The hemp and cannabidiol (“CBD”) industries today face substantial uncertainty, and they lack clear Federal rules, regulations, and guidance within which governments and businesses can safely operate.
That dearth of guidance has, to some degree, left individual states to wrestle with how best to regulate and control the production and sale of hemp and hemp-derived products within their own borders. At the epicenter of this struggle to address and regulate hemp in North Carolina is “smokable hemp.”
Where Do Things Stand in North Carolina?
When we last commented on the state of legislative efforts in North Carolina, the House of Representatives – along with local and state law enforcement agencies and county district attorneys – were fighting hard to kill the smokable hemp market in our state. The proposal set forth in the current version of the NC Farm Act of 2019 (“SB 315”) seeks to immediately ban and reclassify smokable hemp as marijuana (the Senate version of the bill included a ban as well but on a much more delayed timeline), and to subject its cultivation, sale, possession, and consumption to the same criminal and civil penalties as those for marijuana. The arguments and justifications for this ban have shifted over time, but generally include: that failing to ban smokable hemp will create “de facto” marijuana legalization in our state; that hemp and marijuana are indistinguishable in appearance and smell; that law enforcement will lose probable cause for drug-related searches and seizures; and that they will have to purchase expensive equipment to perform THC analysis in crime labs; that they will have to retire or retrain drug-sniffing canines (yes – this is apparently more important to House Republicans than the livelihood of our farmers and citizens’ civil liberties); that officers will have to be retrained and assigned to other jobs within their departments; and a general unwillingness to police and enforce marijuana laws differently in the future.
Since then, additional changes have been made to SB 315 – none of which are industry-friendly – and the bill was passed and approved by the House by a vote of 63 to 48. Among other things, the revised House version of SB 315:
More broadly defines the technical definition of “smokable hemp” to mean all “harvested raw or dried hemp plant material, including hemp buds or hemp flowers, hemp cigars, and hemp cigarettes.” This overly broad, sweeping definition appears to cover and include the entire hemp plant once it is harvested.
Classifies smokable hemp as marijuana and criminalizes the manufacture, distribution, dispensing, delivery, sale, purchasing, or possession of smokable hemp in our state. Violations are punishable by civil and criminal penalties, including possible prosecution for a Class I felony.
Fortunately, SB 315 is not law. The North Carolina Department of Agriculture and the North Carolina Senate – especially Senator Brent Jackson – have continued to showcase their support for the hemp and CBD industries. Following its passage in the House, SB 315 was immediately referred to the Committee on Rules and Operations of the Senate, and there have been no indications so far that the bill will be considered for a concurrence vote this session – let alone be finalized, passed, and sent to Governor Cooper for signature or veto.
The Struggle is Real
North Carolina is not alone in its struggle. Other states are also considering – and some have passed – legislative bans that, in effect, criminalize the production, sale, transportation, and possession of smokable hemp. Indiana is one such state. In response to the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), Indiana enacted and signed into law Senate Enrolled Act No. 516 (“SEA 516”) on May 2, 2019.
SEA 516 adopted the 2018 Farm Bill’s definition of hemp. However, SEA 516 also criminalizes the manufacture, finance, delivery, and possession of smokable hemp, which it defines as “a product containing not more than three-tenths percent (0.3%) delta-9 tetrahydrocannabinol (THC), including precursors and derivatives of THC, in a form that allows THC to be introduced into the human body by inhalation of smoke.” The definition of smokable hemp in SEA 516 specifically includes “hemp bud” and “hemp flower.”
On June 28, 2019, a group of hemp industry plaintiffs filed suit (the “Indiana Lawsuit”) in the United States District Court for the Southern District of Indiana (the “Federal Court”), challenging the constitutionality of SEA 516’s smokable hemp provisions on the basis that they are preempted by federal law. Shortly thereafter, the plaintiffs moved for a preliminary injunction that would temporarily halt Indiana’s enforcement of the smokable hemp ban pending the outcome of the case. The State opposed that request, and the parties briefed their positions and presented their arguments to the Federal Court for consideration.
On September 13, 2019, the Federal Court granted the plaintiffs’ request for a preliminary injunction (the “Preliminary Order”)[1]. In doing so, at least for the time being, the Federal Court has prohibited the State of Indiana from enforcing the portions of SEA 516 that criminalize the manufacture, financing, delivery, or possession of smokable hemp. It is important to remember that the Preliminary Order is not a permanent or “final” injunction and the Indiana Lawsuit is still ongoing. But, the Preliminary Order is strongly worded and seems to forecast an ultimate outcome that favors the hemp and CBD industries.
How Does the Indiana Lawsuit Affect Us?
Just like Indiana’s SEA 516, North Carolina’s SB 315 adopts a definition of “smokable hemp” that differs from the definition of “hemp” set forth in the 2018 Farm Bill. SB 315 classifies smokable hemp as “marijuana,” and in doing so, attempts to criminalize the manufacture, distribution, dispensing, delivery, purchase, or possession of smokable hemp in North Carolina. These actions appear to be expressly preempted by Federal law. They also preclude the transportation of hemp or hemp products in or through North Carolina in direct contravention of the 2018 Farm Bill’s express prohibition on restricting the transportation of hemp and its derivatives in interstate commerce.
SB 315’s restrictions on smokable hemp also appear to violate conflict preemption principles. In the Preliminary Order, the Federal Court states that “the plain language of the 2018 Farm Bill, as well as statements from its legislative sponsors, reflect Congress’s intent to de-stigmatize and legalize all low-THC hemp, including its derivatives and extracts, and to treat hemp as a regulated agricultural commodity in the United States.” Provisions of law that seek to criminalize the manufacture, distribution, dispensing, delivery, purchasing, or possession of smokable hemp (including hemp bud and hemp flower) – “hemp derivatives of the kind specifically legalized under the 2018 Farm Bill – frustrates these congressional purposes and objectives.”
