In case you missed it, or would like to revisit some of the information, below is the recording from last week’s lunch hour webinar on west coast hemp CBD after the Farm Bill.
Stay tuned for future posts answering some of the questions we weren’t able to get to during the webinar.
Until then, enjoy!
Six years after it was initially introduced, the House Financial Services Committee released the latest draft legislation that would create a “safe harbor” for banks to serve the rapidly expanding cannabis industry on February 7, 2019. Entitled the “Secure and Fair Enforcement Banking Act of 2019” (or, the “SAFE Banking Act of 2019”), the bill aims to prohibit federal regulators from penalizing banks and other financial institutions that provide banking services to marijuana businesses, marijuana-related businesses, and their owners and employees.
As a reminder, thirty-three states and the District of Columbia have legalized the sale and use of medical marijuana, while ten states and the District of Columbia have approved marijuana for adult or recreational use. With the fast-growing acceptance of cannabis evident as ever, the bill’s supporters claim that it would provide sorely needed legal clarity at a time when the cannabis industry faces serious financial and security risks. Accompanying the draft legislation was a memorandum prepared by the Financial Services Committee, which explains the reasoning behind this renewed push for legislation:
An increasing number of financial institutions have expressed interest in providing banking services to state authorized cannabis-related businesses as nearly all states have authorized various degrees of cannabis use, such as for medical use … However, many financial institutions are refraining from offering banking services to these businesses based on several legal and compliance risks. … As such, cannabis-related businesses have been described as a “soft target” for being robbed and assaulted, having their stores broken into, and their plants stolen” (citations omitted).
Generally, this iteration of the SAFE Banking Act pushes for even greater protections than those included in prior versions by including some new provisions, including:
1. Identifies (for the first time) and adds protections for ancillary businesses providing products or services to cannabis-related legitimate businesses (this is huge because even banks that would choose not to provide services to cannabis businesses may get caught under the present scheme);
2. Adds protections for marijuana-related “retirement plans or exchange traded funds” and “the sale or lease of real or any property [and] legal or other licensed services … relating to cannabis”;
3. Adds protections for the “distributing or deriving any proceeds, directly or indirectly, from cannabis or cannabis products”;
4. Specifies how businesses on tribal land could qualify; and
5. Requires that the Federal Financial Institution Examination Council develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses.
The general purpose and directive of the Safe Banking Act is arguably summarized by the following catch-all provision:
[P]roceeds from a transaction conducted by a cannabis-related legitimate business shall not be considered as proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related legitimate business.”
The bill is authored by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH), and Warren Davidson (R-OH), who have indicated that they plan to re-introduce the SAFE Banking Act by the end of the month. The House Subcommittee on Consumer Protection and Financial Institutions has already held hearings, which seem to have gone well. Looking ahead, it’s likely that the House Financial Services Committee will also hold a hearing and potentially mark up the bill. Based on the SAFE Banking Act’s reception, and with so many other cannabis-related issues on the table, we might be seeing a much more expansive bill to end federal cannabis prohibition for good in the near future.
Last summer, I wrote about Senate Bill 1459, a piece of California legislation that created a new scheme of provisional licenses for cannabis operators. This provisional licensing scheme was essentially intended to replace the temporary licensing scheme that only ran through January 1, 2019 per state law. SB-1459 was necessary because the three main state cannabis licensing agencies—the Bureau of Cannabis Control (“BCC”), California Department of Public Health (“CDPH”), and California Department of Food and Agriculture (“CDFA”)—and localities which issue permits to cannabis operators, were all backlogged with numerous applications and couldn’t process all of the applications in time for applicants to get operational in 2018. In some cases, applicants could not even obtain temporary licenses before the temporary license regime expired.
SB-1459 was thus supposed to be a lifeline for companies which had scored very short-lived temporary licenses so that they could get operational in 2019 while the state was processing their annual licenses. In this post, I look at what’s happened with the provisional licensing scheme since SB-1459 has passed, how each agency has treated them, and what applicants need to do to get them.
The steps—per SB-1459—to obtain a provisional license are fairly straightforward at first glance: (1) an applicant must hold or previously have held a temporary license for the same commercial cannabis activity for which it seeks a provisional, and (2) the applicant must submit a completed annual license application and proof that California Environmental Quality Act (“CEQA”) compliance is underway. Provisionals last for 12 months and can be issued through the end of 2019. Luckily for operators, this doesn’t add a layer of complication to the already complex process of applying for annual licenses and doesn’t really require applicants to do much that they wouldn’t have already needed to do in connection with annual applications.
