Category: Cannabis

Cannabis Legalization and Racial Justice

Earlier this year, New York passed legislation legalizing the adult use of cannabis. New Yorkers can now legally possess three ounces for any use, and can smoke marijuana in any publically-designed area where tobacco smoking is allowed, although home cultivation is still not permitted. Importantly, certain convictions – possessing up to 16 ounces or selling up to 25 grams of marijuana – will be automatically expunged from criminal records.

Not only does this law expand existing medical marijuana programs and create a licensing system for producers and distributors, but it also acts as an important step toward addressing the racial disparities in drug-related arrests. During the 1970s and 1980s, the so-called “War on Drugs” stigmatized drug use as a criminal and moral issue rather than as a public health issue.

The criminalization of drug use led to disproportionate arrest rates of low-income people of color. Higher arrest and incarceration rates do not reflect increased drug use in these communities, but rather the increased presence of law enforcement in urban areas, low-income communities, and communities of color. In every state, Black people are more likely to be arrested for marijuana possession, and in some states, Black people are nearly ten times more likely to be arrested than White people. In states where marijuana has been legalized or decriminalized, arrests of racial minorities have declined markedly.

The criminalization of drug use has had lasting ramifications for many lives and communities. As noted by the Drug Policy Alliance, many people have been denied food stamps and public assistance, evicted from public housing, and lost custody of children. With the new legislation, once a marijuana conviction is expunged, it will not show up on a background check and cannot be used against an applicant in seeking employment, housing, or student loans.

The legalization of marijuana is an important step forward but much more needs to done such as providing greater resources to integrate the formerly incarcerated into society and expanding the definition of public safety beyond just the criminal law to include equal access to health care, education, employment, and housing.

© 2021 Proskauer Rose LLP.

CBD Here, CBD There, CBD Everywhere: Tension Between State and Federal Authorities Leaves CBD Companies in Limbo

You can’t miss them: signs reading “CBD PRODUCTS SOLD HERE” are appearing in gas stations and drug stores across the country. Cannabidiol (“CBD”), a naturally occurring non-psychoactive compound derived from the cannabis plant, is a mainstream product marketed as a supplement that provides health benefits to its users. Proponents claim CBD provides pain relief and reduces feelings of anxiety and depression, among other health benefits. In 2018, the United States Food and Drug Administration (“FDA”) approved Epidiolex, a CBD oral solution, for the treatment of seizures associated with Lennox-Gastaut syndrome and Dravet syndrome, diseases that generally appear in early childhood.

While CBD’s effects are promising, the FDA considers CBD a “new drug” under the Food, Drug and Cosmetic Act (“FD&C”). Under the FD&C, it is generally illegal to introduce a new drug into interstate commerce. The question, therefore, begs – if the FDA considers the sale of CBD illegal, then why are we seeing CBD for sale everywhere?

In 2018, the Agriculture Improvement Act (“2018 Farm Bill”) removed hemp from the definition of marijuana under the federal Controlled Substances Act (“CSA”). Consistent with the 2018 Farm Bill, Pennsylvania adopted a Hemp Program. The program permits the Pennsylvania Department of Agriculture to grant licenses to entities to grow, cultivate, and sell hemp. Under the program, licensees are permitted to grow hemp for the purpose of producing CBD. Other states have adopted similar programs, and under lawful state programs, the industrial hemp industry is growing (pun intended). By 2024, the United States CBD market is expected to reach $20 billion in sales. By 2028,  the value of the global industrial hemp market is projected to reach $27.7 billion.

So what’s the hold up? Since 2015, the FDA has issued warning letters to more than a dozen CBD companies for alleged violations of the FD&C. In the warning letters, the FDA claims to have reviewed the companies’ websites (including social media accounts) for evidence of FD&C violations. The FDA explains that the marketed CBD products are “drugs” under the FD&C because the products are “articles intended for the use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or any function of the body.” 21 U.S.C. § 321(g)(1). The FDA says that the products are “new drugs” because CBD is not generally recognized as safe and effective. See 21 U.S.C. § 321(p). Under the FD&C, new drugs may not be legally introduced or delivered for introduction into interstate commerce without prior approval from the FDA, or unless they are over-the-counter drugs lawfully marketed under 21 U.S.C. § 505G.

Clearly, there is conflict between state and federal authorities. While businesses face exposure under the FD&C, states like Pennsylvania permit CBD production. In the absence of regulation and consistent enforcement, it is likely that the CBD industry will continue to grow.  Due to the complexities in the laws, companies operating in the CBD sector may face difficulties in risk management, banking, and logistics. SMGG is tracking changes in the CBD laws and rulemaking process, and we are ready to advise you or your company in navigating CBD’s complex legal landscape.

©2021 Strassburger McKenna Gutnick & Gefsky

ARTICLE BY Matthew J. Morella of Strassburger McKenna Gutnick & Gefsky

The Trend Towards Legal Recreational Cannabis: Considerations for Employers

In the first four months of 2021, Virginia, New Mexico, New York and New Jersey passed laws legalizing or decriminalizing, in some form, recreational marijuana.  Exactly how these laws will affect employers in these states is still an open question, but for now, employers should understand the nuances of the laws so they can prepare for the emerging reality that is legal marijuana.

Recent Laws

New Mexico’s law, which takes effect in June 2021, legalizes recreational marijuana use and sales for people over age 21.  The law allows employers to test for marijuana but has protections for medical marijuana users, which means employers, with limited exceptions, are prohibited from taking adverse action against applicants and employees who have a prescription for and/or use medical marijuana.

