By Abraham Finberg, Simon Menkes, Rachel Wright No Comments
On January 27 this year, Matthew Lee, General Counsel for the Department of Cannabis Control, sent a letter to Senior Assistant Attorney General Mollie Lee requesting an opinion on whether “medicinal or adult-use commercial cannabis activity … between out-of-state licensees and California licensees, will result in significant legal risk to the State of California under the federal Controlled Substances Act.”
The eight-page letter, itself a detailed legal opinion in favor of interstate cannabis commerce, states strongly that the legal risk to California of such commerce is insignificant. The DCC hopes the AG will help authorize the state to negotiate agreements with other states, allowing their cannabis companies to do business with each other. Such agreements, the letter says, “would represent an important step to expand and strengthen California’s state-licensed cannabis market.”
Prices for wholesale cannabis in California have plummeted in the last year: a pound of packaged flower is wholesaling in the $1,200 to $1,400 per pound range compared with $1,700-$1,900 a pound at the beginning of 2022, a year-over-year decrease of about 25%-30%. With many growers struggling and many others forced to enter the illicit market to get a sustainable price for their product, the DCC believes opening up interstate opportunities for California growers will provide much-needed support for their large cultivation industry.
Additionally, this request by the DCC should serve as a roadmap for other states to follow in order to move interstate cannabis commerce forward through state legislatures since it appears that federal progress in legalizing cannabis has become mired in inaction.
The DCC cited new state legislation, Senate Bill 1326, which took effect on January 1, 2023, and which allows interstate agreements for both export AND import of cannabis. This is important because other states would not be inclined to enter an agreement with California if they could only receive (import) cannabis into what may be an already glutted market.
In drafting their letter, the DCC chose to side-step some “thorny” issues, including avoiding having the Attorney General delve into any discussion regarding the federal illegality of cannabis.
While many states to the east, including New York, New Jersey and Connecticut, are opening up their states to adult-use cannabis consumption, California is paving the way forward for the future of interstate cannabis commerce. The DCC’s letter is a bold move to support and strengthen California’s cannabis industry and will likely be watched closely by other cannabis states and the nation as a whole.
On the afternoon of October 6, President Biden issued a statement that many would call an October Surprise. Biden announced a three-part plan addressing cannabis reform, taking the first steps since he has taken office to address his campaign promise of tackling cannabis prohibition.
In his speech, Biden laid out the three steps he will take: First, he is pardoning all prior federal offenses for simple cannabis possession. Second, he is calling on all governors to do the same for state-level offenses. Thirdly, he announced that he is initiating a federal review of the current Schedule 1 status of cannabis.
Too many lives have been upended because of our failed approach to marijuana. Hear from @POTUS on the three steps he is taking to right these wrongs. pic.twitter.com/IqOxHxjgue
As I often said during my campaign for President, no one should be in jail just for using or possessing marijuana. Sending people to prison for possessing marijuana has upended too many lives and incarcerated people for conduct that many states no longer prohibit. Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities. And while white and Black and brown people use marijuana at similar rates, Black and brown people have been arrested, prosecuted, and convicted at disproportionate rates.
Today, I am announcing three steps that I am taking to end this failed approach.
First, I am announcing a pardon of all prior Federal offenses of simple possession of marijuana. I have directed the Attorney General to develop an administrative process for the issuance of certificates of pardon to eligible individuals. There are thousands of people who have prior Federal convictions for marijuana possession, who may be denied employment, housing, or educational opportunities as a result. My action will help relieve the collateral consequences arising from these convictions.
Second, I am urging all Governors to do the same with regard to state offenses. Just as no one should be in a Federal prison solely due to the possession of marijuana, no one should be in a local jail or state prison for that reason, either.
Third, I am asking the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law. Federal law currently classifies marijuana in Schedule I of the Controlled Substances Act, the classification meant for the most dangerous substances. This is the same schedule as for heroin and LSD, and even higher than the classification of fentanyl and methamphetamine – the drugs that are driving our overdose epidemic.
Finally, even as federal and state regulation of marijuana changes, important limitations on trafficking, marketing, and under-age sales should stay in place.
Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs. – President Joe Biden
By Jonathan C. Sandler, Alissa Gardenswartz No Comments
By now, cannabis companies have heard that the Food and Drug Administration (FDA) has issued a slew of warning letters to sellers of CBD products for selling unapproved and mislabeled drugs and illegally adulterated food, as prohibited by the Federal Food, Drug and Cosmetic Act. However, companies marketing CBD products should know that making any health-related claims about their products also exposes them to liability under state and federal consumer protection laws. These laws additionally prevent CBD sellers from misrepresenting how much CBD is contained in their products, and even govern how companies communicate with their customers via text message. As the former head of consumer protection enforcement in Colorado and a lawyer routinely defending consumer protection class actions in California, we have seen firsthand how not considering these laws when developing a sales and marketing strategy can result in protracted and expensive litigation.
Consumer Protection Laws – Federal and State
Section 5 of the Federal Trade Commission (FTC) Act provides that “unfair or deceptive acts or practices in or affecting commerce . . . are declared unlawful.”1 The FTC enforces this law, and has clarified that “deceptive” practices involve a material representation, omission or practice that is likely to mislead a reasonable consumer under the circumstances.2 In other words, a claim is deceptive if an average consumer would believe and rely on the misleading claim to buy something. With the rise of social media marketing, the FTC has also issued disclosure guidelines for companies and influencers promoting products online.3 Every state has some form of consumer protection statute that similarly prevents deceptive marketing, and is typically enforced by the state’s attorney general. Many state laws also allow for consumers to bring actions themselves.
Both the FTC and state attorneys general have used these laws for decades against companies making scientifically unsupported health claims about their products. Just this month, the FTC and the Maine attorney general filed a lawsuit against two dietary supplement companies who were claiming that their products were a “miraculous natural solution” for life-threatening diseases. According to the lawsuit, the companies violated a 2018 settlement that required them to not make any health claims about their products without first conducting at least one randomized, double-blind, placebo-controlled trial to support the claims.4 While much of the enforcement around dietary supplements has focused on unsubstantiated health claims, other actions have been brought for improper “expert” endorsements as well as misrepresenting the amount of active ingredient contained in the supplement.5 In other words, these laws are used to police all manner of labelling and marketing of products, including those containing CBD. The FTC has already issued warning letters to CBD companies several times this year, and has stated that CBD sellers could be subject to enforcement for making unsubstantiated health claims.6
While consumer protection laws are largely focused on the content of advertisements, there are also laws that address how sellers can communicate with consumers. The Telephone Consumer Protection Act (TCPA) restricts telemarketing and the use of automated systems to contact consumers, and applies to both voice calls and text messaging. Both the FTC and state attorneys general can enforce the TCPA, and consumers can bring private TCPA actions as well. Because the TCPA allows for courts to award $500 per violation—that is, per illegal call or text—companies can face judgments into the millions of dollars.
Recent Consumer Protection Lawsuits in the Cannabis Industry
Cannabis is proving to be an attractive target for consumer protection litigation.All companies need to navigate consumer protection laws when they market their products, but class action lawyers may be pursuing cannabis companies in particular because of the products’ legal uncertainty, and because they provide opportunities for unique claims of deception. For example, a nationwide class of consumers recently filed a lawsuit in California against a CBD company that had received a warning letter from the FDA in November of this year, alleging that they would not have purchased the company’s CBD products if they knew selling the items was illegal.7 The consumers claimed violations of a variety of California and Arizona consumer protection laws, including those related to breach of warranty and unfair competition. Other lawsuits have been brought because products did not contain the amount of CBD as represented on the label, or because the product claimed to not contain THC when it did.8
Cannabis companies have been subject to TCPA class actions as well. Florida’s largest medical marijuana company has been accused of spamming customers with unwanted texts in violation of the TCPA.9 A dispensary with multiple locations in Colorado was also the subject of a TCPA class action complaint in Florida alleging that it did not obtain prior consent from consumers prior to texting them.10
Cannabis is proving to be an attractive target for consumer protection litigation. However, companies can head off lawsuits by thoroughly vetting their marketing strategies with experienced consumer protection lawyers before going to market.
15 U.S.C. Sec. 45(a)(1).
See FTC Policy Statement on Deception, October 14, 1983.
The National Cannabis Industry Association (NCIA) announced last week their newest addition to the Cannabis Business Summit: former Deputy Attorney General James M. Cole as the keynote speaker. Cole will be joining Aaron Smith, executive director of NCIA, for a fireside chat where they will take a look at his legacy in the cannabis industry as author of the Cole Memo. They will also discuss his predictions for the future of federal cannabis policy under the Justice Department.
