Tag: Marijuana

Goin’ Down South: How the Southeastern U.S. Became the Current Hotbed of Cannabis Activity

Part of the reason we started a Cannabis Industry team at a Southeastern-based law firm before any Southeastern state had adopted a marijuana program was because we had a hunch that the expansion of cannabis would eventually make its way to our neck of the woods. And we guess it was just kind of a slow day around the office.

It turns out that our hunch – which even we are modest enough to admit was pretty much obvious and inevitable – turned out to be true. In the last seven years, there has been an explosion of cannabis activity and controversy in the Southeast. From marijuana in various forms to hemp and all of its iterations, the Southeast has been playing catchup with the rest of the country and in doing so is experiencing the progression of cannabis reform at an accelerated pace with the benefit of seeing the experiences of earlier cannabis adopters. We aren’t alone in observing this phenomenon. Jessica Billingsley, for Rolling Stone, has written on the topic several times.

Don’t get me wrong, we’re not so naïve as to think that states around the country aren’t also experiencing dramatic and dynamic debates and reforms about the cannabis industry. In fact, we’ve dedicated a great deal of time and effort to writing about those issues and how they reflect – or in some cases depart from – cannabis programs in other states. But the speed of reform efforts and their concentration in a specific portion of the country have made the Southeastern U.S. the – ok, at least a – current hotbed of cannabis activity.

C’mon. What’s Happening in the Southeast That Makes It So Special? Aren’t You Just Writing This Because You Live There? Could You Be More Egocentric?

Wow, that got a little weird and revealing there for a second but we’re back. For those who may not enjoy the privilege of calling the Southeastern U.S. home, here is a sampling of the cannabis activity currently taking place in the region:

Florida’s Medical Marijuana Market Matures, but Voters Narrowly Rejected the Ballot Initiative for an Adult-Use Program; Hemp Program Survives by Governor’s Veto (for Now)

Florida broke the seal on medical marijuana in the Southeast when it adopted a medical program in 2016. While the program has certainly had its hiccups, it has generally proven to be a popular program as it has matured over the years.

On April 1, 2024, the Florida Supreme Court ruled that voters would decide whether Florida will become the 24th state to legalize adult-use marijuana at the ballot boxes in November. The significant opposition that succeeded in keeping a similar initiative off the 2022 ballots evidently prevailed this year. The initiative came short of receiving the required 60% approval to pass with only about 56% of Florida voters voting in favor.

On the hemp front, earlier this year we wrote that the Florida Legislature passed a bill that would limit the amount of THC in hemp-derived products and upend the novel cannabinoid industry in the state by banning delta-8 and delta-10 products. But in a surprising move described by Marijuana Moment as “somewhat contradictory,” conservative Gov. Ron DeSantis vetoed the legislation, even as he campaigns against adult-use marijuana. This being the South and a controversial issue involving potentially extraordinary amounts of money, there are strange bedfellows and innuendo:

The governor of Florida is reportedly planning to veto a bill that would ban consumable hemp-derived cannabinoid products such as delta-8 THC, apparently because he’s hoping the hemp industry will help finance a campaign opposing a marijuana legalization initiative on the state’s November ballot.

As Gov. Ron DeSantis (R) prepares to step up his push against the legalization measure, officials close to the governor… say he’s plotting to leverage the hemp industry’s economic interest in participating in the intoxicating cannabinoid market to convince people to vote against marijuana reform.

Safe to same there’s more to come in the next couple of months for what has become the 5,000 lbs. gorilla in the Southeastern cannabis landscape.

Arkansas’ Medical Program Booms While Adult Use and Hemp in Limbo During Court Battles

Like Florida, Arkansas was one of the pioneers of bringing medical marijuana to the Southeast. Arkansans voted to approve a medical marijuana program in 2016 via Amendment 98, although the first legal sales did not occur until May 2019. The program eclipsed $1 billion in sales by late 2023, and as of August 2024, sales in 2024 exceeded $158.5 million. From all metrics, the program appears to be doing very well.

And, while an effort to place on the November ballot an initiative that would have further expanded the program was stymied by the Arkansas Supreme Court just before the election, a ballot initiative in 2022 to create an adult-use program didn’t fail by an insurmountable margin, with 43.8% voting in favor.

On the hemp front, all eyes are on the United States Court of Appeals for the Eighth Circuit. That court conducted oral arguments in the Sanders v. Bio Gen appeal on September 24, so a decision should be forthcoming. The trial court action was filed by hemp companies challenging an Arkansas law (known as Act 629) that the plaintiffs contended impermissibly outlawed hemp-derived consumable products in Arkansas. The appeal followed issuance of an injunction by U.S. District Judge Billy Roy Wilson blocking enforcement of Act 629.

Mississippi Struggling to Reconcile Supply and Demand on the Marijuana Front; Unsettled Hemp Rules

Mississippi surprised many observers when a statewide ballot initiative in 2020 went overwhelmingly in support of medical marijuana. After a couple of years of frustrating and largely obstructionist legal wrangling, Mississippi’s medical program is fully up and running now, going on almost two years.

One of the most notable and unique aspects of Mississippi’s program is the absence of any limitations on the number of licenses available to operators. While there are components of the Mississippi laws and regulations governing the program that necessarily limit how many licenses can be issued (e.g., local government opt-outs and distance setback limitations) the program is struggling due in large part to an oversupply of product and not enough patients (as of November 21, 2024, the state reports 48,129 patients). Last legislative session, the Mississippi Legislature modified the state’s medical cannabis law in certain ways that were aimed to improve patient access hurdles, and more amendments are expected in the upcoming session.

On the hemp front, Mississippi lacks any real legislative or regulatory guidance on the subject. Consequently, many in the state view the hemp-derived intoxicating products sold in gas stations and other retail stores as a real problem. Last legislative session, a bill (HB 1676) aimed to regulate intoxicating hemp products failed. Since then, state law enforcement has conducted raids and arrests of retail stores that sell products they believe are illegal under Mississippi law. Also, the Mississippi attorney general recently issued an opinion concluding that hemp-derived THC beverages could be illegal under Mississippi law. We wrote about that opinion here. The Mississippi legislature will almost assuredly revisit legislation governing these products next session while it also explores ways to amend the Medical Cannabis Act.

Texas Low-THC Marijuana Program Continues as Fierce Debates Rage Over Hemp

Texas passed the Texas Compassionate Use legislation in 2015, allowing certain qualified physicians to prescribe low THC products (max of 1% THC by weight) to patients having certain medical conditions. Currently, the state has only licensed three entities, all located in the central region of the state, as “dispensing organizations” to cultivate, process, and dispense low-THC cannabis. While the state has implied it may issue more licenses and a third-party consultant it hired recently recommended that it should, that has not yet occurred. The last application window closed on April 28, 2023. We, along with most everyone in the industry, is watching what Texas ends up doing with this program; everything is supposed to be bigger in Texas, and a real-deal medical cannabis program shouldn’t be any exception.

