Security Standards for Medicinal Cannabis Businesses

Last week the firm moderated a discussion of banking and lending in the cannabis industry. The event was well attended and most importantly provided practical insights concerning the financing of cannabis businesses (medicinal and recreational) and detailed review of just how regulated and scrutinized operations are when it comes to business financing or daily financial transactions. The bottom line appeared to be that in order to obtain financing or to evolve from a cash business, an organization needs to be squeaky clean.

One question that arises regularly is whether medicinal cannabis firms are subject to HIPAA, the federal Health Insurance Portability and Accountability Act of 1996, which is the primary set of laws and regulations applicable to the privacy and security of patient information. It makes sense intuitively that if a dispensary fulfills a prescription or request for a CBD product then the information associated with the patient, the order, and payment should all be considered “protected health information” or “PHI” under HIPAA.

Does HIPAA Apply to Medicinal Cannabis?

Typically, a medicinal cannabis dispensary or related business would not be subject to HIPAA. However, circling back to the discussion of banking and lending, any organization in the … Keep reading

Tomorrow night, Cannabis Business Advisory Group Co-Chairs Frank Segall and Scott Moskol will speak on a panel hosted by TMA New England. Details about the event and a registration link can be found below.


With the cannabis space projected to grow at a significant pace over the coming years, the panel will explore how banking has evolved to accommodate the needs of a vibrant and energetic industry. Topics will include the technology solutions that have become available to help marijuana-related businesses deal with the lack of traditional commercial banking services, how the Commonwealth accommodates the needs of the local industry, and the legal and regulatory framework surrounding cannabis investing/financing, and how it may change in the weeks, months, or years ahead.

A networking reception will immediately follow.

Speakers

Jordan Allen, Principal and CEO, Reich Bros Finance
Scott H. Moskol, Partner, Co-Chair Cannabis Business Advisory Practice, Burns & Levinson
Karen Munkacy, M.D., Founder, President and CEO, Garden Remedies
Tina M. Sbrega, President & CEO, GFA Federal Credit Union
Frank A. Segall, Chair Business Law & Finance, Co-Chair Cannabis Business Advisory Practice, Burns & Levinson

Details

January 31, 2019
5:00-8:00 PM
Boston Marriott Long Wharf
Harborview … Keep reading

Briefly: Harborside

It’s a new year, but why not live in the past just long enough to talk briefly about that last couple of Section 280E cases that trickled in at the end of 2018? Today, I’m reviewing the two Harborside cases.[1]

Harborside

Weighing in at 60-plus pages, and paraphrasing Shakespeare, it’s a wonder that we didn’t learn much more from the first Harborside opinion. Harborside is a medical marijuana dispensary located in California whose 2007 through 2012 tax years were audited, with the IRS issuing deficiency notices covering all six years. The deficiency notices disallowed the company’s Section 162 expense deductions pursuant to Section 280E, and made adjustments to costs of goods sold. Of importance to one of Harborside’s arguments in the case, the business had also been the subject of a civil-forfeiture action filed in 2012, stemming from what the federal law continues to view as its illegal drug-trafficking activities. That action was subsequently dismissed with prejudice in 2016.

In its petition, Harborside asked the Tax Court to decide whether:

  • res judicata precludes the Commissioner from applying Section 280E where the prior civil-forfeiture action was dismissed with prejudice;
  • Harborside’s business “consists of” trafficking in a controlled substance under
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Blumenauer Introduces the "Regulate Marijuana Like Alcohol Act"

As described in last week’s post, 2018 proved to be an exceptionally exciting year for the cannabis industry: five states approved legalization initiatives, Canada ended its nearly century-long prohibition, and legalization was a key issue in a number of gubernatorial races. Moreover, Congress helped cap off a robust year by legalizing hemp, and therefore hemp-derived products, through the 2018 Farm Bill. And notwithstanding the current gridlock in Washington, it appears that last year’s pro-cannabis momentum has carried over into 2019.

On January 9, U.S. Rep. Earl Blumenauer (D-OR) introduced H.R. 420, also called the “Regulate Marijuana Like Alcohol Act.” Many readers will remember Blumenauer from the eponymous Rohrabacher–Blumenauer amendment, the appropriations provision that prohibits the Justice Department from spending funds to interfere with the implementation of state medical cannabis laws. (Last fall, he also circulated a legalization agenda for a 2019 Democratic House.) Blumenauer’s proposed legislation provides for a complete overhaul of the federal government’s treatment of marijuana. Among other things, the bill:

  • Decriminalizes marijuana by removing it from all schedules of the Controlled Substances Act;
  • Amends the Federal Alcohol Administration Act to empower the Secretary of the Treasury to issue permits to those wishing to manufacture,
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A Year in Review: Looking Back on the Forward Movement of the Cannabis Industry in 2018

As we begin this New Year, we’re taking some time to reflect on all that’s transpired in the cannabis arena over the past 12 months. It’s clear that 2018 was one of the most pivotal and exciting years for the burgeoning marijuana industry. In addition to seeing successful state legalization efforts across the country, we saw signs of support from both political parties (including the President), and witnessed the first legalization of recreational marijuana in an industrialized country with the passage of the Cannabis Act in Canada.

Despite a shaky start to the year, triggered by then-Attorney General Jeff Sessions’ revocation the Cole Memorandum, five states approved legalization initiatives (including Vermont’s vote to approve marijuana in the same week Sessions revoked the Memo). With Vermont and Michigan approving recreational marijuana in 2018, and Oklahoma, Utah and Missouri approving use of medical marijuana, there are now 32 states with some form of legalized marijuana, including 10 which have legalized adult-use marijuana.