New York’s law allows individuals who are at least 21 years old to possess, use, and transfer (without compensation) limited amounts of cannabis.  With some narrow exceptions, employers are prohibited from taking adverse employment action against employees solely because of their use, recreational or otherwise, of cannabis before or after their work hours.  Employers, however, may still prohibit employees from using cannabis while working, on the employer’s premises, or while operating or using the employer’s equipment or property.

New Jersey’s law legalized the sale, use and possession of recreational marijuana for individuals 21 and older.  The law does not restrict an employer from maintaining and enforcing drug-free workplace policies but, when it comes to marijuana, requires employers to show use and/or impairment at work, as opposed to off-duty use, before the employer can take adverse employment action.

Virginia’s new law (HB 2312 / SB 1406) legalizes home cultivation and personal possession of cannabis beginning July 1, 2021, and retail sales to individuals 21 years and older beginning January 1, 2024.  An amendment to existing law (HB 1862) provides employment protections for medical marijuana cardholders by prohibiting employers from terminating, disciplining, or otherwise discriminating against an employee “for such employee’s lawful use of cannabis oil pursuant to a valid written certification.”  While the statute provides anti-retaliation protections for an “employee’s lawful use of cannabis oil based on a valid written certification,” it does not: (i) restrict an employer’s ability to take adverse action for an employee’s impairment while at work or to prohibit possession during work hours; (ii) require an employer to commit any act that would cause the employer to be in violation of federal law or that would result in the loss of a federal contract or federal funding; or (iii) require any “defense industrial base sector employer or prospective employer” to hire or retain any applicant or employee who tests positive for marijuana in excess of specified amounts.  See our recent post concerning employment protections for medical use of cannabis oil.

Under each of these laws, the requirements employers must meet in order to justify adverse employment action can be difficult to ascertain.  Also, the various state administrative agencies tasked with providing guidance regarding these laws have not produced final versions of that guidance.  Even when such guidance is available, however, questions for employers will remain.  Much of what employers can and cannot do under these laws depends on the type of work in which the employees are engaged and the nature of the employment policies at issue.  There will likely not be a “one-size-fits-all” approach to navigating this new legal landscape and employers should be mindful of this as they contend with the prospect of broadening legalization of marijuana.

Copyright © 2021, Hunton Andrews Kurth LLP. All Rights Reserved.
ARTICLE BY Michael Reed and Holly H. Williamson of Hunton Andrews Kurth
For more articles on legal cannabis, visit the NLR Biotech, Food, Drug section.

Virginia Accelerates Adult-Use Cannabis Legalization

We previously highlighted the Virginia Legislature’s move to legalize adult-use cannabis.  This week the Virginia Legislature passed a bill legalizing adult-use cannabis.  In doing so, Virginia greatly accelerated the timeline for legalization.

Prior drafts had set a 2024 date for legalizing the possession of recreational cannabis.  The bill passed this week when Lieutenant Governor, Justin Fairfax, broke a 20-20 tie in the Virginia Senate legalizes adult possession of an ounce or less of cannabis beginning on July 1, 2021.

While the new law legalizes recreational possession and allows Virginia residents to grow up to four cannabis plants beginning July 1st, Virginia still isn’t likely to begin licensing recreational cannabis retailers until 2024.  Likewise, the new bill doesn’t allow existing medical cannabis dispensaries to begin selling to adults for recreational use.

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.

 

ARTICLE BY Morgan E. Persinger of Womble Bond Dickinson (US) LLP
For more articles on cannabis, visit the NLR Biotech, Food, Drug section.

CBD Regulatory Enforcement Continues with Over-the-Counter CBD Pain Relief Products

Enforcement by the Food and Drug Administration (FDA) against cannabidiol (CBD)-containing products continues through the issuance of two new warning letters. On March 22, 2021, FDA published a press release cautioning companies against illegally selling over-the-counter (OTC) CBD products for pain relief. In the warning letters, FDA cited products listing CBD as an inactive ingredient for unapproved drug and misbranding violations.

Regulatory Background of CBD Products

We have previously blogged about the regulation of CBD products by the FDA and provided updates to the government’s actions to create a comprehensive regulatory framework for CBD. But as a brief refresher, FDA does not permit adding CBD as an ingredient of food products or dietary supplements. And while the Agriculture Improvement Act of 2018 (the Farm Bill) legalized the production of industrial hemp and products derived from hemp, it did not legalize all uses of and products containing hemp derivatives (such as CBD).

Under the Federal Food, Drug and Cosmetic Act (FD&C Act), any product intended to diagnose, cure, mitigate, treat or prevent a disease, and any product (other than a food) that is intended to affect the structure or function of the human body is a drug. This definition includes articles and components of drugs, which are regulated as drugs. OTC drugs must be approved by the FDA or meet the requirements for marketing without an approved new drug application under federal law; this includes drug products containing CBD.

Currently, nonprescription drug products containing CBD may not be legally marketed without an approved new drug application, regardless of whether the CBD is represented on the labeling as an active ingredient or an inactive ingredient. To date, no CBD-containing drug has met applicable FDA requirements to be legally marketed for nonprescription use. However, as noted in a prior blog post, the FDA has approved one CBD-containing prescription drug product for the treatment of seizures associated with tuberous sclerosis complex, Lennox-Gastaut syndrome, and Dravet syndrome in human patients.

FDA’s primary concerns pertaining to CBD use in products include a lack of safety data and the quality of the CBD products on the market. Currently, there is insufficient safety data to establish cumulative exposure to CBD (and THC), impact on vulnerable populations, or impact on drug development. There are also concerns about contaminants such as heavy metals, microbials, pesticides, and THC. In addition, FDA is concerned that there is a lack of appropriate processing controls and practices regarding the quality of CBD products, which puts consumers at additional risk.

