Category: Cannabis

California Enacts Legal Protections for Cannabis Insurance Providers

Several cannabis-related bills were signed by California Governor Gavin Newsom on September 18, 2022, including Assembly Bill 2568 (AB 2568), which clarifies that it is not a crime for individuals and firms licensed by the California Department of Insurance (CDI) to provide insurance or related services to persons licensed to engage in commercial cannabis activities. Though the California Civil Code was amended in 2018 to clarify that cannabis is the legal object of a contract, and it has been tacitly understood that insurance contracts are legal in California, the intent of this new law is to remove any uncertainty and to encourage further growth of admitted insurance products for California cannabis businesses.

AB 2568 adds section 26261 to the California Business and Professions Code, which states in relevant part: “An individual or firm that is licensed by the Department of Insurance does not commit a crime under California law solely for providing insurance or related services to persons licensed to engage in commercial cannabis activity pursuant to this division.”

Intent of the Law

The California Assembly’s Committee on Insurance explained the intent behind AB 2568 in a report issued earlier this year:

“The hesitancy of insurance providers to provide insurance for commercial cannabis is attributed to risk, since cannabis is classified as a Schedule I substance under the Federal Controlled Substances Act. Therefore, much of the insurance available in California is from surplus lines. This does not align with the federal government’s longstanding determination that it is in the public’s interest for states to regulate their own insurance marketplaces. Further, the argument has been refuted in federal case law brought about in Green Earth Wellness Center v. Attain Specialty Insurance Company (2016), which established that federal classification of cannabis is not relevant in an insurance provider’s determination to write an insurance policy.

It is important that commercial cannabis businesses have multiple options for insurance as they pursue licensure. AB 2568 clarifies that writing insurance for commercial cannabis does not constitute a crime, since cannabis is part of a legal, regulated market in California. This clarity will provide assurances to admitted insurers that they will not be in violation of any regulations and encourage them to provide an insurance product.”

In addition, AB 2568 was strongly supported by CDI, which argued that “we must provide commercial cannabis businesses with multiple, affordable options for insurance as they pursue and maintain state licensure.” CDI supports AB 2568 in part to “promote reliable insurance coverage for all aspects of these cannabis businesses to ensure that these businesses can continue to flourish just like any other business in this state.”

In a separate analysis, the California Senate Committee on Insurance inquired as to whether the bill would achieve the intended result of expanding insurance options for cannabis businesses. It concluded:

“This bill expressly states a protection under California Law for CDI licensees. This protection has been implied since the legalization of recreational cannabis in 2016, and in that same year a federal court gave a nod to insurers that writing cannabis [insurance] is permissible, but only one admitted company has fully waded into the market. On the one hand, insurers are famously risk averse, so this express statement of state law may go a long way for some to take the risk to sell cannabis coverage. But, federal illegality of cannabis could always be the larger barrier to entry for some companies than what the state laws say.”

The Senate report concludes that more study is needed to “consider additional efforts to effectuate the stated goal of growing the domestic market for cannabis insurance.”

Analysis

AB 2568 does not materially change existing California law since providing insurance services to properly licensed California businesses has been legal under state law since at least 2018. The bill, however, is meant to remove any lingering doubt on the topic and to encourage more insurance service providers to enter the market.

As we have previously reported, it is reasonable to conclude that the risk-benefit calculus has adequately shifted to justify entrance into the cannabis market without an unreasonable fear of prosecution. This certainly is true for the insurance industry.

Congress continues to prohibit the Department of Justice and other federal agencies from spending money to prosecute conduct that complies with state medical marijuana laws. Federal law enforcement, meanwhile, has not initiated any prosecution against a plant-touching or ancillary business involved in either adult-use cannabis or medical marijuana where the underlying marijuana business activity was compliant with state law and there was no other independent violation of law.

Despite this favorable outlook, it must be acknowledged that, without a change to the status quo, some degree of theoretical legal risk remains present for any plant-touching or ancillary business in the marijuana industry. Any decision to provide insurance-related services to the cannabis industry must be based on a well-informed understanding of the legal risks and the very challenging operating environment for state-licensed cannabis companies.

For more Food and Drug Legal news, click here to visit the National Law Review.

© 2022 Wilson Elser

In One Day, California Governor Signs Into Law Ten Cannabis Bills, Including Authorization for Interstate Commerce

Acting in one fell swoop, on September 18, 2022, California Governor Gavin Newsom signed 10 cannabis-related legislative bills into law. These bills, which touch on issues that run the gamut of the cannabis industry, are intended to “strengthen California’s cannabis laws, expand the legal cannabis market and redress the harms of cannabis prohibition.” Senate Bill 1326 is the most widely recognized bill of the group, and authorizes the Governor the power to sign cannabis trade agreements with other states where cannabis is legal. Other bills address employment protection, labelling, use of cannabis in veterinary medicine and taxation. In his press release, Governor Newsom said: “For too many Californians, the promise of cannabis legalization remains out of reach. These measures build on the important strides our state has made toward this goal, but much work remains to build an equitable, safe and sustainable legal cannabis industry.”

Still before Governor Newsom for his signature is SB 1496, which would implement a series of changes to the state’s cannabis tax policy, including authorizing regulators to extend the deadline for tax payments by cannabis businesses located in areas affected by an emergency proclamation by the Governor.

Below is a discussion of the cannabis-centric Senate and Assembly bills adopted during the 2022 Legislative session.

