Cannabis Group Weekly Alert – October 2019 #5 | Dentons – JD Supra

In this week’s edition:

  • The U.S. Department of Agriculture released its interim final rule for hemp manufacturing. The long-anticipated rule includes information about where hemp can be grown, THC testing standards, the disposal process for crops that don’t meet federal standards and licensing protocols. 
  • A new Gallup poll found that 66 percent of Americans support legalizing cannabis. The poll also shows a majority of Republicans (51%) favoring legalization, while 76% of Democrats and 68% of independents support ending the federal prohibition.
  • The U.S. Department of Agriculture announced through Twitter that Whole-Farm Revenue Protection is available to hemp growers beginning with the 2020 crop year. Hemp growers may also utilize the Farm Service Agency’s Noninsured Crop Disaster Assistance Program beginning in 2020.
  • The U.S. Tax Court ruled that the 280E tax provision’s application on state-legal cannabis businesses is constitutional and not a violation of the Eighth Amendment’s prohibition on excessive fines.
  • And more…

Federal

A new Gallup poll found that Americans support legalizing marijuana, 66%-33%.  The numbers are consistent with support levels from last year.  The poll also shows a majority of Republicans (51%) favoring legalization, while 76% of Democrats and 68% of independents support ending the federal prohibition.

Presidential candidate Sen. Bernie Sanders (I-VT) released a plan pledging to take immediate executive action to de-schedule cannabis, ban tobacco companies from participating in the cannabis industry and encourage businesses to be formed as collective nonprofits.  The plan includes a $20 billion grant program for entrepreneurs of color through the Minority Business Development Agency and $10 billion in grant funds to support businesses that are at least 51percent owned by those who have been arrested or convicted of cannabis offenses.

The U.S. Court of Appeals for the District of Columbia Circuit dismissed a lawsuit challenging the Drug Enforcement Administration’s (DEA) delays in considering cannabis cultivation license applications.  The court found that recent actions by the DEA to adjust its application and review procedures were sufficient to end the case.  To date no new licenses have been granted and the DEA has 90 days from the close of the comment period (October 28) to finish its review.

The U.S. attorney for the Northern District of Florida said he would not use the limited resources of his office to prosecute the state’s legal medical cannabis activity.  He would, however, continue to prosecute those dealing in illegal or unregulated products.

Last week, the U.S. Senate Caucus on International Narcotics Control held a hearing on “Marijuana and America’s Health: Questions and Issues for Policy Makers.”  The hearing was chaired by Senators John Cornyn (R-TX) and Diane Feinstein (D-CA), and featured testimony from Jerome Adams, Surgeon General of the United States; Nora Volkow, Director of the National Institute of Drug Abuse; and researchers from the University of California, Harvard Medical School, University of Pennsylvania and Arizona State University.  The hearing focused on the effects of cannabis on specific populations such as pregnant women and children under the age of 18, along with the impact of cannabis on driving and cognitive function.  Several witnesses noted the lack of research and called for increased access to cannabis for research purposes.

States

A new California law may soon provide appellation protections to cannabis growers.  Signed earlier this month, the law will link grows to specific locations, similar to the branding for certain types of wine.  The effect of the law may be increased competition from small craft growers who seek special labeling designations to differentiate their product from larger growers.

The Connecticut legislature’s Regulations Review Committee approved adding Tourette syndrome, intractable pain and other disorders as conditions qualifying for medical cannabis for both adults and children.  Currently the state’s medical cannabis systems serves more than 37,000 patients and includes 1,186 certifying physicians.

Businesses and governments in Illinois are moving rapidly to prepare for adult-use cannabis legalization.  First, the city of Chicago adopted a 3% sales tax on cannabis, the highest allowed under state law, and projected a $3.5 million revenue increase for the coming year.  DuPage County, on the other hand, rejected adult-use cannabis sales, becoming the first county in Illinois to prohibit dispensaries in the unincorporated parts of the county.  Finally, a Chicago entrepreneur is offering up $250,000 in loans to 100 social equity applicants hoping to win licenses to operated cannabis dispensaries in the state.  The low-interest or no-interest loans are to help minority individuals cover the $2,500 application fee for dispensary licenses.