Further, the Preliminary Order indicates that the anti-preemption provision of the 2018 Farm Bill only applies to hemp production, which means that states can enforce laws “prohibiting the growing of hemp” within their borders. As noted by the Federal Court in its Preliminary Order, states (like, North Carolina) are free to place limits on the acreage that can be used to grow hemp within their borders or to dictate the type of seeds that can be used or planted by growers. But, states may not pass laws that interfere with the right to transport in interstate commerce hemp – including hemp derivatives like “hemp buds” and “hemp flower” – that has been lawfully produced. SB 315’s smokable hemp provisions, as they stand today, do just that.
The Preliminary Order also discredits many of the arguments raised to date by opponents of smokable hemp in North Carolina, including:
That there is no evidence that Congress ever contemplated, let alone had the intention of, legalizing smokable hemp with passage of the 2018 Farm Bill.
The Federal Court dismissed this argument by stating that “[t]he 2018 Farm Bill’s expansion of the federal definition of hemp and removal of all low-THC hemp from the federal list of controlled substances evinces a clear congressional objective to legalize all forms of low-THC hemp, including” smokable hemp. This analysis can be easily applied to arguments raised by House Republicans and law enforcement groups that, during the 2015 legislative session, our General Assembly never contemplated the legalization of smokable hemp when it passed the industrial hemp research pilot program authorizing legislation.
That legalization of smokable hemp (or a failure to re-criminalize smokable hemp) will create significant obstacles for law enforcement agencies to enforce and prosecute North Carolina’s laws against marijuana.
In response to nearly identical arguments and public policy considerations raised in the Indiana Lawsuit, the Federal Court recognized that “the fact that local law enforcement may need to adjust tactics and training in response to changes in federal law is not a sufficient basis for enacting unconstitutional legislation.”
So What Comes Next?
Industry advocates and opponents alike will continue to monitor the Indiana Lawsuit. With limited case law to rely upon, the Federal Court’s final decision, though non-binding, will likely have a ripple effect in North Carolina and other jurisdictions across the country. For now, our hope is that the North Carolina Senate will continue to refuse a concurrence vote on the House version of SB 315 – and, that the Preliminary Order will chill additional efforts (like those occurring in North Carolina) to classify “smokable hemp” as marijuana or to otherwise ban, restrict, or criminalize possession of the plant.
[1] C. Y. Wholesale, Inc. et al., v. Eric Holcomb, Governor, in his official capacity, et al., S.D. Ind., No. 1:19-cv-02659-SEB-TAB (Doc. 31) (September 13, 2019).
Within the past decade, regular tobacco users have turned to electronic cigarettes in an effort to wean off of traditional cigarettes, believing them to be a safer option for human health. E-cigarettes, also known as nicotine vaporizers, vaporizer cigarettes, or simply vape pens, have grown in popularity over the past several years, partially driven by the debut of Juul’s e-cig devices in 2015. Now, Juul Labs is a leading manufacturer of e-cigarette devices and e-liquid flavors nationwide. Despite its growing popularity, especially among teens and young adults, Juul has been at the center of several consumer legal battles, most of which allege that Juul’s e-cig devices are extremely detrimental to users’ health. Several suits have been filed by parents or guardians on behalf of teenage children.
Several consumers have accused Juul Labs of deliberately marketing its products to appeal to the younger generation. A lawsuit recently filed by the father of a Carmel, Indiana teen in the U.S. District Court in Indianapolis alleged that his son was enticed by the rainbow colors and fruity flavors of Juul’s e-cigarette products, which contained excessive levels of nicotine. The teen later developed an intense nicotine addiction and fears that his addiction may lead to health problems throughout his life.
Other suits have similarly claimed that Juul specifically targets underage markets with its presence on several social media platforms and use of online influencers to attract teen users.
This is not the first attack against Juul’s advertising practices. Stanford University researchers evaluated Juul’s marketing campaigns over its first three years on the market, and the resulting impact on teens and young adults, in a January 2019 study.
By analyzing Juul’s website, social media platforms, hashtags, and customer campaign emails, the researchers concluded that, “Juul’s advertising imagery in its first [six] months on the market was patently youth oriented.” Though Juul representatives have repeatedly denied that the company intentionally targets a younger generation in its marketing, the study revealed how Juul, “continued to engage in advertising either targeted to youth…or by placing its promotional material preferentially in youth consumed media channels…”
Juul lawsuits have also been filed in response to defective vape batteries and device explosions. Juul’s e-cigarette products are operated by lithium-ion batteries, which can allegedly overheat and explode. In several instances, vape explosions have damaged users’ mouths, hands, and other body parts, causing burns, broken jaws, and even deaths. Treacy Gangi, for example, filed a lawsuit in November 2017 on behalf of her husband who was killed by an exploding e-cigarette, similar to a Juul device.
Another lawsuit recently filed by an Ohio mother on behalf of her two teen daughters claimed that Juul failed to warn its customers of the high levels of nicotine in its devices. The complaint stated that the two twin daughters, who are now 16 years old, began vaping in 2016 and initially purchased the devices in a store that “knowingly sold e-cigarettes to underage customers.” The teens quickly became addicted to their e-cigarettes and were eventually vaping two Juul pods a day. According to the lawsuit, one Juul pod contains the same amount of nicotine as two packs of cigarettes.
Similar lawsuits have claimed that in addition to containing excessive levels of nicotine, Juul products are advertised as being a healthier alternative to traditional cigarettes. Recent cases, however, have shown that vaping Juul e-cigarettes is linked to a number of health conditions, including heart disease, lung damage, and seizures. The Centers for Disease Control and Prevention (CDC) is inspecting the recent hospitalizations of more than 149 individuals whose health problems are linked to vaping. The patients, who are predominantly teens and young adults, reportedly developed severe lung illnesses that have been associated with vaping.