SB 1326 – Cannabis: Interstate Agreements

SB 1326 adds Chapter 25 to the Business and Professions Code and allows for interstate cannabis commerce from California to and from other states that recognize the legality of cannabis cultivation, production, distribution and/or possession. While seemingly revolutionary, SB 1326 is contingent on an official assurance that the activity would not result in federal enforcement action against California – meaning, most likely, that this bill cannot be utilized until cannabis is federally decriminalized.

Historically, California is an industry leader in product quality and innovation, and this bill, according to SB 1326’s author, Senator Anna Caballero, “provides a relief valve for the oversupply of cannabis, an opportunity to grow California’s brand and market share, support job creation, and gives the state a competitive advantage as federal policy develops…SB 1326 is an essential step to ensure that California can fully capitalize on, and remain a leader in, the forthcoming national cannabis market. Furthermore, SB 1326 would allow California to use its own labor, environmental, and product quality standards be adopted in other states.”

SB 1186– Medicinal Cannabis Patients’ Right of Access Act

SB 1186 prohibits a local jurisdiction from adopting or enforcing any regulation that prohibits the delivery of a medicinal cannabis retail sale to medicinal cannabis patients or their primary caregivers by medicinal cannabis businesses, or that has the effect of prohibiting such delivery. The bill’s author, Senator Scott Weiner, states this bill is a victory for seniors living with chronic illness, and will both improve patient access and help fill voids throughout the state where no cannabis license types have been authorized.

AB 1646 – Cannabis Packaging: Beverages.

AB 1646 authorizes cannabis beverages to be packaged in containers of any material that are clear or any color.

AB 1706 – Cannabis Crimes: Resentencing.

If an eligible cannabis conviction was not challenged by July 1, 2020, AB 1706 requires the California court system to process record sealing and other forms of relief for such convictions by March 1, 2023. AB 1706 also requires the Department of Justice to complete an update of the State’s summary criminal history information database, and ensure that inaccurate state summary criminal history is not reported. The Department of Justice is also required to conduct an awareness campaign so that individuals that may be impacted by this process become aware of methods to verify updates to their criminal history. The bill would make a conviction, arrest, or other proceeding that has been sealed pursuant to these provisions deemed never to have occurred.

AB 1885 – Cannabis & Cannabis Products: Animals: Veterinary Medicine

AB 1885 expands the purpose of the comprehensive system established by Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to include the control and regulation of the cultivation, distribution, transport, storage, manufacturing, processing, and sale of cannabis products intended for use on, or consumption by, animals. The bill makes various related revisions to the definitions under MAUCRSA, would exclude livestock and food animals, as specified, from the definition of “animal,” for these purposes, and would specify that cannabis concentrate and edible cannabis products are not considered processed pet foods as defined under the Pure Pet Food Act of 1969.

AB 1885 would also prohibit the Veterinary Medical Board within the Department of Consumer Affairs from disciplining a veterinarian who recommends the use of cannabis on an animal for potential therapeutic effect or health supplementation purposes, unless the veterinarian is employed by or has an agreement with a cannabis licensee. Under this bill, the Veterinary Medical Board is required to adopt guidelines, by January 1, 2024, for veterinarians to follow when recommending cannabis within the veterinarian-client-patient relationship, and would require the Veterinary Medical Board to post the guidelines on its internet website.

Lastly, AB 1885 would require that cannabis products intended for animals comply with additional concentration and other standards adopted by regulation. These regulations must be promulgated no later than July 1, 2025, and would prohibit the marketing or sale of those products before the regulations take effect.

AB 1894 – Integrated Cannabis Vaporizer: Packaging, Labeling, Advertisement, & Marketing

AB 1894 requires the advertisement and marketing of a cannabis cartridge and an integrated cannabis vaporizer to prominently display a specified message to properly dispose of a cannabis cartridge and an integrated cannabis vaporizer as hazardous waste. This bill also prohibits the package, label, advertisement, and marketing from indicating that the cannabis cartridge or integrated cannabis vaporizer is disposable or implying that it may be thrown in the trash or recycling streams.

AB 2210 – Cannabis: State Temporary Event Licenses: Venues Licensed by the Department of Alcoholic Beverage Control: Unsold Inventory

AB 2210 prohibits Department of Cannabis Control (DCC) from denying an application for a state temporary event license solely on the basis that there is a license issued pursuant to the Alcoholic Beverage Control Act for the proposed premises of the event. It also prohibits the Department of Alcoholic Beverage Control from taking disciplinary action against a person licensed pursuant to the Alcoholic Beverage Control Act on the basis of a state temporary event license issued by the DCC to a licensee that utilizes the same premises.

AB 2210 requires all on- and off-sale privileges of alcoholic beverages at the venue to be suspended for the day of the event until 6 a.m. on the day after the event has ended, and would prohibit all alcohol consumption on the venue premises for the day of the event, until 6 a.m. on the day after the event has ended. All inventory of cannabis or cannabis products to be sold by a state temporary event license to be transported to and from the temporary event by a licensed distributor or licensed microbusiness. A state temporary event licensee, upon completion or cessation of the temporary event, is authorized to reconcile unsold inventory of cannabis or cannabis products and return it to the licensee’s retail premises.

AB 2188 – Discrimination in Employment: Use of Cannabis[1]

AB 2188 makes it unlawful for an employer to discriminate against a person in hiring, termination, or any term or condition of employment, or otherwise penalize a person” solely because of off-duty, off-site cannabis use. The bill will also eliminate employment-based THC testing, with exceptions for certain positions, such as federal employees or those working in the building and construction trades. AB 2188 does not preempt state or federal laws requiring applicants or employees to be tested for controlled substances as a condition of employment, receiving federal funding or federal licensing-related benefits, or entering into a federal contract.

