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A Conversation with Massachusetts Cannabis Control Commissioner, Steven Hoffman – Part I

At last week’s State of the Cannabis Industry Conference, Frank A. Segall, Co-Chairman of Burns & Levinson’s Cannabis Business Advisory group and Chairman of the firm’s Business Law and Finance practices, sat down with Steven Hoffman, Chairman of the Massachusetts Cannabis Control Commission, for a wide-ranging interview that touched upon a number of hot-button issues regarding cannabis in the Commonwealth. Below is a transcript of the first half of their conversation. ________________________________________________________________________________________________________________________________________________________________________

COMMISSIONER HOFFMAN: From day one, we’ve said that we’re going do this right—we’re not going to adhere to an arbitrary deadline. There are some deadlines in legislation: We had to have final regulations populated by March 15th, which we did; we had to start accepting license applications by April 1st, which we did. We’ve always said that we’re going to try to hit the deadline [for recreational sales], but we’re going to do it right, and that’s more important to us. I’m very proud of the progress we’ve made—we’re doing it right, we’re doing it carefully, and I hope the citizens of this state care more about what this business looks like in July of 2019 or 2020, than arbitrary deadlines.… Keep reading

Picking up from an earlier post this month post, this week, we’re drilling down into the arguments raised by Century Bank and Trust Company[1]—one of the non-government defendants—as to why the Plaintiffs’ RICO claim against it should be dismissed. Century Bank provides banking services to Healthy Pharms and, according to the Plaintiffs, does so “knowing that [Healthy Pharms] intends to operate a marijuana business.” Plaintiffs bring one count against Century Bank for alleged violation of 18 U.S.C. § 1962(d), which makes it “unlawful for any person to conspire to violate any of the [substantive RICO provisions].” As explained in the prior post, the court left ultimate resolution of the pending motions to dismiss open-ended, granting 30 days’ leave to allow the Plaintiffs to file an amended complaint, based on the fact that Healthy Pharms opened and began operating after Plaintiffs’ original complaint was filed. However, the court also seemed to cast significant doubt as to whether an action could be maintained against Century Bank, as evaluated below.

Century Bank presented multiple arguments as to why Plaintiffs’ complaint should be dismissed, including abstention and failure to allege that Century Bank was involved in a RICO enterprise beyond … 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

Ohio Defines Its Position on CBD

The Ohio Board of Pharmacy declared that over-the-counter sales of cannabidiol (CBD) are illegal, despite the substance’s current widespread availability in grocery, health, and other non-licensed stores across the state.

This means that CBD sales are now only legal in Ohio from state-licensed medical marijuana dispensaries. The problem, however, is that no state medicinal marijuana licenses have yet been issued, even though Ohio approved medical marijuana in 2016, and may not be until 2019, due to the state’s regulatory delays.

“Until dispensaries are operational,” the Board wrote, “no one, including board licensees, may possess or sell CBD oil or other marijuana-related products.” The board issued 56 provisional licenses in June of this year, granting licensees six months to build out their facilities and meet all obligations in state law and rules.

The new guidance means that all products containing CBD must comply with the same rigorous testing procedures and adhere to the same rules as products with real cannabis. Further, any product derived from cannabis must have a “known source,” showing quantities of active ingredients, and CBD must undergo testing in a state-licensed lab. However, no labs that were issued provisional licenses are presently open for business, and … Keep reading

Case Watch: Crimson Galeria Limited Partnership v. Healthy Pharms, Inc.

Recently, in a closely watched cannabusiness case, U.S. District Court for the District of Massachusetts Judge Allison D. Burroughs issued a memorandum and order on motions to dismiss in Crimson Galeria Limited Partnership, et al. v. Healthy Pharms, Inc., et al. [1] For a bit of background, the Plaintiffs are property owners in Cambridge, Massachusetts’ Harvard Square, whose property either abuts or is located within 200 feet of Healthy Pharms’ now-open registered marijuana dispensary. At the time the Plaintiffs filed suit, Healthy Pharms was not open for business, so the Plaintiffs based their claims on the idea that Healthy Pharms’ disclosure of the potential dispensary hurt their property values and interests.