According to recent cases, vaping also puts users at risk of experiencing seizures, which is a known symptom of nicotine poisoning. The FDA has received about 127 reports of seizures linked to vaping since 2010, and issued a warning about the potential correlation between vaping and seizures (convulsions) in April 2019.
Amid a lack of research and information on the health risks of using e-cigarettes, an Illinois patient was reportedly the first to die of a lung illness that was associated with vaping. Health experts say that more research needs to be done in order to understand the health implications of vaping, before other users face a similar fate.
On August 19, 2019, the chairman of the National Credit Union Association issued a letter with guidance to all credit unions. Prior to August 19, hemp businesses had difficulty locating banks or other entities that would permit them to conduct normal merchant banking activities. That issue has, in part, been addressed by this letter of guidance. Questions remain, however, regarding many merchant services and whether FinCEN will issue a similar guidance. In either event, banks or credit unions that bank with hemp businesses have numerous compliance obligations under the Bank Secrecy Act (BSA) and Anti-Money Laundering Act (AML). It is important to make your banking institution aware of your business purpose to avoid the Suspicious Activity Reports (SAR) that could negatively impact your business operations.
According to Chairman Hood, “Credit unions need to be aware of the Federal, State and Indian Tribe laws and regulations that apply to any hemp-related businesses they serve. Credit unions that choose to serve hemp-related businesses in their field of membership need to understand the complexities and risks involved.
While it is generally a credit union’s business decision as to the types of permissible services and accounts to offer, credit unions must have a Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program commensurate with the level of complexity and risks involved. In particular, credit unions need to incorporate the following into their BSA/AML policies, procedures, and systems:
Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program. Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
When deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity. For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate.”
As the regulatory entities work through the changes in federal law, new rules and regulations are inevitable. FinCEN, the FDA and TTB are expected to issue new regulations, although they do not appear to be on the horizon any time soon. The SAFE Banking Act, STATE’s Act and other new federal legislation remain held up in committee.
The Federal Cigarette Labeling and Advertising Act(FCLAA), as amended by Section 201 of the Family Smoking Prevention and Tobacco Control Act (TCA; signed into law on June 22, 2009) directs the U.S. Food and Drug Administration (FDA) to develop graphic warnings for cigarette packages and promulgate regulations requiring the warnings within 24 months of enactment of the TCA. Accordingly, FDA issued a final rule requiring graphic warnings on June 22, 2011. However, the original graphic warning images did not survive a First Amendment challenge by the tobacco industry (seeR.J. Reynolds Tobacco Co. v. FDA), and FDA withdrew the rule.
In response to a lawsuit filed against FDA by a coalition of public health groups lead by The Campaign for Tobacco-Free Kids, the American Academy of Pediatrics, the American Heart Association and others, the U.S. District Court for the District of Massachusetts ruled that FDA “unlawfully withheld” or “unreasonably delayed” a revised graphic warning rule because nearly a decade had passed since the TCA was enacted. In March 2019, the Court ordered FDA to publish the new proposed rule by August 2019 and issue a final rule in March 2020. FDA promulgated a notice of proposed rulemaking on the new cigarette health warnings on August 15, 2019 (available here).
The proposed rule would require advertising and packages of cigarettes sold in the United States to include one of thirteen warnings:
WARNING: Tobacco smoke can harm your children.
WARNING: Tobacco smoke causes fatal lung disease in nonsmokers.
WARNING: Smoking causes head and neck cancer.
WARNING: Smoking causes bladder cancer, which can lead to bloody urine.
WARNING: Smoking during pregnancy stunts fetal growth.
WARNING: Smoking can cause heart disease and strokes by clogging arteries.
WARNING: Smoking causes COPD, a lung disease that can be fatal. (This statement is paired with two different images.)
WARNING: Smoking reduces blood flow, which can cause erectile dysfunction.
WARNING: Smoking reduces blood flow to the limbs, which can require amputation.
WARNING: Smoking causes type 2 diabetes, which raises blood sugar.
WARNING: Smoking causes age-related macular degeneration, which can lead to blindness.
WARNING: Smoking causes cataracts, which can lead to blindness.
Under the proposal, each statement is paired with a graphic image, except the COPD statement which is paired with two different images. The proposed labels, with the accompanying graphic images, can be found here. Among other requirements, the top fifty percent (50%) of the front and rear panels of the package and 20% of the top of the advertisement would need to provide a graphic warning.
Stores like Aldi are increasingly popular with UK consumers as a result of offering “copycat” products of well-known brands at drastically lower prices. However, with this rise in popularity, brand owners and creatives are being increasingly frustrated by finding their products and ideas at the mercy of imitation products.
One such aggrieved party was well-known makeup brand Charlotte Tilbury (Tilbury), who found their “Starburst” lid design and the “Powder Design” of their “Filmstar Bronze and Glow” set had provided the ‘inspiration’ for Aldi’s own “Broadway Shape and Glow” set. Tilbury filled a UK High Court claim for copyright infringement over the products shown below, with Aldi adamantly rejecting that any copyright had been infringed in their ‘inspired’ makeup set.
The main difficulty Tilbury faced was the fact that it is notoriously hard to claim copyright in mass produced 3D products as English Courts have historically been reticent to consider them “sculptures” or “works of artistic craftsmanship”.
However, Tilbury was successful in arguing that the “Starburst” lid design and the “Powder Design” on their product were original artistic works and as such the product was protected by copyright. Tilbury were able to establish their artistic copyright as “a work need only be ‘original’ in the limited sense that the author originated it by his efforts rather than slavishly copying it from the work produced by the efforts of another person.” Once establishing the existence of copyright in the artistic work the Court had little difficulty in finding that it had been substantially copied by Aldi for its “Broadway Shape and Glow” set and summary judgement was granted in Tilbury’s favour.