AB 2568 – Cannabis: Insurance Providers.

AB 2568 provides it is not a crime for individuals and firms to provide insurance and related services to persons licensed to engage in commercial cannabis activity.

AB 2925 – California Cannabis Tax Fund: Spending Reports.

AB 2925 requires that the State Department of Health Care Services submit reports to the legislature, starting no later than July 10, 2023, that accounts for cannabis tax revenue that has been distributed to the Youth Education, Prevention, Early Intervention and Treatment Account, as required under MAUCRSA.

For more Biotech, Food, & Drug Law news, click here to visit the National Law Review.

FOOTNOTES

[1] AB 2188 is discussed in further detail here.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

MLB To Allow CBD Sponsorships

Recently, Major League Baseball (MLB) informed teams that cannabidiol (CBD) sponsorships were no longer off limits and that they were free to pursue sponsorships in the CBD category under certain conditions. CBD companies will also no longer be prohibited from airing commercials during MLB game telecasts.

According to MLB’s Chief Revenue Officer Noah Garden, to be permitted, CBD sponsorships must promote products that are certified as not containing psychoactive levels of THC, the main active ingredient of cannabis. Any CBD product with concentrations of THC above 0.3% would not be permitted, as it is classified as marijuana, which is a Schedule I illicit substance. All CBD sponsorships will also require signoff by the MLB Commissioner’s Office.

MLB is the first of the four major US sports leagues to permit CBD sponsorships. Previously, only UFC and NASCAR had opened up the CBD sponsorship category for sale. And while MLB has opened the door to certain CBD sponsorships, for now, neither MLB nor any of the other major US sports leagues permit sponsorships in the broader cannabis category.

This change follows the new MLB collective bargaining agreement freeing up MLB teams to sell advertising positions on team jerseys and player batting helmets beginning with the 2023 season. MLB has confirmed that these lucrative jersey and batting helmet positions will not be off-limits to CBD companies. Garden noted specifically that “[MLB is] open-minded to doing a patch deal [in the CBD category], depending on the brand and what that brand represents. It has to [be] a brand that represents sports.”

Time will tell if MLB, its teams, and its fans embrace CBD sponsorships, but with cannabis industry valuations exceeding $13 billion in 2021, the rule change opens the door to a potentially lucrative sponsorship category.

Article By Richard L. Brand, Shahiedah Shabazz, and Zak Welsh of ArentFox Schiff LLP

For more entertainment and sports legal news, click here to visit the National Law Review.

© 2022 ArentFox Schiff LLP

Medical Marijuana, Workers’ Compensation, and the CSA: Hazy Outlook for Employers As States Wrestle With Cannabis Reimbursement as a Reasonable Medical Expense

While each state has its own unique workers’ compensation program, workers’ compensation generally requires employers to reimburse the reasonable medical expenses of employees who are injured at work. Depending on the injury, these expenses can include hospital visits, follow-up appointments, physical therapy, surgeries, and medication, among other medical care. In recent years, medical cannabis has become increasingly common to treat a myriad of ailments—as of February 2022, 37 states, the District of Columbia, and three territories now allow the use of medical cannabis.

While that is good news for patients seeking treatment for issues like chronic pain, medical cannabis laws can cause a major headache for employers. The federal law known as the Controlled Substances Act (CSA) classifies cannabis as a Schedule I substance, meaning that under federal law, it is not currently authorized for medical treatment anywhere in the United States and is not considered safe for use even under medical supervision. So, what happens when an employee is injured at work, is eligible for workers’ compensation, and is prescribed medical cannabis to treat their work-related injury in a state that authorizes medical cannabis?

Employers are faced with a tricky dilemma: They can reimburse the employee’s medical cannabis as a reasonable medical expense and risk violating the federal prohibition against aiding and abetting the possession of cannabis. Or, they can refuse to reimburse the otherwise reasonable medical expense and risk violating the state’s workers’ compensation law.

Usually, where it is impossible for an employer to comply with both state and federal law, federal law wins—a legal concept called conflict preemption. Unfortunately for employers, however, clarity on this issue will have to wait—the U.S. Supreme Court recently declined two requests to review state supreme court cases on this issue and definitively decide whether the CSA preempts state workers’ compensation laws that require reimbursement of medical cannabis. In the absence of federal guidance, national employers with workers in different states must follow the decisions of the handful of state courts that have taken up the question. The state courts who have decided the issue have come to inconsistent conclusions—thus, whether an employer should reimburse medical cannabis will vary depending on the state where the employee is injured.

For example, in Maine and Minnesota, both states’ highest courts have concluded that employers are not required to pay for their injured employees’ medical cannabis. These courts reasoned that employers would face liability under the CSA for aiding and abetting the purchase of a controlled substance. The employer, if reimbursing employees for using medical cannabis, would knowingly subsidize the employee’s purchase of marijuana in direct violation of federal law. However, in such a case, the employer would also violate state law for refusing to reimburse the employee’s reasonable medical expenses. Deeming it impossible for the employer to comply with both laws, these states’ courts concluded that the federal prohibition on cannabis preempts the state workers’ compensation laws.

States such as New Jersey have gone the other way, requiring employers to reimburse employee’s medical cannabis. The New Jersey Supreme Court concluded that there was no conflict between the prohibitions of the CSA and the demands of the New Jersey workers’ compensation law. Thus, the federal law did not preempt New Jersey’s state law, and employers were required to comply by reimbursing medical cannabis as a reasonable reimbursement.

Meanwhile, Massachusetts followed Maine and Minnesota’s approach, but did so based on its own medical marijuana statute, not the CSA. The Massachusetts law explicitly exempts health insurance providers or any government agency or authority from the reimbursement requirement because doing so violates federal law.

