deals

I’ve worked on many celebrity licensing and endorsement deals, and my firm’s cannabis intellectual property lawyers have received countless inquiries from companies looking to partner with one celebrity or another. And while the best of the deals can be very lucrative (and interesting) for everyone involved, plenty of them fizzle out for one reason or another. Often, the excitement over the prospect of partnering with a celebrity can blind businesses to the bigger intellectual property and trademark issues they should consider before negotiating one of these deals.

Earlier this month, Above the Law published a great article on the potential pitfalls of utilizing personal names as trademarks, as is done in celebrity licensing deals. The author noted the recent trademark litigation brought by a company that owns a registered trademark for SWIFTLIFE for “consulting services in the field of design, selection, implementation and use of computer hardware and software systems for others” against none other than Taylor Swift and her “SwiftLife” app. And while a celebrity’s name and likeness can be protected under rights of publicity or privacy law, this case raises the issue of when and how personal names can be recognized as trademarks.

In the United States, a person’s name can be eligible for trademark protection only if that individual is able to establish secondary meaning for their name. In other words, a celebrity will only be able to trademark their name if, through use of the name, it has come to identify a single source of origin for a particular set of goods or services. And it isn’t enough for the name to be well-known – the name must actually be associated with a set of goods or services in order to qualify for protection. While for a celebrity like Bob Marley, the connection to cannabis goods may seem clear, for many other celebrities, there is simply no connection at all and establishing trademark protection would be difficult (even setting aside the federal issues surrounding cannabis trademarks, which we have written about at length).

Some key takeaways to consider if your cannabis business is looking to partner with a celebrity for a licensing deal are as follows: First, the more unique the name or moniker, the better the chance of that name being protectable. And second, consider whether the celebrity name has a strong association with the cannabis products you’re looking to sell, as this will help determine whether the name could be shown to have secondary meaning. A licensee should be secure in the licensor’s ability to protect what it is licensing, otherwise what is the licensee paying for?

With a number of celebrities having jumped on the cannabis branding bandwagon–including the Marley estate, Snoop Dogg, Willy Nelson, Whoopi Goldberg and Melissa Etheridge, along with many lesser known celebrities who have used their name to promote ancillary cannabis products–these deals are certainly promising. Though trademark registrations are at play for many of these brands, the rights of publicity of the celebrities are at the center of each of these branding deals. Because state law and not federal law regulates the right of publicity, it is not subject to the same restrictions based on legality of use as federal trademarks. This makes enforcement in the event of infringement much easier for celebrities.

It’s important to remember, however, that using one’s name and likeness to sell cannabis is not without risk. Even ancillary companies face the risks posed by federal illegality, since these companies and their financial backers could be subject to charges of aiding and abetting or conspiring to violate the Controlled Substances Act for providing goods and services to cannabis businesses. Given the proliferation of celebrity-branded cannabis, however, this appears to be a risk that many celebrities are willing to take to become early entrants into the cannabis market.

It’s clear that celebrity licensing and endorsement deals in the cannabis industry are trending, but if your company is seeking a celebrity partnership, be sure to assess the deal not only from a business perspective, but from a legal perspective as well. While celebrity trademark rights in the cannabis industry are particularly difficult, rights of publicity have provided celebrities with a powerful tool for establishing and protecting their cannabis brands. This is a real leg up in an industry where federal law has made brand protection such a complex legal issue.

source https://www.cannalawblog.com/trademark-considerations-for-your-celebrity-cannabis-licensing-deals/

The United Nations is FINALLY Taking a Hard Look at Cannabis

Heads Up! Oregon Has New Cannabis Labeling and Packaging Rules

CBD Webinar: Join Us August 16th at 11am PST!