This case not only marks a success for the aggrieved brands and creatives who feel short changed by “Like brand inspiration” products but also provides some interesting learning opportunities for brand owners in the quest to protect their designs. Tilbury was successful in arguing copyright infringement due to the original artistic “starburst” element in its product design, the elements where the copyright lay. Brand owners may consider incorporating similar artistic elements into their products to act as a form of protection against imitators or at least provide ammunition for a copyright infringement claim should they need it.
The cannabis industry is rapidly expanding in the United States, with multiple jurisdictions and corporations seeking to accommodate the evolving cannabis market. Carlton Fields attorneys Kevin McCoy and Jennifer Tschetter discuss the emergence of cannabis as a billion-dollar, mainstream industry; explore its impact on corporate clients; and analyze the ever-evolving legal landscape in this space.
Transcript:
Kevin: It’s an exciting day here at Carlton Fields. My name is Kevin McCoy. I am a trial lawyer here in the Tampa office of Carlton Fields with a background in commercial litigation, and today I’m going to be speaking with Jennifer Tschetter out of our Tallahassee office, who is the co-chair of our Cannabis taskforce, which is a very exciting area of the law and one that we are happy to be working in and learning about and helping clients with. So without further ado, welcome, Jennifer.
Jennifer: Thanks, Kevin.
Kevin: Thanks for making the time today. First of all, why don’t you give us a little background about you?
Jennifer: Sure. I’ve been practicing law about 18 years and during that time I spent 10 of them in public service, primarily at the Department of Health here in Florida.
Kevin: Wonderful. In the Department of Health, what were some of the areas that you touched upon in particular with respect to health issues, or have you been involved in the medical marijuana and the marijuana push here in Florida?
Jennifer: Yes, in fact, I was general counsel at the department when medical marijuana first came to this state. So, since the inception of the regulatory structure, I’ve either been intimately involved as a regulator, or since my move to private practice just a couple of years ago became more involved on the private side.
Kevin: Wow, so you’ve been in the front lines?
Jennifer: Yes.
Kevin: You’ve been in the front lines as the government has wrangled with this, I won’t say with the forbidden fruit anymore, because I don’t know that we’re in that land, but you’ve been fighting the fight for a while on both sides of the isle, I suppose?
Jennifer: Yes.
Kevin: So, you know, I use that term, the forbidden fruit, and it’s amazing to me, literally, that we are sitting here at a firm like Carlton Fields and we’re talking about Cannabis law, which, when I started here, I couldn’t have contemplated that that would be an area that we are growing and we are developing experience in and counseling clients on. But, it’s here. And, why don’t you talk to us a little bit about how here it is? I mean, in reality that this is no longer, you know, we don’t think of this anymore like this is two guys doing a drug deal in a parking lot, this is billion dollar industry. Is that fair to say?
Jennifer: Fair to say. So some of the things that I think are most interesting is to watch the evolution of this industry. If you’ve seen, I’m sure everybody has seen those maps, you know, that have varying colors of green based on, you know, are you a recreational state or a medical marijuana state, a low THC state and if you think about that 20 years ago there was one green state on that map and that was California and now you look at the states and there are only 3 that don’t have any color anymore. At least, in some form, 47 states have said you can use this on some level. Might be low THC. Might be full spectrum. Could be recreational. But, those types of statistics are interesting to me. The other ones that come to mind are 1 in 4 Americans right now live somewhere where purchasing recreational cannabis is legal. The farm bill’s delisting of hemp has opened another huge industry and they’re all derivatives of the cannabis plant which used to be forbidden.
Kevin: Let’s talk for a minute for those who are maybe new to this space, new to this industry, about that real distinction. Because that’s one that maybe I didn’t appreciate until recently. When we talk about cannabis, it’s easy to confuse some of the aspects of cannabis as it, as between marijuana or between CBD, which is all the rage of late. Can you just briefly give us an overview of the differences that happen between cannabis, between marijuana, between CBD? How does all that break down for somebody who’s really not deep in this space?
Jennifer: I’ll try. So, our definition in the United States of what constitutes the difference between hemp and marijuana, and they are both species of the same plant, cannabis. So they’re both cannabis, but what distinguishes them is their THC level and THC is the thing that most people think about as creating the euphoria typically associated with marijuana. In hemp, the THC level is .3% or less. If the cannabis plant, as it’s growing, has a THC level higher than .3%, it’s marijuana. So, that’s the distinction is the THC level in each.
Kevin: So, we’ve talked a little bit about some of the aspects that are happening and you talk about the delisting of hemp from the Controlled Substances Act. What has that or what have you observed the impact of that having as impacting some of the clients that we deal with in terms of, you know, these are corporate clients. These are big. They’re pharmaceutical. They are manufacturers. They are real businesses who are now looking at this. Can you just talk about what you’ve seen in industry as, for example, you mentioned CBD, as that has been delisted, or hemp I should say, has been delisted from a controlled substance.
Jennifer: So, CBD, I think there’s a place to start. So, hemp has opened the opportunity, not only for industrial uses for hemp, but it has created another potentially billion dollar industry in this country with the passage of the farm bill in 2018. So, those billion dollar industries don’t come around very often and one aspect of it is the CBD industry. Because hemp is low in THC, one of the other cannabinoids that’s very popular is CBD, which has been documented to relieve stress, anxiety, improve depression and can also alleviate some joint aches when applied topically. So, CBD is in high demand around the country and when it is extracted from the hemp plant, it can be infused in a variety of products: shampoos, lotions, gummy bears, drops. So, that created an enormous industry, but for every business in this country, the potential to at least contemplate whether a CBD additive would be helpful for their product and understanding how to navigate this new regulatory structure that’s kind of emerging, if you do chose to that, has been challenging.
