Since the Secure and Fair Enforcement (SAFE) Banking Act (the “Act”) found bipartisan support in the House Financial Services Committee back in March, the industry has been waiting for even the slightest sign of its legislative progress. Fortunately — on September 25, 2019 — the U.S. House of Representatives formally passed the SAFE Banking Act of 2019, which marks the first standalone cannabis reform bill to ever pass the House. The Act, if codified into law, would unshackle the cannabis industry and open access to insurance, traditional banks and other imperative financial service companies.
Even as states have made marked progress on cannabis legalization, the federal government’s regulatory regime continues to burden the industry, including with respect to banking and similar services. Two primary issues plague the cannabis industry’s access to meaningful financial services: (i) any business operating pursuant to a state law, whether it be a financial institution, real estate company, or any other ancillary operation working in connection with cannabis industry, is subject to risk of being construed as aiding or abetting a criminal conspiracy in violation of the Controlled Substance Act since those services do, in fact, facilitate and promote the marijuana industry; and … Keep reading
Over the past seven months, and just as recently as three weeks ago, the Federal Trade Commission (“FTC”) has released several warning letters to businesses selling CBD products. These letters concern the FTC’s review of potential violations of the Federal Trade Commission Act of 1914, §§ 41-58, as amended, (the “FTC Act”) made in websites and marketing materials of CBD-related businesses. Participants throughout the CBD industry may take prudence in reviewing not only these health claims called to question by the FTC, but also by how these other industry participants have responded to the FTC’s warning letters.
The FTC and the CRS Evidence Standard
The FTC is an independent federal agency centered on maintaining marketplace competition that benefits both businesses and consumers. The FTC identifies its purpose as, “seek[ing] to protect consumers by enforcing laws and rules that promote truth in advertising and fair business practices, and by educating consumers and businesses about their rights and responsibilities.” FTC Warning Letter to 4Bush Holdings, LLC, dated September 9, 2019.
In its warning letters, the FTC expressed concerns with companies “making false or unsubstantiated advertising claims about the health benefits of products containing cannabidiol (CBD).” The FTC … Keep reading
On September 24, 2019, the Cannabis Control Commission (“CCC”), the Massachusetts government agency that oversees and regulates the state’s marijuana industry, voted to approve a set of revised marijuana regulations that provides for a number of updates to the existing versions, including several significant changes. Of note, the CCC is contemplating the establishment of a licensing process that would permit marijuana companies to engage in new lines of business, including social consumption and delivery services. While home delivery services are expected to begin within the coming months, the CCC noted that the newly approved “Social Consumption Establishment Pilot Program” may require legislative action before it can be implemented.
Under this Social Consumption Establishment Pilot Program, certain brick and mortar marijuana establishments will be permitted to sell marijuana products to customers who could consume the goods on-site. Similar businesses, often referred to as “cannabis cafés” or “cannabis lounges”, were first made popular in Amsterdam and have recently become a hot topic in the domestic U.S. industry, as more states, such as California, have passed regulations allowing for their proliferation. While many have voiced valid concerns regarding such businesses (including local neighborhood nuisances and the intoxicated operation of motor vehicles), there … Keep reading
In response to the growing crisis around vaping-related illness, Governor Baker has declared a public health crisis and issued a four-month ban on the sale of all vaping products in Massachusetts. The state’s Public Health Council subsequently issued a formal approval of the ban shortly thereafter. The ban – which went into effect immediately on September 24th – is set to last through late January 2020.
Since the media first reported on the issue, doctors have identified more than 530 confirmed or possible cases of vaping-related illnesses across 38 states, according to the Centers for Disease Control (“CDC”). And while the CDC has reiterated that many patients have in fact used THC-based products, some obtained on the street rather than from state-licensed recreational or medical marijuana retailers, the exact cause of such vaping-related illnesses has yet to be determined. Nonetheless, Massachusetts’ officials have reported 61 possible cases of vaping-related illnesses in the state as of this week, including among teenagers — a jump from 38 just last week. In light of this uncertainty, the Governor has halted all sales to allow for investigations by both medical and law enforcement authorities, at both the state and federal level.
Pursuant to … Keep reading
The Food and Drug Administration (FDA), following up on its public concerns about the science, safety, effectiveness and quality of unapproved products containing cannabidiol (CBD), recently issued a warning letter to Curaleaf Inc., of Wakefield, Massachusetts, for illegally selling unapproved products containing CBD online with unsubstantiated claims that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety, among other conditions or diseases.
Acting FDA Commissioner Ned Sharpless, M.D., commenting on the warning letter, indicated that “selling unapproved products with unsubstantiated therapeutic claims — such as claims that CBD products can treat serious diseases and conditions — can put patients and consumers at risk by leading them to put off important medical care.” He further stated that “there are many unanswered questions about the science, safety, effectiveness and quality of unapproved products containing CBD and that the agency stands firm in its commitment to continue monitoring the marketplace and protecting the public health by taking action as needed against companies that deceive consumers and put them at risk by illegally selling products marketed for therapeutic uses for which they are not approved.”
The agency has established an internal working group to explore potential regulatory pathways for various … 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
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