California Cannabis Deliveries May Soon Change, Again

For a few moments there, it seemed like the California cannabis delivery companies could deliver anywhere in the state—even to cities that said no. It now looks like that may not be allowed.

In January 2019, the California Bureau of Cannabis Control (“BCC”)—which regulates cannabis delivery companies—issued Rule 5416(d), which says that “A delivery employee may deliver to any jurisdiction within the State of California provided that such delivery is conducted in compliance with all delivery provisions of this division.” In plain English, this rule clearly allows licensed retailers to deliver cannabis to any jurisdiction in the state—even ones that didn’t allow it. This rule immediately drew the ire of cities across the state.

I’ve been writing about this rule since it was first proposed back in October 2018. In a post just after the rule was passed, I wrote that we expected litigation to ensue over this rule. Many—if not most—of the cities in the state either ban or heavily restrict cannabis operators, and many of them vocally opposed this rule in the rulemaking period. In spite of their opposition, the BCC still passed the rule. This is probably the best example of the BCC siding with the industry over municipalities, but was destined to cause a stir.

As of mid-February, it looks like at least one city was poised to sue the BCC. The City of Sonora, one of many anti-delivery cities, announced that it would file a lawsuit. If that lawsuit proceeds, however, it will be a while before there’s a final resolution unless there is some early injunction motion to hold off implementation of the rule, as litigation can take years to be resolved.

There may be another, faster way in which deliveries will be banned—state legislation. California Assembly Bill 1530 (“AB-1530”) would amend existing state law to state: “A local jurisdiction may adopt an ordinance or resolution pursuant to Section 26200 that permits, restricts, limits, or bans the delivery of cannabis or cannabis products to a location within its jurisdictional boundaries.”

If AB-1530 is passed, it will put an end to the issue. The rule would be a major disruption for cannabis delivery companies who invested heavily in a multi-city delivery business model. Some delivery licensees are permitted in small cities surrounded by numerous cities that don’t allow delivery, and if the new law is passed, it could spell major trouble for these operators.

The bill is still in its relative infancy and there may still be public hearings on it in the future. To be clear, just because the bill is up for consideration doesn’t mean it’s going to be passed. So it’s important for anyone in support of statewide delivery to oppose the legislation.

source https://www.cannalawblog.com/california-cannabis-deliveries-may-soon-change-again/

FDA Suggests Congress Holds the Key to Legalizing CBD-Infused Foods

During a recent interview with the Brookings Institution, Scott Gottlieb, the departing head of the Food and Drug Administration (“FDA”), explained it would take several years for the agency to come up with rules that would legalize the use of hemp-derived cannabidiol (Hemp-CBD) in food products, unless Congress steps in.

Gottlieb acknowledged the strong interest among CBD stakeholders and lawmakers in developing a regulatory framework through which Hemp-CBD could be infused to food. The problem, Gottlieb explained, is that CBD has been approved as a drug (i.e., Epidiolex) and was not previously used in the food supply.

The FDA Commissioner further argued that putting a drug that wasn’t previously used in food into the food supply would require the agency to go through a formal rulemaking process.

As we previously discussed, thus far, the FDA has only adopted informal, non-binding guidelines as its primary method of policy making for CBD as they afford the agency more flexibility. Adopting regulations through the formal rulemaking process would take two to three years, possibly longer, given the controversial nature of CBD as a compound closely associated with marijuana and that is used as a drug ingredient. Gottlieb suggested that a more efficient way of clarifying the situation would be for Congress to issue additional legislation that expressly allow the use of Hemp-CBD in foods. While the congressional intend behind the 2018 Farm Bill was to legalize the production of Hemp-CBD, lawmakers failed to define the meaning of “production,” thus, leaving open for interpretation whether the sale of Hemp-CBD and its use in food product was legal.

Similarly to a statement made in front of a House Appropriations subcommittee last month, the Commissioner suggested that the approval of Hemp-CBD infused food may turn on whether the CBD infused to food is an isolate or is used in its naturally-occurring form (see here for more background information on this distinction).

I think you need to come up with a framework that defines concentration levels, where you would create some kind of cut off, and that would be up to the agency to do….CBD in high concentrations isn’t risk-free, and in low concentration, it probably is safe—I don’t want to make a declaration here. It’s also a question of whether it’s providing any kind of therapeutic benefit in those concentrations, although people seem to believe that it has some value.”

During the interview, the Commissioner also shared that the Drug Enforcement Administration (“DEA”) would have to “formally deschedule” Hemp-CBD before moving forward with regulatory changes, even though the 2018 Farm Bill removed Hemp-CBD from the Controlled Substance Act and shifted its regulation from the Department of Justice (which oversees the DEA) to the U.S. Department of Agriculture.

