Proposed Reforms to Local Host Community Agreements in Massachusetts

Earlier this week, the Massachusetts Legislature’s Joint Committee on Cannabis Policy held a virtual hearing on nine proposed bills focused on reforming the approval process of host community agreements (“HCAs”) between municipalities and marijuana businesses licensed to operate in those cities and towns. Massachusetts lawmakers listened to testimony from advocates, former regulators, attorneys, cannabis business leaders, entrepreneurs and others who argued that the existing local approval process gives municipalities undue leverage in HCA negotiations with marijuana establishments.

As a prerequisite to obtaining state cannabis licensure in Massachusetts, marijuana establishments are required to have an HCA in place with the appropriate municipality. HCAs typically include significant fees imposed by cities and towns, which are ostensibly required to offset the impact by the operation of the cannabis business on the surrounding community. Massachusetts cannabis regulations require the community impact fees to be “reasonably related to the costs imposed upon the municipality by the operation of the marijuana establishment.”

Many of the proposed bills in front of the Joint Committee emphasized, in particular, the community impact fees charged by cities and towns in negotiating HCAs with marijuana establishments. A number of the proposed bills centered around further clarifications to ensure that the … Keep reading

Legislative Update: Where to Watch

Legalization efforts (and victories) have continued to spread across the country in 2021. Over the last few months, we have seen New Jersey and, subsequently, New York legalize adult-use cannabis – programs that are expected to produce more than $4 billion in annual revenue within five years. Both the Virginia and New Mexico legislatures also legalized adult-use cannabis earlier this year – programs expected to generate about $2 billion in annual revenue within five years.  Now, industry experts are watching other east coast states like Connecticut, Delaware and Rhode Island for the next wave of pro-cannabis legislation.

Legislators around the country are feeling the economic pressure of the market as well as pressure from their respective voters. More than two-thirds of Americans are in support of adult-use legalization, and 40% of Americans now live in states where marijuana is recreationally legal. Just this week, the Louisiana House of Representatives approved a bill to expand the state’s current medical marijuana program by allowing patients to purchase whole-flower cannabis. The legislature also advanced another proposal to establish licensing fees for adult-use cannabis if the state decides to legalize it under separate legislation.

Several other states could legalize medical or adult-use cannabis … Keep reading

Recent Federal Cannabis Cases Involving Raising Capital

Federal securities regulators recently obtained judgments in two enforcement actions brought in federal court in California and Illinois involving cannabis-related businesses raising capital. At a high level, the recent trend we have observed in these recent securities enforcement actions is the general emphasis, as we would expect, on (i) accuracy and completeness of material disclosures to investors, (ii) investor solicitation activities, including use of unregistered broker-dealers by issuers, and (iii) properly conducting compliant securities offerings.   

1. SEC v. Geoffrey J. Thompson, No. 1:20-cv-05205 (N.D. Ill. Jan. 20, 2021)

Geoffrey Thompson, a repeat securities law violator, and his company Covalent Collective, Inc., a supposed cannabis company, allegedly conducted numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. The Securities and Exchange Commission (SEC) alleged that Thompson diverted over $2.7 million of funds from investors while serving as CEO of Covalent Collective, a Canadian corporation operating out of Longmont, Colorado.

Among other allegations, the SEC alleged that investors were lured in by Covalent’s use of unregistered broker-dealers; an investor relations firm; a call center maintained by Fortress Legacy LLC, another of Thompson’s companies; and other fraudulent investor-facing solicitations, including audio updates … Keep reading

Eaze Case Puts Financial Institutions on Notice

On March 24, 2021, Defendants Hamid (Ray) Akhavan and Ruben Weigand were found guilty of defrauding banks as part of a scheme they had set up to help cannabis company Eaze accept credit card payments for marijuana purchases. During the trial, former Eaze CEO James Patterson testified that he and other Eaze employees, Eaze board members, and even the dispensaries they served, knew that they were disguising the payments to appear as if they originated from non-cannabis businesses because banks and the major credit card networks did not allow credit cards to be used for marijuana. The Defendants argued that although banks may claim that they do not want nor allow marijuana transactions, they, in fact, know they are facilitating marijuana-related payments and profit from doing so.

Although a prosecution witness from Bank of America testified that the bank’s policies strictly prohibit doing business with cannabis-related companies, he also admitted that Bank of America profits from marijuana credit card purchases when customers maintain balances on their cards. Bank of America stated that it monitors for cannabis-related transactions by screening merchant names and if an investigation reveals that a merchant is a cannabis-related business, it reports the merchant to Visa … Keep reading

Vape Shipping Ban Looms Ahead

In December, President Trump signed a 5000+ omnibus bill into law titled the Consolidated Appropriations Act of 2021 (CAA). The bill was highly publicized for extending certain COVID-relief measures to small businesses, such as revitalizing the Paycheck Protection Program. Another facet of the CAA was a provision which bans the United States Postal Service (USPS) from shipping Electronic Nicotine Delivery Systems (ENDS).

Cannabis vaporizers are captured in the CAA’s broad and vague definition of ENDS, which are defined as “any electronic device that through an aerosolized solution, delivers nicotine, flavor, or any other substance to users inhaling from the device.” The definition includes a component, liquid, part or accessory of the vaporizer device, without regard to whether the component, liquid, part or accessory is sold separately.

The CAA provided that the USPS must develop regulations within 120 days on how it will implement its ban on shipping and handling ENDS.

The USPS released its proposed rule on February 19, 2021 titled “Treatment of E-Cigarettes in the Mail.”