As author of the Cole Memo, James Cole was an instrumental figure in the fight for legal cannabis in the United States. The Cole Memo was a policy directive issued in 2013 that instructed U.S. attorneys general in states that have legalized cannabis to use their resources in prosecuting Controlled Substances Act offenses only if they violated specific federal enforcement priorities. The Obama-era policy directive essentially served to protect state-legal medical cannabis businesses from federal raids and prosecution as long as they were abiding by the state’s regulations.
At the Cannabis Business Summit, James Cole will share insights on the future of the Justice Department’s policy towards cannabis. “The Justice Department holds a huge number of cards when it comes to the future of our industry, but its inner workings and internal debates on cannabis policy aren’t well understood,” says Smith. “That’s what makes this keynote with Jim Cole so exciting and valuable for anyone trying to predict what comes next for the industry.”
The Justice Department rescinding the Cole Memo, the Omnibus bill including Leahy Amendment protections, a host of potential bills for federal cannabis policy change: a lot has been happening in Washington D.C. recently with respect to cannabis business. With the National Cannabis Industry Association’s (NCIA) Cannabis Business Summit in San Jose fast approaching, as well as the 8th Annual Cannabis Industry Lobby Days, we thought it would be a good time to hear what NCIA has been up to recently.
We sat down with Aaron Smith, co-founder and executive director of NCIA, to learn what the organization is working on right now and how we might be able to make some real federal policy changes for cannabis.
CannabisIndustryJournal:With the Department of Justice rescinding the Cole Memo, working as a group to tackle federal policy reform is now more important than ever. Can you give us a 30,000-foot view of what NCIA is doing right now to help us work together as a group and affect policy change?
Aaron Smith: So our team in D.C. consists of three full-time staff members as well as lobbying consultants, who have been really focused on the appropriations process, which is the way we’ve been able to affect change in such a dysfunctional congress by affecting the budget and restricting law enforcement activities. The medical marijuana protections, formerly known as the Rohrabacher–Farr amendment, [and now known as the Leahy Amendment] prevent the Department of Justice from using funds to prosecute state-legal medical marijuana businesses and patients. Going into the fiscal year, thankfully after a lot of hard work, we were able to include protections for medical marijuana, which just happened last week. Now we are really focused on the next year’s fiscal budget, working to hopefully expand those protections to cover all state-legal marijuana activity so the Department of Justice cannot go after all state-legal cannabis businesses, including those businesses in the recreational cannabis industry, which is certainly one of our priorities right now. As Congress starts to transition into fiscal year 2019 appropriations, the D.C. team is working with Capitol Hill staff and other cannabis groups in D.C. to ensure an organized, uniformed strategy through the appropriations process.
CIJ: What are some other priorities for NCIA in the House and Senate right now? What is NCIA focusing its resources on?
Smith: Another big issue for us is the 280E section of tax code, which prevents legal cannabis businesses from deducting normal business expenses. A lot of these businesses face upwards of a 70 percent effective tax rate. Working with our champions in Congress, we are working on reforms to 280E so we can make normal deductions and be treated fairly, just like any other legal business. The Small Business Tax Equity Act of 2017 addresses this issue and has bipartisan support in the House and the Senate right now, and we are working to build more support for that. This bill currently has 43 cosponsors in the House.
The other big issue for us right now is banking reform, which is a very high priority for NCIA as it affects most of our members. The Secure and Fair Enforcement (SAFE) Banking Act of 2017 provides a “safe harbor” and additional protections for depository institutions who provide “financial product or service” to a covered business. This bill currently has 89 cosponsors in the House. NCIA’s D.C. team and lobbying consultants continue to push for cosponsors and support on these important bills.
CIJ: I saw that the Omnibus spending package includes Leahy Amendment protections for cannabis businesses through September. Would you consider that a win in your book? How are you working to maybe extend those protections?
Smith: It was a big win for us. It doesn’t always seem like it because it is really just maintaining the status quo, but we are up against an Attorney General lobbying congress to strip those protections and the house didn’t allow us to vote on it. But by including the Leahy Amendment in the budget we are not only protecting medical marijuana patients and businesses, but we sent a clear signal to Congress that the intention is not to go backwards. We have been playing some defense recently given the current administration’s policies. But we are working with our allies in congress to negotiate those protections for recreational businesses as well. Negotiations for that are just getting started now.
The fiscal year ends September 30th so the protections are in place for now, but Congress needs to pass another budget for the next fiscal year with those protections included. It’s hard to say when the vote will be, because they haven’t been passing budgets in a timely manner, but usually it’s in May or June, right around our Lobby Days. This is what we are focused on now, getting as many of these cannabis businesses and NCIA members out there to really show Congress what the legal industry looks like.