I think the prevailing view is that the plain language of the statute [the Farm Bill] intended for that, but I’m not sure that DEA has done that yet. But that’s another step that would have to take place. DEA would have to formally de-schedule CBD derived from hemp.”

For now, Gootlieb explained that the agency is creating a “high-level work group” tasked with identifying “some potential legislative pathways to create a framework for allowing CBD into the food supply.” The work group will be formally announced in the next few days and will hold a public meeting to solicit comments from Hemp-CBD stakeholders. According to the Commissioner, the work group should release recommendations by the summer.

source https://www.cannalawblog.com/fda-suggests-congress-holds-the-key-to-legalizing-cbd-infused-foods/

Oregon Cannabis Litigation: OLCC Looking for Willing Partners

Cannabis Agency Litigation: Free Webinar April 23

Those who have been running businesses in the cannabis industry for years, as well as those that are working hard to become licensed, know it is not a simple task to stay in compliance with state and local regulations. The complexity of such regulations can cause businesses to inadvertently make mistakes, which can lead to really serious violations that at times end up in monetary penalties, or even worse–license revocation.

To avoid losing your business’ most valuable asset, learn how to get ahead of the compliance curve. Our cannabis lawyers have been guiding clients through agency litigation and enforcement for a long time, and we are here to help. To learn more about how to avoid the time, effort, and cost of agency litigation, and how to navigate litigation against the state when needed, please attend our free webinar entitled “It Could Happen to You: Cannabis Agency Litigation and Enforcement” at noon Pacific on April 23, 2019. Featuring Harris Bricken lawyers Daniel Shortt (Washington), Jihee Ahn (Oregon), and Griffen Thorne (California), this webinar will provide an overview of agency enforcement and litigation against cannabis companies.

Drawing from their experiences across all west coast states, the panelists will discuss:

• Inter-agency appeals
• Administrative litigation and the Administrative Procedure Act
• State enforcement priorities and communicating with state authorities in the event of a violation
• State court litigation against agencies
• Enforcement actions and written and verbal notices of violation against licensed operators and unlicensed companies and how to mitigate early and often

Moderated by Vince Sliwoski, the panelists will address audience questions throughout the presentation. To register for the webinar, please go here. Please feel free to write to firm@harrisbricken.com with any questions.

We hope you can join us!

source https://www.cannalawblog.com/cannabis-agency-litigation-free-webinar-april-23/

Going Postal: USPS Provides Guidance on Mailing Hemp-CBD

Recently the United States Post Office (“USPS”) issued an advisory on “Acceptance Criteria for Cannabidiol (CBD) Oil and Products Containing CBD.” Those criteria are as follows:

1. A signed self certification statement, subject to the False Statements Act (18 U.S.C. § 1001). Statements must be printed on the mailer’s own letterhead, must be signed by the mailer, and must include the text “I certify that all information furnished in this letter and supporting documents are accurate, truthful, and complete. I understand that anyone who furnishes false or misleading information or omits information relating to this certification may be subject to criminal and/or civil penalties, including fines and imprisonment.”

This first prong is straight forward. The mailer must include a sworn statement that all the related documents are accurate and truthful and include the above quote indicating an understanding of the penalties that come along with lying to a federal agency.

2. The industrial hemp producer possesses a license issued by the Department of Agriculture, for the state where the Post Office/acceptance unit is located, which includes documentation identifying the producer by name and showing the mailer is authorized by the registered producer to market products manufactured by that producer.

The second prong is a little more complicated. It requires that the hemp producer hold a license from the state Department of Agriculture where the Post Office or acceptance unit is located. This statement fails to consider cases where hemp or hemp products are shipped from a state that is different than the state of cultivation. Consider an online hemp retailer operating out of New York. New York has an industrial hemp program but is not a major hemp growing state so our retailer sources products that were produced and processed in Colorado. The retailer has done her due diligence and has copies of each farmer’s license to cultivate hemp. However, based on the fact that she uses hemp cultivated in another state, it does not appear that she could comply with this prong. Her best option is likely to include copies of the Colorado licenses with her shipments.

The second prong also requires documentation showing that the mailer is authorized by the register producer to “market products.” A letter from the producer could likely satisfy this requirement but it may also prove challenging for retailers who may not have a direct relationship with the producers who are growing hemp that is used in Hemp-CBD products.

3. The industrial hemp, or products produced from industrial hemp, contains a delta-9 THC concentration of not more than 0.3% on a dry weight basis.

The third prong requires that the hemp or hemp product has less than 0.3% THC concentration. This means that both raw hemp and products derived from hemp must have a THC concentration of less than 0.3%. Usually, these test results are contained in a Certificate of Analysis (“COA”). That means that each shipment of hemp or hemp products should have the corresponding test results for that lot or batch.