The hemp world in Texas slightly resembles the one in Arkansas; it’s mired in litigation. Texas has a robust legal and regulatory program that governs hemp and consumable hemp products. That program operated for years without much interruption until the Texas Department of State Health Services (TDSHS) took action in 2020 and 2021 to restrict the sale of certain consumable hemp products. This culminated in the publication of an official statement online in October 2021 stating that Texas law only “allows Consumable Hemp Products in Texas that do not exceed 0.3% Delta-9 . . . THC [, and] [a]ll other forms of THC, including Delta-8 in any concentration and Delta-9 exceeding 0.3% are considered Schedule 1 controlled substances.”

In response, a group of plaintiffs sued the TDSHS and its commissioner seeking to enjoin the “‘effectiveness going forward’ of the amendments to the terms ‘tetrahydrocannabinols; and ‘Marihuana extract’ in the Department’s 2021 Schedule of Controlled Substances.” The trial court granted the requested injunction, ordered the TSDHS to “remove from its currently published Schedule of Controlled Substances the most recent modifications” the subject definitions and any subsequent publications, and “enjoin[ed] the effectiveness going forward of the rule stated on [the Department’s] website that Delta-8 THC in any concentration is considered a Schedule 1 controlled

substance.” The state appealed, the Austin Court of Appeals affirmed, and the matter now sits with the Texas Supreme Court.

THC-infused beverages have also been a focus in Texas recently. As we wrote last month, the Texas Senate Committee on State Affairs held a hearing on October 17, 2024, to discuss how the state might soon regulate THC-infused beverages. That issue will most assuredly be addressed by the Texas legislature this next session.

Louisiana Medical Program Expands Amidst Fight Over Scope of Hemp Program

While Louisiana technically legalized medical marijuana in 1978 and passed several laws in the years that followed in that pursuit, the first products weren’t sold until 2019. The very limited license (only two authorized cultivators and processors) regime is now headed towards a bustling program. The number of dispensaries that can exist in Louisiana is currently capped at 30, but that number will only grow as the patient numbers increase in the regions identified throughout the state.

Louisiana’s hemp program, which is governed by a well-developed regulatory regime, is also in a current state of uncertainty. During the 2024 legislative session, the Legislature amended the hemp laws to restrict where certain hemp-derived products can be sold and their potency. As in Arkansas and Texas, the hemp industry quickly responded with litigation. In that matter, Hemp Assoc. of La. v. Landry, No. 3:24-cv-00871, in the U.S. District Court for the Middle District of Louisiana, was filed on October 18, 2024. The plaintiffs alleged that the 2018 Farm Bill preempts the legislation and is unconstitutional on other grounds. The state disagreed and moved to dismiss, but on November 19, 2024, the state informed the court that it would stay the effective date of the new legislation so that the parties could fully brief the pending motions and the court could reach a decision. The motions are due to be fully briefed in the coming days.

Georgia Trying to Get Its Act Together

The Georgia Access to Medical Cannabis Commission describes the Georgia law as “much more limited than some other states.” The statute does little more than allow registered people to buy and possess low-THC oil from licensed dispensaries. This oil may contain CBD and up to 5% THC by weight.

Only a select number of licensed producers can grow the cannabis that will eventually be turned into the allowed low-THC oil. As in many other states, the application and licensing process is quite strict.

To obtain a registration card, prospective patients must have a qualifying condition or disease and be registered through their physician. Once a patient has their card, they can buy low-THC oil and possess 20 fluid ounces or less so long as they keep it in the manufacturer-labeled pharmaceutical packaging.

On the hemp side, the Georgia Legislature recently passed SB 494, which Gov. Brian Kemp subsequently signed into law. This law introduces substantial changes to the hemp industry. The Georgia Department of Agriculture is in the process of drafting the corresponding and required agency rules. It appears that most hemp extracts like delta-8-THC, delta-10-THC, HHC, and other cannabinoids remain legal under Georgia law as “consumable hemp products.”

Alabama Medical Marijuana Program on the Ropes While Hemp Flourishes

Sigh… where do we even begin when it comes to medical marijuana in Alabama? There have been more twists and turns than a classic Iron Bowl.

The Legislature approved a medical program in 2021, and recent court hearings suggest that we are potentially no further along after three years, with a possibility of the Legislature being forced to take action to modify (or end) the program.

We have written extensively about the years of litigation and dysfunction that have plagued the Alabama medical marijuana program. In a nutshell, the cap on the number of licenses for various categories (cultivators, processors, dispensaries, etc.) has led to a scenario where applicants dissatisfied with the regulators’ decision to award licenses have sued on multiple occasions, and the regulators have either acceded to the demands or ended up in a court that has not acted quickly to impose order on the process.

In the midst of this chaos, the Legislature had an opportunity to tweak the law but overwhelmingly chose not to do so.

We’re choosing to take the optimistic view that the court system will be able to find a resolution to the years of litigation without putting the matter into the Legislature’s hands. We stress that view is very optimistic, but we should know more by the beginning of 2025.

On a brighter note for cannabis advocates, hemp is growing strong in the state, benefiting largely from a relatively liberal regulatory regime. Although the Legislature considered a significant rollback of hemp sales during the last session, the only law passed was a statewide age-limit on products containing hemp. There have been recent reports of law enforcement activity related to hemp businesses being raided for selling unlawful products, but on the whole Alabama should be considered hemp-friendly for the moment.

Tennessee Marijuana Reform Frustrated While Hemp Market Experiences Growth But Tighter Regulation

For years we were astonished that Tennessee was not a huge marijuana (at least medical) spot, but years of hearing over and over from friends and colleagues in the state have finally convinced us of the political complexities at play.

We, likely as most people, tend to view Tennessee as being dominated by Nashville, Memphis, Chattanooga, and other hemp-friendly areas of east Tennessee. If the decision was up to the citizens of those areas, Tennessee would likely have a well-established marijuana program. But, as it turns out, Tennessee is a big state with widely varying views on all ranges of social issues, including marijuana. For that reason, marijuana proposals have had little success in the largely conservative state Legislature. We still think Tennessee could be a monster player with the right program in place, but we’d be lying if we predicted that was imminent.

On the hemp side, Tennessee was an early adopter, and its hemp industry blossomed for years under a hands-off regulatory regime. In May 2023, Tennessee enacted T.C.A. § 43-27-201, which is an industry-friendly statutory framework for products containing hemp-derived cannabinoids like delta-8 and delta-10 THC. The statute delegated rulemaking authority to the Tennessee Department of Agriculture (TDA) to flesh out its requirements.