Kevin: You mentioned the word challenging. What are some of the challenges that you are seeing as clients are coming to you for guidance as they’re entering, let’s just call it, the broad umbrella of cannabis without getting into whether it’s marijuana or CBD based on the .3% that you just described. But, what are some of the top, if you had to give us the top five challenges that people are coming to you, businesses, I mean we’re not talking little players here, we’re talking about real corporate clients, they need help, what are the areas that are the hottest right now that you are seeing?
Jennifer: So, compliance is one and the unfortunate part about that, and the challenge that goes with that, is the shifting sand that is the regulatory structure. When hemp was, when cannabis, I’m sorry, was put on the controlled substance act in the 70’s, it stopped all research, it stopped all production of both hemp and marijuana in this country. Because of that, everyone is just now putting brand new regulatory structures in place and research is ongoing and that continued compliance, I think that that is the number one challenge for a business trying to get in this market right now is that you can get a snapshot from a law firm as to whether your business is in compliance today, but the law in North Carolina can change tomorrow. The law in California can change next week and it’s that ongoing uneasiness and being willing to move in that space aggressively despite the potential for the bottom dropping out at any given moment.
Kevin: It sounds like on the compliance piece then, what folks are facing in this industry is right now, it’s you know, technology as I’ve seen it on, in any number of areas, whether it’s a plant, whether it’s a new gadget, a widget, whatever it may be, technology always moves faster than the law and the law is slow to catch up and that’s not necessarily a bad thing because we rely on law. But right now, what we’re dealing with is a regulatory patchwork, if you will, where step over the line from state X to state Y, you could be facing very different types of regulations, whether it’s labeling, whether it’s requirements and sourcing. Can you just talk about some of the things you’re seeing in that regard? I mean, for example, you know I think to the bill that we just passed here in Florida, the hemp bill, and some of the things that, for example, you would see here in terms of a Florida based hemp business that stick out to you that maybe could differ from other states around the country.
Jennifer: So, I think every state is going to have, and this will be a challenging piece of it, different rules on how you can bring that product into the state. And so, the USDA has issued some guidance that said everybody get ready, the farm bill said you can move this from state to state. It’s now a legal agricultural commodity. That’s great, except it does have an impact on agriculture and so, every agriculture department around the country right now is trying to figure out how to protect its farmers. And so the rules on how you bring product into this state, I think, will be one of the first challenges. That’s a patchwork where if you don’t know the law, you might not know that you need to be escorted into the state by our department of agriculture after you have an inspection, and when you get here, your truck needs to be a closed truck…
Kevin: Mm-hmm.
Jennifer: …in order to move about the state of Florida. Those are the proposed regulations.
Kevin: Sure.
Jennifer: We’ll see where they end up. Those will vary by state and part of it is that, I know here in Florida, it’s a perfect example. We’re so sensitive to invasive species. When you look at the cannabis plant, what the plant researchers have told you is that it’s a more invasive species, hemp, cannabis that would include hemp. It’s a more invasive species on their scale from 1 to 25, then Kudzu.
Kevin: Mm-hmm.
Jennifer: So, that should give us all pause as to whether we should be too quick to move so quickly in a space and eager, because it can have lasting implications.
Kevin: You know, it’s funny that you bring up this patchwork and states putting in place these kind of regulations to, maybe, protect their own, if you will. I think the last time I had ever thought about the commerce clause of the constitution was about a week ago when you and I were comparing notes on, I’m not so sure if this particular regulation doesn’t cut too close on protecting, you know, interfering with that. So, what are some of the legal issues that businesses are looking at as cannabis the plant impacts them? I mean, I would have to imagine, you’re dealing now, not only as a business dealing in cannabis, but, I mean, it’s gotta impact employment policies. It’s gotta be impacting, I mean, it’s actually, not to overstate it, but it’s almost like, what is this not going to impact, you know, in terms of policies, in terms of industry? Talk to us about some of the things that businesses have to be looking out for in terms of regulatory patchwork and you can interpret that or answer that in whatever way you want, because it’s a very broad question. But, based on what you’re seeing and what people are coming to you with, what are some of those top items outside of, maybe, compliance or regulatory?
Jennifer: There isn’t an item.
Kevin: Yeah.
Jennifer: This industry will touch almost all practice groups in law firms. When you think about it, because it’s both medicine and something that people want to use for recreational pleasure, it’s different than other things. That’ll make its impact on schools and Girl Scout troops. I mean, they’re gonna have to deal with issues related to cannabis and figure out what they can and can’t do for people that either have a prescription to take this medication, or CBD products limited, they’re not high in THC, so those are, there’s not an industry that I can think of that won’t be impacted by this.
Kevin: I tell you what, I have to agree and I am not anywhere near as versed in this space as you are. Admittedly, I’m a newcomer to understanding this as an industry. But, in the short time that I’ve been working with clients in this space, I mean, I have seen this touch land use. I have seen it touch rewriting employee handbooks which we’ve had to do, you’ve got tax issues. You’ve got money transmitter issues. You’ve got, how, where’s… great your business is doing well, but where are you going to put all that money? You know, US banks are slowly coming around. I think, part of that is because they’re pushing Congress to give them the clearance that they want to be able to touch some of this money.
You mentioned the USDA. You’ve got ongoing issues with the FDA and what are they going to do? And I think they, you know, they have been studying this and rightly so, which is, which is their task to do but, industry is crying out for them to make a move, to take a stand or at least a position and I think that will help industry in terms of knowing the rules of the road because right now, tell me if you disagree but, it’s almost like we are in the wild West in some regard because people are trying to predict what the regulatory framework will be and they’re not going to stop business while they’re waiting on government. So, they’re trying to do the best they can. Is that consistent with what you’re seeing?