Marijuana Moment first reported on the new guidance from USPS. We’ve written about how USPS lost an administrative appeal over the mailability of shipping Hemp-CBD before so it’s not as if this new guidance means that the USPS will now allow CBD to be mailed. I read the guidance to provide insight as to what the USPS is looking for when it finds a shipment of hemp or Hemp-CBD. This guidance is also only temporary and specifically states that it may be altered or rescinded as other federal agencies figure out exactly how to regulate hemp. What this letter does not do is prevent state-level law enforcement from seizing hemp shipments, as was recently the case in Idaho. State agencies are not bound by USPS memos.

For now, it’s best for industry stakeholders to try their best to comply with this guidance by providing the sworn statement, a copy of any licenses associated with hemp being mailed, and a copy of any COAs associated with the hemp or hemp products.

source https://www.cannalawblog.com/going-postal-usps-provides-guidance-on-mailing-hemp-cbd/

The Battle Over the HARVEST Trademark for Cannabis Retail

I’ve written extensively about trademark litigation matters involving cannabis brands, but up until now, the trend in these lawsuits has been well-known non-cannabis companies suing cannabis companies. To read more about these cases, see the following posts:

• UPS Sues Multiple Cannabis Delivery Companies for Trademark Infringement
• What NOT to do with your Cannabis Brand: The Gorilla Glue Trademark Infringement Dispute
• Yet ANOTHER Cannabis Trademark Infringement Case: Tapatio Foods Files Suit

But a new type of cannabis trademark litigation is starting to crop up, with cannabis companies suing each other for trademark infringement. This type of litigation will be extremely illuminating because until now, many theories upon which cannabis businesses have relied to acquire trademark protection have not been formally tested. We do not yet know how courts will treat the purported trademark rights owned by cannabis businesses, but the ongoing litigation between Harvest Dispensaries Cultivation & Production Facilities, LLC, based out of Arizona (I’ll refer to them as “Harvest of Arizona”), and Harvest on Geary, Inc. / Harvest Off Mission, Inc., based here in San Francisco (I’ll refer to them as “Harvest of California”), could provide us with some guiding case law.

The lawsuit has multiple facets, but to summarize, in 2017 Harvest of Arizona sued Harvest of California in Arizona alleging that Harvest of California stole the HARVEST name and logo. This lawsuit alleged trademark infringement, intentional interference with contract and with business relations, conversion, unfair competition and misappropriation of trade secrets, fraud, violation of Arizona’s Racketeering Act, violation of Arizona’s Consumer Fraud Act and unjust enrichment. In its complaint, Harvest of Arizona, which was established in 2011 and began using the HARVEST mark in 2012, claimed to own retail dispensaries and cultivation/production facilities in Arizona, Nevada, Illinois, Maryland, California, Massachusetts, Michigan, and Florida. It had no presence in California.

Fast forward to 2018, when Harvest of Arizona announced its plans to expand into California. At this point, Harvest of California, which owns California state trademarks for the HARVEST name, sued Harvest of Arizona in California Superior Court for trademark infringement and unfair competition in California. Harvest of California notes in its complaint that this is a simple case of trademark infringement but that because the parties are in the cannabis industry, only state law applies. Federal trademark law is not applicable.

These cases are illustrative of just how complex the issue of trademark protection in the cannabis industry really is. The fact that cannabis is regulated on a state-by-state basis, with operators legally unable to place their cannabis products into the stream of interstate commerce, creates what I like to think of as “silos” of trademark protection. Cannabis businesses can only obtain trademark protection for their cannabis goods and services in the states in which they legally operate. So, in theory, it is possible for a company to have lawful rights to a trademark in one state, but infringe on another party’s mark by moving their brand into another state.

And that could very well turn out to be the case for the two Harvest entities. Although Harvest of Arizona allegedly used the HARVEST mark first, they only used the mark in Arizona, and perhaps a couple of other states, but not California. Harvest of California claims to have made first use of the HARVEST mark for cannabis retail services in California, and priority for trademark rights depends on a party’s date of first use in the state in which they are claiming those rights.

It is also important to accurately state your date of first use on your trademark filing, so as not to raise allegations that your trademark was obtained improperly. It’s critical to understand your state’s trademark law as well as the requirements for trademark protection so that your state trademark registration is actually worth something. Typically, state trademark applications do not undergo a great deal of scrutiny and it is common for trademark registrations to issue improperly. Those registrations will not stand up in litigation.

For some additional reading on the topic of how to choose an enforceable brand that won’t get you sued, see the following:

• Cannabis Branding: Choosing a Mark that Won’t Get You Sued
• Another Cannabis Trademark Application Bites the Dust
• Organic Marijuana: Not Exactly
• Cannabis Trademarks: “Deadwood” Policies Could Implicate Cannabis Registrations
• Cannabis Trademarks and Legal Use in Commerce

source https://www.cannalawblog.com/the-battle-over-the-harvest-trademark-for-cannabis-retail/

Are CBD Food and Drinks Really Not Legal? Really?