That is where the trouble began. In December 2023, TDA published emergency rules that largely aligned with T.C.A. § 43-27-201 with respect to its licensing and labeling requirements, leaving those operators that focus on edible hemp-derived cannabinoid products pleased. But the rules contained a bombshell: specifically, the requirement that hemp contain 0.3% or less total THC, which includes both delta-9 THC and THCA. The TDA maintained this total THC standard in the permanent rules it promulgated in September 2024.

The TDA’s total THC requirement is at odds with Tennessee’s hemp statute, which defines hemp as cannabis containing 0.3% or less delta-9 THC (with no mention of THCA). In reliance on this statutory scheme, many Tennessee hemp companies that focus on psychoactive products have made high-THCA smokable products a large part of their offerings. The TDA’s new rules, which go into effect on December 26, 2024, pose a grave danger to those operators.

Industry groups, including the Tennessee Growers Coalition, are preparing for war to prevent these new rules from going into effect. Stay tuned to Budding Trends for updates on the lawsuits against the TDA that are coming down the pike.

Kentucky Begins Medical Marijuana Program and Remains Hemp Stalwart

The OG of hemp, with the help of its powerful Sen. Mitch McConnell, Kentucky has an outsized responsibility for passage of the two most recent farm bills that have led to the explosion of the hemp industry. Kentucky’s hemp program remains strong, and many of its Congressional delegation represent a bulwark against efforts to severely limit the availability of hemp products.

Kentucky’s medical cannabis program is just now off to the races. Licenses are currently being awarded and industry observers are carefully watching the Bluegrass State’s progress as the program gets off the ground.

Nothing to Show Yet, But South Carolina Begins to Show Signs of Life in Cannabis Reform Efforts

Ah, South Carolina. Its siren song has tempted cannabis advocates for years with its diversity – political, geographical, geological, and otherwise. But to date, nada. We’ve written about the fits and starts with the South Carolina Compassionate Care Act in the past few years. The Legislature has not enacted the law as of yet, but we are keeping our eyes on it during the next legislative session.

On the hemp side, coming from a state that has famously been near the back of the line on cannabis liberalization, we’ll admit that we were surprised to read a recent letter from the solicitor general of South Carolina stating that, as a general rule, hemp beverages containing less than .3% delta-9 THC on a dry-weight basis are legal. We suspect that will be a topic of discussion at the next legislative session.

North Carolina Not Quite there on Marijuana , Stalled on Hemp

North Carolina is going to be a monster marijuana jurisdiction, but like Tennessee, the geopolitical makeup of the state has restrained cannabis liberalization to date. Maybe we should have known better than to predict that the Tar Heel State was going to take action on marijuana legislation in an election year in which the speaker of the N.C. House, Tim Moore (R), is running for an open U.S. Congress seat. Passing a marijuana legalization bill was not going to be a political priority and could have given political adversaries an opportunity to paint supporters as soft on crime, even if a majority of the state’s electorate does support some kind of legalization.

For its part, the state Senate passed yet another medical marijuana and hemp regulation bill, House Bill 563, though one of the most restrictive in the country, only to see it stall in the hose. As in years past, Moore has not allowed the House to take a vote on a bill and has cited his “majority of the majority” policy and lack of Republican support in the House as a basis for refusing to bring the Senate bill to the House floor for a vote.

It’s likely not going to move anytime soon, but what’s in HB 563? Half the bill is dedicated to the regulation of hemp, while the second half – the North Carolina Compassionate Care Act – opens the door to legalizing medicinal marijuana. On the medicinal marijuana side, the bill creates a state commission to oversee the distribution of medical marijuana and regulate which medical conditions are eligible for treatment. It also outlines the process for patients to obtain medical cannabis cards, creating restrictions on where cannabis can be smoked, and requires physicians to write prescriptions for patients to use medical cannabis.

Some Senate Republicans expressed concern that legalization of medicinal marijuana was a fast and slippery slope towards legalizing recreational marijuana. To alleviate that concern, an amendment was adopted that clarified that recreational use would remain illegal in North Carolina even if the federal government reclassified or legalized marijuana nationwide.

On the hemp regulation side, HB 563 would require all hemp product manufacturers and distributors to be licensed. In addition, there are new safety and testing standards, marketing and label restrictions, and more strict product regulations on the amount of cannabinoids that can be included in ingestible or inhalable products.

Politically, it makes sense for supporters of medical marijuana to tie its fate to hemp regulation. Hemp regulation has broad bipartisan support and would likely pass both chambers if presented as a standalone bill. By linking hemp regulation to the Compassionate Care Act, medical marijuana supporters are daring their House and Senate colleagues to vote against hemp regulation. For the time being, that leaves the hemp industry with the uncertainty, and opportunity, of North Carolina continuing to have very limited regulations for the industry.

Why Is the Southeast Experiencing Such Explosive, Concentrated Cannabis Activity?

Part of the reason for the accelerated pace of developments of cannabis reform in the Southeast is precisely because the Southeast started cannabis programs later than other parts of the country. As a result, Southeastern cannabis efforts are, on the whole, not as mature as markets in other states. There are examples from other states that legislatures and regulators can look to for how other states in recent years have addressed the issues just now facing Southeastern states.

There is a great scene in the movie Major League where Willie Mays Hayes, played by the wonderful Wesley Snipes, is removed from the Cleveland (then) Indians’ baseball spring training while he sleeps in bed because there is no record of anyone by that name being invited to spring training (because he wasn’t invited). When Willie wakes up in the morning to the sound of potential Indians running sprints, Willie jumps out of bed in his pajamas and starts running, eventually finding himself running between two uniformed players. Because of his remarkable speed (“I hit like Mays, and I run like Hayes”), Willie explodes past the other two even though they had a head start. The manager Lou Brown, played sublimely by the delightful James Gammon, immediately says “[g]et him a uniform.”

What the hell are we talking about? We think the Southeastern cannabis market is a little like Willie Mays Hayes. The market was late to the cannabis industry, but once it arrived it has the benefit of seeing the experiences of other states and, like Willie, has the benefit of hitting the ground running.

Separately, the issue of cannabis reform is ripe for political battles in the Southeast. The region is certain not as socially progressive on most issues like cannabis. After all, in this part of the country there are still knock-down, drag-out fights about whether to allow the sale of beer before noon on Sundays. But the region is proving to be more progressive than many would have thought, in part perhaps because people around these parts have heard anecdotal reports about friends and family who have used cannabis products safely and perhaps in part because we have seen that cannabis liberalization in other parts of the country has not led to the type of Reefer Madness scenarios long feared.

So, What’s Next?

As with most trends, the rapid expansion of cannabis activity mirrors – and is in many ways a microcosm – of the policies, setbacks, and successes experienced across America.

If we were certain what the future holds for cannabis in the Southeastern United States, we would be sitting on an island somewhere instead of writing blog posts. That said, we expect (1) clear, if not sometimes frustratingly paced expansion of medical cannabis across the region; (2) an expansion of qualifying medical conditions and form factors; (3) an eventual tipping point in the direction of adult-use programs; and (4) hemp continuing to see strong sales unless the federal or state governments enact laws to thwart that growth.