Analysis of OTC CBD Warning Letters and Potential Implications to Industry

To date, FDA’s CBD enforcement has focused on disease or health claims as well as the products’ intended use. FDA commonly determines a product’s “intended use” based on: claims in the labeling, advertising, or promotion; consumer perceptions; and ingredients with well-known therapeutic uses. Products with unsubstantiated or misleading claims may result in a change to the intended use and consequently, a change to the status of the product causing it to become an unapproved drug or adulterated product under the FD&C Act.  A product is adulterated if it fails to conform to FDA’s standards of quality, strength, or purity.

FDA’s recently issued warning letters to Honest Globe, Inc. and BioLyte Laboratories, LLC are no different with the exception that these warning letters address OTC CBD drug products claiming to provide pain relief. Honest Globe and BioLyte, both manufactured and marketed OTC CBD products that allegedly provide pain relief. Although CBD is labeled as an inactive ingredient on the products, the labeling of these products represent CBD as an active ingredient due to the frequent and prominent placement of CBD claims on the products’ labeling and advertising on the companies’ websites. The labeling and advertising may lead consumers to the conclusion that the product provides benefits due to the CBD contents. To add insult to injury, CBD is not an active ingredient in any applicable final monograph or TFM, for purposes of establishing eligibility for lawful marketing without an approved application under the FD&C Act. Even if CBD was considered an “inactive ingredient” in these nonprescription drug products, the products would still require approval through a new drug application in order to be legally marketed since CBD has no known functional role as an inactive ingredient in a finished product.

In addition, Honest Globe issued a press release on its Instagram page that stated the “Did you know that Elixicure [product in question] was the first over-the-counter CBD-infused topical pain cream product to receive FDA certified registration” (the company made several similar claims identified in the warning letter). FDA noted that to state the product is “FDA registered” is inaccurate. Drugs are subject to listing with FDA, not registration. Moreover, registration of an establishment or listing of a drug does not denote approval of the establishment, the drug, or any other drugs of the establishment, nor does it mean that a product may be legally marketed. FDA stated that “[a]ny representation that creates an impression of official approval or that a drug is approved or is legally marketable because of registration or listing is misleading and constitutes misbranding.”

Aside from the labeling and advertising claims and an assessment of the products’ intended use, both companies displayed significant violations of current good manufacturing practice (CGMP) regulations for finished pharmaceuticals demonstrating FDA’s concerns over safety data and quality control. The companies’ methods, facilities, and controls for manufacturing, processing, packing, and holding did not confirm to CGMP making the product adulterated within the meaning of the FD&C Act.

Neither of the company’s products have been subject to the approval process, nor have there been any evaluation of whether they are effective for the claims used, appropriate dosage, interaction with other drugs or products, or dangerous side effects or other safety concerns.

FDA Principal Deputy Commissioner Amy Abernethy, M.D., Ph.D. stated that: “The FDA continues to alert the public to potential safety and efficacy concerns with unapproved CBD products sold online and in stores across the country. . . It’s important that consumers understand that the FDA has only approved one drug containing CBD as an ingredient. These other, unapproved, CBD products may have dangerous health impacts and side effects. We remain focused on exploring potential pathways for CBD products to be lawfully marketed while also educating the public about these outstanding questions of CBD’s safety. Meanwhile, we will continue to monitor and take action, as needed, against companies that unlawfully market their products — prioritizing those that pose a risk to public health.”

Over the past several years, FDA has continued to issue warning letters to companies that market unapproved new drugs that allegedly contain CBD at an increased rate. These new warning letters are unique in that they address OTC CBD pain relief. As noted, demonstrating a product’s intended use and making disease and health claims are common pitfalls for companies selling CBD products. The rise of OTC CBD pain relief products make this an area to watch. As this area will no doubt continue to be a hot enforcement area for the FDA, we will continue to update our readers of any important regulatory activity.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
ARTICLE BY Elizabeth K. Conti of Mintz
For more articles on CBD, visit the NLR Biotech, Food, Drug section

Marijuana Legalization Update: Early 2021 Legislative Developments

In November 2020, voters in five states (Arizona, Mississippi, Montana, New Jersey, and South Dakota) voted in favor of legalizing medical and/or recreational marijuana. Since then, there have been several developments within the marijuana legalization world that employers may want to keep an eye on as they move forward in 2021.

While the COVID-19 pandemic brought a halt to many state legislative efforts to legalize marijuana in 2020, many of those efforts have been renewed in 2021, and some states have begun to consider marijuana legalization for the first time. Also, while Mississippi and South Dakota voters approved marijuana legalization measures in November 2020, subsequent developments have emerged that may impact those approvals.

Employers new to marijuana legalization laws may want to be aware of the two broad categories of medical marijuana laws: (1) laws with express protections within the language of the statutes for medical marijuana cardholders (i.e., “antidiscrimination” provisions) and (2) laws without express protections for medical marijuana cardholders. Employers should also be aware that irrespective of whether a medical marijuana law contains an antidiscrimination provision, they should be mindful of the potential disability and accommodation issues inherently at play when dealing with medical marijuana cardholders.

Importantly, while recreational marijuana laws are becoming more common, they typically do not contain employment protections for recreational marijuana users—although New Jersey recently deviated from this approach.

Employers may also want to keep in mind that legislation tends to evolve as bills work their way through the legislative process, and many of the bills discussed in this article are still in committee or other preliminary stages.

