United States: Cannabis Group Weekly Alert - Week Of September 25, 2019

Last Updated: October 4 2019
Article by Kathryn Ashton and Eric P. Berlin

This week:

  • The House passes historic legislation to provide banking services to the cannabis industry.
  • Congress calls on FDA to limit enforcement against CBD companies until regulations can be finalized.
  • California releases regulations relating to advertising of commercial cannabis.
  • Chicago proposes new zoning requirements that would keep cannabis dispensaries out of downtown Chicago.
  • Health risks associated with vaping have accelerated responses from Congress, the FDA and states as policymakers move to restrict or ban flavored e-cigarettes.

Federal

91 republicans joined 229 democrats and one independent as the House of Representatives passed the Safe Banking Act of 2019, a bill designed to allow banks to provide services to the cannabis industry.  The bill, H.R. 1595, sponsored by Representative Ed Perlmutter (D-CO), was considered under "Suspension," a procedure typically used for non-controversial measures because it limits debate, prohibits amendments and requires a two-thirds majority to pass. Two new sections were added to the bill to attract Republican support before the vote.  The first is specific language allowing banks to work with hemp producers, and the second is an amendment to limit so-called "Choke-Point" provisions which some claim unfairly targets gun stores.  The additions were designed to win votes in the House and influence Senate Majority Leader Mitch McConnel (R-KY) and Senate Banking Committee Chairman Mike Crapo (R-ID) to take up companion legislation in the Senate. Several outside groups weighed in in support of the legislation including the Independent Community Bankers of America and 43 state banking associations.  The bill also had its opponents, including the American Civil Liberties Union, Human Rights Watch, and Drug Policy Alliance, which asked Congress to delay the vote in favor of more comprehensive legislation that de-schedules cannabis and provides for civil justice reforms.  While the bill passed the House, its prospects for passage in the Senate remain uncertain.

Three federal agencies—the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA) and the Drug Enforcement Administration (DEA)—are accepting comments from the public on cannabis-related topics.  The FDA is seeking input on potential changes to the status of cannabis under international treaties in anticipation of a move by the UN to remove cannabis from its most strictly regulated Schedule 1 classification.  Comments are due September 30.  The EPA took comments through September 23 regarding 10 applications for pesticides to be used on hemp, and the DEA wants input by October 15 on a proposal to increase cannabis cultivation by 30 percent for research purposes.

Democratic presidential candidates Beto O'Rourke and Joe Biden moved in opposite directions on cannabis legalization this week.  While O'Rourke called for federal level legalization, Biden stated that cannabis offenses should be downgraded to a misdemeanor.  Biden's stance differentiates him from most of the Democratic field, which like O'Rourke, have called for cannabis to be legal.

Senate Majority Leader Mitch McConnell (R-KY) added language to the FY 2020 agricultural appropriations bill calling for the FDA to scale back enforcement operations directed towards CBD companies and CBD products while it determines how the industry should be regulated.  He also championed 416.5 million for USDA implementation of upcoming hemp regulations and $2.5 million for hemp research through the Agriculture Research Service.  The moves comes as bipartisan lawmakers in the House circulate a letter urging FDA to back off CBD companies.  Both efforts are designed to support the emerging marketplace for CBD products derived from hemp.  The Department of Agriculture is expected to issue its regulations for hemp later this year.

The Senate Appropriations Committee released a draft report recognizing the need for additional research into cannabidiol (CBD) and cannabigerol (CBG) and expressing concerns over ongoing federal barriers to research.  Although the Senate Appropriations Committee approved spending bills for hemp and CBD, it also approved a spending bill that continues to prohibit the District of Columbia from using its own money to legalize and regulate cannabis in the District.

In Kenney v. Helix TCS, Inc., the Tenth Circuit ruled that the Fair Labor Standards Act applies to workers in the cannabis industry.  In upholding the trial court's decision, the Court found that workers at a Colorado cannabis security company can pursue overtime claims under federal law even though cannabis is illegal.

States

The California Bureau of Cannabis Control published a notice regarding non-licensees advertising or promoting commercial cannabis.  Any non-licensee advertising or promoting of commercial cannabis on behalf of a licensee must identify the licensee responsible for the advertising content, including the state license number; not be published or disseminated to a disproportionately underage audience, and be truthful and appropriately substantiated.  Violations by unlicensed persons are subject to fines of up to $30,000 per day.

California regulators announced that almost all cannabis business will be in the state's track and trace system.  Of the 6,700 licensed cannabis businesses in California, 4,500 are currently part of the system with the rest expected to enroll by the end of October.

Colorado's Marijuana Enforcement Division hosted a series of meetings to explore regulations for implementing the state's new social equity licenses intended to add more diversity to Colorado's cannabis industry.  The new permits would require applicants to be from low-income areas and to use the facilities of established companies as they develop their own cannabis products.

The Journal of Regional Science and Urban Economics published a study that found that crime rates dropped substantially in Colorado in areas with legal cannabis dispensaries.  The largest drops came from nonviolent crimes like criminal trespassing, criminal mischief, simple assault and public order crimes.