CIJ: NCIA is hosting the 8th Annual Cannabis Industry Lobby Days a little more than a month from now; do you have any goals for that event? Is there anything in particular you hope to accomplish there? How can cannabis businesses get involved?
Smith: The primary purpose of Lobby Days is to show members of Congress and their staff (many of whom have never had exposure to cannabis businesses) what a responsible industry really looks like. And it lets business owners come tell Congress how current policies and laws are affecting their business. It is great for the cause and helps change minds in DC.
Last year, we came out of Lobby Days with several new co-sponsors of cannabis legislation and we hope to get that again this year. It is a great opportunity to connect and network as well; some of the top people in the industry will be there.
The Senate Appropriations Committee approved the amendment to continue protecting state-legal medical cannabis markets from the Department of Justice. The amendment, previously known as the Rohrabacher-Farr Amendment, prevents the DOJ from using funds to target medical cannabis operations, patients and businesses in states where it is legal.
Every time Congress reviews the budget, this amendment needs to be included to keep protecting the medical cannabis community. While the rider still needs to make it through the final version of the appropriations bill, it is a big win for the status quo.
According to Aaron Smith, executive director and co-founder of the National Cannabis Industry Association (NCIA), this indicates that Congress is resisting Attorney General Jeff Sessions’ calls to end the protections. In a letter sent back in May, Sessions urged the Senate on both sides of the aisle to stop protecting medical cannabis.
Many see this morning’s vote as Congress standing up to Jeff Sessions, and standing up for medical cannabis patients. In a letter to NCIA members, Smith says that a lot of work still needs to be done, but this is an important first step. “This is not the end of the story. There are still many steps to go before a new budget is finalized,” says Smith. “But this is an important indicator that our allies in Congress are standing up for us, even in the face of DOJ opposition.” In an official NCIA statement, Smith acknowledges the hurdles that still face the amendment. “Now it’s time for the House to do the same,” says Smith. “Patients deserve access to care, states deserve respect, and members of the House deserve the opportunity to vote on amendments like this that have the strong support of their constituents.” Bipartisan support like this in Congress is needed to prevent the current administration and the DEA from meddling in states with legal medical cannabis.
This week, the National Cannabis Industry Association (NCIA) hosted their annual Cannabis Business Summit in Oakland, California amid some alarming news in Washington. On Monday, a letter written by U.S. Attorney General Jeff Sessions back in early May made its way into the news, where he writes to Congress asking permission to prosecute medical cannabis businesses. The following day, U.S. Deputy Attorney General Rod Rosenstein spoke to the Congress Appropriations committee, saying that, “From a legal and scientific perspective, marijuana is an unlawful drug- it’s properly scheduled under Schedule 1.”
Those two statements identify the crystal-clear anti-cannabis stance of the two most senior-level officials at the Justice Department, a position that should alarm cannabis legalization advocates.
The former president of Mexico, Vicente Fox, a prominent legalization advocate, gave a press conference at the NCIA event, where he gave reporters his thoughts on cannabis and drug legalization, the Trump administration and Attorney General Jeff Sessions. To be blunt, he called Sessions crazy and Trump destructive and ignorant.
“I don’t know what happened to this administration,” Fox told a room of reporters. “A large majority of US states have already approved the use of medical cannabis, which I think is a great thing,” says Fox. “The state of California by itself produces more marijuana than what we do in Mexico. There is a conflict between the frameworks of law… there is no consistency in public policy.” To be clear, the former Mexican president advocates legalizing all drugs, attributing the violence in Mexico to the failed War on Drugs. “I don’t think prohibition has worked and we [Mexico] have paid a huge price for that.”
Former Mexican president Fox’s focus on international politics during that press conference sheds some much-needed light on the violence and other externalities linked to organized crime and the black market drug trade. “We are going to stand firm against what is going on- it is not only the fate of the United States, it is the fate of the whole world,” says Fox. “It is a real shame for this nation in front of the world- we are all pissed off out there hearing this crazy tweeting and crazy public policies that has nothing to do with the soul of this nation… No nation can isolate [themselves] behind a wall and still succeed.”
On May 1st, Congress reached a bipartisan deal to keep the government open and funded through September 30th, 2017. Congress approved the appropriations bill that sets the government’s spending with an important section in it relating to cannabis. Section 537 on page 230 states that the Department of Justice cannot use funds to interfere with states’ legal medical cannabis programs.