Jennifer: Yes, and also a lot of innovation. So, the sky is the limit. You know, I was telling someone the other day, think about how different this industry is than some other highly regulated industries. And I think part of that is the federal prohibition on it, which makes it confusing to talk about. There’s not that federal overlay that you see in some other industries which is why, for example, we maybe don’t see nicotine gummy bears and we don’t see other products that are innovative. I think that they can be helpful, enjoyable. Those are all good things and they’re all possible in this cannabis space.
Kevin: What other areas, you know, we talk, we think about this in terms of somebody who’s directly in this space in terms of you’re cultivating, in terms of you’re manufacturing or you’re distributing whatever that product may be, whether it’s biomass, whatever you’re doing, maybe textile, but, it seems like they’re, this is going to touch a lot of ancillary businesses too. So, for example, you know, you look at the Florida farm bill, you have to have an approved third party independent lab testing your batches of product. So, talk about some of the ancillary industries that you’ve been working with in that regard, and just, setting aside not actually being in directly in the space but maybe a secondary player and areas where you’ve been giving counsel and people have been coming to you for your knowledge.
Jennifer: Sure. The ancillary businesses that we work with most often are those that are directly related. I mean, they’re driven by the cannabis space. And you’re right; the independent testing labs are one of them. And so we work with them and, you know, try to set high standards for those labs whether it be through accreditation and then work with the regulators to put appropriate regulations in place. And I think that’s where when clients can be introduced as an asset, a subject matter expert. Who knows better how to test and what’s possible to test for in a parts per million or parts per billion than the lab folks? And that’s why it’s been a pleasure to represent them and learn a lot about that space.
Other ancillary businesses are the seed to sale tracker. So what some people might not know is that virtually every state that has put in place a medical marijuana program puts in a seed to sale tracking system, and that literally tags plants from the time that they are growing in a cultivation room and you track them with bar codes all the way through the production process so that when you’re all done you know exactly what product was made with that plant. And those type of tracking mechanisms are essential to prevent against diversion in states that don’t want to have a legal recreational adult use market yet. So, that’s another ancillary business that is all unto itself but, the technology and information technology that goes into that is highly complicated and sophisticated. I think you will see that on the hemp side as well. In that most, one of the greatest concerns in the hemp industry is, where are we growing this? And part of that is to understand just how far the reach will be. Can you cross pollinate an orange field 10 miles away or is it 5 miles away? We’re gonna just all learn together. I think it’s an orange grove, candidly. But, those are the things that I think will be interesting and those ancillary businesses are creatively looking for solutions.
There are also drone manufacturers that will be essential in the GIS mapping of hemp cultivation plots all over this country that will help us understand the impact on other crops and also be a tool for law enforcement because I think what can be confusing for people – we were talking about it before in interstate shipments – is that if you were to cut up, you know, grind up a batch of hemp and a batch of marijuana or you drive by a field of hemp the terpenes are the same and it will smell a lot like that smell that we all associate with adult use or recreational marijuana. And so, when you see a load of it coming over state lines, that’s confusing to law enforcement, and rightfully so. Rightfully so. I think that there’s a lot of entrepreneurs looking for innovative solutions to help regulators to help the industry do it better, do it faster. And this is an industry that seems receptive to all those things.
Kevin: You know, you touch on a really interesting point. I went to one of the recent rule-making sessions here in Tampa that the Department of Agriculture put on. And there was a lot of discussion over the disposal requirement and the rule. And it actually surprisingly got a lot of pushback from the audience and a lot of questions about why would you impose these costs. And I actually thought the response from the folks from the Department of Agriculture sitting on the panels was encouraging because their response was, “Listen, there’s two paths here. If you get a crop of hemp that, we come out and we test it and it’s above .3% because of whatever factor happened, inadvertently it was too hot, who knows, you got bad seed. We can make that a law enforcement issue and now you have an entire acre or acreage of plant that is technically now illegal because of something that was out of your control. Or, what we have done is come up with this disposal plan that we’re still trying to flesh out but we can have a plan where we go, ‘This is no good. We’re going to give you the opportunity to dispose of it in the appropriate way.’ And then we don’t need to call law enforcement.” But, your comments trigger to me, what are you seeing in terms of the give and take of what’s happening or the receptiveness of regulators whether it’s federal or state to take input and be receptive to the idea that we’re going to work together on this. It’s not us versus you. It’s imperative to have relationships there and to be part of that discussion and sitting at that table having those conversations.
Jennifer: Both the Department of Health and the Department of Agriculture and Consumer Services are very partner oriented. They’re looking for solutions. I think you find that the law enforcement community as well, and everyone is trying their best to disseminate information. So State Attorney Dave Aronberg this week released some guidance that things that smell like marijuana anymore aren’t necessary probable cause for a search of a vehicle.
Kevin: Sure, yeah.
Jennifer: It might not be, because there is smokeable hemp on the streets in Florida. So, you can’t just smell a car and think you can search it. That was distributed widely. Generous of the law enforcement community to not limit it to one particular jurisdiction but instead to share it more broadly. They’re also looking for solutions that work for everyone. Everybody wants the bad actors out of the space, but everybody knows that most of the actors that are coming here are looking for an opportunity and mean to do it the right way. And I think the state of Florida has had a position for a long time – and I have not seen it change – that the goal is always compliance. It’s not punishment, but instead compliance is our goal.
So, that didn’t surprise me. I, too, was very pleased to hear that Ag had taken the position that even though it’s .5% THC, it’s still hemp. You’re just going to destroy it in accordance with your waste management plan.
Kevin: Right.
Jennifer: And that is a very generous interpretation and one that is very farmer-friendly.