Colorado's Department of Revenue announced a new monthly cannabis sales record of over $166 million in combined medical and adult-use sales.

The Rocky Mountain High Intensity Drug Trafficking Area released the latest in a series of critical reports on Colorado's cannabis legalization law.  Measuring change since legalization in 2013, the report found that traffic deaths in which drivers tested positive for cannabis increased 109 percent, while traffic deaths increased 31 percent; cannabis use for ages 12 and older increased 58 percent; cannabis-related emergency room visits are up 54 percent over 2013 levels.  The report also noted that tax revenues from cannabis were 0.9 percent of the FY 2018 state budget.

Hawaii's Department of Health is exploring ways to remove unregulated CBD products from the market.  The move comes after a suspected case of severe respiratory illness related to vaping.  The department has warned retailers that it is illegal to sell CBD products outside of the dozen state cannabis dispensaries. 

In Illinois: Chicago Mayor Lori Lightfoot (D) announced her plan for locating cannabis dispensaries, including an exclusion zone for the downtown area that includes the Loop and Magnificent Mile.  The plan calls for the city to be divided into seven zones for recreational cannabis dispensaries, with each zone being allowed up to seven dispensaries initially.  The rules would bar dispensaries from opening within 500 feet of a school and prohibit recreational sales in residentially zoned districts.

Maine's Office of Cannabis Policy unveiled its new cannabis tracking system to widespread confusion earlier this month.  The track-and-trace system will require growers, distributors and realtors participating in the state cannabis program to use tags costing 25 cents each to identify plants at every stage of the supply chain. Industry advocates have issued strong criticisms of the program, citing the large number of tags it takes to turn cannabis plants into processed items such as vape cartridges.

In Massachusetts: Boston Mayor Martin Walsh (D) signed an executive order establishing more stringent anticorruption regulations for ownership of cannabis businesses.  The executive order prohibits city government employees and their families from owning or participating in a cannabis business actively seeking regulatory and licensing approval from the City of Boston.

Massachusetts Governor Charlie Baker (R) announced a four-month ban on the sale of all flavored and non-flavored vaping products in both retail stores and online.  The ban applies to all vaping products and devices, including tobacco and cannabis.  The ban lasts through January 25, 2020.

Massachusetts lawmakers introduced legislation that would amend the approval process for cannabis company contracts.  Under the draft bill, cannabis companies would be required to receive a majority vote of approval from a municipality's city council before receiving a local contract.

The New Hampshire Senate failed to override Gov. Chris Sununu's (R) veto of a bill to let patients and caregivers grow medical cannabis.  Separately, lawmakers successfully overrode a veto of legislation to remove a requirement of a three-month relationship between doctors and medical cannabis patients.

New York Governor Andrew Cuomo (D) hinted in a news interview that he would push for a ban on smoking cannabis in legalization legislation that will be considered in the state legislature next year.  It was not clear in the interview if Governor Cuomo was urging state legislators to include a smoking ban or if he was staking out an administrative position against smoking.

Ohio's Board of Pharmacy published updated patient and caregiver participation metrics for the state's medical cannabis program.  In August, 35,729 unique patients purchased medical cannabis from a licensed dispensary.

Pennsylvania Governor Tom Wolf (D) has still declined to take a definitive stance on legalization of recreational cannabis use after completing a stakeholder engagement tour to solicit input from Pennsylvania citizens.  While public opinion surveys of Pennsylvania voters show increasingly favorable attitudes towards full cannabis legalization, Governor Wolf has avoided taking a definitive stance on the issue.

Texas regulators announced plans to increase the number of licenses provided to medical cannabis providers.

Utah's state legislature passed new legislation to expand the state's medical cannabis program.  The newly passed legislation will allow fourteen pharmacies to participate in the state medical cannabis program, up from just seven currently.  Additionally, the legislation will require the state health department to issue up to ten growing licenses between five to eight approved growers.  Both chambers of the state legislature passed the bill by unanimous consent.

Washington, D.C. approved emergency legislation allowing students to use medical cannabis at schools.  Permanent legislation has been introduced and is expected to pass before the emergency legislation expires next year.

International

In Australia: A recent study of the roadside cannabis tests used by Australian police conducted by researchers at the University of Sydney has found the tests to be wildly inaccurate.  The most common device used by Australian police to detect the presence of THC in a driver's saliva, i.e., the Securetec DrugWipe, was determined to give false positive readings 5 percent of the time and false negatives nearly 16 percent of the time.  Researchers also concluded that false positives and negatives can be affected by an individual's preferred method of cannabis consumption.

Canadian cannabis regulators have suspended the licenses  of British Columbia-based Evergreen Medicinal Supply over compliance issues.  Evergreen is the second cannabis producer in the country to be sanctioned by Health Canada for noncompliance.

Colombia is moving towards legalizing cannabis for adult use, as multiple political parties express support for the measure, and government regulators expand the quota for medical cannabis exports.