At the conclusion of the wonderful Ken Burns’ epic documentary on country music, the great Marty Stuart says the following about the genre:

Country music has something for everybody, and it’s inside the song, it’s inside the characters. It’s really colorful in here. I invite you in.

Cannabis in the Southeastern United States has something for everybody, and maybe not enough for some people. And we certainly have colorful characters making some of the important decisions about the future of cannabis policy in our little corner of the world. We see this area as one of massive potential growth, particularly with the help of the right people. We invite you in.

 

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© 2024 Bradley Arant Boult Cummings LLP

George Washington’s Whisky Distillery, 21st Century Edition

You might think the laws of King Edward I of England (1239-1307), George Washington’s whisky distillery, and an 1807 “Treatise on the Law of Idiocy and Lunacy” have little to do with the federal criminal code of 2024. And you might think they have even less to do with contemporary federal regulation of cannabis. But the Supreme Court’s test for the Second Amendment right to keep and bear arms requires litigants and courts to become historians scouring the archives. So, the U.S. Court of Appeals for the Fifth Circuit recently held a federal criminal statute barring unlawful users of controlled substances from possessing firearms and ammunition, 18 U.S.C. § 922(g)(3), was unconstitutional as applied. The government’s prosecution of a “non-violent, marijuana smoking gunowner” was dismissed (United States v. Connelly, — F.4th — (5th Cir. 2024).

Those intrigued by the ins and outs of historical firearms regulations, and the back and forth between the Supreme Court and Fifth Circuit on that issue, can study the court’s opinion. The facts, however, were straightforward and seemingly commonplace. The defendant “would at times smoke marijuana as a sleep aid and for anxiety.” So do countless Americans, in full compliance with applicable state laws allowing just such uses. The defendant owned a firearm. Again, nothing remarkable there. Yet federal officials charged the defendant with violating criminal law. The Fifth Circuit put an end to the prosecution, as it did in a similar case last year, United States v. Daniels, 77 F.4th 337 (5th Cir. 2023), vacated, 144 S. Ct. 2707 (2024) (for reconsideration in the light of United States v. Rahimi, 144 S. Ct. 1889 (2024)), which we discussed last year here.

Three takeaways stand out for the industry:

1. The federal classification of cannabis does not trump constitutional rights.

Noticeably absent from the Fifth Circuit’s reasoning was any deference to the federal scheduling of cannabis as a controlled substance. That may be due to the unique historical test applicable to the Second Amendment. Still, the opinion shows the Constitution has no cannabis exception. Judicial statements like “[m]arijuana user or not,” the defendant “is a member of our political community and thus” has constitutional rights are a welcome change in emphasis. When facing an enforcement challenge, industry participants should evaluate constitutional challenges they may have. The Constitution may just win the day.

2. Analogies to regulation of alcohol carried more weight than analogies to other regulatory schemes.

The government tried to analogize cannabis users to several regulatory schemes, including a tenuous (at best) analogy to mental health. Nothing doing there. The Fifth Circuit instead analogized to alcohol regulation, concluding that both alcohol and cannabis can cause a temporary, potentially “impairing influence.” So, just as the federal government does not charge firearms owners with violating 18 U.S.C. § 922(g)(3) because they occasionally consume alcohol, the government could not prosecute the defendant because she occasionally consumed cannabis.

This decision suggests that future enforcement targets might find success in analogizing cannabis to alcohol. Subject to appropriate regulatory control and responsible personal use, alcohol consumption is an accepted part of American society. Indeed, as the Fifth Circuit took pains to note, American acceptance of alcohol consumption dates to the colonial period. Just ask George Washington. And it’s still going strong today. Manufacturers and distributors of alcoholic beverages can advertise their products widely — watch the Super Bowl — and they benefit from access to the banking system, stock market, and other financial opportunities closed to the cannabis industry. Situating the cannabis industry in that established history may help show that cannabis should follow a similar pattern. And it may call into question differential regulatory treatment of the two industries.

3. Supposed “dangerousness” cannot justify treating cannabis differently.

The Fifth Circuit declined the government’s invitations to analogize cannabis users to “dangerous” persons, like political traitors, whom the Constitution might permit disarming. That is, of course, a marked shift from the historical justification for the federal ban on cannabis — a supposed propensity to “incite[] violent crimes,” that modern medicine shows is false.

Rejecting the supposed “dangerousness” of occasional cannabis users furthers questions about whether prohibitions on cannabis serve a legitimate purpose. Recall Justice Clarence Thomas’s 2021 statement questioning the federal approach as a contradictory and unstable “half-in, half-out regime” that “strains basic principles of federalism and conceals traps for the unwary” (Standing Akimbo, LLC v. United States, 594 U.S. 2236 (2021) (Thomas, J., statement respecting denial of certiorari)). As more courts reject federal attempts to treat cannabis users differently from other citizens, future litigants may consider asserting constitutional due process or equal protection challenges to regulations. After all, as Connelly shows, courts stand ready to vindicate constitutional rights, “[m]arijunana user or not.”

© 2024 Bradley Arant Boult Cummings LLP
For more on Cannabis Regulations, visit the NLR Biotech Food Drug section

It Ain’t Over ‘til It’s Over: IRS Reminds Taxpayers That Section 280E Applies to Marijuana Companies Until Rescheduling Becomes Law

This is a tax blog. Stay with me – it’s short.

While marijuana advocates celebrate the potential rescheduling of marijuana from Schedule I to Schedule III, the taxman has made clear that marijuana remains a Schedule I substance subject to Section 280E of the Internal Revenue Code. For those who aren’t cannabis tax specialists, 280E provides that:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana is a Schedule I controlled substance and is subject to the limitations of the Internal Revenue Code. As we previously reported, the Justice Department recently published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider rescheduling marijuana to Schedule III under the Controlled Substances Act. That change would remove marijuana from the purview of 280E.

Predictably, a number of cannabis operators couldn’t help themselves and began filing amended returns seeking to avail themselves of what they apparently felt was a change in the law. The response from the IRS is clear:

Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment. Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E.

The reasoning is simple – marijuana is a Schedule I substance until it is not. While there is currently in place a process that could lead to the rescheduling of marijuana, it has not actually been rescheduled.

Cannabis operators can dream of a time when they will not be subject to the ravages of 280E, but for now that remains just out of grasp, albeit tantalizingly close.

As usual, stay tuned to Budding Trends. We’ll be monitoring all the impacts of rescheduling, including tax implications like this one.

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© 2024 Bradley Arant Boult Cummings LLP
For more on Cannabis, visit the NLR Biotech Food Drug section.

The FDA Wants To Reschedule Cannabis. Does That Mean All Employees Can Soon Legally Use It?