Given this patchwork of state decisions, employers should be cautious in determining whether to approve or deny medical cannabis as a reasonable medical expense under state workers’ compensation laws. While the answer is relatively clear (for now) in the states discussed above, there are still over 30 states with medical cannabis programs that have not addressed this issue. It is important to note that many state medical cannabis laws include provisions like Massachusetts that exempt employers from reimbursing employees for cannabis—a clear indicator that these laws were designed with federal prohibitions in mind. But these provisions are not necessarily determinative—New Jersey’s medical cannabis law has a similar provision, yet New Jersey employers are still required to reimburse for medical cannabis.

The bottom line is that federal CSA violations can be hefty, including a mandatory $1,000 fine, possible incarceration of up to one year, and possibly more if “aggravating factors” are found, such as prior convictions. Employers should therefore pay careful attention to their respective state medical cannabis laws, workers’ compensation laws, as well as the CSA and consult with counsel to determine the best approach in their particular jurisdiction. It is likely that more of these cases will be brought in the future, so be sure to check back for further developments in this evolving area of law.

Article By Amanda C. Hibbler of Foley & Lardner LLP. This article was prepared with the assistance of 2022 summer associate Zack Sikora.

For more cannabis legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Minnesota Inadvertently Allows Unregulated Intoxicating Cannabis Edible Products

As of July 1, 2022, unregulated intoxicating THC products derived from hemp have been legalized in Minnesota, apparently as the result of confusion by state legislators about the new law’s actual effect. Although the express intent of the statute is to allow the sale of products that contain so-called “non-intoxicating cannabinoids” to consumers in Minnesota, the new law contains a massive loophole that effectively legalizes all forms of THC sold in edible products at levels that intoxicate with only a bare minimum of regulatory oversight.

This surely cannot have been the goal of many Minnesota legislators who voted for the bill. In fact, the Minneapolis Star Tribune has reported that at least one senator in the state’s Republican-controlled Senate confirmed that he did not realize that the new law would legalize edible products with all forms of THC. 

The Loophole

The new law changes section 151.72 of the Minnesota Statutes by defining “non-intoxicating cannabinoid” as “substances extracted from certified hemp plants that do not produce intoxicating effects when consumed by any route of administration.” The bill then incongruously allows for cannabinoid edible products to be sold to consumers in the state so long as the product contains no more than 0.3 percent of any THC and no more than 5 mg of any THC in a single serving, or more than a total of 50 mg of any THC per package.

Most states are now being forced to grapple with how to respond effectively to the problem of unregulated intoxicating hemp cannabinoids being sold openly and online. Edible products with intoxicating levels of hemp-derived delta-8 THC, delta-9 THC, delta-10 THC and THC-O Acetate are sold widely as legal and less-expensive alternatives to regulated marijuana products. States have employed various strategies to, by varying degrees, limit, regulate or prohibit intoxicating hemp cannabinoids, and lawsuits on the subject have been initiated in several states.

No state has created a loophole quite like what exists in Minnesota’s new law. Although Minnesota seeks, at least nominally, to only allow the sale of products that contain “non-intoxicating cannabinoids,” food and beverages that contain less than 0.3 percent THC concentration may nevertheless be intoxicating due to the large amounts that may be consumed easily.

To illustrate the problem of hemp products that contain less than 0.3 percent delta-9 THC concentration but are nevertheless intoxicating, consider this:

  • A typical energy bar of 60 grams would be allowed to have up to 180 mg THC if limited to 0.3 percent THC concentration by weight.
  • Regulated cannabis edible products, by comparison, typically may be sold only in a serving size of no more than 10 mg, with a limit of up to 100 mg per package.
  • A four-gram hemp gummy product, however, could have 10 mg of THC and still fall below the allowable concentration threshold.
  • Minnesota’s new law allows up to 5 mg THC per serving and 50 mg THC per package.

The intoxicating potential here is evident. One need only consume two servings to ingest the same amount of THC allowed in a standard regulated marijuana product serving. Ingesting 50 mg of THC will heavily intoxicate all but the most jaded stoner. Nowhere in the new law, however, is there any requirement to warn that the cannabis edible product may cause intoxication when consumed as suggested.

The Goal Informs the Solution

States should focus on the goal of prohibiting or properly regulating intoxicating hemp products that are currently sold as an unregulated and less-expensive alternative to regulated cannabis. We have previously warned that any state that decides to allow hemp-derived THC in edible products must necessarily grapple with tricky questions over how to regulate maximum serving size, active cannabinoid concentration per serving size, the number of servings per container, consumer warnings and similar questions to mitigate the risk to public health and safety. Cannabis and hemp industry leaders have likewise warned against “percentage” thresholds of cannabinoids as an appropriate measure for foods and beverages for the reasons described above.

In comparison to Minnesota, other states are proceeding in a more cautious manner. California’s recent Assembly Bill 45, for example, draws attention to the above-mentioned issues but acknowledges that more study is needed by the California Department of Public Health (CDPH) before implementing regulations are issued. The bill provides that CDPH “may regulate and restrict the cap on extract and may cap the amount of total THC concentration at the product level based on the product form, volume, number of servings, ratio of cannabinoids to THC in the product, or other factors, as needed.”

Analysis

Exacerbating the problem is the fact that product contamination, label inaccuracies and outright fraud are pervasive within the hemp cannabinoid market. Products often are marketed with misleading or false claims, and many fail to incorporate any explicit warning of intoxicating effects. Because the Minnesota statute incorrectly assumes that consumers will not become intoxicated from compliant cannabis edible products, no such warnings are mandated. This is a mistake.