Medical Marijuana Legislation

Alabama

Senate Bill 46 would legalize marijuana for medicinal purposes in Alabama. The bill, which is the same as prior legislation introduced in 2020, does not contain any employment protections for medical marijuana cardholders.

Florida

Senate Bill 692 and House Bill 335 would amend the existing Florida Compassionate Medical Cannabis Act to include a provision prohibiting public employers from taking adverse employment action against medical marijuana cardholders. The proposed legislation would permit a public employer to discipline an employee if the employer is able to show that the “lawful use of medical marijuana use is impairing the employee’s ability to perform his or her job responsibilities.” Importantly, this prohibition would not extend to private employers. This development follows failed efforts in 2020 to amend the Florida Compassionate Medical Cannabis Act to prohibit private employers from discriminating against medical marijuana cardholders.

Hawaii

Senate Bill 64 would amend the existing Hawaii Medical Marijuana Act to include protections for medical marijuana cardholders.

Idaho

The Idaho Senate recently voted in favor of an anti-drug constitutional amendment, Senate Joint Resolution 101. The proposed amendment to the Idaho Constitution would make the use of all psychoactive drugs, including marijuana, illegal. In response, the Idaho House Health & Welfare Committee voted to introduce the Sergeant Kitzhaber Medical Cannabis Act, a medical marijuana legalization bill. The proposed act does not contain any employment protections for medical marijuana cardholders.

Kansas

Kansas Governor Laura Kelly recently announced a proposal to legalize marijuana for medicinal purposes. Relatedly, both the Kansas Senate Commerce Committee and House Federal and State Affairs Committee have introduced medical marijuana legalization bills. The proposed bills, Senate Bill 92 and House Bill 2184, do not contain any employment protections for medical marijuana cardholders.

Kentucky

House Bill 136 and Senate Bill 92 would legalize marijuana for medicinal purposes in Kentucky. House Bill 136 is a renewed bill that is the same as prior legislation introduced in 2020. Neither bill contains any employment protections for medical marijuana cardholders. Recent news reports, however, have indicated that there is a strong likelihood that these bills will not pass this legislative session.

Maryland

Senate Bill 504 would amend the existing Maryland medical marijuana law to include protections for medical marijuana cardholders. House Bill 683 would add medical marijuana to the list of medical treatments that can be provided to injured employees under the state’s workers’ compensation laws.

Mississippi

Since voters approved Initiative Measure 65 during the November 2020 election legal challenges have arisen related to the constitutionality of the initiative. The Supreme Court of Mississippi will hear oral arguments on this issue in April 2021. Perhaps in response to these challenges, Senate Bill 2765 would serve as an alternative or parallel to the medical marijuana program authorized by Initiative Measure 65. Senate Bill 2765, which passed the Mississippi State Senate on February 12, 2021, does not contain any employment protections for medical marijuana cardholders.

Nebraska

Legislative Bill 474 would legalize marijuana for medicinal purposes in Nebraska. The bill does not contain any employment protections for medical marijuana cardholders.

South Carolina

House Bill 3361 and Senate Bill 150 represent alternative bills that would each serve to legalize marijuana for medicinal purposes in South Carolina. Neither bill contains any employment protections for medical marijuana cardholders.

South Dakota

In November 2020, South Dakota voters approved Initiated Measure 26, which would establish a medical marijuana program in South Dakota. Governor Kristi Noem recently announced a plan to delay the implementation of Initiative Measure 26, which was originally scheduled to take effect in July 2021, until July 1, 2022. The South Dakota legislature subsequently introduced House Bill 1100, which reflected Governor Noem’s efforts to delay implementation of South Dakota’s medical marijuana program.

Virginia

House Bill 1862 would prohibit an employer from taking adverse employment action against a medical marijuana cardholder based on the individual’s lawful use of medical cannabis. Notably, Virginia does not have a typical medical marijuana law or program in place but instead has a limited medical marijuana program allowing individuals to use cannabis oils and products with less than 10 mg of tetrahydrocannabinol (THC).

Recreational Marijuana Legislation

Connecticut

Senate Bill 5853 and Senate Bill 888 would legalize marijuana for recreational use in Connecticut. Governor Ned Lamont has also been a vocal proponent for legalization of marijuana for recreational use.

Florida

House Bill 343 and Senate Bill 710 would legalize marijuana for recreational use in Florida.

Hawaii

Hawaii lawmakers are currently considering several alternative bills (such as Senate Bill 767) to legalize marijuana for recreational use in Hawaii.

Maryland

House Bill 32 would legalize marijuana for recreational use in Maryland.

Minnesota

House Bill 600 and Senate Bill 757 would legalize marijuana for recreational use in Minnesota.

Nebraska

Legislative Bill 546 would legalize marijuana for recreational use in Nebraska.

New Jersey

On February 22, 2021, New Jersey Governor Phil Murphy signed into law the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (CREAMMA), legalizing marijuana for adult recreational use in New Jersey and prohibiting employers from taking adverse action against employees solely because they use marijuana.

New Mexico

New Mexico lawmakers are currently considering several alternative bills (such as House Bill 12) to legalize marijuana for recreational use in New Mexico.

New York

Senate Bill 854 would legalize marijuana for recreational use in New York. Governor Andrew Cuomo has also been a vocal proponent of the legalization of marijuana for recreational use.

North Dakota

House Bill 1420 would legalize marijuana for recreational use in North Dakota.

Oklahoma

House Bill 1961 would place the issue of marijuana legalization for recreational use on the 2022 Oklahoma election ballot.

Virginia

On February 27, 2021, the Virginia General Assembly approved legislation that would legalize the sale and possession of recreational marijuana for adult recreational use beginning on January 1, 2024. Governor Ralph Northam has not yet signed the legislation and may propose amendments that would speed up the effective date of the proposed law.