We advise some of the largest companies in the U.S. on hemp-derived cannabidiol (hemp-CBD) products. Those companies are filled with lawyers, and the lawyers have many specializations. Most of them, however, have little or no familiarity with hemp-CBD, and that is why they reach out and hire us. In the preliminary emails and phone calls, a very common question those lawyers ask is this: “The FDA has stated that it is ‘not legal’ to introduce THC or CBD products into the marketplace. What are we are missing?” It’s a great question, of course. Our typical explanation is along the lines below.

The FDA has taken a “not legal” position on hemp-CBD in consumables through its oft-cited FAQ and elsewhere. This FDA position is generally understood as “informal guidance” or a “statement of policy”, or sometimes a “nonlegislative rule” or an “interpretive rule”, which by any name does not have the force of law. FDA commonly issues informal guidance as its primary method of policy-making, which means that the agency does not undertake the Administrative Procedure Act (APA) process of “notice and comment” rulemaking in many cases. This has been FDA custom for a long time.

The recent legalization of industrial hemp and sudden proliferation of related consumable products is the classic example of FDA choosing the “guidance” route over binding rulemaking. The underpinning administrative philosophy here is that nonbinding, informal guidance allows the agency to efficiently deploy resources, while maintaining administrative flexibility. The latter is going to be key with CBD, given the intense public interest in that decidedly safe compound.

Someone could (and might) sue FDA if FDA were to take an enforcement action based solely on the fact that a food or beverage product containing Farm Bill hemp-CBD were sold in commerce. Would they win? I’m guessing not. But the question for the courts would be what level of deference to afford FDA, and the law is somewhat unclear on that today. Some commentators believe that Congress needs to clarify the issue, arising from a line of cases known as Chevron and Mead. But the fact remains that FDA hasn’t taken any enforcement against these products since January 4 to our knowledge, and that very limited enforcement was taken under unclear circumstances. We believe that FDA will likely continue to act where people make health claims that violate the FD&C Act. However, that’s a universal issue and not specific to hemp-CBD.

Many people are taking the considered position that hemp-derived CBD products do not violate the FD&C Act. Others are just moving ahead in the marketplace without thinking hard at all, given the proliferation of products and seemingly relaxed administrative regime. Interestingly, the position that these products are lawful under the FD&C Act was FDA’s original position as well. The agency went even further last fall, in fact, with the stated position that CBD should not be controlled in any sense. Upon running that by DEA, however, the latter agency advised that removing controls from CBD would violate international treaties to which the U.S. in a signatory. We summarized that saga here.

FDA is currently slated to hold hearings next month on CBD in food and beverage products. This was scheduled after letters from congresspeople, on the agency understanding that “Congress wants there to be a pathway for CBD available.” That seems to be the prevailing sentiment among industry, consumers, and almost everyone else — including FDA.

So what does all of this mean? It means that from its current, informal position, FDA appears to be moving toward solutions for hemp-CBD in the marketplace, rather than in the opposite direction (via protracted APA rulemaking to formally limit CBD products). This development, along with the apparent regime of FDA nonenforcement, has emboldened many businesses–including some very large companies–to move in now and gain a first mover advantage. As a law firm that has worked in and around cannabis for almost a decade, we love it. And we are definitely cheering for them.

source https://www.cannalawblog.com/are-cbd-food-and-drinks-really-not-legal-really/

California Just Got Closer to Allowing CBD in Foods and Licensed Cannabis Facilities

Far Beyond the Spanish Cannabis Scene: Spannabis 2019

It’s amazing to experience such an impressive international gathering like Spannabis taking place in a country where, regardless of the massive cannabis culture and high social tolerance, legislation on the matter is way behind, and keeps criminalizing and punishing anything that goes beyond private consumption and self-growing.

Culture, industry, business, mainstream and specialists, celebrities, growers, breeders and users from around the world met last weekend in and around Spannabis 2019. Spannabis is one of the biggest cannabis gatherings in Europe: more than 25.000 attendees and 300 exhibitors, two-day conference panels, a cannabis contest and a music festival have made Spannabis a reference point in the international calendar of the cannabis scene. Moreover, the recent announcement of its acquisition by High Times, as well as the call for the International Cannabis Business Conference the day before, made Spannabis 2019 quite significant. This degree of success was pretty much unimaginable when the event began 20 years ago. The increasing contexts of regulation worldwide have enhanced the sector, expanding the opportunities for the industry and the social awareness of cannabis itself.