Maine’s top cannabis program regulator said that after a prolonged regulator process, applications for retail licenses will be accepted by the end of the year.  As one of the final regulatory actions before accepting applications, Maine regulators also adopted a symbol that must be displayed on cannabis products.  The symbol is identical to that used in Massachusetts to warn consumers that the labeled product contains THC.

Michigan will start accepting applications from businesses seeking recreational cannabis licenses Friday, November 1, but actual retail sales are not likely anytime soon thanks to delays in the development of the state’s regulations over adult-use cannabis.

Nevada regulators suspended the license of cannabis grower Helios for unspecified reasons.  The suspension comes at a time of heightened enforcement and oversight as Nevada regulators seek greater control over the market after the former head of the department was terminated for favoring certain licensees over others.

An Oklahoma court ruled that a positive test for THC alone did not prove that cannabis use caused a workplace accident, meaning that the claimant is eligible for workers’ compensation benefits.  In reversing the state agency’s decision to deny benefits, the court rejected  the “inference that the mere presence of marijuana in Claimant’s blood stream inevitably means he was intoxicated. . . . the presence of an intoxicating substance in the blood does not automatically mean that person is intoxicated.”

Utah regulators advised medical cannabis patients not to use THC vaping products.  For those patients who chose to use vaping products, the state advises to “Only purchase THC vape cartridges from reputable, licensed dispensaries; not modify or add any substances to the cartridges; and know the symptoms of vaping-related lung injuries and seek immediate medical care if you experience any of them”.

Washington State regulators are conducting a survey of cannabis industry participants about the impact of the ban on flavored vaping products.  Specifically, Washington regulations do not allow retailers to return banned products for credit in purchasing other authorized products.  State regulators want to know the impact of the ban on all levels of the cannabis industry in the state.

Washington State’s governor has expanded his prohibition on flavors in e-cigarettes by banning non-pot terpenes in cannabis vapes.  Industry advocates claim that the move is unnecessary and will drive up costs since producers will no longer be able to use lower-cost flavors.

Hemp/CBD

The U.S. Department of Agriculture (USDA) released its interim final rule for hemp manufacturing.  The long-anticipated rules will be published Thursday, October 31 and include a 60-day public comment period.  USDA will begin accepting state regulatory plans and will make compliance determinations within 60 days.  The regulations include information about where hemp can be grown, THC testing standards, the disposal process for crops that don’t meet federal standards and licensing protocols.  The interim rules will sunset after two years and then become final. 

Senate Minority Leader Chuck Schumer (D-NY) joined a growing chorus of congressional voices calling on the Food and Drug Administration (FDA) to issue guidance allowing the sale of CBD products.  Both Senator Schumer and Majority Leader Mitch McConnell (R-KY) have expressed the need for the FDA to move more quickly to both promote and protect the emerging marketplace for hemp-derived CBD. 

Following a three-month, interagency review, the U.S. Department of Agriculture outlined procedures for importing hemp seeds and plants from Canada and other countries. Previously, the department had only issued guidance focusing on seeds. 

The U.S. Department of Agriculture announced through Twitter that Whole-Farm Revenue Protection is available to hemp growers beginning with the 2020 crop year. Hemp growers may also utilize the Farm Service Agency’s Noninsured Crop Disaster Assistance Program beginning in 2020.

North Carolina lawmakers filed a conference report for an agriculture bill that would ban smokable hemp as of the middle of next year. Smokable hemp is defined as “Harvested raw or dried hemp plant material, including hemp buds or hemp flowers, hemp cigars, and hemp cigarettes.”

USA Triathlon became the first national governing body of an American Olympic sport to partner with a CBD company. Pure Spectrum’s exclusive deal with U.S.A. Triathlon followed a six month review by the governing body to determine the risks and benefits of CBD for its member athletes.