Kevin: Well, you touch on an interesting topic. And I don’t think us sitting here talking about this topic in Florida we could get through this first podcast without talking about the situation of the grandmother over at Disney. But, to me what was encouraging out of that entire issue was somebody made a law enforcement decision on the street, but after, maybe there was some talking and some education back in the State Attorney’s office, about the direction. We were on the verge at that time of the hemp bill passing, which would, that same instance right now, assuming that bottle was oil that was .3% or less, that would have been a no probable cause. That would have been a no arrest. And, so it was encouraging, while probably maybe the lady who was arrested could disagree about the experience there, it was encouraging to see that law enforcement with, given a little more time, was already thinking about this. And I think that’s maybe part of the education component that’s gonna come across the board. It’s not just industry, but it’s law enforcement, it’s government, and it’s, let’s, let’s not consume resources here unnecessarily, unless, as you say, we’re focusing on some of the bad actors who may be ruining it for the rest of us, so to speak.
So, the next thing I want to talk about today, Jennifer, is where do you think the opportunity is? We’ve talked about some of the regulatory headwinds and we’ve talked about how businesses might be facing some of those, which can be bad or good depending on what side you’re on. As lawyers, we love, that’s where we make our money, navigating that for folks. But, talk about the opportunities that are there, the opportunities for those who want to get in the space and are new to the space or contemplating getting in the space, whether they’re investors, they’re business, they’re start-ups. What are you seeing based upon the practice that you’ve built around cannabis?
Jennifer: The farm bill definitely changed the field in that when clients call now and they want to get into this space, they want to do something because these are two new burgeoning billion dollar industries that don’t come along very often. How do I get in is usually the question. And what I’ve been telling everyone since passage of the farm bill, and in Florida specifically the passage of our state hemp bill, is hemp is the way to go. It’s an unlimited number of licenses as opposed to marijuana which is a very limited number of licenses. We started with five total in the entire state of Florida. Five licenses would be given out for 20 million people. That’s slowly growing, but still there’s only 22 companies that get to participate in that space. Contrast that with hemp where you can pick just a part of it and as many people as want to participate can. So, I think if there’s opportunities right now, it’s in the hemp space.
And there are corollaries between the two industries that if ever, if marijuana ever turns out to be a space where there are more opportunities – they either remove the vertical integration requirement from the license so that you could have one person licensed to grow and one person licensed to sell and another person licensed to process. That may happen in this state and that would create more opportunities. But until it does, there’s only a few licenses out there and you have to do everything in that chain.
The nice part about these two industries is that those overlaps both require processing to get finished product that patients want to use. Both require retail sales and how to market that product in compliance with FDA regulations on, you know, making sure that you don’t claim they have significant health effects. So there are a lot of overlaps that I think for someone that wants to get involved in the industry right now, what I’m counseling them is that start in the hemp space. That’s the place to be. There are no opportunities in Florida right now in the medical marijuana space unless you want to buy one of those licenses for a significant amount of money. And, that’s the only way to get in that space right now and probably the only way to be there for the foreseeable future. With the state of litigation on the medical marijuana side of the industry, I don’t anticipate that we’ll see any new licensees. Certainly not in 2019 and it will be a long way into 2020 before we get to that place. So, for folks that want to get in right now and do something, they should look at hemp as that opportunity.
On the investment side, that can vary. I think that depends upon the quality of the company.
And, I think, one of the things we haven’t touched on today but I think will root itself out eventually in these industries are things like pretenders and frauds and burgeoning industries can attract those kinds of people. So, I think that’s where due diligence is really important on the investment side: understanding the regulatory structures, understanding whether they are scaled up. They can tell you they want to put 100 dispensaries in a state, but if they have a 100,000 square foot cultivation facility, that’s probably not even possible. You could never stock the shelves. So, those are the things that I think due diligence will help investors, and that’s why they’re consulting people like you and me to talk through those issues. But, for investment, I think both spaces are good. For people that want to work, make money, and be a part of something new, I’d take a good look at hemp.
Kevin: That’s a fantastic insight. You know, and from what I’ve seen and just some of the market research and then in some of the other things that you can just find on the Internet, you know, you go back to where we started in the medical marijuana versus the hemp side, and then in terms of CBD, that whole dichotomy that’s happening there in terms of people who hear the word “cannabis” have always associated it with marijuana. And it’s, you know, I may or may not be interested in that, but the whole concept of the CBD space now is coming out where essentially, at least from the marketing standpoint, you can have the benefits of marijuana without the THC and without the high. And the market that I’m seeing in terms of opportunity – I think this is what you’re talking about, too, with hemp – is that this market’s gonna explode. I mean, because more people who would never even contemplate for whatever reason that they would ever touch a cannabis product are now saying, “What’s so bad about this one?” You know, “I can still function, I’m not gonna be a pothead, if you will. I’m just gonna take the benefits from this plant that have been forbidden maybe for no good reason, we’re coming to find out, for such a long time.” So, I’m glad to hear you talk about that as an opportunity because even beyond, you know, the CBD and the ingestible space or the topicals, you get into textiles, you get into manufacturing of ropes, and everything else that goes with it. And so…
Jennifer: Drywall, concrete, I mean, all those hemp-based products. I heard Ag say the other day there are 25,000 known hemp-based products ready to go as soon as we have enough hemp in this country. And when you talk about drywall that is mold and fire resistant and I think about that in beach houses, that’d be perfect, right? So, I’m really excited about the opportunities that this space presents. And hemp, I think, is the future.
Kevin: I tell you what. This entire industry, to me, is just so exciting because it’s new, it’s fresh, it’s one of those opportunities that in the law, to have something that is just so untamed come along, you don’t see that very often. And I don’t know about you, I had a great time today. I hope you would join me again because next time I would really like to get into some of the Florida-specific stuff we’re seeing, including you’ve talked about some of the appellate issues maybe that the Florida Supreme Court will be asked to weigh in on some stuff. So, will you join me again? Maybe we can try a next session?