Despite this global context, if we stick strictly to the side of legality, the pharmacy is the only and most privileged sector currently authorized to produce, transport and sell cannabis. In Spain, the position of this industry is a quite an obscure monopoly. Direct questions to Spain’s current government have showed that is almost impossible to determine exactly how many companies are now authorized to grow cannabis for medical use or research. In the meantime, many new businesses view themselves as working partly in a legal grey area. On the CBD side, the EU novel foods regulation and the moratorium over food supplements containing cannabidiol have stopped entrepreneurs’ initiatives and spread fear among retailers that have faced police intervention that took CBD products for human consumption off the shelves. Nevertheless, hundreds of other possibilities are being explored by local and foreign companies accustomed to working in a constantly changing environment, that seek for safe alternatives to keep their business growing and find a good spot in the market.

Mainstream Social Cannabis Clubs born and raised in Spain for the last decade have had an impact on the emergence of new regional regulations aiming to respond to such reality. Regardless, continuous sentences of the Superior and Constitutional Spanish Court since 2015 onwards, have left them with almost no air to continue existing under their current forms. That is getting to a point where, recently this month, while the industry was getting ready for Spannabis, another big threat has been thrown into the Spanish Social Cannabis Clubs scene: a sentence suspending the local ordinance of San Sebastian. It’s certainly only one first case but that can have a very strong influence for other cities in Spain that have had regulated the activity of this entities similarly. That is clearly the case in Barcelona, where more than 300 clubs are running under a local activity regulation and, somehow, authorization. Basically, under this perspective, the recent sentence states that being authorized as a non-profit entity to have a private lounge or a venture where combustion is allowed, shouldn’t be mixed with distribution. Sharing amongst members on a daily organized system that is prepared to enroll new members anytime, does not have to do with the non-criminalized action of using cannabis collectively in private, but with cannabis dealing.

Then, within this context, there are some political parties with clear plans on the table to regulate production, transport and cannabis retail, while others don’t want to hear about getting into a regulation process and still there’s those that simply reject any discussion about it. That last is been the position of the party in power for the last 10 years, and the second one is been the position of the last government we had. A short one of 8 months. Spaniards are called to vote a new central government by the end of April. There’s still a chance for the flowering cannabis industry of this country if the first option gets more seats. Contact our team in Spain to learn more.

source https://www.cannalawblog.com/far-beyond-the-spanish-cannabis-scene-spannabis-2019/

Hemp Stakeholders Share Their Thoughts with the USDA

Last week, the U.S. Department of Agriculture (“USDA”) held a public meeting during which hemp stakeholders shared their opinion on the promulgation of rules to regulate the crop.

Pursuant to the 2018 Farm Bill, which legalized hemp by descheduling the crop under the Controlled Substance Act, the USDA is tasked with overseeing and regulating the production of hemp in the United States. Specifically, the federal agency is to review and approve “plans” submitted by states and Indian tribes that choose to hold primary regulatory authority over hemp. However, before the federal agency may begin reviewing these plans, the agency must formalize rules with which states and Indian tribes plans must comply. As of the date of this memo, only a handful of states and Indian tribes have submitted their plans.

Roughly 50 speakers, including state governments, Indian tribe representatives, and stakeholders in the supply chain of hemp, shared their thoughts during the three-hour long webinar. All expressed concerns regarding testing procedures, interstate transportation of the crop, access to banking, and guidance from the Food and Drug Administration (“FDA”). Here is a summary of what each group had to say:

States 

Several state Departments of Agriculture, including Pennsylvania, Kentucky, and Wisconsin, expressed great concerns regarding testing and access to banking. Ryan Quarles, Commissioner of the Kentucky Department of Agriculture, explained that hemp farmers and companies need access to capital “just like any other farmer or agri-business.” Quarles also called for guidance from the FDA regarding its position on CBD derived from industrial hemp:

If the FDA regulates too hard against CBD, it would really harm small Kentucky family farms … We’ve got to develop rules that allow our farmers an opportunity to continue supporting this crop and benefitting economically from it, especially during a period of depressed farm cash receipts.”

Indian Tribes

Although the USDA expects to release these rules by the 2020 growing season, Indian tribes urged the USDA to do so before the end of the 2019 harvest season. Because Indian tribes are not currently allowed to grow hemp pursuant to the 2014 Farm Bill, which strictly limits hemp cultivation within state borders, pushing the release of the rules until fall would further delay tribes’ access to the market and put them at a financial disadvantage.

Supply Chain Stakeholders

The primary concern shared by stakeholders involved in the supply chain pertained to the likely confusion by state enforcement officials in differentiating hemp from marijuana. Indeed, as reflected in recent events, local enforcement groups have struggled to differentiate the plants as they look and smell alike. This issue partially stems from the technologically inadequate field kits currently available, which only detect whether THC is present, regardless of its concentration. Such confusion, industry players held, will continue to lead to unnecessary delays and mistaken arrests.