Other States

Legislation to decriminalize the possession of small amounts of marijuana is also pending in several states. These laws should be viewed differently than typical recreational marijuana legalization laws.

Key Takeaways

Employers across the country may want to closely monitor state marijuana legalization efforts. Marijuana legalization continues to be a quickly moving area of the law, and employers following these developments should expect marijuana legalization efforts to continue in the years to come.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
ARTICLE BY M. Tae Phillips of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
For more articles on marijuana legalization, visit the NLR Biotech, Food, Drug section.

New Jersey Cannabis Legalization Imposes New Burdens on Employers

On February 22, 2021, after months of delay and uncertainty, Governor Phil Murphy signed a series of bills legalizing the recreational use of cannabis in New Jersey. While many in the state may rejoice over this development, employers will have to adapt quickly to new restrictions on their treatment of employees who consume cannabis.

Background

On November 3, 2020, New Jerseyans voted overwhelmingly in favor of a referendum and constitutional amendment to legalize and decriminalize the recreational use of cannabis. The ballot initiative followed on previous legislation legalizing the medical use of cannabis under the New Jersey Compassionate Use Medical Marijuana Act and the Jake Honig Compassionate Use Medical Cannabis Act. As of January 1, the New Jersey Constitution was amended to enshrine the legalization.

However, due to a nearly two-month impasse between Governor Murphy and the legislature concerning penalties for underage possession and consumption of cannabis, legislation codifying the legalization remained elusive. This week, Governor Murphy signed the “New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act” and two cannabis-related bills focused on criminal justice issues.

New Restrictions on Employment-Related Decisions and Discipline Based on Cannabis Use, Non-Use, and Criminal History

Much of the new legislation focuses on the decriminalization and regulation of the cannabis marketplace, but a few provisions significantly affect the workplace, employees’ rights, and, consequently, employers’ duties with respect to cannabis.

Most notably, employers may not refuse to hire or employ anyone, and may not discharge or take any adverse action against any employee, because he or she does or does not use cannabis items. This is the same prohibition imposed since 1991 on employers with respect to tobacco use, but now it has been extended to cannabis use. The new laws also prohibit employers from making an employment decision “solely” based on an arrest, charge, conviction, or adjudication of delinquency for violation of certain state laws related to manufacturing, distributing, dispensing, or possessing certain amounts of cannabis. Basing employment decisions solely on cannabis-related criminal history subjects employers to potential fines as high as $10,000 per violation for repeat offenders.

New Rules for Drug Testing

Employers may continue to maintain drug-free workplaces, including prohibiting the possession and consumption of cannabis as well as intoxication during work hours. But an employer may only require an employee to undergo a “drug test” if:

(i) the employer reasonably suspects the employee’s usage of a cannabis item while engaged in the performance of the employee’s work responsibilities;
(ii) there are observable signs of intoxication related to usage of a cannabis item;
(iii) the drug test follows a work-related accident subject to investigation by the employer; or
(iv) the employer conducts random drug testing, requires drug testing as part of pre-employment screening, or requires drug testing as part of regular screening of employees to determine use during work hours.

Critically, a “drug test” is no longer a simple mechanical collection and lab test. The law now prohibits employers from taking any adverse action against an employee based solely on the presence of “cannabinoid metabolites” in the employee’s bodily fluids. In other words, a failed blood, urine, or saliva test is no longer sufficient grounds for discipline. Rather, employers must utilize a two-part “drug test” involving both (i) “scientifically reliable objective testing methods and procedures,” such as a blood, urine, or saliva test; and (ii) a physical evaluation conducted by an individual with necessary certification to opine on the employee’s state of impairment or lack thereof.

Certification for physical evaluation purposes will require an individual to successfully complete presently undefined “Workplace Impairment Recognition Expert” training based on standards issued by a commission that presently exists only on paper (or certain substitute training). It is unclear when the commission will begin its work and issue training standards, when training will become available, and what, if anything, employers may do in the interim to identify employees who are intoxicated in the workplace.

Limited Exception to New Restriction on Employers

In most, if not all, other jurisdictions where cannabis has been wholly or partially legalized, employers retain the right to impose higher standards and discipline where an employee’s position implicates safety concerns, such as crane operators or emergency medical technicians. The New Jersey legislature included no such exception. Rather, the only exception is for federal contractors, who may “revise their employee prohibitions consistent with federal law, rules, and regulations” if compliance with the legalization law “result[s] in a provable adverse impact” on the employer, such as loss of a federal contract or loss of federal funding.

Comparison to New York State and New York City Cannabis Usage Rights and Drug Testing Requirements

In New York State and New York City, the recreational use of cannabis remains illegal, though Governor Andrew Cuomo has included legalization among his 2021 legislative priorities. Still, a number of laws protect employees and applicants and restrain employers. Being a “certified patient” under the state’s medical cannabis law qualifies an individual as disabled within the meaning of the New York State Human Rights Law, meaning that the individual is protected from workplace discrimination, harassment, and adverse employment action on the basis of being a medical cannabis user. In May 2020, New York City also banned pre-employment testing of applicants for tetrahydrocannabinol (THC), but with exceptions for applicants for safety-related positions.

Stay Tuned

As legalization becomes reality, regulations are issued, and cannabis-related issues percolate in the workplace, we will see the rights and responsibilities of employees and employers further defined by the courts and regulatory agencies. This may expand employer exceptions (including for safety-related jobs), define what constitutes “reasonable suspicion” permitting employers to require drug testing, and more.