Jennifer: Absolutely. And if it’s after August 8th, we should know more answers. So.
Kevin: Fantastic. And thank you, again. You are definitely very, very deep in this industry and I’ve learned a lot today, so thank you so much for joining us.
Jennifer: It was a pleasure. Thanks, Kevin.
Kevin: I also want to thank our audience for joining us today. We had a great time. We hope you did, too. We hope you will check out more about our practice at carltonfields.com. There you can find the landing page for the cannabis taskforce that Jennifer is the co-chair of and you can learn more about what we are doing in this space as it impacts businesses that are running throughout this industry.
After four years of policy debate, rulemaking, testing, and approval, medical marijuana became available for purchase at nine Louisiana pharmacies yesterday.
Passed in 2015, the Therapeutic Use of Marijuana Act allows specially licensed Louisiana physicians to recommend medicinal marijuana for therapeutic use to Louisiana residents suffering from debilitating medical conditions. The Louisiana Legislature, the Louisiana State Board of Medical Examiners, the Louisiana Board of Pharmacy, and the Department of Agriculture have worked together over the past four years to clearly define the parameters in which the alternative medical treatment can be manufactured, prescribed, sold, and used.
The problem, however, is that Louisiana’s medical marijuana law fails to address the employment relationship, and thus creates a potential cause of action against employers who discriminate against medical marijuana users. Put simply, we don’t know for sure whether Louisiana law requires employers to accommodate medical marijuana use by employees with qualified disabilities.
While current marijuana users are excluded from federal protections under the Americans with Disabilities Act, some state courts have determined that employers must accommodate medical marijuana users who occupy non-safety sensitive positions. This is a very fact-intensive issue that requires consideration of both the industry and state in which the employer operates, as well as the specific duties of the employee. Eventually, the issue will be addressed by a Louisiana court. Until then, Louisiana employers can take steps to avoid potential liability by contacting counsel, evaluating their current policies, and clearly defining their safety-sensitive positions.
Many, including state regulators, are closely watching the U.S. Food and Drug Administration (FDA) as it works through the challenges associated with regulating cannabidiol (CBD) products. Under the Federal Food, Drug and Cosmetic Act (FD&C Act), CBD cannot lawfully be added to a food or marketed as a dietary supplement; however, industry has been pressuring the Agency to create a pathway for the lawful use of CBD in food and dietary supplements through either an exception by regulation to the FD&C Act or through a nonenforcement policy.
As previously reported on this blog, FDA held a public meeting on May 31, 2019 to obtain scientific data and information about the safety of FDA-regulated products containing cannabis or cannabis-derived compounds. The Agency has made clear that outstanding questions related to the safety of CBD products must first be addressed before a regulatory framework can be established for lawfully marketing foods and dietary supplements containing CBD.
In response to FDA’s request for safety data and information, on July 16, 2019, a coalition of 37 Attorneys Generals submitted a letter to FDA, urging the Agency to cooperate with the states to protect consumer from false advertising and potential harms to their health from products containing cannabis or cannabis-derived compounds, including CBD. The letter also urged the Agency to develop ongoing assessments of potential risk and benefits of these products, including how they interact with other dietary or pharmaceutical products. Ultimately, the letter requests that FDA “ensure that states maintain a role as regulators in this emerging market.”
Overall, 92% of cable/streaming shows showed cigarette/e-cigarette use. Netflix had “nearly triple the number of tobacco instances (866) compared to the prior year (299).” The multi-year study showed Stranger Things alone had “262 tobacco depictions in its second season, up from 182 in the first season.” This is significant because the Surgeon General warns that high levels of exposure to such visuals doubles the risk of smoking initiation. Considering 61% of young adults report online streaming channels as their primary means of program viewing, Netflix’s move away from e-cigarette representations could significantly impact this generation’s vaping epidemic.
Netflix will also limit cigarette depictions to adult usage. According to the CNN report, Netflix will only feature adult portrayals if “it’s essential to the creative vision of the artist or because it’s character-defining (historically or culturally important).”
The study did not specify how many of these depictions were related to the Juul vape device — which recently had a meteoric rise in use and captured over 70% of the e-cigarette market in the last two years. Juul has been accused of designing products and ads that appeal to youth and placing these ads in channels most populated by young adults and teens.
Under the Law, those caught with up to three grams of marijuana will no longer face jail time but will still face a fine of $130. This is the smallest amount of marijuana that any state has decriminalized so far. Currently, possession of any amount of cannabis is punishable by up to 30 days in jail, a criminal record, and a $1,000 fine.
The Law also provides for the expungement “of criminal records pertaining solely to the possession of three grams or less of marijuana.” The state has amended its expungement statute in order to reflect this change, noting that courts must grant an expungement order, provided the individual is not facing any other criminal charges, and provided that the amount of marijuana possessed was three grams or less.
The Law establishes a “Marijuana Evaluation Task Force,” in an effort to examine other states’ laws, penalties and outcomes related to the decriminalization and legalization of marijuana. The task force, which will be active until June 30, 2021, will make recommendations on further changing marijuana laws in Hawaii.
The Law does not provide employment protections for recreational users, nor does it modify Hawaii’s Medical Use of Cannabis Law, which was amended last year in part to form a working group to evaluate potential discrimination against medical cannabis users and the employment protections made available in other states.
Employers and health care professionals should be ready to handle issues that arise with the potential conflict between state and federal law in devising compliance programs, both in terms of reporting and human resources issues, including practices and policies addressing drug use and drug testing. States continue to consider – and pass – legislation to decriminalize and legalize cannabis (both medicinal and recreational), and we are slowly marching toward 50-state legalization. All organizations – and particularly those with multi-state operations – should review and evaluate their current policies with respect to marijuana use by employees and patients.
This post was written with assistance from Radhika Gupta, a 2019 Summer Associate at Epstein Becker Green.
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