It appears that better education around hemp-derived edible products could have led to more thoughtful legislation in Minnesota. This example may nevertheless provide a learning opportunity for other states that are studying how to regulate intoxicating hemp products.

Article By Ian A. Stewart of Wilson Elser Moskowitz Edelman & Dicker LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Wilson Elser

Looking into Our (Slightly Hazy) Crystal Ball: What Will the Mississippi Cannabis Market Look Like?

When you do what we do, you get a lot of calls and a lot of questions. Many of the calls and questions are not fruitful. Quite honestly, some of the calls are from folks whose interest in and experience with cannabis is, we suspect, on a purely personal and leisurely level. In the words of Hyman Roth, this is the business we’ve chosen.

But one legitimate question we’re often asked is what we think the cannabis market will look like in Mississippi. And, more specifically, whether Mississippi’s new medical cannabis regime will be similar to the one in Oklahoma.

It’s a loaded question, and one we suspect many questioners don’t fully appreciate. On the one hand, Oklahoma’s medical cannabis program has been compared to the Wild West. At last count, there were more medical cannabis dispensaries than liquor stores or supermarkets in the state. Many have concluded that this is a bad thing and/or that the program is a failure. Others have deemed the program a triumph of capitalism, a survival-of-the-fittest trial where only the “best” will survive.

As is often the case, we think the answer is probably somewhere in the middle.

On the one hand, the obvious and primary similarity between the programs is the absence of an expressed cap on the number of licenses available. While most states limit the number of licenses available, neither Oklahoma nor Mississippi does so. Many believe this feature will lead to Mississippi following the lead of Oklahoma in terms of the proliferation of dispensaries throughout the Magnolia State.

On the other hand, there are a number of differences between the two states and their statutes that indicate to us that Mississippi’s regime will differ in several important ways – ways we are seeing play out now. First, while the license fee for a dispensary in Oklahoma is $2,500, the fee in Mississippi is $25,000, 10 times the amount. And that amount is owed annually and is in addition to the initial $15,000 application fee. As a practical matter, and for better or worse, this feature alone should significantly cull the number of dispensaries because it provides a substantial barrier to entry into the industry.

Second, there may be significantly fewer locations available to open a dispensary in Mississippi than one would expect due to several geographic-limiting features of the law. Initially, localities have until May 3 to opt out of the medical cannabis regime, and several cities have already done so. Also, dispensaries cannot be located within 1,000 feet of any church, school, or daycare facility. For those unfamiliar with Mississippi, it may be tough to find anywhere in the state that isn’t within 1,000 feet of a church. Even more, the law forbids one dispensary from being within 1,500 feet from another dispensary, and dispensaries are only permissible in commercially zoned areas.

Third, the cannabis industry examining the Mississippi market will have the benefit of having lived through the Oklahoma experience. This is likely to minimize the “goldrush” mentality seen in Oklahoma’s early days. Instead, look for larger players to let the dust settle and come in looking to acquire operators who proved successful breaking out of the initial melee.

Conclusion

It seems possible that, at least in the early years, the Mississippi medical cannabis regime may more closely resemble Oklahoma than a state like Florida with strict limitations on the number of licenses. But our prediction is that certain aspects of Mississippi law and culture will lead to less of a free-for-all at the outset, hopefully leading to a more efficient and more orderly transition to a rational cannabis market in Mississippi.

Article By Whitt Steineker and Slates C. Veazey of Bradley Arant Boult Cummings LLP

For more cannabis legal news, click here to visit the National Law Review.

© 2022 Bradley Arant Boult Cummings LLP

New California Bill Would Prohibit Employers From Acting Against Workers for Off-Work Cannabis Use

A bill introduced in the California Assembly in February 2022 would prohibit employers from discriminating against workers and job applicants for off-duty marijuana use.

Assembly Bill (AB) 2188 would amend the Fair Employment and Housing Act to make it unlawful for employers to discriminate against job applicants or employees for the “use of cannabis off the job and away from the workplace.” It also would prevent discrimination against applicants or employees that fail drug tests detecting “nonpsychoactive cannabis metabolites in their urine, hair, or bodily fluids.” But, it would not permit employees “to be impaired by, or to use cannabis on the job.” AB 2188 also includes carveouts for building and construction trades employees, federal contractors, federal funding recipients, or federal licensees required to maintain drug-free workplaces.

AB 2188 would add to the current body of laws legalizing and regulating marijuana use in the Golden State. Indeed, Proposition 215 legalized the medical use of cannabis in 1996, while in 2016, Proposition 64 did so for recreational marijuana.

While the enactment of Prop. 64 represents a victory for recreational marijuana advocates, the legislation does not include language prohibiting employers from discriminating against employees for off-work recreational marijuana use. To the contrary, it expressly provides that employers will not be required to accommodate an employee’s use of marijuana. The legislative initiative stated that its purpose and intent were, among other things, to “[a]llow public and private employers to enact and enforce workplace policies pertaining to marijuana.”

Current cannabis regulations are consistent with the California Supreme Court’s holding in Ross v. Ragingwire Telecommunications, Inc. In that case the court examined the conflict between California’s Compassionate Use Act (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and federal law (which prohibits the drug’s possession, even by medical users). The court held that the Compassionate Use Act did not intend to address the rights and obligation of employers and employees, and further noted that the possession and use of marijuana could not be a protected activity because it is still illegal under federal law.

