California Commercial Cannabis Land Purchases: Due Diligence, Due Diligence, Due Diligence

Keeping the FDA Off Your Back: Don’t Make Health Claims for Cannabis Products

In Cannabis Edibles and the FDA, I discussed the basics of FDA regulation of cannabis edibles. On November 1, 2017, the FDA provided further specific examples of prohibited health claims made for cannabis products, in this case, cannabidiol (CBD):

The FDA has grown increasingly concerned at the proliferation of products claiming to treat or cure serious diseases like cancer. In this case, the illegally sold products allegedly contain cannabidiol (CBD), a component of the marijuana plant that is not FDA approved in any drug product for any indication.

FDA Commissioner Scott Gottlieb followed up:

Substances that contain components of marijuana will be treated like any other products that make unproven claims to shrink cancer tumors. We don’t let companies market products that deliberately prey on sick people with baseless claims that their substance can shrink or cure cancer and we’re not going to look the other way on enforcing these principles when it comes to marijuana-containing products.

The FDA issued warning letters, usually its first step in enforcement proceedings, to four companies. The prohibited health claims made by these companies included:

• “Combats tumor and cancer cells;”
• “CBD makes cancer cells commit ‘suicide’ without killing other cells;”
• “CBD … [has] anti-proliferative properties that inhibit cell division and growth in certain types of cancer, not allowing the tumor to grow;” and
• “Non-psychoactive cannabinoids like CBD (cannabidiol) may be effective in treating tumors from cancer – including breast cancer.”

Recall from our earlier post that the FDA will treat products as drugs if their own labeling suggests they are “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease.” Phrases like “combats tumor cells” and “[has] anti-proliferative properties that inhibit cell division and growth in certain types of cancer” clearly suggest that the CDB product can cure, mitigate, treat or prevent cancer, and is thus a drug.

As shown by the last bullet point, it doesn’t matter if you say “may treat” cancer, instead of “treats cancer.” Any suggestion that a product might have a role in treating or diagnosing disease, or that it is intended to affect the structure or any function of the human body of humans or other animals, is a health claim that subjects the product to drug regulations (unless it falls within the narrow confines of the Dietary Supplement Health & Education Act.)

Most importantly, the FDA press release says – again – that “unlike drugs approved by the FDA, the manufacture of these products has not been subject to FDA review as part of the drug approval process….” Only the FDA can determine whether a drug can be labelled as safe and effective for a particular disease. Preventing health claims based on anecdotal evidence has been one of the FDA’s core functions since 1906.

This isn’t the first time the 800-pound gorilla has visited CBD makers. FDA issued warning letters based on similar CBD health claims in February 2015 and again in February 2016. If you want to keep this monkey off your back, don’t make health claims.

For related posts about the FDA, CBDs and health claims, check the:

• Cannabis Edibles and the FDA:  An Update
• Cannabis and the Federal Government: The FDA is on The CBD Warpath, Again
• Cannabis Beverages and the FDA
• U.S. Government Warns CBD Companies: The Bigger Compliance Picture

source https://www.cannalawblog.com/keeping-the-fda-off-your-back-dont-make-health-claims-for-cannabis-products/

California Cannabis Banking: An Update

The lack of reliable banking services has always been a problem for the cannabis industry. We’ve seen the dearth of banking options pose problems for fundraisers, advocacy groups, and state-chartered financial institutions.

Though 29 states and the District of Columbia have broadly legalized medical use of cannabis (eight of those states have also legalized adult-use), cannabis is still illegal under federal law and most financial institutions refuse to bank cannabis businesses. It is against this backdrop that  California State Treasurer John Chiang last week released a report (“Report”) outlining California’s approach to this problem. The Treasurer estimates California adult-use cannabis sales will exceed $7 billion by 2020 and will bring in approximately $1 billion a year in state tax revenues. The Report affirms that the status quo on cannabis banking is untenable for an economy the size of California’s.

The Report lists the following four areas as those on which the State of California must act:

1) Cash Handling for Collection of Taxes and Fees. The state cannot force financial institutions to bank cannabis businesses but it can implement strategies for an easier, safer, and more efficient way for cannabis businesses to remit their taxes and fees. In furtherance of this goal, the Report suggested the following:

• State taxing agencies, the Treasurer’s office, and financial institutions should contract with an armored courier service to collect state tax and licensing payments.
• The State of California should install smart safes and kiosks at government agencies and cannabis businesses.
• California cannabis businesses should be allowed to use money services businesses for smaller tax payments.
• California cannabis businesses should be allowed to use third-party payment services to make electronic payments (think PayPal or Venmo).