Lending to Cannabis Businesses

Cannabis Cybersecurity: Why Hacking Back is a Bad Idea

Bipartisan Bill Would (Sort of) Protect Federal Employees’ Off-Work Marijuana Use

Cannabis, Tariffs and Vaping Imports from China

California Cannabis Countdown: Marin County Update

California has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is embracing cannabis (and how), and everyone in between. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on the City of San Jose, and before that the City of Cotati, the City of San Luis Obispo, the City of Redding, the City of San Rafael, the City of Hayward, Alameda County, Oakland, San Francisco, Sonoma County, the City of Davis, the City of Santa Rosa, County and City of San Bernardino, Marin County, Nevada County, the City of Lynwood, the City of Coachella, Los Angeles County, the City of Los Angeles, the City of Desert Hot Springs, Sonoma County, the City of Sacramento, the City of Berkeley, Calaveras County, Monterey County the City of Emeryville and the City of Antioch.

In addition to the above, we have previously written about commercial cannabis regulations in Marin County here, here, and here. Today’s post is an update on those regulations, as requested by one of our faithful readers.

Welcome to the California Cannabis Countdown.

What commercial cannabis activity is allowed in Marin County?

In unincorporated Marin County, medicinal cannabis delivery-only retailers (MCDORe) are allowed pursuant to a licensing ordinance approved on November 14, 2017. These locations must be closed to the public– only delivery is allowed.

How many retailers are allowed?

A maximum of four MCDORe locations are authorized in the C1 (Retail Business), CP (Planned Commercial), AP (Admin and Professional), OP (Planned Office) and IP (Industrial Planned) zoned districts. MCDORe locations must be located at least 600 ft from schools, day care centers, youth centers and playgrounds.

What about delivery?

Delivery of medicinal cannabis into unincorporated Marin County by licensed retailers located outside of unincorporated Marin County is also allowed. All other commercial cannabis activities are prohibited in unincorporated Marin County.

Is Marin County accepting MCDORe license applications?

The deadline for applications was July 12, 2018 and Marin County is not accepting additional MCDORe applications at this time. According to County staff, there may be an opportunity for additional licenses in the future if the program expands. After implementation of MCDORe licensing, Marin County will be evaluating program expansion into other potential licensing regulations.

What about non-medical?

Currently, Marin County does not allow any adult-use commercial cannabis activities, including cultivation, manufacturing, testing, distribution or retail sales. This is unfortunate, because in 2016, 69.6 percent of Marin voters supported Proposition 64. For this to change, citizens and industry should make it known to the County Board of Supervisors that an additional licensing ordinance is needed.

source https://www.cannalawblog.com/california-cannabis-countdown-marin-county-update/

The Key to Saving Costs in Your Deal? The Term Sheet

When I receive a summary of a cannabis business deal–the first emails, calls, LOIs, and term sheet in any form–with 90% accuracy I can say whether the transaction will be a difficult one or not. Note that “difficult” does not correlate with complex: Often the more complex deals, with multiple entities and asset transfers, end up being much easier, whereas a simple secured loan can be more difficult. And in the context of a transaction, “difficult” = “time consuming” = unnecessary expense. Everyone would like to avoid that.

The number one differentiating and determinative factor in assessing the difficulty of a marijuana business deal is the term sheet. If a deal is a building, think of the term sheet as both the architect’s blueprint and the physical foundation on which the deal is built. Deals that are smooth are built with a clear plan and on a solid base; these come in on time and under budget. Deals that are built based on a vague understanding of the final goal but with no firm, documented plan, will be typified by stops and starts, walls built, torn down and rebuilt, and a final product that stands but doesn’t resemble what either parties had in mind (“in mind” being a key phrase here, as often what was in the parties’ mind was never exchanged in an agreement). Oh, and the dreaded cost overruns.

Engage your attorney before you sign a term sheet. 

Having a final term sheet is necessary for a smooth transaction, but agreeing that a half-baked term sheet is “final” may prove worse than having no term sheet at all. Do not make the mistake of thinking you cannot engage your attorney until you have a term sheet signed: In fact, an hour with your attorney before you finalize the terms, could save you many hours down the line. Your experienced business attorney will know how the terms will fit in the documents, and in turn what terms you may not have addressed fully, or at all.

Do not have your attorney draft the transaction documents until after you sign a comprehensive and binding term sheet. 