AB 2188 is and reflects a further effort by some to legalize and regulate the non-medical use of marijuana. As of 2021, 18 states and a number of territories had enacted laws to regulate cannabis for adult non-medical use. While in the employment context, certain states have moved to grant employees some level of protection for medical use, others extended protection for non-medical use. Employers are prohibited from taking adverse action against workers or applicants’ recreational use in Montana, Nevada, New Jersey, New York, and soon, Connecticut.

AB 2188 passed the Assembly May 26 and was read in the Senate for the first time May 27. If it makes it to the governor’s desk, he will have until Sept. 30, 2022, to sign or veto it.

Article By Adam Bouka and Charles O. Thompson of  Greenberg Traurig, LLP

For more biotech, food, and drug news, click here to visit the National Law Review.

©2022 Greenberg Traurig, LLP. All rights reserved.

FDA and FTC Issue Warning Letters to CBD Companies

  • On March 28, 2022, the Food and Drug Administration (FDA) and Federal Trade Commission (FTC) jointly issued seven warning letters to companies marketing cannabidiol (CBD) products with COVID-19 related claims.
  • Specifically, the agencies warned the following companies regarding the promotion of their respective products with claims that they cure, mitigate, treat or prevent COVID-19: Cureganics, Heaven’s Organics LLC, Functional Remedies, LLC D/B/A Synchronicity Hemp Oil, Greenway Herbal Products LLC, CBD Social, UPSY LLC, and Nature’s Highway. Examples of claims include: “Our research suggest that CBD . . . can block SARS-Cov-2 infection at early and even later stages of infection. . .”, “Studies Show CBD Compounds Prevent COVID Cells From Replicating”, and “Can CBD Help with the Fight Against COVID? Some of the worst effects of COVID are caused by inflammation, and CBD is a potent anti-inflammatory.”
  • By way of background, under the Federal Food, Drug, and Cosmetic Act (FD&C Act), products intended to cure, treat, mitigate, or prevent disease are considered drugs and are subject to the requirements that apply to drugs. Therefore, the agencies classified the products as unapproved and misbranded drugs that may not be legally introduced or delivered for introduction into interstate commerce without prior approval from FDA.
  • The letters included a cease-and-desist demand from FTC, prohibiting the companies from making such COVID-19 related claims. The companies were provided with 48 hours to respond with specific steps that were taken to correct the violations.

Article By Food and Drug Law Practice Group at Keller and Heckman LLP

For more food and drug law legal news, click here to visit the National Law Review.

© 2022 Keller and Heckman LLP

Federal Cannabis Reform – Is 2022 the Year?

Hope soared with the possibility of federal cannabis reform in 2021.  And for good reason –  the induction of a new, more liberal administration, rapid state-level legalization, broad support by Americans,[1] and growing bipartisan backing led many to believe that 2021 was going to be the year where federal decriminalization of cannabis would become a reality.  But, as 2021 continued on, optimism dwindled as any advancement in federal cannabis reform was hobbled by the inability of Congress to agree on the appropriate level of reform  and the proper mechanics for passage.  Specifically, tension rose amongst the elected Democrats on whether to support incremental reform (like access to banks or removal of cannabis from the list of Schedule 1 drugs) or comprehensive legalization with provisions to address social inequities stemming from the legacy of the War on Drugs.  And so 2021 came to an end, and the cannabis industry saw yet another year of failed meaningful change on the federal level.

Still, momentum for reform has not been lost.  If anything, last year saw more bills introduced into Congress (including two new federal legalization proposals) than ever before – clearly indicating its import to our nation’s leaders.  Justice Clarence Thomas from the Supreme Court even subtly advised Congress to address legalization, noting that the Federal Government’s current “half in, half out regime” on cannabis strained the principles of federalism.

And so, as we move forward in 2022 with hope, we review the bills before Congress and their progresses to assess which of these may have some traction for passage during this upcoming year.

Secure and Fair Enforcement (“SAFE”) Banking Act of 2021[2]

Considered modest reform, the SAFE Banking Act of 2021 mainly focused on granting cannabis-related businesses access to federally-backed financial institutions.  The bill was introduced early in 2021,[3] and passed in the U.S. House of Representatives on April 20, 2021 by a vote of 321 to 101.  At the time of the House’s passage, many believed the SAFE Banking Act of 2021 would easily move its way through the Senate, due – in part – to its demonstrated bipartisan appeal with 106 Republican votes in the House.  Congressman Ed Pearlman, one of its drafters, even remarked:

After years of bringing up this issue, I’m thrilled to see overwhelming support for this bipartisan, commonsense legislation in the U.S. House once again. I feel optimistic about the path forward for the SAFE Banking Act and, more broadly, reforms to our federal cannabis laws.[4]

However, after its passage in the House, the SAFE Banking Act of 2021 languished in the Senate’s Committee on Banking, Housing and Urban Affairs.  Momentum for the bill slowed, with those opposing it campaigning for more comprehensive legalization.  In late September 2021, fervor for the SAFE Banking Act of 2021 arose again when the House passed, by voice vote, an amendment to the National Defense Authorization Act for Fiscal Year 2022 (“NDAA”) to add the SAFE Banking Act of 2021.  Many hoped that by couching the SAFE Banking Act of 2021 in the NDAA, it would make it easier to pass through the Senate.  On November 23, 2021, 4 Senators[5] penned a letter to the Senate’s Armed Services Committee urging them to retain the SAFE Banking Act of 2021 in the NDAA.  Despite these efforts, the SAFE Banking Act of 2021 was stripped from the NDAA on December 10, 2021 – stalling its progress once more.