2) Expanding Cannabis Industry Access to Banking Services Under Current Law. California is not the first state to legalize cannabis for adult-use and the Report looked at Washington and Colorado where some credit unions are openly banking cannabis businesses. These Washington and Colorado credit unions are following guidelines promulgated by the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). The FinCEN guidance on cannabis provided information for financial institutions to bank cannabis businesses while still complying with the Bank Secrecy Act and the USA Patriot Act. The Report suggests creating an online portal to assist financial institutions to comply with FinCEN rules. The online portal would gather information from all 11 California state agencies with cannabis regulation or data collection responsibilities.

3) A State-Backed Financial Institution. The Report also looked at the feasibility of creating a state-owned or state-backed financial institution with either a broad mission to expand banking services to underserved groups or to narrowly focus on the cannabis industry. The prospects of a state-owned bank look dim because of the inability to obtain deposit insurance, the possibility of federal asset forfeiture, and the high (pun not intended) start-up costs. The Report also looked into the feasibility of a “bankers’ bank”: a private institution whose customers are other banks. Under this model, the bankers’ bank would help financial institutions comply with the Cole Memorandum and FinCEN guidelines. The biggest roadblock to the bankers’ bank is that it would do little to nothing to reduce financial institution fear of federal enforcement.

4) Full Access to Banking Services: The Federal Solution. In its final option, the Report relies on lobbying with the goal of bringing the federal government to its senses. One piece of legislation worth calling your representative about is the Secure and Fair Enforcement Banking Act (“SAFE Banking Act”), which aims to provide a safe harbor for banks that service cannabis businesses. Another focus is achieving the holy grail of the cannabis industry: removing cannabis from the federal government’s list of Schedule 1 controlled substances.

The report does a good job highlighting the unnecessary difficulties imposed on cannabis businesses by the federal government’s listing cannabis as Schedule 1 drug. As more states continue to legalize, regulate, and receive tax revenue from cannabis businesses there is reason for optimism. With staunch conservatives such as Utah Senator Orrin Hatch starting to see the light, it is fair to say that the federal legalization option is increasingly becoming less far-fetched – especially if we continue seeing the sort of election results we saw last Tuesday.

Now is not the time to rest on our precarious laurels. We all need to keep up the intensity, educate our local legislators, and most importantly, vote!

source https://www.cannalawblog.com/california-cannabis-banking-an-update/

Oregon Sick Leave Laws for Your Cannabis Business: Clear as Mud

If you’re an Oregon cannabis business owner, you likely employ hourly employees entitled to either paid or unpaid sick leave. Oregon passed comprehensive sick leave legislation in 2015. To put it mildly, the legislation was confusing and employers were unsure how to properly implement its requirements. In July 2017, the legislature amended the act to clear up some of the confusion. This post is aimed to give you some understanding of how the Oregon sick leave laws apply to cannabis businesses that employ a variety of employees.

The Oregon sick leave law requires almost all Oregon employers to provide 40 hours of sick leave per year. Employers that employ at least 10 employees in Oregon (six employees if the employer has operations in Portland) must provide 40 hours of protected paid sick leave. Employers that employ less than 10 (six in Portland) must provide 40 hours of protected unpaid sick leave. Protected sick leave means the employee is permitted to be absent from work without disciplinary consequences or a reduction in benefits. If the sick leave is paid, the employee must be compensated at the employee’s regular rate of pay.

Employees are allowed to use sick time for any of the following purposes:

• For the employee’s own or an employee’s family member’s mental or physical illness, injury or health condition, need for medical diagnosis, care, or treatment of a mental or physical illness, injury, or health condition, or need for preventive medical care;
• To care for an infant or newly adopted child or newly placed foster child within 12 months after the birth or placement of the child;
• Absences associated with the death of a family member;
• Absences related to domestic violence, harassment, sexual assault or stalking;
• To donate accrued sick time to another employee.