The only agency which has published more comprehensive information on provisional licenses is the CDFA, which regulates cultivators. The CDFA does not have a separate application for provisional licenses. Per its instructions, once an applicant submits an annual license application (and assuming it held a temporary and paid its fees), CDFA staff will determine whether a provisional is warranted.
As noted above, and as most readers of this blog are probably aware, the temporary license scheme ended in late 2018. The impact of this is that temporary applications will expire in March or April unless an extension was provided. Each of the three agencies is likely to get a large influx of applications between now and when the temporary licenses expire, but we don’t yet know how they will process provisionals. If the BCC and CDPH follow the CDFA’s lead, then it seems like it may be a ministerial act after review of the completed submissions. But even that takes time to do, and businesses that are currently legally operational should probably not wait until their cutoff to apply for annuals, as a provisional application probably would not be processed by that time.
The bottom line for provisional license applicants is that even though they don’t have many filing prerequisites, they are going to be difficult to obtain because applicants must have first applied for annuals. Qualifying applicants—those who hold or have held temporary licenses—should take a hard look at the temporary license expiration dates and consult with their cannabis counsel on finishing up annuals with time for the agencies to review annual applications, and hopefully process and issue provisionals. Stay tuned to the Canna Law Blog for any other developments with provisionals.
The recent wave of crackdowns on cannabidiol (“CBD”)-infused alcohol beverages has further exacerbated public confusion regarding the legal status of the cannabis plant’s non-psychoactive compound.
This post provides an overview of the regulatory framework of alcoholic beverages, including pre-manufactured industrial hemp-infused drinks and “homemade” alcoholic drinks infused with CBD oil or extracts.
Pre-Manufactured Alcohol Beverages Infused with Hemp
As we previously explained, alcoholic beverages are regulated by federal and state laws. Cannabis is heavily regulated at the state level but unlike alcohol, it is—for the most part—strictly prohibited under federal law. However, one variety of cannabis, hemp, was recently legalized under the Agriculture Improvement Act of 2018 (“2018 Farm Bill”), which removed that particular crop from the definition of “Marihuana” under the Controlled Substance Act (“CSA”). Consequently, hemp is allowed in the formulation of alcohol beverages so long as the product meets specific criteria imposed by federal and state alcohol regulatory bodies.
The formulation of hemp-infused alcoholic drinks is regulated by the U.S. Alcohol and Tobacco and Trade Bureau (“TTB”) as well as by state liquor control agencies in states where the production and sale of hemp-infused drinks is allowed. Indeed, in its latest FAQ’s (which pre-dates the enactment of the 2018 Farm Bill), the TTB declared it understood the 2014 Farm Bill to only authorize the use of hemp in the production of alcoholic beverage products for sale within limited state-sanctioned pilot programs.
However, in the same FAQ’s, the TTB explained that before it approves a formulation, it consults with the Food and Drug Administration (“FDA”) to determine whether a hemp ingredient is safe for consumption and whether its use is lawful under the Food, Drug & Cosmetic Act (“FD&CA”). As we previously explained, the FDA currently deems the use of hemp-CBD-infused foods and drinks as unlawful because CBD has been approved in the treatment of epilepsy (Epidiolex); and therefore, can only be used as a drug. As such, the FDA has refused to recognize hemp-CBD as a safe food additive, which means it would treat hemp-CBD infused alcoholic beverages as unlawful under the FD&CA.
Consequently, alcoholic beverages derived from parts of the hemp plant that do not contain CBD, such as hulled hemp seeds, hemp seed protein and hemp seed oil, grown pursuant to a state pilot program that allows the commercial sale of these products, seem to be the only hemp-infused beverages eligible for TTB approval at the moment.
Drinks Infused with CBD Oil or Extracts
The alcoholic beverages recently banned from state bars and restaurants consisted of pre-manufactured alcohol beverages to which CBD oil or extract was later added. Unlike manufactured alcohol beverages, alcoholic drinks sold in bars and restaurants are directly regulated by state liquor control boards and state departments of health, which are free to defer to and adopt FDA regulations.