Speed in transactions is defined by certainty. Term sheets that say “market standard” terms for X is likely a proxy for “we didn’t take the time to discuss X.” This can work if the parties have a common reference point or an external reference. For example, in the context of an equity financing, “standard NVCA language on Registration Rights” is OK. “Standard anti-dilution” is not OK: There are at least three flavors and they are wildly different, so the drafting attorney with that term sheet is guessing–or likely talking only to his side–on the issue. The stops, starts, and re-drafts is what eats up time.

Continuing with the building analogy: Every couple building their dream home wants the house built quickly and correctly, and on budget. But they had better get all the critical details decided and in the plans before the first brick is laid. In other words, if you don’t agree on the location and number of bathrooms, you wouldn’t tell a contractor to “start building now and we’ll decide on the bathrooms later.” The decisions won’t get easier if you put them off, and having a full plan in place from the beginning will make the process more enjoyable for all.

source https://www.cannalawblog.com/the-key-to-saving-costs-in-your-deal-the-term-sheet/

BREAKING NEWS: First Cannabis Patent Lawsuit Filed

In previous posts, we’ve puzzled about why no one has filed a cannabis patent infringement case, despite the large number of patents granted for cannabis plants. See here, here, here, and here. That all changed last week. United Cannabis Corporation (“UCANN”) has now filed what is believed to be the first cannabis patent enforcement complaint. The case is United Cannabis Corporation v. Pure Hemp Collective, Inc., case no. 1:18-cv-01922-NYW, in the United States District Court for the District of Colorado.

The patent asserted is U.S.P. 9,730,911, “cannabis extracts and methods of preparing and using same.” The claims in the patent generally cover liquid cannabinol formulations using tetrahydrocannabinol (THC), cannabidiol (CBD), and various terpenes. See, for example, claim 10: “A liquid cannabinoid formulation, wherein at least 95% of the total cannabinoids is cannabidiol (CBD).”

Although the UCANN complaint does not specify which claims are being asserted, it appears that the plaintiff may focus on CBD-related claims, e.g., claims 10-15, rather than claims for THC. The complaint devotes several paragraphs to discussing FDA’s recent approval of Epidiolex, a CBD-based drug, as we discuss here and here. The complaint suggests that FDA will reclassify CBDs generally as Schedule II or Schedule III drugs. While it is clear that FDA will do a reclassification, it is not clear that it will reclassify all CBDs, rather than just the Epidiolex compound.

In any event, we expect to see more cannabis patent litigation soon, perhaps in Colorado, California, Oregon or elsewhere. Whether it will be a trickle or a flood remains to be seen, but we will be following the case closely and providing regular updates.

For more on cannabis patents, see our series here:

• How to Read a Cannabis Patent
• Do Cannabis Patents Create Monopolies?
• Open Cannabis Project: The Fight to Get Marijuana Patents Right
• Mystery Cannabis Litigation Theatre 2017: Future Enforcement of Pot Patents

source https://www.cannalawblog.com/breaking-news-first-cannabis-patent-lawsuit-filed/

Dirty Dancing: Flips and Tricks of Cannabis Social Equity in L.A.

California Cannabis Leasing: The Normalization of Cannabis Landlords

Cannabis Data Security: How to React to a Cyberattack

Farm Bill Conference Coming Soon: Will Industrial Hemp Make the Cut?

At the end of June, the U.S. Senate passed its version of the 2018 Farm Bill, which included the full text of McConnell’s Hemp Farming Act of 2018. If the Senate version is enacted, hemp and derivatives, extracts, and cannabinoids derived from hemp would be treated as agricultural commodities and removed from the purview of the Controlled Substances Act and the Drug Enforcement Administration. Though this is certainly exciting news, it’s not quite time to pop the CBD-infused champagne just yet. 

Both the Senate and the House have passed their own versions of the Farm Bill.  The Senate included the full text of McConnell’s Hemp Farming Act, but the House version was silent on hemp. The Farm Bill covers a vast range of agricultural issues including subsidies and crop insurance. Now the House and Senate must harmonize their versions of the Bill, including the provisions that relate to industrial hemp.