A Michigan news outlet tested several CBD products found in retail outlets across Michigan to determine whether the listed concentrations of CBD were accurate and whether any pesticides were present in the products.  While the investigation found no pesticides in any of the products, concentration levels varied widely from those listed on several of the samples.

International

Following up on reports that proposed legalization legislation has been circulated, Joaquín Contreras, from the Dentons Mexico Cannabis Group, reports that while the legislation has been leaked to the press, several changes will be made before official action is taken.  For example, the issue of the 20 percent foreign investment limitation for different types of licenses remains a point of contention.  Dentons will provide additional information once a bill has officially been introduced. 

A Brazilian court ruled that a couple can grow medical cannabis for their autistic son.  Such rulings in Brazil are increasing pressure on the conservative government to develop regulations for the production and use of medical cannabis.

A medical cannabis bill was introduced in El Salvador that would allow the Ministry of Health to issue registries for foreign products and allow domestic production. Dentons’ Roy Thompson, Director of Government Affairs in Latin America, states that Congressmen expect the bill to be discussed in the near future.

Paraguayan President Mario Abdo signed hemp regulations into law.

Business

The U.S. Tax Court ruled that the 280E tax provision’s application on state-legal cannabis businesses is constitutional.  The case arose after the IRS billed Northern California Small Business Assistants Inc.—a California medical marijuana company—for $1.5 million in unpaid taxes and an accuracy-related penalty for the 2012 tax year. The agency had disallowed the company’s tax deductions under tax code Section 280E, which says that a business that traffics in a Schedule I or II controlled substance can’t receive any tax deductions. The company argued Section 280E violated the Eighth Amendment’s prohibition on excessive fines by imposing a penalty through a tax on the company’s gross receipts.

California-based Harborside also fell victim to Section 280E with the U.S. Tax Court ruling that the company owes $11 million in back taxes from 2007 to 2012.

Two Canadian cannabis companies announced layoffs in response to the smaller than anticipated cannabis market in Canada.  HEXO Corp. announced it would cut 200 jobs one day after the company postponed its release of fourth-quarter earnings.  Similarly, CannTrust Holdings Inc. announced that it would lay off 140 people as it works to comply with Canadian cannabis regulations.

In the U.S., Pax Labs, producers of vape pens for cannabis oils, laid off a quarter of its workforce after it missed revenue projections.

The Department of Justice antitrust waiting period for two acquisitions expired this week clearing the way for the transactions to move forward.  First, as part of Curaleaf’s acquisition of Cura, Dentons guided Cura through the antitrust review in the shortest time period of all the investigated cannabis transactions. Cresco Labs Inc. also announced that the review period for its planned acquisition of Origin House has expired.

Snoop Dogg signed on as a brand ambassador for Seedo, an Israeli agri-tech company featuring technology to help automate the growing of cannabis commercially and for personal use. Snoop Dogg is also part of Bespoke Financial, a startup that has raised $4 million to provide working capital for cannabis companies.

Medical/Health

A Canadian study found that „cannabis-intoxication results in a distinct acoustic profile” and that „intoxicated speech was characterized by significant and substantial increases to the variability of [voice-onset time], altered prosodic expression (reduced range and flatter trajectories), and decreased shimmer.”  This sort of data could improve sobriety checks intended to detect cannabis intoxication.

A scientific review conducted by researchers in California concluded that state medical marijuana laws „increase adult but not adolescent cannabis use” and „may reduce some opioid-related harms.” The study also found that recreational legalization seems to have „little impact on the prevalence of adolescent cannabis use.”

A study on marijuana and driving found that „smoked cannabis (12.5% THC) led to an acute decrease in speed in young adults,” that „there was no clear effect of smoked cannabis on lateral control” and that „there was little evidence of residual effects of smoked cannabis on driving performance.”

The Centers for Disease Control and Prevention (CDC) reported 1,604 probable cases and 34 deaths related to respiratory illness linked to vaping.  Last week the total was 1,479 cases and 33 deaths.  The cases are spread over 24 states but the CDC has not linked the cases to any specific product or compound.

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