© Copyright 2020 Sills Cummis & Gross P.C.

ARTICLE BY Grace A. Byrd and Jordan E. Pace of Sills Cummis & Gross P.C.
For more, visit the National Law Review Biotech, Food, Drug section.

Virginia is for… Cannabis Lovers… in 2024?

While adult-use cannabis legalization has been gaining popular support across the country, many state legislatures have been slow to translate that support into legislative action.  That is changing in Virginia.  In 2020, Virginia decriminalized the simple possession (up to an ounce) of cannabis while providing a civil penalty up to $25.  On February 5, 2021, the Virginia House and Senate took another significant step further when both passed bills approving adult-use cannabis legalization in Virginia.  Senate Bill 1406 passed on a 23-15 vote.  House Bill 2312 passed on a 55-42 vote.

There are differences in the bills that must be resolved in a conference committee.  However, an adult-use legalization bill is likely to pass through conference and be sent for Governor Ralph Northam’s signature.  Governor Northam has already stated his support for legalizing adult-use cannabis.  With passage, Virginia would become the 16th state to legalize recreational cannabis, but only the 3rd state to do so solely through the legislative process.

Key Rules and Penalties Found in Both Bills:

  • Adults who are 21 or older can possess up to one ounce of cannabis or an equivalent amount of cannabis product.
  • A household can cultivate up to two mature and two immature cannabis plants at their primary residence.
  • Possessing more than an ounce of cannabis remains punishable by a civil fine up to $25.
  • Possessing more than five pounds could result in up to 10 years in prison.
  • Possession on school grounds could result in up to 6 months in jail.
  • Bringing any cannabis into Virginia would be punishable by up to 1 year in jail.

Regulatory and Licensing Framework Found in Both Bills:

  • A Cannabis Control Authority, governed by a five-member board of directors, will be created to regulate the adult-use cannabis market.
  • Licensing priority will be given to social equity applicants.
  • A Cannabis Business Equity and Diversity Support Team will be created.
  • A Cannabis Public Health Advisory Council will be created to make public health recommendations.
  • Requirements for seed-to-sale tracking, packaging, and labeling, including state-created risk information and warning labels, are included.
  • A state tax of 21% would be levied at the point of sale.  Localities could impose their own tax up to 3%.
  • Portions of the tax revenue would be earmarked for pre-K education for at-risk children and substance abuse treatment and prevention, among other things.

Both bills also provide automatic expungement of misdemeanor marijuana–related offenses and allow for petitions for expungement of marijuana-related felonies under certain circumstances.

The House and Senate bills differ in the role and scope of local government involvement.  The Senate bill allows localities to ban cannabis stores by voter referenda.

Both bills set January 1, 2024 as the earliest date for beginning the retail sale of cannabis.  As Virginia moves forward toward 2024, the regulatory framework will continue to grow in size and complexity at both the state and local levels.

Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.
ARTICLE BY Morgan E. Persinger of Womble Bond Dickinson (US) LLP
For more, visit the NLR Biotech, Food, Drug section.

Cannabis and Bankruptcy: 2020 in Review

In 2020, bankruptcy court doors continued to be shut to cannabis companies.  Perhaps most troubling is the continued bar for companies that are only tangentially involved in the state-legalized cannabis industry.  Although outlier cases exist, and even though courts have hinted that bankruptcy may be appropriate for some cannabis-related individuals and companies in some situations, there is a consensus now that bankruptcy is generally not available to individuals and companies engaged, directly or indirectly, in the cannabis industry.  Below are some of the most important decisions from 2020.

Burton v. Maney (9th Cir. BAP)

The year began with the Ninth Circuit Bankruptcy Appellate Panel’s decision in Burton v. Maney (In re Maney).[1]  In Maney, husband and wife Chapter 13 debtors held a majority interest in a company, Agricann, LLC (“Agricann”), which was previously engaged in the cultivation and sale of cannabis.  These activities were legal under Arizona law, but were illegal under the federal Controlled Substances Act, 21 U.S.C. § 801, et seq. (the “CSA”).

The bankruptcy court entered an order to show cause why the case should not be dismissed based on the debtors’ ownership interest in Agricann.  In response, the debtors argued that Agricann was no longer operating and that no Agricann funds would be used to fund their Chapter 13 plan.  However, Agricann was still a plaintiff in two state court lawsuits in which it sought damages for breach of contract relating to the cultivation and sale of cannabis.  The bankruptcy court concluded that any recovery from the lawsuits would be derived from conduct violative of the CSA and that allowing the bankruptcy case to continue would likely require the court and the trustee to administer funds obtained in violation of the CSA.  The appellate panel affirmed the dismissal of the case, finding that the debtors’ ownership interest in Agricann constituted “cause” for dismissal under section 1307(c) of the Bankruptcy Code.[2]

Notwithstanding the ultimate ruling, there are portions of the Maney opinion that ultimately may be helpful to cannabis debtors seeking bankruptcy relief.  The appellate panel noted the tension between state-legalized cannabis and the CSA and the “difficult issues regarding how involved the debtor may be in [the cannabis] business and still be permitted to seek relief under the [Bankruptcy] Code.”[3]  Importantly, the panel wrote:

The case law continues to evolve and few bright line rules have emerged from decisions published to date.  One principle seems implicit in the case law, however; the mere presence of marijuana near a bankruptcy case does not automatically prohibit a debtor from bankruptcy relief.[4]

Further, the panel noted the varying degrees of connection that may exist between a debtor and cannabis and the discretion that bankruptcy courts have, at least in the Ninth Circuit, to determine whether a case should be dismissed when cannabis activity is present.[5]  Finally, the panel implied that the bankruptcy court could have allowed the case to remain in bankruptcy but for the numerous other unresolved issues (e.g., the debts exceeded the limitations under section 109(e); the debtors’ failure to propose a confirmable plan in over a year).[6]

In re Pharmagreen Biotech, Inc. (Bankr. D. Nev.)