The House and Senate passed motions to proceed to conference for their respective the Farm Bills. Both chambers will need to agree on which portions of each bill will be included in a conference agreement. U.S. Hemp Roundtable compiled a list of conferees for the House and Senate. The House is represented by 47 conferees and the Senate is represented by 9 conferees.

The 9 Senate conferees show that the both Republicans and Democrats will be represented. The Senate Republicans will include Pat Roberts (Kan.), John Hoeven (N.D.), Joni Ernst (Iowa), John Boozman (Ark.), and Senate Majority Leader Mitch McConnell (Ky.). Senate Democrats Debbie Stabenow (Mich.), Patrick Leahy (Vt.), Sherrod Brown (Ohio). and Heidi Heitkamp (N.D.) will also negotiate on behalf of the Senate.

McConnell’s involvement is important for industrial hemp. McConnell was instrumental in passing the 2014 Farm Bill’s industrial hemp provision and continues to advocate for legalizing hemp. He even recently toured a hemp cultivation facility in Kentucky, as reported by the Lexington Herald Leader. He also happens to be the Senate Majority Leader making him one of the most powerful politicians in the country.

Here’s what McConnell had to say about the 2018 Farm Bill and his decision to sponsor the Hemp Farming Act:

I have proudly served on the Agriculture Committee since my first day in the Senate and know exactly how important this legislation is to agricultural communities across Kentucky, so as Majority Leader, I put myself on the Conference, and we’re ready to get to work to ensure the future of American agriculture. I will advocate for Kentucky’s multi-billion-dollar agriculture industry that supports thousands of good jobs and families in nearly every corner of the Commonwealth. Additionally, I will strongly advocate to legalize industrial hemp. I’m optimistic that my Hemp Farming Act, which I secured in the Senate bill, will be included in the final bill sent to the President for his signature. I am also glad to have the support of Congressman Comer on the Conference for legalizing industrial hemp.

If the House and Senate reach a resolution, they will issue a Conference Report that will be sent back to the House and Senate for final passage. If the passed in both chambers, the Bill would head to the Donald Trump’s desk for signature. For industrial hemp farmers, the sooner this happens, the better.

The 2014 Farm Bill is set to expire on September 30 or at the end of the applicable crop year. Hemp farmers operating under the 2014 Farm Bill will certainly be watching carefully to see whether the 2018 Farm Bill is signed prior to that date. If the 2014 Farm Bill expires, so too will the legal basis for cultivating industrial hemp under federal law. It’s possible that the 2014 Farm Bill will be extended in the event that the 2018 Farm Bill fails to pass. McConnell is hoping that the conference can reach agreement by Labor Day.

source https://www.cannalawblog.com/farm-bill-conference-coming-soon-will-industrial-hemp-make-the-cut/

California Legalizes Prescription Cannabidiol (Epidiolex)

At the end of June, we wrote about the FDA’s approval of GW Pharmaceutical’s drug Epidiolex (containing cannabidiol), an oral solution for treatment of seizures. On July 9, 2018, California Jerry Brown signed legislation approving Epidiolex for use under California law.

California, like many states, has its own version of the Controlled Substances Act. Similar to federal law, the California CSA classifies controlled substances into five schedules, the most restrictive being Schedule I and the least restrictive being Schedule V. Under existing California law, cannabidiol (CBD) is Schedule I because it is a compound contained in cannabis, also a Schedule I drug.

Under Assembly Bill 710, the California Legislature made the following findings:

The Legislature finds and declares that both children and adults with epilepsy are in desperate need of new treatment options and that cannabidiol has shown potential as an effective treatment option. If federal laws prohibiting the prescription of medications composed of cannabidiol are repealed or if an exception from the general prohibition is enacted permitting the prescription of drugs composed of cannabidiol, patients should have rapid access to this treatment option. The availability of this new prescription medication is intended to augment, not to restrict or otherwise amend, other cannabinoid treatment modalities including, but not limited to, industrial hemp products and derivatives containing cannabidiol, currently available under state law.