On May 21, 2024, the Drug Enforcement Agency (DEA) issued a notice of proposed rulemaking indicating that the U.S Food and Drug Administration (FDA) intends to transfer marijuana from Schedule I to Schedule II of the Controlled Substances Act (CSA). This notice is consistent with opinions from the Department of Health and Human Services (HHS) acknowledging that marijuana has currently accepted medical uses as well as HHS’s views about marijuana’s abuse potential and level of physical or psychological dependence. But assuming that the proposed rescheduling goes through, does that mean that cannabis is now federally legal, leaving employees free to consume cannabis like any other legal substances such as alcohol?

The short answer is “no.”

While rescheduling cannabis as a Schedule II drug may go a long way to opening doors for additional cannabis research and generally changing perceptions on cannabis use, such rescheduling does not make possession or use of cannabis “legal” at the federal level. The federal ban, though, is still against the weight of the direction many states are heading across the country. Recreational cannabis is now legal in 24 states and the District of Columbia. Considering that just 12 years ago there were only two states with legal recreational cannabis, it is not hard to see where the trend is heading. In fact, when accounting for medical cannabis programs, there are now only six states that do not offer any sort of legalized cannabis.

Perhaps unsurprisingly, recent drug testing data suggests that the increasing legality at the state level is resulting in increased cannabis use across the country. Positive drug tests for cannabis are on the rise. In Michigan, for example, positive cannabis drug tests have more than tripled since 2008. Notably, while cannabis positive tests are on the rise, use of other drugs such as opiates and cocaine have been steadily decreasing. Another study related to drug testing showed that employees are increasingly trying to thwart these drug tests. In 2023, drug tests with signs of tampering increased an astonishing 633% — the highest rate in more than 30 years.

With all these factors in mind, what might the “best practice” be for employers as it relates to the treatment of cannabis among their workforce? Of course, the answer is not a “one-size-fits-all” issue. The decision will depend on a number of factors, including certain jurisdictions’ prohibition on testing for cannabis, anti-discrimination laws protecting the use of cannabis, laws requiring drug testing for certain jobs, and position-specific questions surrounding job duties (e.g., desk job versus operating heavy machinery or other safety-sensitive positions). Still, what many employers may have considered as a best practice for years is one that should be reconsidered in light of these rapid developments.

© 2024 Foley & Lardner LLP
For more news on Legal Cannabis and Employment Laws, visit the NLR Biotech, Food, Drug section.

DOJ Confirms Moving Marijuana to Schedule III; Sidesteps Anticipated Impact on State Cannabis Markets

On May 16, 2024, the Department of Justice (DOJ) initiated the formal rulemaking process to move marijuana to Schedule III of the Controlled Substances Act. The DOJ’s notice of proposed rulemaking unfortunately sidesteps the hard questions about the impact of rescheduling on the existing state adult-use and medical cannabis markets.

Summary of Content

The 92-page notice of proposed rulemaking primarily summarizes and comments on last year’s recommendations by the Department of Health and Human Services to reschedule marijuana, as well as related legal concerns such as compliance with international treaty obligation. The DOJ emphasizes that if marijuana is transferred to Schedule III, “the manufacture, distribution, dispensing, and possession of marijuana would also remain subject to applicable criminal prohibitions under the CSA [Controlled Substances Act],” and that marijuana would remain subject to applicable provisions of the Food Drug and Cosmetic Act.

With respect to the critical question of impact on the cannabis markets, however, the DOJ is silent and merely states that it is “seeking comment on the practical consequences of rescheduling marijuana.”

By way of explanation, the DOJ offers:

“DOJ recognizes this action may have unique economic impacts. As stated above, marijuana is subject to a number of State laws that have allowed a multibillion dollar industry to develop. DOJ acknowledges that there may be large impacts related to Federal taxes and research and development investment for the pharmaceutical industry, among other things. DOJ is specifically soliciting comments on the economic impact of this proposed rule. DOJ will revise this section at the final rules stage if warranted after consideration of any comments received.” (Emphasis added.)

Robust Public Comments Expected

For an industry that has been eagerly awaiting to hear how the DOJ will approach rules that address the interplay between existing state cannabis laws and the complex web of federal laws around Schedule III drugs, the DOJ’s notice is disappointing and may not bode well for a smooth rulemaking process. DOJ will accept public comments for 60 days once the notice of proposed rulemaking has been published in the Federal Register. We can expect robust commentary from cannabis businesses, state regulators, trade organizations and ancillary industries.

Regardless of the outcome of the final rulemaking, it seems apparent that clarity through congressional action is needed more than ever.

Will Hemp Save the World, Before the Government Kills It?

There is a great line in the wonderful film Charlie Wilson’s War, where Charlie Wilson (played remarkably by the inimitable Tom Hanks) describes the successful, if relatively covert, involvement of the United States government in the Soviet-Afghan War: “These things happened. They were glorious and they changed the world… and then we f***d up the endgame.”

With the next Farm Bill somewhere on the horizon, I believe we are approaching a similar moment for the future of hemp. I believe the future of hemp is glorious and that it can change the world. What will we do to the endgame?

This is an analysis about the current state of hemp and whether that industry will revolutionize the world before the government relegates it back to the ash heap of history. It just so happens to dovetail with my personal experience representing clients in connection with the hemp business.

In the Beginning…

Back in the “stone age” (circa 2017) when I decided I wanted to be a cannabis lawyer, I began with a focus on hemp. [As a brief aside, telling people in Alabama you practice cannabis law in 2017 must have been what Noah felt like when he was telling people it was about to start raining.]

The 2014 Farm Bill, which for the first time legalized “industrial hemp” as distinct from marijuana under the Controlled Substances Act and allowed state agricultural departments and universities to license the production of hemp, cracked the door for a nascent and limited hemp market, and it was a remarkable time to advise new hemp operators and investors about how to maximize this opportunity within the contours of the law.

At the same time, I was regularly receiving calls from existing clients, colleagues within the firm, and strangers about how their non-cannabis companies should conduct themselves when approached by hemp companies who wanted to do business with them. The latter category included banks, insurance companies, real estate companies, and myriad companies who had questions about how their employees’ use of hemp interplayed with the companies’ existing drug testing policies. Most of the time the companies were reluctant to have anything to do with hemp, but the conversations were interesting, and it was clear that most companies realized the landscape was changing. It was the Wild West, and I was having a ball.

Rocket Fuel

Enter the 2018 Farm Bill and the explosion of the hemp industry. The 2018 Farm Bill dropped the word “industrial” and defined “hemp” as:

the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In addition to removing the limitations from the 2014 Farm Bill licensing, the 2018 Farm Bill also moved oversight authority from the Department of Justice and DEA to the USDA and FDA.