Although the FDA has limited its enforcement actions against CBD-infused products by sending warning letters, state agencies have begun confiscating those products, pursuant to FDA guidelines that categorize CBD as unsafe food additives. As I previously explained, food additives must receive FDA pre-market approval to be deemed safe for human consumption. However, given the FDA’s current position on CBD-infused products, such approval has yet to be granted.
Because these “homemade” CBD-infused alcoholic drinks are devoid of TTB and FDA market approval, it is understandable that they be banned from local restaurants and bars as they pose a potential threat to health and safety.
So as of now, only TTB-approved hemp-infused alcohol beverages seem to be legal and officially “safe” for human consumption. And to be honest, we don’t know of any that have been approved. That said, this is an incredibly fast-evolving area of law and policy, and we have seen a dramatic escalation of interest in this space ever the past year.
For more information on this issue, feel free to contact our team of hemp and CBD experts.
The United States Supreme Court issued a unanimous ruling on Wednesday in the case of Timbs v. Indiana, incorporating the Eighth Amendment’s Excessive Fines Clause against the states through the Due Process Clause of the Fourteenth Amendment. As we have written about, the case involves the forfeiture of petitioner’s Land Rover as punishment for selling heroin. The Indiana Court of Appeal held that the forfeiture of the Land Rover was grossly disproportionate to the gravity of the offense, and the Supreme Court of Indiana reversed and concluded that because states are not subject to the Excessive Fines Clause, the forfeiture was not unconstitutional. In a sweeping decision authored by Ruth Bader Ginsburg, the United States Supreme Court flatly rejected that contention.
The decision is an expansion of the federal Constitution to apply against state and local governments, and it means that all state and local asset forfeiture regimes could be subject to challenge insofar as they allow for forfeitures that are “excessive” under the Eighth Amendment. That includes forfeitures related to cannabis activity. According to the decision,
… the historical and logical case for concluding that the Fourteenth Amendment incorporates the Excessive Fines Clause is overwhelming. Protection against excessive punitive economic sanctions secured by the Clause is, to repeat, both ‘fundamental to our scheme of ordered liberty’ and ‘deeply rooted in this Nation’s history and tradition.’
The decision is being hailed as a victory for criminal justice reform. It strengthens property rights and could limit controversial police seizures such as those done through civil forfeiture nationwide. The decision will have nationwide impacts for those accused of drug crimes and other offenses, and will be an important check on the government’s power to interfere with private property. This is great news for the cannabis industry, and will provide additional legal support for our clients who have had their property seized or threatened to be seized by state and local governments.
For more background on this issue, check out the following:
Earlier this week, I wrote about how hemp businesses should not yet rely on the 2018 Farm Bill to protect them from their products being seized. This is because although Section 10114 of the 2018 Farm Bill prohibits states from interfering with the interstate transport of hemp and hemp products, that protection is limited to hemp that was cultivated in accordance with Section 10113 of the 2018 Farm Bill. At this time, full compliance with Section 10113 is not possible because the US Department of Agriculture (“USDA”) has yet to approve of any state or tribal plans covering the cultivation of hemp or issue its own plan allowing for the cultivation of hemp in states that do not have an approved plan.
As such, the cultivation of hemp is still governed by the 2014 Farm Bill, which allows state departments of agriculture to license the cultivation of industrial hemp. States have taken a widely different approach to regulating industrial hemp and not all states recognize any difference between industrial hemp and marijuana, regardless of the amount of THC present.
Back in September 2018, I wrote about how varying state laws made it challenging to ship hemp products, including hemp-derived CBD (“Hemp-CBD”) across the country. I used the following example to illustrate the risks:
[B]usinesses must carefully consider how their products reach consumers. For example, imagine that Hemp Co. is planning to distribute Hemp-CBD. Hemp Co. sources its industrial hemp from a farm in Medford, a small town in Southern Oregon. Hemp Co. has a large order to fill for a natural food store in Billings, Montana. Hemp Co. decides that the fastest and cheapest method of delivery is ground shipping through Idaho. However, according to a 2015 informal opinion from the Idaho Attorney General, the state makes no distinction between industrial hemp and marijuana. Therefore, Hemp-CBD, even without the presence of THC, is not permitted in Idaho. Even though Hemp Co.’s products come from a farmer who cultivates in-line with Oregon’s industrial hemp program (and relevant federal law), that does not insulate Hemp Co. from liability if the shipment is inspected by Idaho State Police.