This year also saw bi-partisan support for cannabis legalization and its potential social and economic impact. There were a handful gubernatorial races in which candidates made cannabis legalization a key campaign issue. Democrats J.B. Pritzker (IL), Tim … Keep reading

Last week, a House-Senate panel approved the 2018 Farm Bill, thereby ending a months-long stalemate over a piece of legislation that provides critical subsidies to farmers. While much of the bill mirrors current law, the legislation, if passed, will bring an end to five decades of hemp prohibition. Hemp was afforded limited legal protections in 2014, when Congress passed a farm bill that authorized states to develop pilot programs for its research. The 2014 Farm Bill eventually gave rise to a patchwork of state regulations regarding hemp and hemp-derived CBD.

While the hemp industry experienced substantial growth under the 2014 Farm Bill, the new bill is undoubtedly a watershed moment for the entire cannabis industry, as its changes to current law are more far-reaching than its predecessor. If passed, the bill would remove hemp’s low amounts of THC from the Controlled Substances Act, allow the U.S. Department of Agriculture to regulate the crop like any other agricultural commodity, and permit hemp products – like CBD – to be introduced into interstate commerce. Further, it would lift restrictions on advertising, banking, and other financial services.

The bill would also:

  • Allow hemp production in all 50 states for any use, including
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On December 23, 2018, the Department of Public Health will transfer oversight of the Massachusetts Medical Marijuana Program to the Cannabis Control Commission, the agencies recently announced, giving the CCC oversight of both recreational and medical marijuana programs. (The Adult-Use Act mandated that the transition occur by the end of the year.)

The DPH has run the Medical Use of Marijuana Program since its inception in 2014. To date, there are 47 registered marijuana dispensaries that have been approved for sales across Massachusetts; those RMDs serve more than 57,000 patients and over 7,000 personal caregivers. DPH and CCC officials have assured the public that patients in the medical program will not see any substantial changes as a result of the transfer.

In a statement issued last week, Public Health Commissioner Monica Bharel stated:

We want to assure medical marijuana patients in the Commonwealth that we have worked closely with the CCC and our constituents over the past several months to support a smooth transition of the program and to ensure that patient access is not impacted by this change.

Echoing Commissioner Bharel’s assurance, CCC Chairman Steven J. Hoffman publicly noted “the considerable collaboration between DPH and the CCC.” … Keep reading

Utah Medical Marijuana Compromise Passes and Is Signed into Law

On Monday, the day after Utah’s medical cannabis initiative became law, state legislators supplanted it with a more tightly controlled plan for providing marijuana-based treatment. That plan is called the Utah Medical Cannabis Act, and it is designed as a replacement for voter-approved Proposition 2. The compromise bill is more restrictive than the law established by Proposition 2, which was supported by the Marijuana Policy Project and Utah advocates.

In early October, supporters and opponents of Proposition 2 reached an agreement whereby both sides de-escalated their campaign operations and agreed on a medical-marijuana-law compromise that would be enacted regardless of the outcome of the ballot initiative vote. The legislation has acted as a bridge between Prop 2 opponents, such as the Church of Jesus Christ of Latter-day Saints and the Utah Patients Coalition, the group that spearheaded the initiative effort.

The compromise bill makes a number of changes to Proposition 2, including no home cultivation for patients, a smaller number of dispensaries, and a requirement that dispensaries employ pharmacists who recommend dosages. The replacement legislation crafted by lawmakers and both sides in the Prop 2 debate overhauls the medical cannabis distribution system proposed by the ballot initiative, and … Keep reading

CCBJ: High Times Ahead for Cannabis-Related Business

The following interview appears in the November–December 2018 issue of the Corporate Counsel Business Journal.
________________________________________________________________________________________________________________________________________________________________________

Corporate Counsel Business Journal: Burns & Levinson has had a cannabis law practice since 2013 and has already handled hundreds of millions of dollars in corporate transactions in this emerging industry. How has your cannabis practice evolved and changed since you first started?

Frank A. Segall: Our goal in entering the cannabis space was to bring our sophisticated corporate expertise to this industry. While we certainly started and remain committed to representing operators looking for licensure, we are heavily focused on working with entities raising capital through the public and private markets, forming venture capital funds and acquiring and selling operations on a nationwide basis. We have also been retained to assist groups in cannabis-related workouts and restructures. In addition, we are highly focused on addressing the banking issues confronting this industry, and we are structuring solutions by working with banks and credit unions that are willing to enter this space.

Understanding the depth of the industry, we endeavored from day one to predict the legal needs of the many cannabis-related businesses that are essential to this industry. We are fortunate to … Keep reading

Healthy Pharms Litigation Dismissed on Eve of Massachusetts Cannabis Sales

The closely watched Massachusetts cannabusiness case, Crimson Galeria Limited Partnership, et al. v. Healthy Pharms, Inc., et al., has been dismissed. On November 9, 2018, Judge Allison D. Burroughs of the U.S. District Court for the District of Massachusetts issued an order closing the action upon stipulation by the parties to dismiss the action with prejudice. Plaintiffs, whose property is located within 200 feet of Health Pharms’ registered marijuana dispensary, alleged that the operation of the RMD diminished the market value of their properties and restricted future development opportunities. They contended that the RMD made the surrounding area less desirable for prospective buyers or renters, who would “reasonably worry” about “increased crime” and “pungent odors.”

The Healthy Pharms case was followed closed by those in the cannabis industry due to several important issues raised in the complaint. 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. They also asserted claims against Healthy Pharms and the other Dispensary Defendants, alleging civil violations of the Racketeer Influenced and Corrupt Organizations Act, for acting and conspiring to distribute marijuana in violation … Keep reading