Mexico's Senate held a conference series on cannabis last week to receive stakeholder input on establishing a regulated cannabis market.  Gil Kerlikowske, a former White House drug czar and Commissioner of US Customers and Border Protection under President Barack Obama, spoke at a conference event in favor of cannabis legalization.  Mr. Kerlikowske's remarks urged the Mexican Senate to ensure that robust regulations are put in place to develop labeling and packaging standards to reduce consumer health risks.  Additionally, while Mr. Kerlikowske supported legalization of cannabis, he cautioned against moving too quickly citing the lack on conclusive medical research on the full effects of cannabis.

Russia's government announced that it had dropped charges against Audrey Lorber, an American teenager convicted of possessing several grams of medical cannabis while visiting St. Petersburg earlier this year.  Ms. Lorber possessed a medicinal cannabis card in New York state, but Russian law enforcement agents arrested her for importing cannabis into a country where her medicinal cannabis prescription was not recognized.  While Ms. Lorber could have been convicted to a three-year prison sentence, she was released and charged a fine of $235.

The government of St. Lucia formally announced the creation of a Cannabis Commission to review and make recommendations on a regulatory framework for legalized cannabis.  St. Lucia's Minister of Commerce, International Trade, and Development expressed optimism over the Commission's creation by noting that the positive impacts of a regulated cannabis market outweigh the potential negative impacts.  The Cannabis Commission has a mandate to design and issue recommendations on a new legislative and regulatory framework for restricted cannabis use.

Business

Cresco Labs Inc. is expanding its presence in Nevada and Arizona by acquiring assets from Tryke Companies, LLC in a $282.5 million deal.

Coors Distributing Company announced plans to begin distributing hemp CBD beverages by adding Colorado's Best Drinks and DRAM Apothecary to its list of suppliers.

CWB Holdings Inc. has become the first company in the US to receive a patent for a hemp plant.  The patent was received for the CW2A hemp plant which is capable of producing up to 6.24% CBD and only 0.27% THC.  CWB Holdings received a plant patent which will prevent competitors from growing the same hemp plant strain produced from a clone.  The CWB Holdings patent is the first and currently only plant patent issued to a US hemp cultivator.

The Pax Labs Board of Directors has relieved Bharat Vasan of his position as the company's CEO.  Pax Labs is a consumer technology company best known for its work in manufacturing cannabis vaporizers.

Medical and Health

Health issues related to vaping continue to accelerate calls for policy changes at the state and national levels.  To begin, the Centers for Disease Control and Prevention announced that the number of severe lung injuries believed to be associated with vaping has risen to 530.  In response, the Food and Drug Administration launched a criminal investigation on vaping supply chains.  In Congress, Sens. Mitt Romney (R-UT) and Jeff Merkley (D-OR) introduced legislation that would ban flavored e-cigarettes and apply existing tobacco taxes to e-cigarettes.  A similar measure was dropped by Reps. Tom Suozzi (D-NY) and Pete King (R-NY) in the House.  States are also reacting, with California Gov. Gavin Newsom (D) signing an executive order increasing enforcement against counterfeit cannabis and nicotine vaping products and increasing warning signs for consumers; and New York  Gov. Andrew Cuomo (D) announcing an emergency ban on flavored e-cigarettes.

As the public health crisis linked to unlicensed dispensaries and black market vape cartridges worsens, legal vape brands are taking additional steps to inform customers of risks according to a report by The Associated Press.  California has been the state hardest hit by the growing crisis with hundreds being admitted to hospitals and several fatalities linked to use of counterfeit CBD products.  The AP released the preliminary results of its investigation into allegations of spiked CBD products.  As the number of hospital admittances in connection with use of a CBD-extract product have increased, the AP commissioned a laboratory testing of thirty CBD vape pods covering thirteen different brands.  The testing uncovered the presence of synthetic cannabis in ten of the samples tested. Broader testing by the law enforcement community has identified the presence of synthetic cannabis in 128 samples of more than 350 tested.  In response, licensed CBD dispensaries and vape manufacturers have been forced to redesign their packaging and product security to differentiate between authentic and counterfeit CBD products.  Federal regulatory oversight within the CBD market space has been lax to date with the Food and Drug Administration (FDA) currently working to clarify regulations.  Outside of warning manufacturers to avoid using unproven health claims in advertisements, the FDA has taken no action to stop the sale of spiked products.  While the Drug Enforcement Administration is the federal agency responsible for stopping the sale of products tainted with illegal narcotics, agency staff are primarily focused on opioids and other narcotics.

Former NFL star Calvin Johnson has made a six-figure donation to Harvard University to support a research study on the potential of cannabis to treat CTE.  Mr. Johnson made the donation through his medical cannabis company, Primitive, which is set to open medical cannabis dispensaries throughout Michigan.  The study will be conducted under a funding agreement with the International Phytomedicines and Medical Cannabis Institute at Harvard University.

The National Institutes of Health has announced nine new research grants totaling $3 million to fund research on the ability of cannabis compounds to treat pain.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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