The 2018 Farm Bill was a tectonic shift, and we recognized the new regime’s potential almost immediately, predicting the following:

  • Increased “smart” money and research. Because hemp has been a Schedule I substance along with marijuana for decades, many sophisticated sources of funding have abstained from financing the industry. This placed hemp at a competitive disadvantage to other commodities and prevented hemp from reaching its full potential. Now that hemp can be manufactured and sold without substantial legal risks, look for the money to flow toward this underserved sector. Publicly traded companies, private equity firms, venture capitalists and other investment groups will all take significant stakes in both the manufacturing and selling of hemp and hemp-derived products. In addition to traditional commercial development efforts, much of this cash is likely to be spent to hire top researchers to develop proprietary strands of hemp to meet a range of product applications and to take steps to protect the resulting intellectual property.
  • Explosion of hemp and hemp-derived products. Fueled in large part by this injection of financing from sophisticated investors, there is likely to be an explosion in the ways that hemp is used. Hemp already has hundreds — if not thousands — of known uses, and that number should grow substantially once the industry is exposed to the market forces that come with smart money and increased research. The biggest winner may be the hemp-derived CBD business. Hemp-derived CBD is a compound believed to have significant therapeutic benefits without an appreciable psychoactive component. The Washington Post has reported that “dozens of studies have found evidence that [CBD] can treat epilepsy as well as a range of other illnesses, including anxiety, schizophrenia, heart disease, and cancer.” One industry analysis predicts that the hemp-CBD market alone could hit $22 billion by 2022. The health and wellness sector should see particular hemp-related activity and growth in the coming years.
  • Increased ancillary services provided to hemp-related businesses. Because hemp has been included within the definition of marijuana under federal law for decades, most banks, law firms and other service providers have avoided providing services to hemp businesses to avoid the risk of charges of money laundering or conspiring to violate state and federal drug laws. The absence of such service providers has fostered a great deal of uncertainty in an area where certainty and clarity have been sorely needed. With hemp’s new legal status, look for professional service providers to enter the market in 2019 and beyond. Of course, entities looking to provide services to hemp-related businesses should take adequate precautions to ensure those businesses are only producing federally legal hemp.
  • Consolidation and integration. An interesting phenomenon in “legal” marijuana states has been the rapid consolidation and integration of marijuana growers, processors and dispensaries. Some states have mandated vertical integration (e.g., the growers are the sellers) through regulation. And a number of large cannabis companies have acquired grow operations or multi-unit dispensaries rather than establish a cannabis presence in a state from scratch. The hemp industry is likely to follow a similar path, both through government regulation and because larger companies are likely to seek to obtain sufficient quantities of hemp through consolidation and vertical integration. Accordingly, attorneys and investors should anticipate significant merger and acquisition activity in the coming years.
  • Federal regulations and state regimes. The 2018 Farm Bill does not create an entirely unregulated playing field for hemp. Over the coming months, the U.S. Department of Agriculture and Food and Drug Administration will issue regulations implementing the 2018 Farm Bill. State governments will also unveil plans governing the testing, labeling and marketing of hemp-related products, as well as the licensing and monitoring of hemp-related businesses.

I’m proud to say that we were pretty much on the money with these projections, and countless studies and data confirm that hemp can be a viable product with countless form factors that help shape the global economy.

That is when I realized that I might be able to make a career as a cannabis lawyer.

The Good with the Bad

Of course, the development of the hemp industry has not been without controversy – in fact it may be the controversy that has spurred much of the development.

I would be lying to you if I told you that every hemp or hemp-derived product was designed with the best of intentions or contained appropriate mechanisms to ensure consumer safety. There are certainly hemp-derived products on the market that have not been subjected to sufficient product development and testing, and that are being marketed in ways that rightfully should concern policymakers and the public. Novel, psychoactive cannabinoids that fall within the bounds of the terms, if perhaps not the spirit, of the Farm Bill fill the shelves of stores around the country with little to no mechanisms for enforcement. That should change, and Americans should have confidence that the products made available to them are safe and effective.

In response to this proliferation, a number of states have enacted rules and regulations restricting the production and sale of certain hemp-derived cannabinoids. A number of those rules – for example, age and purity restrictions for psychoactive cannabinoids – seem well-intentioned, and we expect to see more of those unless and until the federal government takes further action.

On occasion, however, it appears that the motivations of policymakers may be less pure. It is no secret amongst those in the cannabis industry that marijuana licensees in states that have legalized marijuana are no fans of the unregulated hemp-derived psychoactive industry. After all, marijuana companies are subject to astronomical taxes and endure regulatory costs that make turning a profit far more difficult than if they were able to offer a product that offered a somewhat similar “high” without the institutional overhead and headwinds. Florida may be the clearest and most recent example. With adult-use marijuana widely expected to become law in Florida soon, the state legislature recently passed a law largely prohibiting delta-8 and delta-10.

On the other hand, it would be wrong, even lazy, to suggest that the development of hemp-based products has been without substantial benefits to society as a whole. Entrepreneurs are developing hemp-based substitutes for any number of the most common products used around the globe, meaning that the addressable market for hemp is everyone on earth and beyond.

A younger version of me once wrote, in comparing the addressable market for marijuana to that of hemp:

Hemp, on the other hand, has the potential to dwarf marijuana in the global market. Unlike its sister plant, hemp has the capacity to replace products we use every day without us even realizing it. For example, hemp can provide a substitute for concrete, plastic, fuel, automotive parts, clothes, etc. These are products nearly all consumers need but they neither realize nor care what the products are made of, as long as they work. In that way, while the market for marijuana is limited to consumers looking to purchase marijuana, the market for hemp includes anyone who purchases products that can be manufactured by hemp. In part for these reasons, experts predict four to five times growth in the industrial hemp market in the next five years.

I stand by those words. I am convinced that hemp can change the world.

But I am equally convinced that local, state, and federal governments can, without the appropriate consideration for hemp’s benefits, relegate the plant back to its prohibition era status and deny the world its many benefits. The policy choices made by state governments, and perhaps most importantly by the federal government during the next Farm Bill, could fundamentally alter the future of hemp. Will it be a soon-forgotten shooting star that dazzled the world for a decade and then burned out, or will we look back at the past decade as the renaissance of one of civilization’s oldest and most versatile plants?

Conclusion

I’ll end where I began because Philip Seymour Hoffman’s work is revered by the Budding Trends community (and anyone with taste), and because the film’s ominous conclusion is a message for anyone who wants to see the hemp industry thrive in the years ahead.

As Hanks’ character celebrates the Afghan defeat of the Soviets, the hardened CIA analyst played by Hoffman offers this parable:

On his sixteenth birthday the boy gets a horse as a present. All of the people in the village say, “Oh, how wonderful!”

The Zen master says, “We’ll see.”

One day, the boy is riding and gets thrown off the horse and hurts his leg. He’s no longer able to walk, so all of the villagers say, “How terrible!”