While the language in the Maney decision could arguably be read as opening the “bankruptcy door” a crack, the bankruptcy court’s decision in In re Pharmagreen Biotech, Inc., [7] appears, on its face, to slam the door shut.

In Pharmagreen, the court considered whether a U.S. company with plans on entering the legal Canadian cannabis market was eligible for protection under the U.S. Bankruptcy Code.   The debtor was raising start-up capital to build a cannabis biotech complex in British Columbia and to obtain cannabis licensure in Canada.  According to the debtor’s principal, the company had no actual cannabis operations and no plans to operate in the U.S. until federal cannabis laws were changed.  Creditors, however, sought dismissal claiming that the debtor’s business model was based on cannabis operations in the U.S.

The bankruptcy court dismissed the case, pointing to a post-petition update published by the debtor that discussed the production of plantlets for cannabis and hemp.  While the debtor argued that there were no ongoing operations and that any business plan was prospective only, the court sided with the moving creditors, stating:

But there’s a business and the business page indicating that Pharmagreen Biotech was producing cultures for marijuana, and marijuana is not illegal in the state of Nevada.  But marijuana is illegal in the federal – in the federal system.  So I am going to dismiss this case for the reasons set forth by [counsel for the moving creditors].  You just can’t – you can’t use the federal courts to protect marijuana cultivation.[8]

What sets Pharmagreen apart from other cannabis cases is that the debtor’s operations were allegedly going to be limited to Canada where the CSA clearly does not apply.  It is unclear whether the court’s decision was based on conflicting evidence on this point.  Nonetheless, the Pharmagreen decision can be read broadly to preclude bankruptcy for even those cannabis companies whose activity in the United States is passive only, with the actual cannabis cultivation or sales occurring extra-territorially.

In re Malul (Bankr. D. Colo.)

The bankruptcy court’s decision in In re Malul[9] begins colorfully enough:

If the uncertainty of outcomes in marijuana-related bankruptcy cases were an opera, Congress, not the judiciary, would be the fat lady.  Whether, and under what circumstances, a federal bankruptcy case may proceed despite connections to the locally ‘legal’ marijuana industry remains on the cutting edge of federal bankruptcy law. Despite the extensive development of case law, significant gray areas remain.  Unfortunately, the courts find themselves in a game of whack-a-mole; each time a case is published, another will arise with a novel issue dressed in a new shade of gray.  This is precisely one such case.[10]

In Malul, the debtor received conditional approval to reopen her Chapter 7 case in order to include state court litigation claims arising from an equity investment in Heartland Caregivers, LLC (“Heartland”), a defunct Colorado cannabis company.  The debtor also sought to exempt those state law claims from her estate.  When objections were filed to the exemption, the debtor filed a motion to compel abandonment of the claims on the basis that the claims, or proceeds of the claims, were cannabis related and cannot be administered by the Chapter 7 Trustee.  Ultimately, the U.S. Trustee filed a motion seeking to vacate the conditional reopening of the case, arguing that the debtor was impermissibly attempting to use the bankruptcy to improve her position in the state court litigation.

The issue before the bankruptcy court was whether the debtor’s claims were sufficiently connected to cannabis for the reopening to be vacated.  The debtor argued that because Heartland was no longer operating, there was no continuing violation of section 841(c) of the CSA which makes it a federal crime to “manufacture, distribute, or dispense, or possess with intent to manufacture, distribute or dispense, a controlled substance[.]”  However, the bankruptcy court held that the debtor’s original investment in Heartland was in violation of section 854 of the CSA, which made it a federal crime to solicit investments in Heartland in the first place.  Accordingly, the debtor’s “mere possession of those rights and interests [in Heartland], and certainly her prosecution of litigation claims in furtherance of those rights and interests, constitute ongoing criminal violations of the CSA.”[11]  The U.S. Trustee’s motion to vacate was granted.  In a rejoinder to its opening and a call to Congressional action, the court wrote: “The Court may enjoy the opera, but anxiously awaits the fat lady’s song.”[12]

This may be one of those cases where bad facts make bad law.  After all, the debtor certainly appeared to be acting in bad faith by seeking to reopen her bankruptcy case, not in order to better the position of her creditors, but to improve her own position in the state court litigation.  Further, the debtor changed her position on her connection to cannabis, representing first that there were no assets or claims against third parties relating to cannabis, but then arguing that the claims should be abandoned because the claims “constitute unvested rights to proceeds derived from the overt and ongoing sale of marijuana.”[13]  It is unclear just how much the Debtor’s bad faith contributed to the court’s conclusion that the Debtor violated section 854 of the CSA and that this required dismissal of the case.[14]  Had the debtor not engaged in this bad faith behavior and had the debtor been more candid with the court, the decision may have come out differently.

In re Players Network (Bankr. D. Nev.)

In In re Players Network,[15] the court held that a debtor’s equity investment in a cannabis company constituted “cause” for dismissal under section 1112(b)(1) of the Bankruptcy Code.[16]

In Players Network, the debtor held a majority interest in Green Leaf Farm Holdings (“Green Leaf”), a cannabis producer.  A creditor sought dismissal of the debtor’s case under section 1112(b)(1), arguing in part that the debtor could not propose a plan in good faith based on its equity ownership in Green Leaf.  The bankruptcy court ultimately dismissed the case, in part because of the debtor’s interest in Green Leaf.  Nonetheless, the court was careful to note that within the Ninth Circuit “there appears to be no per se rule precluding a Chapter 11 plan from being proposed in good faith based solely on the debtor’s relationship to commerce involving marijuana or cannabis products.”[17]  Accordingly, there is language in Players Network (albeit dicta), similar to language in Maney, that arguably keeps open the possibility of a cannabis bankruptcy.