The Marijuana Opportunity Reinvestment & Expungement (“MORE”) Act

The MORE Act is the oldest comprehensive legislative proposal.  It was passed in the House in December 2020, during a lame-duck session, but never made any headway in the Senate.[6]  On May 28, 2021, Representative Jerrold Nadler reintroduced the MORE Act into the House and much of its substance provided the legislative stepping stones for the Cannabis Administrative and Opportunity Act (“CAO”).

The MORE Act aimed to end criminalization of cannabis by removing it from the list of controlled  substances, eliminate related past criminal penalties and convictions, and provide essential criminal justice reform, social justice and economic development for those affected by the War on Drugs.  The MORE Act also would tax cannabis products starting at 5% to 8% (increasing by 1% over 5 years) to help fund social reform projects, make Small Business Administration loans and services available to cannabis-related businesses, and prohibit denial of federal public benefits (like housing) and protections under immigration law on the basis of cannabis-related conduct or conviction.

After sitting in the House Judiciary Committee, the bill was finally approved in the Committee on September 30, 2021, with 2 Republican Representatives voting yes.  This act sent the measure to the House floor for another vote before it could make its way to the Senate.

The Cannabis Administrative and Opportunity Act

Embracing the MORE Act’s goals for comprehensive reform, Senate Majority Leader Chuck Schumer (along with Senators Cory Booker  and Ron Wyden) introduced the long awaited draft of the CAO into the Senate on July 14, 2021.  Considered a historic and ambitious bill, the CAO aimed to implement a full-scale federal scheme for cannabis reform that reaches beyond just decriminalization.  It hopes to provide restorative measures “to lift up people and communities who were unfairly targeted in the War on Drugs.”[7] Specifically, the CAO seeks to do the following:

  • Decriminalize cannabis by removing it from the Controlled Substances Act and automatically expunge any arrests and convictions for non-violent federal cannabis offenses;
  • Transfer primary agency jurisdiction over cannabis to the Food and Drug Administration (“FDA”), the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), and the Bureau of Alcohol, Tobacco and Firearms (“ATF”) so that cannabis can be federally regulated similar to alcohol and tobacco;
  • Establish a Center for Cannabis Products responsible for regulating the “cannabis aspect of all products containing cannabis,” and implementing requirements related to cannabis products (g., good manufacturing practice, product standards, product labeling, product distribution and recall, etc.) within the FDA;
  • Mandate federal research and studies regarding the impact of cannabis (including any benefits and/or impairments) on the human brain and health conditions and its impact on drivers under its influence;
  • Permit movement of cannabis products through channels of interstate commerce;
  • Establish Opportunity Trust Fund Programs funded by federal cannabis tax revenue to restore and reinvest in communities greatly impacted by the War on Drugs (including funds for job training, reentry services, legal aid, and youth recreation/mentoring programs) and to help level the playing field by granting entrepreneurs of color access to the cannabis industry through small business loans;
  • Prohibit denial of federal benefits or immigration protection due to a past cannabis-related offense; and
  • Impose federal excise tax on sale of cannabis products, starting at 10% and increasing up to 25% in a span of 5 years, with certain favorable tax credit for cannabis producers with less than $20 million sales.

Though the CAO has lofty goals, it does not force states to legalize cannabis, emphasizing the integrity of state-specific cannabis law.

As a draft bill, the CAO was subject to a review period in which its authors requested public comments by September 1, 2021.  At the expiration of this review period, the drafters of the bill received numerous comments from both supporters and those criticizing the CAO as overly ambitious and a big-government approach.  In particular, many critics take issue with the bill’s tax structure, calling the imposition of an ultimate 25% federal excise tax burdensome.  Indeed, the CAO – as it stands – implements the highest tax structure for cannabis products of all the bills proposed in 2021.  Many allege that the high federal tax in addition to any state-imposed tax could promote the illicit cannabis market rather than encourage business owners to engage legally.  Additionally, the high federal tax could force states to reduce their own tax requirements, negatively affecting their own ability to fund state-run social equity and education initiatives.

For now, the public comments have been taken under advisement as the cannabis industry waits to see what the drafters decide to incorporate.  Once formally filed, the CAO will be sent to a committee for continued discussions and revisions before it can be advanced to the Senate floor for a vote.

The States Reform Act

The States Reform Act (“SRA”) is the latest comprehensive reform bill led by Republican Representative Nancy Mace and introduced in the House in November 15, 2021.  Like the MORE Act and the CAO, the SRA also seeks to decriminalize cannabis and provides retroactive expungement for non-violent federal cannabis offense, except for any person involved in a drug cartel.  However, the SRA differentiates itself by limiting federal social equity reform programs.  Instead, the SRA vests the authority  to determine what level of cannabis reform, including outright prohibition, in the individual states.  States will also retain authority to regulate the use, distribution, sale and manufacturing of cannabis, with some general federal oversight by the FDA, TTB, ATF and the Department of Agriculture.  Specifically, the SRA aims to regulate cannabis like alcohol (and alcohol alone) – another substantial difference from the CAO.  The SRA permits each state to determine the appropriate age limit for purchase of cannabis products, but incentivizes states to implement a 21+ limit by eliminating funding for highways for any state with an age limit of under 21 years of age and prohibiting advertisements directed at any person under the age of 21.  The bill also seeks to provide veterans with access to medical cannabis without fear of discrimination or denial of Veteran Affairs benefits.  The SRA also generally requires that medical cannabis be permitted for treatment of arthritis, cancer and chronic pain.  Similar to the CAO, the SRA will also allow the interstate cannabis transportation.

