Cannabis Law

The Path to Greenlighting CBD

Last week, the industry was energized by the Drug Enforcement Administration’s order placing certain drugs containing cannabidiol, or CBD, in Schedule V of the Controlled Substances Act. This marks the first time in history that the DEA has removed any type of cannabis from Schedule I, and clears the way for the sale of the first non-synthetic, cannabis-derived medicine to win federal approval.

Under the CSA, CBD remains a Schedule I substance, which means that it is not considered to have any currently accepted medical use. On June 25, 2018, the Food and Drug Administration announced that it approved the drug Epidiolex for the treatment of seizures in connection with epilepsy. Epidiolex is an oral solution that contains CBD, and is also the first FDA-approved drug derived directly from the cannabis plant. According to the DEA order, because the drug was recently approved by the FDA, it is now considered to have an accepted medical use. Therefore, it no longer meets the criteria for placement in Schedule I. The shift in policy means that Epidiolex may now be prescribed by doctors and accessed by patients through traditional pharmaceutical channels, rather than through a marijuana dispensary or compassion center.

While … Keep reading

2018 Farm Bill to Grow CBD Industry

After nearly 50 years as a Schedule I federally controlled substance, hemp is set to become a legal crop. If passed, the 2018 omnibus farm bill (which includes the Hemp Farming Act of 2018) will allow cannabidiol (CBD) to be legally sold in all 50 states. While related as members of the Cannabis sativa family, hemp and marijuana have different biological characteristics. Most importantly for federal legislators, hemp contains negligible amounts of the psychoactive constituent tetrahydrocannabinol (THC).

The federal government’s decision to the legalized hemp is part of a longer, more comprehensive process that stretches back four years, when President Obama signed the 2014 farm bill. At Senate Majority Leader Mitch McConnell’s urging, the 2014 farm bill created a pilot research program that authorized state departments of agriculture and universities to grow and research hemp under limited circumstances. However, due to continued federal prohibition on the crop, there were many restrictions on its cultivation during the pilot period. For example, farmers seeking to participate in the program needed to obtain a waiver from the Drug Enforcement Administration, and the bill also limited the number of acres that farmers could legally plant. The pilot program was a success, … Keep reading

Making Sense of Internal Revenue Code Section 280E – Part I

It’s been a busy summer for cannabis business Section 280E controversy, with three published cases (Alterman v. Commissioner; Loughman v. Commissioner; and Alpenglow Botanicals, LLC v. U.S.) construing the statute, and generally not in favor of the taxpayer-cannabis business. The limitations of Section 280E and their effects on after tax profits should be fairly familiar to cannabis entrepreneurs, but to keep things fresh in your minds, the statute provides:

[n]o 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.

What does that single, parens-laden sentence really mean? When it comes to the Internal Revenue Code, one sentence can leave much to unpack. Take Section 482, for example—not a very relevant Code section, unless you’re taking your cannabis business cross-border (maybe into Canada?), but, nevertheless, illustrative. One … Keep reading

High Hopes and Torched Dreams

This week’s cannabis news was filled with high hopes for some and torched dreams for others. On the one hand, the Food and Drug Administration made history by approving Epidiolex, a cannabis-derived medication used in the treatment of two rare forms of epilepsy. On the other hand, Massachusetts’ Attorney General, Maura Healey, issued a ruling that permits cities and towns in the Commonwealth to extend the temporary moratorium on retail and other marijuana businesses through June 2019—almost a full year past the date approved by Massachusetts voters when recreational sales were to commence. This marked a reversal by Healey, who previously indicated that local freezes could not extend beyond December 31, 2018, due to constitutional concerns.

The Epidiolex announcement cuts at the very argument used by many anti-cannabis activists that all too often focus on the lack of research into cannabis as a reason to uphold its prohibition. In a statement, FDA Commissioner Scott Gottlieb said:

This approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies … We’ll continue to support rigorous scientific research on the potential medical uses of marijuana-derived products and

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Not all cannabis-related companies are created equal. In fact, in the eyes of state and federal regulators, they differ significantly, depending on whether they “touch” the cannabis plant—and they’re treated accordingly.

The most common types of companies that do touch the plant are the “operators” that are cultivating, processing, or dispensing cannabis or cannabis products. “No-touch” companies generally provide a product or service pertaining to the industry, but avoid direct involvement with the plant itself. Examples include suppliers of cultivation-related products (e.g., fertilizer) and packaging, as well as providers of real estate, consulting, and legal services (like Burns).

The complexity of the regulations that apply to “touch” companies, as well as the rigor with which those regulations are enforced, also serves as a point of differentiation. Each state that has legalized cannabis, whether medicinal or adult-use, has enacted an enormous set of rules that govern its cultivation, processing, and sale. While there is no federal standard, cannabis operators generally need to ensure compliance with stringent guidelines regarding security, waste removal, advertising and branding, and packaging, as examples.

Generally, and unsurprisingly, “touch” companies are viewed by both observers of and players in the space as inherently riskier than their … Keep reading

After threatening to block any Department of Justice nominations following Attorney General Jeff Sessions’ revocation of the Cole Memorandum, Senator Cory Gardner of Colorado said in a statement that President Trump has given him assurances that states in which marijuana is legal will be protected from federal interference.

