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

Crimson Galeria Limited Partnership et al (the Plaintiffs) vs. Healthy Pharms, Inc. et al (the Defendants), in Civil Action No. 1:17-cv-11696-ADB (the Complaint), which is currently pending in the United States District Court for the District of Massachusetts, is an interesting case to watch, as it could have far-reaching implications for the cannabis industry. In it, Plaintiffs allege that all Defendants are criminally conspiring to grow and sell cannabis and cannabis products, in violation of the Controlled Substances Act and the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. This is a stretch, as one of the defendants, Century Bank and Trust Company, only provides banking services to Healthy Pharms, Inc., a Massachusetts-licensed registered marijuana dispensary located in Harvard Square. Not to put too fine a point on the dispute, but by invoking the RICO statute, Plaintiffs are attempting to make a federal case out of what amounts to a Harvard Square landlord dispute, because the landlord does not approve of Healthy Pharms, Inc.’s operation and is concerned about the potentially negative ramifications it may have on its own business and real estate value.

On December 15, 2017, Century Bank filed a brief in support of its motion to … Keep reading

The Emergence of Cannabis Banking

In the fast-growing legalized cannabis industry, one of the major obstacles for businesses has been—and continues to be—access to banking services. Because cannabis remains a Schedule I drug and unlawful at the federal level under the Controlled Substances Act, the majority of federally regulated commercial banks will not accept customers that derive funds from cannabis-related activities, whether medical or recreational. While some businesses may attempt to disguise the nature of their funds, risking the potential closure or freezing of their accounts if discovered, many choose to deal primarily in unbanked cash, leading to an entirely different set of potential risks.

Cannabis banking advocates argue that forcing businesses to operate solely in cash can lead to undesirable consequences, including heightened risk in the community and stress on the business’s record-keeping and tax-reporting obligations. In an effort to further legitimize these businesses and reduce the potential risks associated with unbanked cash, some regional credit unions and state-chartered banks—particularly in states where cannabis has been legalized the longest (e.g., Colorado, Washington)—have quietly begun accepting cannabis-related clients, subject, of course, to increased diligence, disclosure, and compliance requirements.

These credit unions and banks work closely with the cannabis-related companies to ensure that all local … Keep reading

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

While trademarks for cannabis products and many accessories are ineligible for federal trademark protection (because such goods are still unlawful at the federal level), the savvy cannabusiness operator should nevertheless approach their branding strategy thoughtfully and engage in some investigation into potential trademark conflicts before adopting a new brand or business name.

Importantly, trademark conflicts are not restricted to simply using the identical mark of a competitor. Instead, they generally turn on whether use of the mark is “likely to cause confusion” in the marketplace. In other words, if it is likely that consumers will assume a relationship between you and the senior trademark owner.

Earlier this year, for example, Woodstock Ventures LC filed suit against Woodstock Roots, LLC on the basis of trademark infringement. Since 1969, Woodstock Ventures has produced the annual WOODSTOCK®-branded music festival in New York. In the intervening years, the company has expanded its offering to include audio records, movies, clothing, and other promotional merchandise, all offered under the WOODSTOCK brand. It holds federal trademark registrations for these goods and services, all of which, on their face, have no obvious relationship to cannabis goods. However, and as Woodstock Ventures readily concedes and, in fact, boasts … Keep reading

This year is primed to be the cannabis industry’s biggest yet. Almost $3 billion of capital was raised in the first quarter of 2018, more than four times the amount raised in the first quarter of 2017. With the increase in capital investment comes an increase in the sophistication of investors, including institutional ones like venture capital and private equity sponsors.

As more institutional money pours into the cannabis industry, entrepreneurs are being held to higher standards of professionalism, and are now expected to understand basic venture finance and equity structures. Part of this understanding includes preferred equity, which is a general term used to describe any class of securities (e.g., stock, limited liability company [LLC] units, limited partnership [LP] interests, etc.) that has higher priority for distributions of a company’s cash flows or profits than common equity.

In its simplest form, the “preferred” component of the equity represents additional rights and privileges investors receive in return for their investment beyond owning a percentage of the company. In most instances, when a company takes on outside investors, it will have at least two classes of securities: common equity and preferred equity. The common equity will be that owned by … Keep reading

Last week’s presidential support of states’ rights to regulate cannabis was a welcome development for many in the legalized marijuana space. It shouldn’t have necessarily come as a surprise, though—after all, on the campaign trail, then-candidate Trump often espoused his view that the issue should be “up to the states.”

And it seems that many in Washington are beginning to come around to the President’s thinking on the matter, second-guessing long-held beliefs that have influenced federal policy for decades. In just the past week, two of the nation’s foremost media drivers of political thought/coverage have run articles that categorize the march toward legalization as having a cadence unmatched by any in history.

Per Politico:

Evolution on the marijuana issue is proceeding at warp speed in political terms. [Former House Speaker John] Boehner is just the latest in a string of noteworthy newcomers to the legalization movement that has been barreling through state houses for the past decade. Just in the past several weeks, Mitch McConnell fast-tracked a Senate bill to legalize low-THC hemp. Chuck Schumer announced that he would introduce a bill to deschedule marijuana entirely … The Food and Drug Administration opened a comment period on the

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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