The Plaintiffs alleged that Healthy Pharms’ potential operation diminished the market value of their properties and hurt development opportunities, in their eyes, the RMD made Harvard Square a less desirable location for prospective buyers or renters who “reasonably worry” about “increased crime” and “pungent odors.” The Plaintiffs asserted claims against the “Government Defendants” for declaratory and injunctive relief, arguing that federal law (i.e., the Controlled Substances Act) preempts Massachusetts’ legalization of medical marijuana dispensaries. This was a clear attempt by the Plaintiffs to create a private right of … Keep reading

Judging CBD Products by Their Cover

As the legal cannabis market continues to explode, extract products, in particular, are receiving a lot of attention. Cannabidiol (CBD), for instance, is a cannabis extract widely produced and sold in the U.S., often advertised as having certain medicinal benefits. And while the laws surrounding these extract products can sometimes be cloudy, the regulatory requirements pertaining to their packaging and advertising can create even more confusion.

CBD is a non-psychotropic cannabinoid that can extracted into edibles, oils, tinctures, capsules, and topical creams. Although neither psychoactive nor addictive, and containing only nominal amounts of THC, the DEA ruled in 2016 that CBD is derived from cannabis and is, therefore, classified as a Schedule I drug under the Controlled Substances Act. While many have argued this ruling, a Ninth Circuit court recently upheld the DEA’s decision, and as a result, CBD remains a Schedule I drug at the federal level.

Regarding packaging and advertising, the U.S. Food and Drug Administration, which is responsible for the control and supervision of dietary supplements and over-the-counter drugs (among other things), has only provided a handful of opinions about what is and is not permissible. First, the FDA has affirmatively decided that CBD products may … Keep reading

Cannabis Deal News: Molson Coors Brewing Company Enters into Joint Venture with Medical Pot Distributor

Molson Coors Brewing Company is betting big on the cannabis industry by starting a joint venture with Hydropothecary, an “award-winning medical cannabis producer,” to develop non-alcoholic, cannabis-infused beverages for the Canadian market, in a move that Molson Coors believes will give it a leg up as more countries continue efforts toward legalization.

Last week, Molson Coors said the venture will be a stand-alone startup entity, with its own board (three seats for Molson Coors, two for Hydropothecary) and management team. Molson Coors will hold a 57.5% controlling interest, with Hydropothecary, which now brands itself as HEXO, holding the remaining 42.5%. A chief executive officer is expected to be named in the coming weeks.

As part of the deal, which is expected to close by month-end September, HEXO will issue warrants giving Molson Coors the right to purchase 11.5 million of its shares, at a strike price of $4.62 a share.

Recreational marijuana is slated to become legal in Canada on October 17th, but edible products infused with pot — including beverages — will remain illegal until specific government regulations are rolled out in 2019, at the earliest. Independent research firm Euromonitor International estimates that legal marijuana sales in … Keep reading

U.S. Attorney Lelling's Stance on Marijuana Comes into Sharper Focus

Back in January, on the heels of the Sessions Memo, U.S. Attorney for Massachusetts Andrew Lelling’s affirmation that his “office [would] pursue federal marijuana crimes as part of its overall approach to reducing violent crime [and] stemming the tide of the drug crisis,” coupled with his stated refusal to “provide assurances that certain categories of participants in the state-level marijuana trade [would] be immune from federal prosecution,” led many to wonder what the future of legalized marijuana would look like here in the Bay State. Earlier this month, however, Lelling, Massachusetts’ most powerful federal law enforcement officer, elucidated his position regarding the prosecution of cannabusinesses in the Commonwealth:

Because I have a constitutional obligation to enforce the laws passed by Congress, I will not effectively immunize the residents of the Commonwealth from federal marijuana enforcement.  My office’s resources, however, are primarily focused on combatting the opioid epidemic that claims thousands of lives in the Commonwealth each year.

His focus, he went on say, will be three-fold: overproduction, which “creates the risk of illegal, and lucrative, marijuana sales to users in nearby states where recreational marijuana use remains illegal”; targeted sales to minors, as “study after study confirms that regular … 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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The West Coast has pioneered the national cannabis industry, with California, Oregon, and Washington leading the way in decriminalization and legalization efforts, and that trailblazing reputation has contributed to the impression that market concentration may be skewed toward the Pacific Ocean. However, it’s companies that have been established in the more restrictive, under-the-radar medical cannabis markets of states like Massachusetts, New York, Pennsylvania, New Hampshire, and Ohio, that may have the best long-term positioning and highest valuations.

The reason for this might be counter-intuitive: West Coast states have been much more liberal in issuing licenses to operate cannabis businesses, which has created a market saturated with retail, cultivation, and processing licenses, which, in turn, has created more competition for increasingly smaller market shares. States on the East Coast typically have stricter rules, and companies there must jump through a number of hoops before being granted a license to operate. So while markets in these states is, therefore, limited, given the relatively few licenses granted and high barriers to entry, there is also less competition than out west. The more highly competitive application process also creates an environment that has resulted in eastern companies being some of the best capitalized … Keep reading