The Zen master says, “We’ll see.”

Some time passes and the village goes to war. All of the other young men get sent off to fight, but this boy can’t fight because his leg is messed up. All of the villagers say, “How wonderful!”

The Zen master says, “We’ll see.”

The message behind this story is pretty clear. We’re prone to jump to conclusions about whether something is “good” or “bad.” We are especially quick to label something as “bad.” The reality is that things can be either good or bad, both good and bad, or neither. When it comes to whether Congress and the states will recognize hemp’s great potential, I guess we’ll see.

© 2024 Bradley Arant Boult Cummings LLP
For more on Hemp, visit the NLR Biotech, Food, Drug section.

Veep Urges DEA to Reschedule Marijuana “As Quickly as Possible”

In case you missed it, Fat Joe visited the White House late last week to discuss federal marijuana policy. 2024, man.

During a roundtable discussion with Mr. Joe (?), Kentucky Gov. Andy Beshear, and several individuals who have received pardons from President Joe Biden for prior federal marijuana convictions, Vice President Kamala Harris “urged the Drug Enforcement Administration to work as quickly as possible on its review of whether to reschedule marijuana as a less-dangerous drug.”

The vice president, in direct terms, stated that it was “absurd” and “patently unfair” to keep the drug in the same highly restrictive tier as heroin and fentanyl. “Nobody should have to go to jail for smoking weed,” Harris said, according to NPR, framing the issue of marijuana reform as a criminal justice issue that disproportionately hurts Black and Latino men.

As to timing, Harris reportedly said: “I cannot emphasize enough that they need to get to it as quickly as possible, and we need to have a resolution based on their findings and their assessment.”

The vice president’s remarks follow Biden’s urging of marijuana rescheduling during the recent State of the Union. Biden has previously granted pardons for federal crimes of marijuana use and possession and has encouraged governors to do the same for state law convictions.

We previously reported that in October 2022 Biden ordered Secretary of Health and Human Services Xavier Becerra “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.” Last August, we noted that the U.S. Department of Health and Human Services officially recommended to DEA that marijuana be moved from Schedule I to Schedule III under federal law.

Last Friday, Harris expressed urgency, concluding: “I’m sure DEA is working as quickly as possible and will continue to do so… And we look forward to the product of their work.”

On the one hand, you could be excused for believing this was simply an inconsequential meeting on a Friday during Spring Break without any chance for advancing the ball. I think, however, that it is meaningful to hear the sitting vice president unequivocally and in stark terms call for the prompt rescheduling of marijuana and make the case that it would be unfair not to do so. In that sense, the marijuana industry has come a long way.

© 2024 Bradley Arant Boult Cummings LLP
For more on Marijuana, visit the NLR Biotech, Food, Drug section.

Blunt Rejection of Attorney Fees in Stipulated Dismissal

The US Court of Appeals for the Federal Circuit affirmed the rejection of attorney fees, finding that neither inequitable conduct nor a conflict of interest rendered the case exceptional given the limited factual record following a stipulated dismissal in a patent case. United Cannabis Corp. v. Pure Hemp Collective Inc., Case No. 22-1363 (Fed. Cir. May 8, 2023) (Lourie, Cunningham, Stark, JJ.).

United Cannabis Corporation (UCANN) sued Pure Hemp for patent infringement. After the litigation was stayed pending bankruptcy proceedings, the parties stipulated to the dismissal. Pure Hemp then sought attorney fees based on alleged inequitable conduct by UCANN during prosecution of the asserted patent due to nondisclosure of a prior art reference used in the patent’s specification and based on a purported conflict of interest by UCANN’s litigation counsel. The district court denied Pure Hemp’s request, finding that the case was not exceptional. Pure Hemp appealed.

Pure Hemp argued that the district court erred by (1) failing to find Pure Hemp to be the prevailing party in the litigation, (2) not concluding that the undisputed facts established inequitable conduct and (3) not recognizing that UCANN’s attorneys had a conflict of interest.

The Federal Circuit found that although the district court erred in not finding Pure Hemp to be the prevailing party, this was a harmless error. The Court explained that by fending off UCANN’s lawsuit with a stipulation dismissing UCANN’s claims with prejudice, Pure Hemp is a prevailing party under § 285. However, the Court concluded that this error was harmless because the district court ultimately concluded that this case was unexceptional.

The Federal Circuit found Pure Hemp’s arguments on inequitable conduct without merit. The Court explained that it had no findings to review because Pure Hemp voluntarily dismissed its inequitable conduct counterclaim and did not seek any post-dismissal inequitable conduct proceedings. Although Pure Hemp argued that it could prevail based on the undisputed facts in the record, the Court disagreed. It explained that even the limited record demonstrated at least a genuine dispute as to both the materiality and intent prongs of inequitable conduct and, therefore, the district court properly determined that Pure Hemp did not demonstrate that this case was exceptional.

The Federal Circuit also rejected Pure Hemp’s argument that copying and pasting portions from the prior art in the patent’s specification (but not disclosing the same prior art references) was inequitable conduct. The Court explained that unlike the nonbinding cases Pure Hemp relied on, the district court here did not find that the copied prior art was material, and the record gave no reason to disbelieve the explanation provided by UCANN’s prosecution counsel. The Court was also unpersuaded by Pure Hemp’s arguments to support inequitable conduct, explaining that the Court was not free to make its own findings on intent to deceive and materiality and, further, the district court was not required to provide its reasoning for its decision in attorney fee cases.

As to Pure Hemp’s argument that the case was exceptional because UCANN’s attorneys suffered from a conflict of interest, the Federal Circuit found that this argument was waived and, in any event, lacked merit because Pure Hemp presented no evidence to support the alleged conflict.

Finally, having sua sponte raised the issue of whether this was a frivolous appeal. The Federal Circuit determined that although it was “not pleased with how Pure Hemp has argued this appeal,” the appeal was nonetheless not frivolous because [Pure Hemp] properly argued that it was the prevailing party.

© 2023 McDermott Will & Emery
For more Intellectual Property Legal News, click here to visit the National Law Review.

Tenth Circuit Declares No Remedy for Hemp Farmer Whose Federally Legal Plants Were Seized

In January, the United States Court of Appeals for the Tenth Circuit issued a published opinion in Serna v. Denver Police Department, No. 21-1446 (10th Cir. Jan. 24, 2023), upholding the dismissal of a hemp farmer’s lawsuit against local government officials in Colorado who confiscated his plants.

The farmer – Francisco Serna – brought suit under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) which legalized hemp across the country and included limitations on states’ ability to prohibit the transportation of certain hemp plants and products across state lines. However, the three-judge panel concluded that no provision within the law allows for a private right of action by an individual to challenge instances of perceived unlawful governmental interference.