Unfortunately, this hypothetical now appears to be playing out in real life as the Idaho State Police recently seized a shipment of industrial hemp traveling from Oregon to Aurora, Colorado.
Big Sky is a Colorado company that processes hemp into CBD powder which it then sells to manufacturers who add CBD to a number of different consumer products. Big Sky purchased 13,000 pounds of hemp from a permitted hemp cultivator in Oregon. Big Sky contracted with a third party logistics company to have the hemp shipped from Oregon to Aurora, Colorado.
On January 24, 2019, a truck carrying the hemp was stopped in Ada County, Idaho. The driver did not conceal the fact that he was shipping hemp and a bill of lading that accompanied the shipment indicated that the cargo was hemp. The Driver was arrested and charged with marijuana trafficking in Idaho state court. The Idaho State Police seized the contents of the truck: 7,000 pounds of industrial hemp.
Big Sky’s attorneys filed suit in US District Court in Idaho. Big Sky is seeking a declaratory judgment stating that Idaho Police improperly seized Big Sky’s properly and are improperly holding the property in light of the 2018 Farm Bill’s prohibition on the interstate shipment of hemp and general principles under the Commerce Clause which prohibit states from interfering with the interstate shipment of lawful goods. Big Sky also filed a motion for a temporary restraining order (TRO) and preliminary injunction to force the Idaho State Police to immediately return the seized hemp.
In order to get emergency relief in the form of an injunction or TRO, a party must show that they are likely to succeed on the merits of the underlying case. The Court determined that Big Sky had not met this burden because it is unclear whether Section 10144 of the 2018 Farm Bill covers the seized hemp at issue. The Order denying Big Sky’s claims states the following;
The takeaway from an examination of the respective arguments of Big Sky and the [Idaho State Police] is that a reasonable argument can be made that even though Big Sky may, at some point in time, be able to purchase industrial hemp that has been “produced in accordance with Subtitle G,” the hemp that was seized in Idaho could not possibly meet that standard because no “plans” to regulate the production of industrial hemp under the 2018 Farm Act have either been approved (by the federal government as to Oregon, as pertinent here) or created and promulgated by the United States Department of Agriculture for the federal government (to apply in the absence of an approved state or tribal plan).
Congress passed the Agricultural Improvement Act of 2018 (better known as the “Farm Bill”) in December 2018 which removed hemp from the federal Controlled Substances Act. This further resulted in hemp-based cannabidiol or “hemp-CBD” legalization. Despite their federally legal status, hemp-CBD products are now more in question than ever, different state and federal agencies have proposed drastically different regulations throughout every facet of the hemp-CBD industry.
If you are a hemp-CBD business, have interest in the industry or are interested in the state and future of hemp-CBD legality, please join us tomorrow, February 21, 2019 at noon (PST) for the latest installment in our lunchtime webinar series. This session is entitled “West Coast Hemp-CBD After the Farm Bill.”
In this hour-long session, Harris Bricken lawyers Daniel Shortt (Seattle, Washington), Nathalie Bougenies (Portland, Oregon), and Griffen Thorne (Los Angeles, California) will provide an in-depth look at changes in federal law and policy post Farm bill, as well as its impact on each of the three west coast states (Washington, Oregon, and California). Throughout the presentation our team will also discuss the status of laws and regulations in each state. Some of the topics we will cover include:
With an industry that is projected to be worth $20 billion by 2022, interest in hemp is at in an all-time high. Make sure you don’t miss out on this valuable information! The webinar will be moderated by Hilary Bricken, with our panel of attorneys addressing audience questions throughtout the presentations. Please register for the event here! Should you have any further questions, please feel free to reach us at firm@harrisbricken.com.
Back in September 2018, I wrote about how important it was for hemp businesses to carefully plan the routes they would use to ship hemp and hemp products, including hemp-derived CBD. This is because some states are hostile towards hemp and do not recognize a difference between hemp and marijuana.
