The nascent cannabis industry is much like a younger sibling, riding the wake of its forerunner, alcohol. In joining the vice industry’s consumer products market segment, the cannabis industry has had the benefit of being able to follow in the footsteps of the alcohol industry and anticipate potential upcoming obstacles. This use of the alcohol industry as a guinea pig can be readily observed in connection with the evolving legal and regulatory frameworks currently being formulated for cannabis. It is in this light that the June 26, 2019 U.S. Supreme Court decision in Tennessee Wine & Spirits Retailers Association v. Thomas, a case concerning certain Tennessee alcohol regulations, can offer some guidance and foreshadow the future of cannabis laws and regulations.
In Thomas, the Tennessee Wine and Spirits Retailers Association (a trade association of in-state Tennessee liquor stores), sought relief from the Supreme Court in their endeavor to have certain Tennessee state regulations -which required state residency for holders of alcohol licenses- upheld. Justice Alito and the Court ruled against the Association in their holding that such regulations were unconstitutional.
Although a number of other regulations requiring that alcohol license holders and applicants in Tennessee be residents … Keep reading
On May 30, 2019, the U.S. Court of Appeals for the Second Circuit —in an opinion delivered by the eminent Guido Calabresi— offered the cannabis industry a glimmer of hope in its pursuit of the federal legalization of marijuana. In the case of Washington et al. v. Barr et al., a set of plaintiffs challenged the DEA’s classification of marijuana as a Schedule 1 drug under the Controlled Substances Act (“CSA”). Most courts, including the SDNY (where the case originated), have had a general tendency to dismiss such cases, citing the preeminent precedent established in Gonzales v. Raich, which confirmed the supremacy of the federal government’s prohibition of marijuana over state legalization. The Second Circuit, in Washington, stopped short of dismissing the appeal from the SDNY and set up the opportunity for a potential challenge to the federal ban in the near future.
While the plaintiffs in Washington surmounted an incredible obstacle, by avoiding outright dismissal, the Court did not go so far as to provide them with the relief they sought. Instead, Calabresi and his peers opted to concur with the SDNY’s ruling that the plaintiffs had failed to fully exhaust their available alternative remedies … Keep reading
Retail sales of medical and recreational marijuana in the U.S. have been projected to reach $12 billion by the end of 2019. In Massachusetts, the total sale of recreational marijuana have topped $100 million last month according to data released by the Cannabis Control Commission (“CCC”). This is a significant rise from the CCC’s January report of nearly $24 million in recreational sales. However, statistics also show that at the beginning of this year only 4 marijuana licenses were held by Economic Empowerment Applicants (“EEA”) out of a total of 247 license applications – amounting to a mere 3 percent of all recreational license applicants qualifying as minority-owned.
At the foundation of Massachusetts’ cannabis legislation is a commitment to ameliorating the disproportionate harm done to minority communities as a result of the War on Drugs, specifically in the context of the prohibition on marijuana. Pursuant to St. 2017, c. 55, the CCC is required to ensure that members from communities that have been disproportionately harmed by the enforcement of marijuana laws are not excluded from the cannabis industry. As a result, the CCC established a system of priority review for EEAs who meet three out of the six criteria, … Keep reading
The cannabis industry has a corporate governance problem. It is a topic that legal analysts have discussed at length, and yet it continues to be an area that is especially important to emerging cannabis companies and mature cannabis companies alike.
In the world of startups and emerging companies, it is not uncommon to see founders sacrifice best corporate governance practices in an effort to become established faster and build their market presence. Early investors and shareholders are often tolerant of governance shortcomings as companies focus their energy on growth and market-share. After all, the consequences of lacking sufficient corporate governance controls are not always a clear deterrent in the early stages of a closely held company. However, many cannabis companies do not have the luxury of a normal growth period, with time to mature and adopt normal governance policies. With stringent (and ever-changing) regulatory requirements, and an ongoing demand for transparency, cannabis companies can avoid headaches (and potentially worse) by implementing strong corporate governance practices early on.
When it comes to corporate governance, best practices suggest that, among other things, (i) boards (whether board of directors or board of managers) should consist of diverse and independent members, (ii) management … Keep reading
In a post last week, we discussed the ongoing personal bankruptcy case In Re Adair, in which a United States Trustee is seeking to have the court dismiss a Chapter 13 plan of an individual that is employed by a “non-plant-touching” ancillary marijuana business. The Trustee argued that, as the debtor’s salary is paid by an employer that derives income from the sale of cannabis, which remains federally illegal, approval of the bankruptcy plan would “improperly involve a federal court in administering the fruits and instrumentalities of federal criminal activity”. This argument has also been made in other bankruptcy cases in which the debtors engage in activities related to the marijuana industry, resulting in a seemingly blanket refusal by the bankruptcy courts to confirm any plans involving state-sanctioned marijuana operations.
However, a significant chink in the armor occurred last week when the Ninth Circuit Court of Appeals issued a ruling in Garvin v. Cook, which affirmed a bankruptcy court’s confirmation of a Chapter 11 plan involving income derived from the sale of marijuana. The Trustee in Garvin objected to the plan in question based, in part, upon 11 U.S.C.A. § 1129(a)(3), which provides that “[t]he court shall … Keep reading
The U.S. Justice Department (“DOJ”) has said that an Oregon woman who is employed by a marijuana staffing agency cannot use bankruptcy protection because of her firm’s ties to the cannabis industry. The U.S. Trustee—a DOJ bankruptcy administrator—objected to confirmation of the debtor’s Chapter 13 plan and moved to dismiss on the grounds that her income is earned in violation of the federal Controlled Substances Act (“CSA”).