Serna grew hemp in Texas and intended to bring several plants home with him from Colorado. But when he attempted to get the plants – consisting of “plant clones or rooted clippings” – through Denver’s airport, a police officer confiscated them under a departmental policy to seize plants containing any discernible level of THC. Even though Serna had documentation showing that the plants’ THC level was beneath the limit authorized by the 2018 Farm Bill – and therefore compliant under federal law –  the officer took the plants anyway.

Serna’s Legal Proceedings

Serna sued the Denver Police Department and the confiscating officer under Section 10114(b) of the 2018 Farm Bill, which prohibits states from interfering with interstate transport of hemp and products that comply with the law. Serna asserted that because his plants were complaint, the defendants violated the provision. However, a federal magistrate judge granted the defendants’ motion to dismiss, which the district court adopted.[1] Serna then appealed to the Tenth Circuit.

The Tenth Circuit also held that no private right of action existed for Serna to employ. The court’s conclusion rests on the determination that Congress did not intend that hemp farmers, like Serna, should constitute a protected class under the 2018 Farm Bill. Without that status, they cannot sue. The court focused on the plain language of Section 10114(b), reasoning that it “makes no mention of [a] purported class of licensed [hemp] farmers” and merely provides that “no state…shall prohibit the transportation or shipment of hemp” across its borders. Thus, the provision pertains only to “the person regulated rather than the individuals protected,” which is fatal to the private right of action inquiry. The court compared Section 10114(b) with other federal statutes that do create private rights of action, such as Title VI of the 1964 Civil Rights Act, which specifies that “[n]o person…shall…be subjected to discrimination.” 42 U.S.C. § 2000d.

Takeaways

The unfortunate result of this decision is that individuals who comply with the provisions of the 2018 Farm Bill during the course of their business operations cannot seek recourse from improper government meddling. As a result, the law is significantly less protective than anticipated. Rather than suing to protect their interests, entrepreneurs like Serna must instead depend upon other actors – perhaps state attorneys general – to pursue these types of cases. However, those non-stakeholders generally have less incentive to pursue lawsuits, particularly against peer law enforcement agencies, leaving hemp operators with no remedy to enforce their rights under the 2018 Farm Bill.

In a broader sense, the Serna case is a cautionary tale for those who expect federal descheduling of marijuana to resolve the regulatory complexities currently faced throughout the cannabis industry. If hemp operators working with products that are federally legal are unable to utilize the courts to challenge unlawful seizure of their products, then the effectiveness of federal legalization of cannabis may require an express private right of action.

Going forward, Serna has a limited period of time to request that the case be re-heard by the Tenth Circuit en banc (i.e., by the entire eleven-judge court) – otherwise, the three-judge panel’s opinion will remain the operative, binding outcome.

[1] The magistrate judge and the district judge differed on their bases for concluding that Serna could not sue under the 2018 Farm Bill. Specifically, the magistrate judge determined that Section 10114(b) neither created a private right of action nor a private remedy. The district judge, on the other hand, concluded that Congress did authorize a private right of action but no private remedy to enforce it was evident. This additional divergence is another example of how the 2018 Farm Bill is susceptible to conflicting interpretations, which will likely only increase going forward as other courts consider the issue.

Article By Emily M. Leongini, Shahiedah Shabazz, and Morgan R. Pankow of ArentFox Schiff LLP

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

© 2023 ArentFox Schiff LLP

Warning Sign? A New Round of FDA Warning Letters Over CBD Consumer Confusion May Signal a Shift in Government Enforcement

FDA warning letters are nothing new in the cannabis industry. In fact, we here at Budding Trends have covered this topic a number of times (here, here, and here). Not resigned to playing the hits, however, the FDA issued a new set of warning letters on November 21 that may signal a shift in enforcement posture away from solely targeting companies that market CBD as a potential medical treatment and towards including companies that market their products in ways that could cause consumer confusion. This is a “Warning Sign” that might cause the cannabis industry “A Rush of Blood to the Head,” much like Coldplay’s multi-platinum album that recently celebrated its 20-year anniversary. So, turn back the “Clocks,” book your flight to “Amsterdam,” and indulge us if you will — just not too much.

Congress legalized the production of hemp and hemp-derived products under the 2018 Farm Bill. But federal legalization did not exempt the hemp industry from federal regulation. Indeed, the FDA and FTC retain overlapping enforcement authority over CBD marketing, with the FDA having primary authority over labeling. Far more than “A Whisper,” the FDA and FTC have not been shy about issuing warning letters to hemp companies that fail to follow the FDA’s labeling requirements and guidance.

Since its first set of warning letters to CBD companies in April 2019, the FDA has focused its enforcement activity on companies that market their CBD products as treatment and cures for a variety of diseases and illnesses. But the FDA’s most recent warning letters took a different tack, focusing on potential health risks from long-term CBD use, consumer confusion leading to unintentional or overconsumption of CBD, and CBD products that could be seen as marketed to children.

The basis of the FDA’s five new warning letters was that CBD is neither an authorized food additive nor generally recognized as safe. The FDA noted it had “not found adequate information showing how much CBD can be consumed, and for how long, before causing harm,” and claimed that “scientific studies show” potential harm to the “male reproductive system” and “liver” from long-term CBD use. In the FDA’s words, “[p]eople should be aware of the potential risks associated with the use of CBD products.”

The products highlighted in the warning letters included gummies, fruit snacks, lollipops, cookies, teas, and other beverages. The FDA said these products were targeted because consumers may confuse them for traditional foods or beverages, “which may result in unintentional consumption of overconsumption of CBD.” Further, the FDA noted that gummies, candies, and cookies are especially concerning because they may appeal to children. Likewise, the FDA cited tea, coffee, sparkling water, beverage “shots,” and honey as products similar to traditional food that may confuse consumers into over-consuming CBD.

Keeping its focus on unintended consumption or unintended overconsumption, the FDA also chastised one company for failing to specifically list CBD as an ingredient on the label of its hemp-infused tea. This is particularly important to note for hemp companies, many of which have sought to avoid listing “CBD” on the product labels for full spectrum hemp extracts in an effort to avoid the FDA and FTC’s seemingly CBD-focused enforcement actions.

Given this new enforcement posture, CBD companies may consider avoiding marketing attempts that seek to link CBD products too closely with traditional foods and beverages. This may include limiting references to the similarity of CBD products to traditional ones. And CBD companies should continue to avoid product labels and marketing campaigns that would be enticing to children, especially for CBD products that are in a form children might be likely to consume (such as gummies and candies).

It remains to be seen where the FDA will draw the line between appropriate marketing and marketing that goes too far towards confusing consumers, but, aside from a falsetto Chris Martin, “nobody said it was easy.” Until then, watch this space and remember to follow the marketing dos and don’ts we provided in one of our previous blog posts.

Article By J. Hunter Robinson and Josh Kleppin of Bradley Arant Boult Cummings LLP

© 2022 Bradley Arant Boult Cummings LLP