My article was written prior to the passage of the Agricultural Improvement Act of 2018 (“2018 Farm Bill”), which expanded federal law to cover a wider range of commercial hemp activity and gave the US Department of Agriculture (“USDA”) regulatory authority over the cultivation of hemp. With regards to the interstate transfer of hemp, section 10114 (b) of the 2018 Farm Bill states the following:
TRANSPORTATION OF HEMP AND HEMP PRODUCTS.—No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G of the Agricultural Marketing Act of 1946 (as added by section 10113) through the State or the territory of the Indian Tribe, as applicable.
In plain english, this means that states and Tribes can’t prohibit hemp or hemp products from passing through their state or territory if the hemp or hemp products were produced in compliance with Section 10113 of the 2018 Farm Bill. On it’s face this provision may look like hemp businesses no longer need to fear state-level enforcement against hemp or hemp products entered into interstate commerce. However, that is not necessarily the case and businesses who hang their hat on section 10114 do so at their own risk.
The problem with relying on section 10114 is that it appears to be contingent on Section 10113 of the 2018 Farm Bill. Section 10113 of the 2018 Farm Bill covers hemp production (which you can read about here). In summary, Section 10113 indicates that the USDA will oversee hemp production at the federal level by approving of state and Tribal plans covering the cultivation of hemp. States and Tribes will submit plans to the USDA for approval. Section 297C of the 2018 Farm Bill requires that the USDA establish its own plan and and issue licenses to cover the cultivation of hemp in states or Tribal territories where that state or Tribe’s plan for hemp cultivation has not been approved.
The USDA has not yet approved of any state or Tribes plan. It also has not created its own plan under Section 297C. That means that any hemp legally cultivated in the US was done so under Section 7606 of the 2014 Farm Bill. The 2014 Farm Bill allows states to implement agricultural pilot programs to research the cultivation of industrial hemp. State departments of agriculture can issue licenses for the cultivation of hemp. Some states have interpreted this to cover commercial activity. However, the 2014 Farm Bill provides no explicit protection for the interstate transfer of industrial hemp.
Returning to the 2018 Farm Bill, Section 7605 (b) of the 2018 Farm Bill extends Section 7606 of the 2014 Farm Bill for one year after the USDA establishes a plan under 297C. That provision is not contained within Section 10113. Section 10114’s prohibition on interference with the interstate transfer of hemp does not reference the 2014 Farm Bill. Therefore, Section 10114’s protection against interference with the interstate shipment of hemp or hemp products may not currently apply to hemp or hemp products currently in transit because they cannot yet be cultivated “in accordance with” Section 10113.
On the other hand, the intent of Congress seems to indicate that hemp and hemp products should be commercially distributed throughout the country. The 2018 Farm Bill changes the Controlled Substance Act (“CSA”) by explicitly removing “hemp” from the definition of marijuana. It also defines hemp as an agricultural commodity that is eligible for federal crop insurance. Additionally, it allows the USDA to license the cultivation of hemp in a state or Tribal territory that does not have an approved plan. Additionally, an administrative law judge has held that products containing CBD derived from 2014 Farm Bill industrial hemp are allowed to be distributed in the US mail. Also, a federal judge in West Virginia recently lifted a restraining order that limited a hemp cultivator from transporting processed hemp to a Pennsylvania lab that would process it into CBD isolate, because “the Court has become increasingly doubtful of the Government’s case on the merits.” This is due, at least in part, to the 2018 Farm Bill’s removal of hemp from the CSA. (A copy of the order is provided by Hemp Industry Daily, which also wrote about the decision here.)
We’ll likely get additional insight into the question of whether companies can ship 2014 Farm Bill hemp across state lines as there is currently a lawsuit pending between Big Sky Scientific, LLC (“Big Sky”) and the Idaho State Police. I’ll provide some additional insight on this case later this week.
For now, the bottom line is that hemp businesses must still carefully consider their shipping plans for hemp and hemp products. Blind reliance on Section 10114 to protect against local law enforcement is ill advised. Until the 2018 Farm Bill is fully implemented by the USDA, states may seize hemp shipments. Hemp businesses should avoid transporting their products through states that show hostility towards hemp. If you have questions about other ways to mitigate the risk of state level enforcement, please contact our regulatory attorneys.
The City of Los Angeles has long endured questions surrounding its elusive Phase 3 licensing process for cannabis businesses. The City completed Phase 1 and 2 licensing without too much crazy change, but Phase 3 is very likely going to be a different story, and will affect a lot of stakeholders for better or worse.