This public meeting was the first step toward the USDA issuing a proposed regulation in the implementation of the 2018 Farm Bill.  Next month, the FDA will hold a similar public meeting to hear directly from stakeholders regarding the regulation of CBD-infused food and dietary supplements. We will summarize the meeting after it occurs. Stay tuned!

source https://www.cannalawblog.com/hemp-stakeholders-share-their-thoughts-with-the-usda/

Oregon Cannabis Litigation: What’s Discovery Got to Do With It?

Cannabis Companies, Public Markets and Supervoting Shares

Recently, the concept of “supervoting shares” in U.S. public companies has surfaced again in the news. Supervoting shares are created where founders wish to dilute themselves in an economic sense (in exchange for transformative capital), but retain outsized control in management and governance. This is different than your typical “class A and B shares” setup, where the former class of stock features robust voting rights, and the latter claims marginal or no voting rights. In a supervoting universe, a select and very small class of individuals can throttle all other decisionmakers.

Over the years, we have structured many cannabis companies where governance rights are out of sync with ownership (both LLCs and corps). Some of these companies have expansive roles for directors and officers, some have strong and weak equities classes, and some have a combination of the two. State laws regulating ownership and control items always must be taken into account, but the bottom line is that voting rights and economic rights are two very different things in cannabis businesses, just like anywhere else. And there are a million ways to dice it up.

From a public markets perspective, the concern with supervoting shares is that owners are inappropriately insulated from market pressures. For example, when Facebook users were outraged to learn about that company’s data malfeasance, Mark Zuckerberg never faced any real danger of ouster: his controlling position forecloses that possibility. From an investor advocacy perspective, the concern with supervoting shares is similar: owners are inappropriately insulated from stakeholder influence. In the case of Uber, Travis Kalanick wielded supervoting shares to hang on to board seats during the company’s 2017 public relations crisis, despite the fact that many investors wanted him gone. Ultimately, Lyft and other competitors benefited.

People who launch companies tend to choose the supervoting structure for the simple reason of job security. This is not necessarily a myopic or self-seeking view: without adequate security, a CEO may be far less likely to invest in crucial long-term planning– especially initiatives that hold great promise at the expense of near- and mid-term losses. Said another way: if a CEO is lurching ahead from quarter to quarter to meet near-term performance metrics, long-term company prospects may suffer and innovative ideas may never see the light of day.

In the next decade, we are going to see a steady stream of U.S. cannabis companies go public. Assuming state-level ownership and control restrictions become immaterial, it will be interesting to see if those company founders try to follow Silicon Valley’s lead, with CEOs retaining outsized voting power and board control through supervoting shares. Assuming the capital lines up behind those companies, it seems like a likely outcome.

source https://www.cannalawblog.com/cannabis-companies-public-markets-and-supervoting-shares/

California Hemp Cultivation: It’s Complicated

Our California hemp lawyers regularly get asked about the laws and regulations about growing hemp in California, manufacturing hemp products, and shipping those products around the country. I’ve written about the various hemp laws in California and how confusing they are previously (see here and here). Those posts, however, were more geared towards the manufacture and sale of hemp-derived cannabidiol (“Hemp CBD”) products than the actual cultivation of hemp, which is becoming an increasingly important topic in the hemp industry in the wake of the federal Agricultural Improvement Act of 2018 (or “2018 Farm Bill”).

The reality is that California is far behind many other states when it comes to hemp. There are very few laws or regulations here on hemp and Hemp CBD, and most of them take a very restrictive view towards what kinds of products are allowed to be sold. There is actual law on the books for cultivation, but it mostly sat there for a few years and is only now coming to light.

To understand the current state of hemp cultivation in California, we need to look back a few years. In 2013, California passed Senate Bill 566, the California Industrial Hemp Farming Act (or “CIHFA”). The CIHFA amended the Health and Safety Code to redefine “marijuana” to exclude industrial hemp, and to statutorily define industrial hemp. It also added a section to the Food and Agriculture Code that would regulate the production of hemp by established agricultural research institutions and commercial cultivators. This latter section was not immediately effective and was subject to federal law authorizing it.

The next year, the federal Agricultural Act of 2014 (or “2014 Farm Bill”) was passed. As readers of this blog probably know by now, section 7606 of the 2014 Farm Bill allowed the cultivation of hemp for research purposes conducted under an agricultural pilot program or by a research institution, in states where hemp cultivation was legal.