Section 3 of A.B. 710 then adds statutory language that harmonizes federal and California state law on cannabidiol:

if cannabidiol is excluded from Schedule I of the federal Controlled Substances Act and placed on a schedule of the act other than Schedule I, or if a product composed of cannabidiol is approved by the federal Food and Drug Administration and either placed on a schedule of the act other than Schedule I, or exempted from one or more provisions of the act, so as to permit a physician, pharmacist, or other authorized healing arts licensee acting within his or her scope of practice, to prescribe, furnish, or dispense that product, the physician, pharmacist, or other authorized healing arts licensee who prescribes, furnishes, or dispenses that product in accordance with federal law shall be deemed to be in compliance with state law governing those acts.

Essentially, this language provides that once CBD can legally be prescribed under federal law, any authorized health care professional who complies with federal law will be deemed to comply with California state law. A.B. 710 goes on to provide that this harmonization does not apply to a CBD-containing product that is made or derived from industrial hemp, as regulated by existing California law.

Finally, the Legislature provides that “in order to ensure that patients are able to obtain access to a new treatment modality as soon as federal law makes it available,” A.B. 710 is an “urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect.”

The story of A.B. 710 shows that federalism concerns will continue to arise even once cannabis is federally legal. Because the states are permitted to pass their own controlled substances acts and food and drug statutes, it is possible that federal legalization will not lead to universal availability, just as the repeal of prohibition did not prevent localities from opting out. But we expect that similar laws harmonizing state and federal policy on CBD will be forthcoming, at least in states where cannabis is legal for medical use.

source https://www.cannalawblog.com/california-legalizes-prescription-cannabidiol/

Watch Out Oregon Cannabis Businesses: BOLI Gets Serious About Sick Leave

Start Your Engines for California Cannabis Recalls

Now that the MAUCRSA transition period is over and full cannabis testing is in the works, we can fully expect California marijuana companies to start engaging in recalls of certain products for a variety of reasons. In fact, a voluntary recall has already been initiated by The Bloom Brand where an impermissible pesticide (Myclobutanil) was present in one of its product batches that made it to retailers. Recalls like this are going to continue to increase, and we have to applaud The Bloom Brand for being conservative when it comes to consumer protection. Hopefully, other companies will follow suit and not try to cut corners where the resulting consequence is undoubtedly litigation, reputational disaster, and even dissolution if not fixed and fixed immediately.

So, what do you do in California if you find yourself inching up towards a recall?

First, you start with the readopted emergency regulations, which lay the field for what has to go down in the event of a recall. The California Department of Public Health-Manufactured Cannabis Safety Branch oversees licensing and enforcement for all manufacturers, and recall protocol is found at section 40268 of the emergency regulations. CDPH is the only agency right now with recall protocol codified in the emergency rules. Specifically, as a condition of licensure, you have to have a recall plan in place. That plan has to include:

(a) Factors which necessitate a recall;
(b) Personnel responsible for implementing the recall procedures; and
(c) Notification protocols, including: (1) A mechanism to notify all customers that have, or could have, obtained the product, including communication and outreach via media, as necessary and appropriate; (2) A mechanism to notify any licensees that supplied or received the recalled product; (3) Instructions to the general public and/or other licensees for the return and/or destruction of recalled product.

Procedures for the collection and destruction of any recalled product also have to meet the following requirements:

(1) All recalled products that are intended to be destroyed must be quarantined for a minimum of 72 hours. The licensee must also affix to the recalled products any bills of lading, shipping manifests, or other similar documents with product information and weight; and

(2) Following the quarantine period, the licensee has to render all recalled cannabis product unusable and unrecognizable and dispose of it in accordance with the rules and law, and that destruction has to take place on video surveillance.

And there are additional waste, destruction, disposal, track and trace and reporting requirements for the recalled product.