On February 8, 2019, the Department of Cannabis Regulation (“DCR“) wrote to the Rules, Elections, and Intergovernmental Relations Committee (“Committee”), proposing total reform for Phase 3 licensing in the face of multiple regulatory issues caused by undue concentration, the promotion of social equity businesses, and the overall economic interests of various stakeholders who are waiting for Phase 3 to open. DCR wrote to the Committee that it wants to make certain strategic amendments to the licensing process in Phase 3 that “would make our licensing process more efficient, transparent, and, most important, equitable.”
DCR’s obvious concern in its letter to Committee is that Phase 3 successfully hoist up social equity applicants and be as efficient as possible at the same time. In particular, the letter states that:
DCR recognizes that the existing licensing process provided in the Cannabis Procedures ordinance and regulations will take significant time to implement and that many Phase 3 storefront retail applicants will have to make significant investments in the application process before knowing for certain whether they might be denied because another applicant within 700 feet of them gets licensed first or the Community Plan in which they are located reaches undue concentration before they obtain a license.
Based on its letter, DCR looks to be seeking to award those stakeholders that are patiently sitting on eligible commercial cannabis properties (bleeding rent and other costs while waiting for Phase 3 to commence) through swift and efficient licensing. The bottom line is that the current proposed licensing process potentially harms everyone, including social equity applicants who have either already made the investment in the unsettled program or that don’t have the resources to invest ahead of time to their detriment (since the City hasn’t yet established the assistance programs necessary to aid social equity applicants, but is finalizing a draft RFP “to identify vendors who can provide a suite of business and licensing support to Tier 1 and Tier 2 social equity applicants”).
Combine the foregoing with the fact the City “expects approximately 200 storefront retail licenses will be available through Phase 3 before undue concentration is reached in most or all of the City’s Community Plans,” and DCR has taken the position that Phase 3 licensing procedures must change, and fast. DCR therefore proposes in its letter that Phase 3 licensing for the remaining estimated 200 retail licenses (probably all of which will go only to social equity applicants per existing laws) take place as follows:
First come, first serve for verified Tier 1 and Tier 2 applicants (that also have locations ready to go) for the first 100 licenses OR a lottery system to issue the first 100 licenses (with various barriers to entry, including having a location on lock). And for the second 100 licenses, the DCR wants a merit-based system with various qualification criteria.
There were other pretty important recommendations made in the letter to Committee regarding other amendments to current LA cannabis licensing laws, but the change-up on the Phase 3 licensing process is, by far, the most impactful.
Even though the DCR has studied the foregoing issues for months, the City Council was not yet ready to act on the DCR’s recommendations. On Friday, February 15, after a hearing with Committee and then a hearing with Council regarding the DCR’s recommendations, Council instructed DCR “to report back at the next Rules, Elections, and Intergovernmental Relations Committee meeting with a further analysis of the recommendations for Phase 3 Storefront Retail processing and Non-storefront Retail processing, including consideration of a social equity applicant registry platform similar to the City of San Francisco” and to “suspend any Phase 3 processing until the enhanced Social Equity analysis for the San Fernando Valley, Boyle Heights, and Downtown Los Angeles is completed.”
What does all of this mean? Basically, we’re back to square 1 in L.A., and original Phase 3 processing remains in place despite the DCR’s attempt at an overhaul. Without question though, Phase 3 licensing should change. The current timing alone on issuance of Phase 3 licenses will bankrupt or scare off the vast majority of people. First come, first serve likely appeals to most people, but it’s just as imperfect and arbitrary as a lottery system. So long as the right barriers to entry and restrictions are implemented, either system can work to effectuate quick and efficient licensing (just ask Washington State whose biggest problem with a lotto system was actually movement of winners after-the-fact).
Lotto likely edges out first come, first serve if we’re talking maximum efficiency, because it eliminates the timing pressure and order of applicants at the outset when they file with DCR. With either proposal though, ambiguities would hinge around what a “complete” application really means and/or the ability of people to game the system by paying off family members (or whomever) to act as straw applicants to increase their chances of success. Merit-based also poses its own challenges regarding what qualities should net you the most points, especially when dealing with social equity applicants who remain the most popular form of licensing capital in L.A. and therefore the most vulnerable when it comes to scams and hawkish investor behavior.