Notably, the SRA provides the lowest tax structure for cannabis products in comparison to other reform proposals, with the proposed imposition of a single tax rate of 3% that cannot be increased for at least 10 years.  Revenues from the tax would be used to support SBA programs for cannabis businesses, law enforcement initiatives including reentry programs, and veteran mental health programs.

Given its recency, little is known about the bill’s reception in the House and any progress that has been made.  However, the SRA does carry potential bipartisan appeal, particularly because it is sponsored by 4 Republican Representatives.  Additionally, it is anticipated that the Congressional Republicans will appreciate the SRA’s straight forward tax structure capped at a low rate for at least 10 years and its stance on states’ sovereignty regarding cannabis reform.  The real issue for the SRA is its lack of restorative justice and social equity efforts, which may be its death knell in the current Democrat-controlled House.

Implications for 2022

There are now 4 bills (3 with comprehensive legislation) circulating Capitol Hill that could provide much needed cannabis reform in 2022.  Congress will likely continue debating, revising and attempting to compromise on the terms in the MORE Act, the CAO and the SRA.  Potentially, if the 3 comprehensive bills remain on the discussion table, they will compete with one another, potentially dividing the Legislators’ support.  Congress should thus focus on forging a compromise or middle ground on these reforms to increase bipartisan support and avoid competing and inconsistent bills floating around, resulting in another year of unwanted (and unnecessary) deadlock.  Indeed, the CAO could be an example of such needed compromise – especially if the drafters seriously heed the criticisms and comments provided during the bill’s review period and consider incorporating certain bipartisan elements of the SRA, like a more stream-lined and lower rate tax structure.  With that said, the status of these cannabis reform bills, particularly the CAO and the MORE Act, face potential change should this year’s mid-term elections change the makeup of who controls the Senate, House or both.

Regardless, until Congress can iron out the kinks on comprehensive cannabis reform, the SAFE Banking Act of 2021 remains a practical law to pass in the interim.  The SAFE Banking Act of 2021 is currently the least controversial of all the cannabis-reform bills, has substantial bipartisan appeal, and will provide immediate financial resources and relief to the largely cash-based cannabis industry.  Though a small reform, it is still a necessary one that is long overdue.  The SAFE Banking Act of 2021 (and its predecessors) has already made its way through the House 6 times, proving that federal lawmakers believe it will help cannabis businessmen.  It may not resolve the issue of prohibition on cannabis, but its passage will likely be a great victory for the cannabis industry, signal federal de-stigmatization of cannabis, promote public safety by discouraging participation in the illicit cannabis market, and help cannabis-related businesses comply with tax laws.

Footnotes

[1] https://news.gallup.com/poll/356939/support-legal-marijuana-holds-record…

[2] On February 4, 2022, the SAFE Banking Act passed again in the House – this time, as an included amendment to the America COMPLETES Act.

[3] The bill is the successor to the previously introduced SAFE Banking Act of 2019.  See https://www.cannabislawblog.com/2021/09/safe-banking-act-2021/

[4] https://perlmutter.house.gov/news/documentsingle.aspx?DocumentID=5486

[5] Gary Peters, Angus King, Kevin Cramer, and Mark Kelly

[6] https://www.cannabislawblog.com/2020/12/house-representatives-passes-bil…

[7] https://www.democrats.senate.gov/imo/media/doc/CAOA%20Detailed%20Summary

 

Article By Jennifer N. Le of Sheppard, Mullin, Richter & Hampton LLP

For more cannabis legal news, click here to visit the National Law Review.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

Feeling Thirsty? Wall Street, Industry Giants Stir Renewed Interest in the CBD-Beverage Market

For several years, industry giants such as Coca-Cola, PepsiCo, and Anheuser-Busch have made waves announcing future plans to explore the CBD-beverage market. And last week, Nasdaq published an article on the future of investment opportunities in cannabis-infused drinks. Perhaps most notable from the article was Nasdaq’s expected valuation for the CBD beverage market — a staggering $1.4 billion by 2023.

While it is true that certain investors are seeing green in the CBD-beverage market, the space is still plagued by a landmine of legal uncertainty and questions. Hemp-derived CBD was legalized at the federal level by the Agriculture Improvement Act of 2018, also known as the Farm Bill. However, as we previously discussed, the FDA and FTC have overlapping enforcement authority over the marketing of CBD products, which can include anything from food products to dietary supplements to beverages with CBD added. And as recently as November 16, 2021, the FDA reiterated that its approach to regulating the CBD industry will be same as it has been  — a regulatory minefield. The acting Deputy Center Director for Regulatory Policy at the FDA’s Center for Drug Evaluation and Research recently emphasized the agency’s position that it needs additional CBD research and safety data before it will consider CBD for uses beyond prescription drugs, including usage as a food or beverage additive or dietary supplement.

Companies marketing CBD beverages should take careful steps to ensure compliance with the FDA’s labeling requirements and guidance regarding CBD products. Unless and until the FDA provides further guidance, we can expect the back-and-forth game to continue with CBD companies entering the beverage space and the FDA initiating periodic enforcement actions. At a minimum, CBD companies entering the beverage space should refrain from making health claims, such as a product “can prevent, treat, or cure” a disease, as these claims are ripe for FDA enforcement actions. We provided several marketing dos and don’ts in a previous blog post that apply with equal force to the CBD beverage industry.

With industry experts claiming that the “best way to consume cannabinoids is through a beverage,” and Nasdaq reporting on the investment opportunities that surround CBD beverages, it is no surprise that CBD beverages are exploding in popularity.

This article was written by Rachel Sodee and Richard Swor of Bradley Arant Boult Cummings law firm. For more articles about CBD products, please click here.