Currently, shipping cigarettes and smokeless tobacco through the USPS is prohibited unless, as set forth in the exceptions, they are mailed between authorized tobacco businesses or are small shipments between individuals … Keep reading

Mexico Inches Closer to Legalization

Early this week, two special committees in the lower house of the Mexican Congress signed off on a draft bill to decriminalize cannabis nationally. Members of the chamber’s Health and Justice committees approved the cannabis bill in a combined vote of 34-11, with 12 abstentions.

The bill – which has been revised significantly since its passage in the Senate last November – will now be sent to the full chamber for a vote. After a 2018 Supreme Court ruling held that the prohibition on cultivation and personal possession of marijuana was unconstitutional, lawmakers were tasked with implementing a decriminalization policy, though Congress has repeatedly postponed its deadlines. If passed, the legislature will be close to establishing one of the world’s largest cannabis markets. The floor vote is expected to take place this week.

With support from the administration of President Andrés Manuel López Obrador, the bill marks what many hope might be a watershed moment in the history of a country long plagued by violence among competing drug cartels. Until now, the failed war on drugs has continued to fuel a massive cannabis black market. This new legislation is considered by many to be a solution: legalize, tax and … Keep reading

Eaze Criminal Case Underscores the Importance of Transparency in Cannabis Cashless Payment Transactions

This week, federal prosecutors in the Southern District of New York will try their case against Defendants Ruben Weigand and Hamid “Ray” Akhavan for one count each of bank fraud in violation of 18 U.S.C. § 1349 related to the purchase of marijuana through Eaze, a California cannabis delivery platform. Specifically, the indictment alleges that Defendants Weigand and Akhavan – along with co-conspirators – created a transaction laundering scheme that facilitated over $100 million of credit and debit card payments to licensed cannabis operators by disguising the transactions to appear as if they were unrelated to cannabis. Prosecutors allege that the scheme was executed due to the fact that most banks are unwilling to facilitate electronic payment transactions related to cannabis, even if those transactions are legal under state law.

Weigand and Akhavan have pleaded not guilty and are set to begin trial on March 1, 2021. However, on February 19, 2021, the former CEO of Eaze Technologies, LLC, James Patterson – who resigned from Eaze in 2019 – pleaded guilty to one count of conspiracy to commit bank fraud and agreed to assist prosecutors with their case against Weigand and Akhavan. In doing so, Patterson told the court … Keep reading

Massachusetts HCAs & Community (Excessive) Impact Fees

On February 3, 2021, the Massachusetts Supreme Judicial Court (SJC) heard a case that raised questions to a grievance cannabis operators in the Commonwealth have been grueling over for years. In the case of Mederi Inc. v. City of Salem, Mederi Inc. was denied a host community agreement (HCA) by the city of Salem after applications for the city’s five adult-use recreational marijuana retailer licenses were slotted. As a part of the Superior Court’s (Feeley, J.) ruling, the court found that the Massachusetts legislature did not intend for the Cannabis Control Commission (CCC) to have the authority to review the contents of HCAs under G. L. c.94G (the Statute).

Marijuana applicants are not only required to enter into HCAs with a host community as directed by the Statute but also are required by the CCC’s regulations in order to be accepted for licensure. During oral arguments, the justices of the SJC raised several questions against the regulatory scheme conducted by municipalities across Massachusetts, charging operators fees disguised such as “charitable donations” and “traffic enhancement fee[s]” that force such businesses to make annual obligations well over the maximum 3% community impact fee allowed by the Statute.

The panel highlighted … Keep reading

Delta-8-THC: Legal THC?

Delta-9-tetrahydrocannabinol (popularly referred to as THC) is widely considered the rock star of cannabinoids. However, Delta-9-THC isn’t the only cannabinoid with psychoactive effects that is emerging on the scene. In fact, it was forced to share the spotlight with its lesser-known cousin, Delta-8-THC, in a recent Rolling Stone article. Does this mean we should expect to see a new cannabinoid rising star on the horizon?

As Rolling Stone highlighted in its article, there is good reason to buy into the hype surrounding Delta-8.

In some ways, Delta-8 sounds too good to be true. But it isn’t. For people who want to feel the psychoactive effects of Delta-9 yet find it gives them paranoia or anxiety, Delta-8 is a quasi-legal option available online. And unlike Delta-9, Delta-8 is significantly cheaper, making it a viable option for some people looking for a short uplifting feeling without being intoxicated. But judging by how much attention Delta-8 has been getting by law enforcement, the trend might be short-lived. Despite the burgeoning success of Delta-8 over the past year, any day can be the cannabinoid’s last.

In fact, the two analog cannabinoids share a lot in common. They are nearly identical from … Keep reading

High on Cannabis: Outlook of the Industry Continues to Shine After Record-Setting 2020

Despite the ongoing COVID-19 pandemic, 2020 was a record-setting year for the cannabis industry, and indications suggest 2021 will continue the trend. Years of steady growth in the cannabis industry shined in 2020 with record levels of sales growth, significant legalization reforms, and re-emerging optimism in the cannabis capital markets.

Sales Growth:

Sales of medical and recreational cannabis set all-time records in both mature cannabis markets, such as Colorado (sales figures for medical and recreational cannabis exceeded $2 billion, up from $1.7 billion in 2019 and $1.5 billion in 2018) and Oregon (annual sales surpassed $1 billion for the first time in 2020), and emerging markets, such as Illinois (sales surpassed $1 billion for the first time). One factor that contributed to these all-time highs resulted from dozens of states – and the District of Columbia and Puerto Rico – declaring their cannabis industries “essential,” allowing cannabis operators to remain open and operational throughout the pandemic. Notably, one exception was the Commonwealth Massachusetts, where the governor closed adult-use cannabis businesses for two months but declared medical cannabis companies as “essential.” Despite the governor’s actions, Massachusetts sales still set records – hitting $700 million in sales, up approximately 56% from … Keep reading