After the 2014 Farm Bill was passed, on June 6, 2014, then-California Attorney General Kamala Harris issued opinion 13-1102, which stated “Federal law authorized, and rendered operative, the relevant portions of the California Industrial Hemp Farming Act on February 7, 2014.” The opinion, however, noted that provisions of the CIHFA were “inoperative to the extent that they apply or pertain to any form of industrial hemp cultivation not authorized by federal law.” In other words, commercial cultivation was still not allowed. In 2016, the Control Regulate and Tax Adult Use Of Marijuana Act (or “Prop. 64”) was passed. Prop. 64 formally amended the above California Food & Agriculture Code sections to make the hemp provisions become effective on January 1, 2017.

In 2018, commercial cultivation began to become a reality with Senate Bill 1409. SB-1409 (which we have written about here, here, and here) allowed for the commercial cultivation of hemp upon registration with the state Department of Food and Agriculture (“CDFA”) and county commissioners, effective January 1, 2019. SB-1409 provides relatively sparse testing and other rules (at least in comparison to the highly regulated cannabis industry). After SB-1409 was passed, the CDFA issued proposed regulations in November 2018 for registering commercial cultivators, which appear to be under review with the California Office of Administrative Law (“OAL”) through April 3, 2019.

Part of the reason for the stalling out of the proposed regulations seems to be the 2018 Farm Bill, which was signed on December 20, 2018. The 2018 Farm Bill completely removed hemp from the Controlled Substances Act and require states to submit “hemp production plans” to the United States Department of Food and Agriculture for its approval. But notably, section 7605(b) of the 2018 Farm Bill extends the 2014 Farm Bill through one year after the USDA’s establishment of certain plans (which will be a while from now).

This is a lot to unpack, but the gist is that hemp cultivated pursuant to state law and provisions of the 2014 Farm Bill (i.e., not purely commercial hemp) will be permitted for now, but purely commercial hemp production may not be permitted until the establishment of USDA-approved plans. It will be interesting to see what happens come April 4 if the OAL approves the regulations that allow for commercial hemp cultivation even in spite of no plan being submitted to the USDA. As of now, it’s pure speculation, and I am not aware of any plan submitted by California to the USDA.

This brings us to today. Currently, California law allows for established research institutions to cultivate hemp if they provide certain information to county agricultural commissioners (subject to any state or local prohibitions, of course). The commercial hemp cultivation regulations haven’t been fully implemented as noted above. There are a few big outstanding questions today.

First, what happens if California allows commercial cultivation before or without submitting a plan to the USDA? We might then be in a world similar to cannabis, where the state has adopted laws and regulations that conflict with federal law. If cannabis is any sign, it may be that the federal government does not prioritize enforcement because California would have its own regulations. But there’s no guarantee as to how the federal government would react and in light of the FDA’s December 20, 2018 statement that hemp-derived CBD isn’t allowed in many commercial products, there may be more aggressive federal enforcement.

Problematically, even if California did allow commercial hemp cultivation, that hemp may get siloed in California or just in the nearby states that don’t block shipments. The 2018 Farm Bill does prevent states from interfering interstate shipment, but its terms seem pretty clear that this only applies to hemp produced pursuant to USDA-approved hemp production plans. Some arguments can be made that 2014 Farm Bill-produced hemp can be transported interstate pursuant to this provision, but the 2014 Farm Bill did not allow commercially grown hemp sales.

Another big question is whether hemp grown by an established agricultural research institute in California could be re-sold commercially. The current hemp law as amended by SB-1409 doesn’t speak to this issue, but these institutions may be concerned about selling hemp and may refuse to do it.

Like I have said many times before, the state of hemp law in California is perplexing. That rule is no different for cultivation than it is for the sale of hemp products. It’s always a good idea to consult with experienced California hemp lawyers when considering hemp cultivation or any other sort of hemp sales. As always, stay tuned to the Canna Law Blog for more California hemp updates.

source https://www.cannalawblog.com/california-hemp-cultivation-its-complicated/

Balancing the Scales? “Big Marijuana” and Social Equity

Three years ago, I did a TedX Talk titled “High Dive: Are We Creating Big Marijuana?” The issues I raised in my talk are still relevant today, especially as more states legalize. Basically the new question around state cannabis legalization is who should get to profit from it–big business or those most negatively affected by the war on drugs or some hybrid of the two that can live in harmony?