Interestingly enough at Friday’s hearing, Council did instruct the City Attorney to draft an ordinance (with input from DCR) to, among other things:
So, we know change is coming to Phase 3 licensing albeit at a glacial pace. For now though, it appears that the DCR will really have to persuade Council on adopting its Phase 3 recommendations for the licensing process, or all Phase 3 stakeholders will invariably suffer licensing by a thousand cuts.
As more and more states legalize cannabis in some form or another, and as more and more Senators and Representatives introduce legislation that would relax the federal pot laws, it’s important not to lose sight of reality: cannabis is still a Schedule I drug and is unlawful under federal law. That said, in the years since cannabis has become legal in various states, the federal government has taken an increasingly less active role in enforcement in those states. Sure, the feds could start ramping up enforcement even against state-lawful operators, but it doesn’t seem like that’s going to happen any time soon.
To understand the future of federal pot enforcement, we need to look back a few years. Most readers of this blog are familiar with the Cole Memo, an Obama-era Department of Justice policy memo which essentially says that the federal government wouldn’t prioritize marijuana enforcement where operators follow state laws and would instead follow focused enforcement priorities. Since President Trump took office, Attorney General Jeff Sessions rescinded the Cole Memo but didn’t go full-enforcement, instead leaving it up to more local federal authorities to decide whether to enforce. But Sessions was removed, and the newly appointed William Barr has indicated that he probably isn’t going to spend federal resources enforcing the Controlled Substances Act against state-lawful operators.
What is clear about future enforcement is that until the Controlled Substances Act (“CSA”) is amended to de-schedule cannabis, the feds will still be targeting cannabis businesses that don’t follow state laws. Just last month, an owner of an unlicensed cannabis company in Washington State pleaded guilty to crimes in federal court stemming from the operation of a dispensary without a state license. This plea followed an investigation, which obviously means that federal offices are investigating what they view to be criminal activities. We wouldn’t expect this to stop anytime soon, and so unlicensed operators (either in state which still have prohibition or in states with licensing regimes) will need to worry about federal—and state—enforcement.
It’s less clear how the federal government will handle state-lawful operators who violate state law—in other words, will the federal government allow the states to deal with violations of state law, or will they step in and interfere? Because of the CSA, any sale of cannabis is federally prohibited, so state-licensed cannabis businesses that make illegal sales risk both federal and state enforcement. It seems, however, that unless there is serious or egregious misconduct by a state-licensed operator, the federal government will keep deferring to the states.
One agency that those rules may not apply so much to is the federal Food & Drug Administration (“FDA”). After President Trump signed the Agriculture Improvement Act of 2018 (or “Farm Bill”), the FDA (the same day) released a memo saying it retains jurisdiction over hemp and other cannabis products in foods. Pretty much immediately thereafter, the FDA began enforcing its position. It’s certainly plausible that the FDA could step in if manufactured cannabis products (especially edibles) contain what the FDA views as prohibited hemp-derived CBD, or if manufactured cannabis products make false health claims (we already know that the FDA has in the past sent a number of warning letters to state operators).
The future of federal enforcement isn’t completely hashed out. Until the CSA is amended, however, it’s not going to end. Stay tuned to the Canna Law Blog for more updates.
As ardent followers of this blog are well aware, one of my favorite pastimes is keeping tabs on who is suing whom in the cannabis industry for trademark infringement. These lawsuits serve as great examples for my clients of what NOT to do when choosing a brand for their company. The last couple of years have provided a couple of big-name cannabis trademark lawsuits, including the Gorilla Glue dispute and the Tapatio Foods lawsuit.
This time, it’s the United Parcel Service (UPS) suing a group of cannabis delivery companies for trademark infringement. The lawsuit was filed in the U.S. District Court for the Central District of California on February 13, 2019 and alleges trademark infringement against United Pot Smokers, UPS420, and THCPlant, all of which market and sell cannabis products. These companies, according to the complaint, offer delivery and logistics services via the websites www.upsgreen.com and www.ups420.com.
In its complaint, UPS accuses the defendants of infringing its family of trademarks, which includes its famous shield logo, and states that the defendants “intended to capitalize off UPS’s extensive goodwill and reputation.” UPS allegedly sent multiple cease and desist letters to the defendants, which were unwisely ignored.
The lawsuit includes claims for trademark infringement, trademark dilution, false designation of origin, deceptive advertising, and unfair business practices, and includes a request for damages, an end to defendants’ infringement, and control over defendants’ websites.