The debtor, Ms. Adair, works for Greenforce Staffing, which advertises itself as a full-service staffing and temporary employment agency focused on labor solutions for the cannabis industry. Moreover, its website claims that the company specializes “in providing skilled harvesting, cultivation lifecycle, and trimming temporary labor services for licensed Oregon producers” as well as providing “a suite of permanent and temporary placement services for all aspects of the cannabis industry, including, but not limited to, bookkeeping, product packaging, garden management, and retail.”
Even though Greenforce is by no means a plant-touching operation, the Trustee argued that confirming Ms. Adair’s Chapter 13 plan would nonetheless improperly involve a federal court in administering the fruits and instrumentalities of federal criminal activity. The objection continued:
The Debtor receives her income from Greenforce, and Greenforce receives … Keep reading
Whether a cannabis firm is in the recreational or the medicinal space it seems as though there is an excess of rules and demands whichever way you turn. The new California regulations read like those for a proper pharmaceutical firm, while we know that bank financing or even financing receivables can demand extraordinary documentation. And there’s no need to dwell upon the continued uncertain status of cannabis and its derivatives per the Cole Memo and the fact that cannabis remains largely a cash business with its attendant risks.
So with all of that to consider, it would not be surprising for a consumer facing cannabis firm not to think much about sending out a few text messages. Well, perhaps more than a few. In early April it was reported that Eaze Solutions, Inc. agreed to pay $1.75 million in settlement of a class action claim that it had bombarded consumers with unsolicited, autodialed text messages. The company’s mobile app facilitates the personal delivery of recreational and medical marijuana throughout California, earning it the moniker (at least by plaintiff’s counsel) of the “Uber of weed.” (No report from Uber as to how they feel about this compliment.) The successful plaintiffs … Keep reading
Over the past few months we have posted a number of articles regarding the 2018 Farm Bill and its effective “legalization” of non-psychoactive, cannabis-derived, cannabidiol (“CBD”). While CBD has indeed been removed from Schedule I of the U.S. Federal Controlled Substances Act (the “CSA”), there remains a large degree of ambiguity regarding the ability of companies to commercially sell CBD products to consumers. Recently, the Food and Drug Administration (the “FDA”), one of the Federal agencies regulating CBD, established some bright line rules regarding such products (e.g. “it is unlawful to introduce food containing added CBD… into interstate commerce, or to market CBD or THC products as dietary supplements [absent prior approval from the FDA]”). However, despite this guidance, a grey area remains with respect to topical products, which include creams, sprays, roll-ons, lotions, and salves.
Over the past few weeks, CVS and other big-name retailers have announced that they will begin selling CBD topical products. While CVS is limiting sales to only those stores located in states that have approved the sale of CBD, those sales remain subject to the FDA. In formulating its regulatory framework for the CBD industry, the FDA has announced that it … Keep reading
As we discussed in a post back in February, one of the biggest hurdles facing the legal cannabis industry today remains the lack of access to banking services. Despite the legalization of cannabis on the state level, banks and credit unions have remained hesitant to provide financial services to cannabis-related businesses ( “CRBs”) out of concern that providing services to CRBs could potentially expose them to charges of money laundering and aiding and abetting federally-illegal operations. Originally introduced in May 2017, the “Secure and Fair Enforcement (SAFE) Banking Act” is a potential solution to the banking issues faced by CRBs across the country. And while the 2017 Act was unsuccessful, the bill enjoyed bipartisan support.
Last week, Sen. Jeff Merkley (D-OR) and Sen. Cory Gardner (R-CO)—along with 20 cosponsors—reintroduced the Secure and Fair Enforcement (SAFE) Banking Act into the Senate. The (SAFE) Banking Act’s companion bill was introduced in the House last month by Rep. Ed Perlmutter (D-CO) and a bipartisan group of 108 cosponsors. Following a hearing, the legislation was approved with bipartisan support in the House Financial Services Committee in March. It currently has 165 cosponsors.
Based on legislators’ comments on the proposed bill, it’s clear that … Keep reading
As discussed in more detail in my prior post, Alpenglow Botanicals (“Alpenglow”) is a state licensed Marijuana dispensary based in Colorado. Alpenglow was audited for several tax years and the IRS made adjustments, denying Alpenglow’s deductions for ordinary and necessary business expense under §280E. The company’s two principals paid the assessed liability under protest and filed a refund suit. The district court dismissed the suit for failing to state a claim upon which relief could be granted. Alpenglow appealed to the 10th Circuit, which ultimately affirmed the district court’s dismissal.
Supreme Court Petitioned
On February 21st, Alpenglow filed its cert petition, asking the U.S. Supreme Court to consider whether:
- by enacting §280E, Congress empowered the IRS to investigate federal drug crimes and administratively determine whether a taxpayer is criminally culpable under federal drug laws and
- 280E is a penalty for crime.
The U.S., as Respondent, could have acquiesced to the petition, submitted its brief in opposition, or waived its right to respond. The U.S. elected to waive its right to file an opposition brief—leading me to conclude that they (a) thought the Court would quickly dead list the petition or (b) … Keep reading