What to Watch For: The Near-Term Outlook on Cannabis

We anticipate 2018 as being a pivotal year for cannabis across the country. As momentum for the movement to legalize continues to build, here are some of the things we’re keeping an eye on.

Rohrabacher-Blumenauer Extension
The Rohrabacher-Blumenauer Amendment was extended until January 19, 2018, as part of the budget deal passed on December 21, 2017, that averted a federal shutdown. With the New Year, we are eager to see whether Congress will continue to extend the protection provided by the Amendment, which prevents the federal government from using federal funds to prosecute fully compliant and licensed medical marijuana operations. Should the Amendment not be extended, attention will turn to Attorney General Sessions, to see what measures he may take to shut down or otherwise impede the progress of the industry.

While there is certainly legitimate cause for concern, many industry advocates doubt that the Attorney General will do much in the way of going after licensed medical facilities, given that the Amendment does not bar the use of federal funds for crackdowns on the recreational cannabis industry, coupled with the fact that the government has, at least to date, not begun any such crackdowns.

Tax Code
For 2018, many are wondering if this will be the year of “normalization” of the impact of IRS Code provision 280E, which prevents cannabis businesses from taking many deductions available to non-cannabis businesses and thereby lowering the amount of federal income taxes required to be paid. In 2017, there was an attempt to rectify these taxation issues in the body of the recently passed tax legislation, but the final version of the law did not end up containing such protections. Industry insiders look to the possibility that certain tax courts, which have begun reviewing these issues, may provide some long-awaited judicial clarity as well.

Cannabis IP
A dispensary’s sales are impacted by the number of genetic variations that it may be able to sell (whether medicinal or adult-use), so as the industry mature, obtaining nation-wide protections on those variations will become increasingly important. Because cannabis is illegal under federal law, it has proven extremely challenging to obtain either trademarks or patents regarding any cannabis-related product or business (as such protections are overseen by the U.S. Patent and Trademark Office). Industry experts and IP lawyers have been working to determine to what extent the various genetic strains of cannabis can be patented, using multiple different approaches.

California as a Model for Massachusetts…?
California commenced adult-use sales on January 1, 2018. How well will its program initially function? What unforeseen roadblocks will complicate matters as it ramps up? Many have raised concerns that the California market is ill-prepared for the huge demand, and expect to see cannabis shortages throughout the state. If such a situation arises, how industry and state agencies react may prove instructional for Massachusetts, which targets July 2018 for recreational sales to begin.

Also, in Massachusetts, the Cannabis Control Commission will soon promulgate its new rules and regulations, as well as the actual application process, with respect to the recreational or adult-use marijuana market. The CCC is also considering rules for on-site consumption and special one-time usages. We will be closely following how the new rules and regulations will impact both the cannabis industry and the local market.

Hemp & the Controlled Substances Act
There has been some ambiguity regarding the legality or applicability of the Controlled Substance Act to the growth of hemp and the manufacture and sale of hemp products, including products with cannaibidiol (CBD) that contain less than .3% THC. In certain states, police have informed manufacturers of products containing CBD oil that such manufacture/sale is illegal. Recently, the Drug Enforcement Administration has taken the position that hemp-derived CBD oil is illegal, even if it does not contain THC. We look forward to more clarity (hopefully) in both practice and procedure at the state and federal levels.

Scaling Marijuana 
With 2018 being an election year, we anticipate more states either adopting medicinal and other recreational marijuana programs, or expanding the scope of programs currently in place. New Jersey’s governor and legislature have both indicated a willingness to legalize recreational marijuana use through the legislative process in 2018, with bills already being prepared in preparation for the start of the next election. Will New Jersey be the next big recreational market, and the first to become so via the legislative process?