We’ve made this point many times before, but it warrants repeating: Cannabis companies are not immune from trademark infringement claims, and must choose brands that do not infringe the rights of third parties, including third parties outside of the cannabis industry. For ease of reference, here are several past blog posts relating to trademark infringement, and how to choose a brand that won’t get you sued:
And here are the factors a court will consider in assessing whether one mark is likely to be confused with another, proving trademark infringement (AMF Inc. v. Sleekcraft Boats):
The two most basic factors I recommend our cannabis clients evaluate before they select a brand are 1) is your mark similar to or the same as an existing mark, and 2) are you intentionally “riffing” off an existing brand? Remember that parody is not a defense to trademark infringement that will typically fly in a commercial setting. When you choose a mark as a “parody” of an existing brand, chances are you’re actually infringing a registered trademark, and possibly diluting a famous mark, which is exactly what is alleged here, in the UPS case. And the fact that you knew of the senior trademark would absolutely play against you in litigation, as your infringement would be deemed willful.
These two factors are only the beginning of the analysis. There are instances where similar, or even the same brand names can coexist if the goods those brands are used on are completely different and marketed through separate channels to disparate groups of consumers. The analysis for likelihood of confusion can be quite complex.
Before adopting a new brand name, we recommend consulting with an experienced trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations.
We’ve been writing a lot on this blog about the regulation and sale of cannabidiol (“CBD”) products at the state and federal levels. The United States is not the only international actor, however, that is concerned with regulating the sale of CBD products, including CBD-infused foods. The European Food Safety Authority (“EFSA”), the European equivalent of the U.S. Food and Drug Administration (“FDA”), recently changed guidance on cannabinoids, declaring that all new food products infused with the plant or its derivatives should receive a pre-market approval under the European Union “novel food” regulation.
Regulation 2015/2283, which is the latest food regulation adopted by the European Parliament and the European Union (“EU”), defines “novel food” as “food that was not used for human consumption to a significant degree within the Union before 15 May 1997, irrespective of the dates of accession of the Member States to the Union.”
The EU Novel Food Catalogue entry for CBD, which contains a non-exhaustive list of ingredients that inform member nations on whether a product will need an authorization under the Novel Food Regulation, now refers to a broader class of “cannabinoids” and provides that:
Without prejudice to the information provided in the novel food catalogue for the entry relating to Cannabis sativa L., extracts of Cannabis sativa L. and derived products containing cannabinoids are considered novel foods as a history of consumption has not been demonstrated. This applies to both the extracts themselves and any products to which they are added as an ingredient (such as hemp seed oil). This also applies to extracts of other plants containing cannabinoids. Synthetically obtained cannabinoids are considered as novel.
This new EFSA guidance drastically expands the categories of cannabinoids that would require pre-market approval–note, however, that hemp seeds, flour and seed oil remain permitted–and it suggests that CBD-infused food could be off the European market for some time. Generally, it takes 3 years for an ingredient to gain novel food status.
A handful of European countries such as Spain, Italy, and Austria have already taken enforcement actions against CBD products on the basis of being “novel foods.” As such, it seems likely that these EU member nations will adopt the new EFSA guidance and continue their efforts in regulating CBD-infused foods as “new foods.”
The EU or its affiliates are expected to provide further guidance on this issue; however, due to administrative procedures and time required for adequate data collection, such publication won’t likely be released until 2020.
This new EFSA guidance will further complicate U.S. CBD companies’ ability to export their products overseas. In addition to potential international law violations, CBD companies run the risk of FDA and Customs and Border Protection (“Customs”) enforcement actions. The FDA has yet to release guidelines on shipping CBD products to other countries; however, the main FDA inquiry for the purpose of exporting CBD would likely be whether the CBD products were adulterated or mislabeled due to the fact that they were not manufactured or labeled in compliance with the target country’s law. Another risk in exporting CBD products is that Customs agents may not have a sophisticated understanding of the difference between hemp and marijuana, as demonstrated in recent state enforcement actions. If such confusion were to occur, Customs would likely seize the CBD shipment and potentially involve the Drug and Enforcement Administration.
In light of those regulatory changes, CBD companies should remain informed on domestic and international shipping laws and consult with experienced lawyers to assess the risks of exporting their products overseas.
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