Where are We Now?

The bankruptcy courts continue to remain largely off limits to companies that operate in the cannabis space.  This relegates struggling cannabis companies to other forms of relief, primarily assignments for the benefit of creditors under state law and state law receiverships.  However, neither of these options provide cannabis companies with a stay, or the ability to restructure or maximize value through a “free and clear” sale as is available under section 363 of the Bankruptcy Code.  Instead, these remedial provisions lead inextricably to liquidation of the struggling company, an outcome that may not be in the best interests of the company or its creditors.  The situation is unlikely to change until the federal government legalizes cannabis.  At that time, the cannabis industry will be able to utilize all options available under the Bankruptcy Code to the benefit of the industry itself as well as its creditors.

[1] BAP No. AZ-19-1126 (B.A.P. 9th Cir. Jan. 14, 2020).

[2] Section 1307(c) provides that “on request of a party in interest or the United State trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause . . ..”  11 U.S.C. § 1307(c).  A non-exhaustive list of factors establishing cause is set forth in section 1307(c)(1) – (11).

[3] In re Maney, at p. 10.

[4] Id. (emphasis added).

[5] Id. at p. 13.

[6] Id. at p. 17.

[7] No. 20-50780 (Bankr. D. Nev. Oct. 7, 2020).

[8] Transcript of Motion to Dismiss Case at 10, In re Pharmagreen Biotech, Inc., No. 20-50780 (Bankr. D. Nev. Sept. 30, 2020) at p. 10.

[9] In re Sandra C. Malul, No. 11-21140 (Bankr. D. Colo. March 24, 2020).

[10] Id. at p. 1.

[11] Id. at p. 19.

[12] Id. at p. 21.

[13] Id. at p. 6.

[14] In most situations in which a cannabis case is dismissed, the courts have based their rulings on violations of sections 841 and 843 of the CSA.

[15] No. 20-12890 (Bankr. D. Nev. Oct. 23, 2020).

[16] Section 1112(b)(1) of the Bankruptcy Code provides that “on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.”  11 U.S.C. § 1112(b)(1).  Section 1112(b)(4) contains a non-exhaustive list of factor establishing cause.

[17] Id. at p. 9, n. 18.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Mark A. Salzberg of Squire Patton Boggs (US) LLP

For more, visit the NLR Bankruptcy & Restructuring section.

Madison Takes ‘Pot’shot at Wisconsin, Joins Growing List of Municipalities to Decriminalize Cannabis

In November 2020, the Common Council for the City of Madison, Wisconsin, passed ordinances decriminalizing the possession and use of small amounts of cannabis or cannabis derivatives within city limits. With those ordinances, which became effective on Friday, December 4, 2020, Madison joins a number of other Wisconsin municipalities that have decriminalized the possession and use of marijuana in some form or fashion. One alderman called the decriminalization long overdue, adding that it was “preposterous and outrageous” that the Wisconsin State Legislature had not moved to legalize and regulate cannabis as have many other states across the country.

According to the “drafter’s analysis” of Section 23.20 of the Madison General Ordinances as amended, an individual 18 years of age or older may possess or consume up to 28 grams of medically prescribed cannabis or cannabis derivatives if he or she “has a prescription for said possession.” The ordinance allows an individual to “consume cannabis or cannabis derivatives on private property with the permission of a person who is lawfully on the property or on public property with the permission of the owner, landlord or tenant.”

The ordinance does not apply to state-owned property, nor does it permit marijuana smoking where cigarette smoking is prohibited by Wisconsin’s ban on indoor smoking.

Unlike some of the marijuana legislation across the country, Madison’s decriminalization rules do not contain specific employment protections. As such, employers can still prohibit employees from possessing, using, and being under the influence of marijuana at worksites in Madison. Further, the possession and use of marijuana is still prohibited by federal law. Thus, although off-duty possession and use of marijuana may be legal at the local level in Madison, it does not entitle the individual to protection from employment discrimination under Wisconsin’s lawful products statute.

Nevertheless, it is possible for issues related to marijuana use to trigger employment law protections. Under the Wisconsin Fair Employment Act (WFEA), for example, individuals convicted of crimes, including drug-related offenses, cannot be excluded from employment on that basis unless the facts and circumstances of their crimes substantially relate to the jobs for which they are employed (or are applying). Further, the WFEA and the Americans with Disabilities Act distinguish between current use of illegal drugs, which is generally not protected, and drug addiction, which is a disability for which discrimination is prohibited and reasonable accommodation can be required.

Madison’s ordinances became effective on the same day that the United States House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019 (H.R. 3884), a historic, but largely symbolic, bill to decriminalize marijuana at the federal level. While the U.S. Senate is not expected to follow suit, the House’s passage of H.R. 3884 is further indication that public sentiment regarding marijuana is changing. Indeed, during the November 2020 election, all six state ballot initiatives to legalize marijuana passed—four for recreational use (Arizona, Montana, New Jersey, and South Dakota), and two for medical use (Mississippi and South Dakota).

Employers may want to monitor these developments at the federal, state, and local levels, and adjust their policies and procedures accordingly.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles on cannabis, visit the National Law Review Biotech, Food, Drug section.