Per Senator Gardner:

Since the campaign, President Trump has consistently supported states’ rights to decide for themselves how best to approach marijuana. Late Wednesday, I received a commitment from the President that the Department of Justice’s rescission of the Cole memo will not impact Colorado’s legal marijuana industry. Furthermore, President Trump has assured me that he will support a federalism-based legislative solution to fix this states’ rights issue once and for all.

Because of these commitments, I have informed the Administration that I will be lifting my remaining holds on Department of Justice nominees. My colleagues and I are continuing to work diligently on a bipartisan legislative solution that can pass Congress and head to the President’s desk to deliver on his campaign position.

If true, this indicates a willingness on the part of the president to break sharply from the stance of Attorney General Sessions, who, in nixing the Cole … Keep reading

Green Hands Aren't Unclean Hands: 9th Circuit BAP Retreats from Mandatory Dismissal in Marijuana Cases

A 92-year-old landlord who leased a storefront to a marijuana dispensary will receive a new hearing after a court dismissed her bankruptcy case on the grounds that acceptance of rent payments from the dispensary disqualified her from bankruptcy relief. Last month, a Bankruptcy Appellate Panel for the 9th Circuit remanded the Chapter 13 case after finding that the Court did not adequately detail a bad faith finding and, therefore, did not support its conclusion that the debtor violated federal law (namely, the Controlled Substances Act).

The landlord, Patricia Olson, owned a shopping center in Lake Tahoe, California, and, in 2013, began leasing space to Tahoe Wellness Cooperative, a state-licensed dispensary. However, the CSA makes it illegal to knowingly lease a property for the purpose of distributing marijuana. At the initial hearing to authorize the sale of the shopping center, the Bankruptcy Court for the District of Nevada took issue with the fact that Ms. Olson had continued to accept rent payments from the dispensary during her bankruptcy proceedings. The Court went so far as to say that Ms. Olson committed a crime by leasing to a business operation deemed illegal under the CSA. Accordingly, the Court concluded that … Keep reading

Bank On It: States Taking a Proactive Approach to Cannabis Banking

When it comes to the cannabis industry, banks and other financial institutions can find themselves in particularly murky legal waters (see Banking & Cannabis: Where Do Things Stand?). Federal rules dictate that banks and financial institutions that accept deposits from cannabis-related businesses may be liable for penalties, which has led to cannabis-related business in many states being conducted almost entirely in cash. Not only does this result in operational hurdles, particularly when it comes to paying taxes and compensating employees, it can also result in large amounts of cash being stored onsite, which, in turn, can lead to increased crime and an unsafe work environment. As California Senator Robert Hertzberg pointed out, “these business handle significant economic activity, yet they are forced to operate under the table and with little government oversight, as if they’re a black-market operation.”

Historically, under the Cole Memo, the consensus seems to have been that financial institutions would not be penalized in states that have legalized cannabis, unless those financial institutions were willfully ignorant to customer activities that could lend themselves to criminal financial transactions (e.g., the concealment of funds derived from other illegal activity, or the use of marijuana proceeds to support … Keep reading

Massachusetts’ Cannabis Control Commission landed firmly in the middle of the road when it voted on February 26, 2018, to postpone granting licenses to marijuana home-delivery services and “social consumption” operations. In justifying the delay, the CCC claimed that it needs additional time to craft rules that address public health and safety concerns, such as impaired driving and underage sales. Despite the postponement, it’s important to note that these limitations in no way impact retail marijuana dispensaries and their suppliers, which remain scheduled to open for business in July 2018.

While the decision is a setback for those in favor of an immediate roll-out, the CCC did agree to initially grant delivery and social consumption licenses to individuals affected by the War on Drugs, meaning that they will not be boxed out of the market when those licenses become available in 2019. This policy is meant to preserve a place in the market for lower-cost marijuana businesses, like delivery services.

While Governor Baker applauded the CCC’s action as part of establishing a “safe and responsible retail” market, others may view it as an opportunity that will appeal to entrepreneurs lacking investment capital, as the types of businesses affected will … Keep reading

Massachusetts Cannabis Control Commission Releases Draft of Regulations for Implementation of Adult-Use Marijuana

On December 21, 2017, the Massachusetts Cannabis Control Commission filed a first draft of regulations for the purpose of implementing the legality of adult-use marijuana. The draft—935 CMR 500.000—reflects more than 80 policies discussed and voted upon the prior week.

It details, among other things, the approval of products and requirements for labeling, packaging, advertising, and serving sizes, as well as the enforcement of regulations, security, and municipal protections.

Following is a summary of some of the regulations pertaining to business establishments.

Marijuana Establishments

General Requirements

  • No licensee shall be granted more than three licenses in a particular class, except as otherwise specified. An independent testing laboratory or standards laboratory may not have a license in any other class. No individual or entity shall be a controlling person over more than three licenses in a particular class of license.

License classes are as follows:

  1. Marijuana Cultivator:

               Tier 1: Up to 1,000 square feet of canopy

               Tier 2: 1,001 to 5,000 square feet of canopy

               Tier 3: 5,001 to 10,000 square feet of canopy

               Tier 4: 10,001+ square feet of canopy

  1. Craft Marijuana Cooperative
  2. Marijuana Product Manufacturer
  3. Marijuana Retailer (Storefront, Delivery-Only, Marijuana Social Consumption Establishment, Primary Use, Mixed Use)
  4. Marijuana
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