MAUCRSA itself empowers CDPH to mandate a recall when:

“the [CDPH] has evidence that a cannabis product is adulterated or misbranded, the department shall notify the manufacturer. [CDPH] may order a manufacturer to immediately cease distribution of a cannabis product and recall the product if [CDPH] determines both of the following: (1) The manufacture, distribution, or sale of the cannabis product creates or poses an immediate and serious threat to human life or health.(2) Other procedures available to [CDPH] to remedy or prevent the occurrence of the situation would result in an unreasonable delay.”

“A peace officer,” including any peace officers from the Bureau of Cannabis Control or CDPH, can also seize product under recall “by any licensing authority” pursuant to MAUCRSA. However, at this point, California’s actual cannabis recall standards are paltry and they’re mostly on a voluntarily basis, which is downright scary given some of the operators in the field.

Every single licensee should, for its own sake and liability mitigation, have concrete standards for recall procedures where products liability means strict liability for everyone in the chain who passed on the dangerous or defective product. Here are some tips of what should go into any reliable recall plan:

1. Create an overall recall strategy that’s going to actually work for the company dependent upon resources and manpower.

2. As part of your recall plan, create definitions and standards for classes of recall and the depth and scope of any given recall. If your state or local laws do not provide basic recall standards for marijuana businesses, check out the FDA’s website under Guidance for Industry: Product Recalls, Including Removals and Corrections.

3. Appoint a recall committee within your company, to be led by experienced personnel capable of evaluating and investigating product complaints to determine if a recall is warranted. This also entails your developing a product complaint form that will be utilized by customers. It is better to learn about product problems early.

4. Develop a complaint receipt and evaluation method to ensure that your product complaint processing and investigations are logical, efficient, and comprehensive. There are few things worse than receiving product safety complaints and then ignoring them until the situation is out of control.

5. Truly ponder what your product complaint investigation will entail. What facts should the recall committee be seeking to determine if a complaint is valid or if a recall is warranted. What should your recall look like, as based on the facts and circumstances and the threat the product poses to consumers and vendors.

6. Create a distribution list so that your recall committee can quickly and easily identify all affected products and product lots for disposition and potentially destruction. The distribution list should also include the names of all affected consumers and vendors, their contact information, and the dates on which the products were sold to them or consumed by them, and it should also include any side effects, injuries, or illnesses resulting from product use. Time is of the essence here.

EXAMPLE: My law firm had a regional food client that inadvertently failed to issue a recall notice to one of many supermarket chains to which it sold its food. This supermarket chain was so angry about having been kept out of the loop that it refused ever to purchase our client’s product again. Then other supermarket chains learned of our client’s mistake and they too ceased all of their purchasing. Needless to say, our client company no longer exists. Don’t let this sort of thing happen to you.

7. Institute a method of stock recovery so all tainted product in inventory is effectively quarantined from sale and distribution.

8. Generate your recall notice and be very careful with your wording in how you alert vendors and consumers to the recall. You want to effectively communicate that a product has been affected and how to deal with that, but you also want to minimize whatever liability your product problems may create for the company. On a case by case basis, consideration should also be given to drafting a press release to help the company’s PR. Regular readers know that we seldom state that attorney help is required, but for this, attorney assistance is absolutely required!

9. Make sure to as quickly as possible (preferably in advance) to alert your outside advisors (your lawyers, your insurance broker, etc.) regarding your recall.

10. Set out in your recall plan your options for product disposition. Will you destroy a product? Cleanse and then repurpose it? Lay out your options in your plan now so that you are not scrambling to try to figure out your possible options later, when you have no time to do so.

11. Record everything you do. Document every effort you make and record all your communications with consumers and vendors. If there is a legal action later, you will want to be able to show the court that you took all reasonable steps to ensure consumer safety.

In addition to formulating a solid and reliable recall plan, you also might want to consider conducting a mock recall to ensure your recall systems will work when the real deal occurs. Compliance audits can also be a big help in shoring up loose ends on a recall.

In the world of cannabis product recall, especially in California, licensees need to be very proactive in order to protect themselves. Relying on the state’s thin recall standards isn’t likely enough to protect licensees against an overwhelming liability exposure.

source https://www.cannalawblog.com/start-your-engines-for-california-cannabis-recalls/