By way of example, at SXSW this past week, the Equity First Alliance took exception to John Boehner (former U.S. Speaker of the House of Representatives) touting the benefits of cannabis legalization and its bright economic future. In 2018, Boehner joined the board of Acreage Holdings (a cannabis company that’s publicly traded in Canada and getting cannabis licenses and buying cannabis companies in rapid succession across the U.S.) after having been a drug war advocate during his entire political career. To summarize, some in attendance at SXSW found it troubling how Boehner staunchly opposed federal cannabis legalization while a politician and yet now uses his power and influence for his own financial benefit in building a massive cannabis company–according to its website, Acreage Holdings operates in 19 states, and, according to Leafy, it “deployed $202 million in investment in 2018 and lost $217.6 million in the same period.” Needless to say, Acreage embodies most folks’ idea of “Big Marijuana.” While Boehner is no doubt experiencing the upside of the “green rush,” there’s very little recognition of, or easy entree into the industry for, those who paid (and continue to pay) with their civil liberties for cannabis trafficking over the years as part of the drug war that Boehner helped sustain.

Also according to Leafly, Boehner spoke at SXSW about how the benefits of medical cannabis and exciting investment opportunities in the cannabis industry caused him to change his mind about cannabis. Boehner predicts cannabis revenues will eventually outpace tobacco and the STATES Act will end federal prohibition. Acreage Holding’s CEO, Kevin Murphy, was also present and he told the audience and the protestors that Acreage would invest in cannabis social equity projects if the U.S. Congress would relax its stance on things like 280E, which impede financial growth for cannabis businesses.

From my own boots-on-the-ground perspective in Los Angeles, very little has changed since my TedX Talk three years ago, and that’s because states with legal cannabis still follow the 2013 Cole Memo (even though it is dead though new U.S. Attorney General Bill Barr may revive it) on cannabis licensing and regulations. Because the Cole Memo was so strict regarding federal enforcement priorities, states generally adopt incredibly strict (corresponding) regulations with financial and qualified barriers to entry that do not lend themselves to allowing cannabis businesses good or financially realistic opportunities for righting social harms via social equity programs.

To date, only a handful of U.S. cities, the State of California, and the State of Massachusetts have relaxed licensing standards or provided funding to ensure communities disproportionately impacted by the war on drugs get a good piece of the cannabis market. And though I believe these sorts of programs can work, for them to actually work long term, states need to create incentives to encourage wider and deeper participation from the cannabis business crowd.

When I gave my TedX Talk I believed Big Marijuana to be inevitable and my view on that has not changed. I say this because the cannabis businesses still need a lot of capital and business experience to grow fast while at the same time dealing with comprehensive and ever-changing industry regulations. Unless and until state governments better address this balance between corporatized cannabis and disproportionately impacted populations, the actual relief and easier entry for social equity participants and those wrongly affected by the war on drugs may not really come unless and until the federal laws of repeal ensure a carve out for the more disenfranchised.

The bottom line is this: Relying on established cannabis businesses, including those in the evolving Big Marijuana world, to throw themselves into social equity is not likely to lead to meaningful change, which could ultimately harm the industry as a whole. States, and ultimately the federal government, will have to do better.

source https://www.cannalawblog.com/balancing-the-scales-big-marijuana-and-social-equity/

The Marijuana Banking Bill Is Off To A Strong Start

Great news: on March 7, 2019, the “Secure and Fair Enforcement Banking Act of 2019” (or, the “SAFE Banking Act”) was officially introduced in the House of Representatives. Even greater news: championed by Representatives Ed Perlmutter (D-CO) and Denny Heck (D-WA), the SAFE Banking Act reached the House with a bipartisan alliance of 106 co-sponsors – meaning a quarter of the House recognizes that state-legal, marijuana-related businesses need to be able to engage with banks and other financial institutions, and vice versa.

As discussed in this earlier blog post, the SAFE Banking Act aims to prohibit federal regulators from punishing banks and other financial institutions that provide banking services to state-legal marijuana businesses, marijuana-related businesses, and their owners and employees. This includes preventing federal banking regulators from limiting a depository institution’s access to the Deposit Insurance Fund and taking action on loans made to marijuana businesses.

At the time of its introduction, Representative Perlmutter re-emphasized that the legislation was primarily aimed at safety – “The SAFE Banking Act is focused solely on taking cash off the streets and making our communities safer. Only Congress can provide the certainty financial institutions need to start banking legitimate marijuana businesses – just like any other legal business – and reduce risks for employees, businesses and communities across the country.”

Representative Heck went on to elaborate: “We know based on the Treasury guidance that the federal government prioritizes keeping this product out of the hands of children and organized crime. The most effective way to do that is to not only allow, but encourage these businesses to use traditional banking methods to track their sales, deposits, expenses, tax payments, and other business transactions. If Congress fails to act, we are discouraging responsible, regulated markets and allowing a serious public safety threat to go unaddressed.”

In case you need a refresher, the SAFE Banking Act needs to pass the House by a simple majority (218 of 435) to reach the Senate. While it’s a long way off from becoming law, the SAFE Banking Act is certainly off to a much better start than all its predecessors. Stay tuned.

source https://www.cannalawblog.com/the-marijuana-banking-bill-is-off-to-a-strong-start/