Although an employee can use the sick time for the above reasons, employers cannot ask for verification unless the employee takes more than three consecutively scheduled work days of sick time. The employer must pay for any costs associated with obtaining verification of the use of sick time.

There are two ways employers can award the 40 hours of sick time. Employers can either “front-load” the 40 hours at the beginning of the year by giving its employees all of the hours at once or they can require employees accrue the leave as they work. If an employer chooses the accrual method, an employee must accrue one hour of sick time for every 30 hours worked or 1-1/3 hours for every 40 hours worked. Employers can cap accrual at 40 hours or allow the employees to continue to accrue after the 40-hour milestone has been reached. Employers have to allow employees to accrue from the first day they begin working but may require an employee to have worked 90 days before using accrued sick time. Employees can carry over up to 40 hours of unused leave from one year to the next.  An employee may have up to 80 hours of sick leave in one year. An employer can limit actual time used to 40 hours per year.

Employers are required to maintain records of the hours worked, the paid sick time accrued and used by each employee, and provide quarterly written notification to each employee of the amount of accrued and unused paid sick time available for use.

As you can tell, there are a lot of moving parts involved with Oregon’s sick leave laws. For ease of accounting, it may be best to front-load your employees with 40 hours of sick leave at the beginning of the year (a year can be an annual period and does not have to be at the beginning of the calendar year). If you go with the accrual method you will need to track each of your employee’s hours and provide them with one hour of sick time for every 30 hours they work. For many of our Oregon cannabis clients — most of whom employ a variety of hourly and salaried employees — this is just too much work. Regardless of the method you choose for awarding sick time, you must at least quarterly give each of your employees with a written statement of sick time accrued and unused sick time available for use at least quarterly.

source https://www.cannalawblog.com/oregon-sick-leave-laws-for-your-cannabis-business-clear-as-mud/

Cannabis Litigation, Part 5: The Waiting is the Hardest Part

California Cannabis Licensing and The Collective Model: How Long Will That be Going On?

BREAKING: California Releases Its Emergency MAUCRSA Regulations

Today, the Bureau of Cannabis Control (along with the Departments of Public Health and Food and Agriculture) dropped their much anticipated emergency rules (see here, here, and here) to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act in California. The agencies kept a lot of what we saw from the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA). (see here, here, here, and here), but there are also some new, notable additions and some interesting gap-fillers that now give us the foundation for operational standards across license types. While we can’t cover every single change or topic from these rules in one post (and because we’ll be covering the license types and application details in other posts in the coming days and weeks), here are some of the highlights of the emergency rules:

1. We now have a revised definition of “canopy,” which is “the designated area(s) at a licensed premise that will contain mature plants at any point in time.” In addition, Canopy shall be calculated in square feet and measured using clearly identifiable boundaries of all area(s) that will contain mature plants at any point in time, including all of the space(s) within the boundaries; Canopy may be noncontiguous but each unique area included in the total canopy calculation shall be separated by an identifiable boundary which include, but are not limited to: interior walls, shelves, greenhouse walls, hoop house walls, garden benches, hedgerows, fencing, garden beds, or garden plots; and
   1. If mature plants are being cultivated using a shelving system, the surface area of each level shall be included in the total canopy calculation.
   2. “Nonvolatile solvent” has been further defined to mean “any solvent used in the extraction process that is not a volatile solvent,” which “includes carbon dioxide (CO2) used for extraction and ethanol used for extraction or post-extraction processing.”
2. Temporary licensing has now been fully detailed to include online applications, the personal information for each owner that must be disclosed, contact information for the applicant’s designated point of contact, physical address of the premises, evidence that the applicant has the legal right to occupy the premises for the desired license type, proof of local approval, and the fact that the temporary license (which is good for 120 days) may be renewed and extended by the state for additional 90 day periods so long as a “complete application for an annual license” has been submitted to the state. No temporary license will become effective until January 1, 2018.
3. For the full blown “annual license,” the application requirements are pretty much the same as under the MCRSA rules except that now you have to disclose whether you’re applying for an “M License” or an “A License” and you have to list out all of your financing and financiers which include: “A list of funds belonging to the applicant held  in savings, checking, or other accounts maintained by a financial institution, a list of loans (with all attendant loan information and documentation, including the list of security provided for the loan), all investment funds and names of the investors, a list of all gifts, and a list with certain identifying information of anyone with a “financial interest” in the business. “Financial interest” means “an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.” The only exempt “financial interests” are bank or financial institution lenders, individuals whose only financial interest is through an interest in a diversified mutual fund, blind trust, or “similar instrument”, and those shareholders in a publicly traded company who hold less than 5% of the total shares.
4. As part of your application, among other requirements, you’ll still need to submit a premises diagram drawn to scale along with all of your security procedures and inventory procedures (and pretty much all corresponding operational SOPs), and a $5,000 bond is still required for all licensees (as well as mandatory insurance). And all owners will still need to submit their felony conviction criminal histories as specifically enumerated in the regulations and that are substantially related to running the business as well as rehabilitation statements.
5. Several new licenses have been created (and/or brought back from dead from the MCRSA): the cannabis event organizer license (to enable people to take advantage of the temporary cannabis event license), the distribution transporter only license (which allows this licensee to only move product between licensees, but not to retailers unless what’s being transported are  immature plants or seeds from a Type 4 nursery), the processor license (a cultivation site that conducts only trimming, drying, curing, grading, packaging, or labeling of cannabis and nonmanufactured cannabis products), the Type N and P manufacturing licenses are back, and there’s now a Type 9 delivery only Non-Storefront Retailer license.
6. We also now have the non-refundable licensing fee schedules per license that vary from license type to license type and they’re mostly nominal though some increase with increased gross receipts, and small and medium sized growers will have to pay pretty robust fees.
7. If you want any changes after-the-fact to your premises or ownership structure, you have to ask the state first and get its approval.
8. All growers are again limited to 1 Type 3 medium cultivation license each, whether it’s an M License or an A License.
9. A retailer can sell non-cannabis goods on the premises so long as their city or county allows it (this excludes alcohol, tobacco, and tobacco products). Retailers can  also sell  non-flowering, immature plants (no more than 6 in  a single day to a single customer). M-licensed retailers and microbusinesses an also give cannabis away free of charge to qualified patients or  their caregivers.
10. Notably, until July 1, 2018, licensees may conduct commercial cannabis activities with any other licensee, regardless of the A or M designation of the license.
11. The renewable energy requirements for cultivators have been re-vamped hopefully to the content of growers.
12. Again, the licenses are NOT transferable, so we’re looking at folks only being able to purchase the bsuinesses that hold them.
13. Distributors will be able to re-package and re-label only flower, but not infused cannabis products unless they hold a manufacturing license. Distributors also cannot store any non-cannabis goods at their premises. The state has also laid out what must take place during a distributor’s quality assurance review and the chain of custody protocol with third party labs for testing.
14. We have a detailed list of all permissible extraction types, including that any CO2 extractions must be done within a closed loop system.
15. The prohibited products list is pretty much the same as it was under the  MCRSA rules (so, no nicotine or caffeine infused cannabis products).
16. In regards to “premises,” the Bureau’s regulations mandate that a licensee may have up to two licenses at a given premises that are for the same license type so long as they’re owned by the same company and one is an A-license and  the other is an  M-license.
17. In addition to other relatively onerous advertising requirements, licensees must “Prior to any advertising or marketing from the licensee involving direct, individualized communication or dialog, the licensee shall use age affirmation to verify that the recipient is 21 years of age or older.” Direct, individualized communication or dialog, may occur through any form of communication including: in person, telephone, physical mail, or electronic. And a method of age verification is not necessary for a communication if the licensee can verify that “the licensee has previously had the intended recipient undergo a method of age affirmation and the licensee is reasonably certain that the communication will only be received by the intended recipient.”
18. Retailers and microbusinesses are now required to hire third party security to protect and watch the premises.
19. In order to hold a microbusiness license, a licensee must engage in at least three (3) of the following commercial cannabis activities: cultivation, manufacturing, distribution, and retail sale. There are also now a slew of regulations surrounding each activity a microbusiness can undertake.
20. Live entertainment is now allowed at a licensed premises so long as it follows the bevy of regulations regarding content and presentation.

Overall, we have a close-ish copy of the withdrawn MCRSA rules that will lead us into 2018. Be sure to read the rules again and again before pursuit of a license—applicants will have their work cut out for them on both the state and local levels.

 

source https://www.cannalawblog.com/breaking-california-releases-its-emergency-maucrsa-regulations/