The bill uses similar language to The Rohrabacher–Farr amendment, a bill that was originally introduced in 2013 to prevent the Department of Justice from spending money on enforcing the Controlled Substances Act in states with legal medical cannabis programs. This new appropriations bill, with the language in section 537, effectively achieves the same thing. “None of the funds made available in this Act to the Department of Justice may be used, with respect to any of the States of… to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana,” reads the bill. The language includes a mention of the 40 or so states and territories with some form of medical cannabis program, legislation or bill.
This means that Attorney General Jeff Sessions is relatively powerless to go on a sort of ‘crackdown’ on medical cannabis programs. Given Sessions’ previous comments and general views on cannabis, this should put cannabis industry stakeholders at ease for the time being. Of course, this budget is only for the 2017 fiscal year, so come September, the same or similar language needs to be included in the next appropriations bill. With Jeff Sessions’ task force still investigating federal cannabis policy, it is still very possible we could get a clear policy decision in the near future.
“We are encouraged that the Federal Government and NIDA are recognizing the true and powerful medical benefits that cannabis provides, especially in the war against devastating opiate-based drug addiction, abuse and death,” says Sally Vander Veer, President of Medicine Man Denver. “We have seen anecdotal evidence of this as reported by our patients/customers (and the beneficial effects of cannabis in numerous other conditions) since we opened our doors in 2010. Our hope is that this acknowledgment will open the door to additional research, eventually leading to legal and safe access to cannabis medicine for all Americans.”
The following section also includes a protection of industrial hemp research, as defined in the Agricultural Act of 2014, which basically means universities and institutions can research it. SEC. 538. “None of the funds made available by this Act may be used in contravention of section 7606 (‘‘Legitimacy of Industrial Hemp Research’’) of the Agricultural Act of 2014 (Public Law 113–79) by the Department of Justice or the Drug Enforcement Administration.” With all of the uncertainty and inconsistent comments coming out of the Trump administration, at least we have a sense of security in the medical cannabis community through the summer.
According to The Washington Examiner, Department of Homeland Security secretary John Kelly said that marijuana is a gateway drug during a speech at George Washington University on Tuesday. “And let me be clear about marijuana. It is a potentially dangerous gateway drug that frequently leads to the use of harder drugs,” says Kelly. “[U.S. Customs & Border Protection] will continue to search for marijuana at sea, air and land ports of entry and when found take similar appropriate action.” The DEA recently dropped any mention of the gateway drug theory. Many argue it is a myth propagated by drug war stalwarts and even the National Institute on Drug Abuse won’t call it a gateway drug anymore.
During a crime committee meeting this morning, Attorney General Jeff Sessions mentioned a link between the illegal marijuana trade and cartel violence. “We have quite a bit of marijuana being imported by the cartels from Mexico- this is definitely a cartel-sponsored event,” says Sessions. According to The Washington Times, Sessions mentioned violence involving marijuana distribution in the nation’s capital, Washington D.C., where cannabis is legal. “So it remains a significant international criminal organization, the marijuana network,” says Sessions. This is not the first time the Attorney General has suggested a link between the plant and violence. Back in February, Sessions claimed that legal cannabis has led to an increase in violence.
The statements made this morning are the latest in a series of contradictory and uncertain messages on federal cannabis policy by the Trump administration. “DHS personnel will continue to investigate marijuana’s illegal pathways along the network into the U.S., its distribution within the homeland, and will arrest those involved in the drug trade according to federal law,” says secretary Kelly. That message, however, contradicts statements he made earlier in the week.
During a Sunday interview with NBC’s “Meet the Press,” secretary Kelly told Chuck Todd “marijuana is not a factor in the drug war.” In that interview, he went on to add that methamphetamine, heroin and cocaine are the real culprits they are after, noting the high death tolls associated with the drugs and connection to organized crime in Mexico. The Trump administration still has not issued a clear, consistent position on federal cannabis policy.
In a memo sent throughout the Department of Justice on April 5th, attorney general Jeff Sessions outlines the establishment of the Department’s Task Force on Crime Reduction and Public Safety. That task force, largely focused on violent crime, is supposed to find ways that federal prosecutors can more effectively reduce illegal immigration, violent crimes and gun violence.
The task force is made up of subcommittees, according to the memo, and one of them is focused on reviewing federal cannabis policy. “Task Force subcommittees will also undertake a review of existing policies in the areas of charging, sentencing, and marijuana to ensure consistency with the Department’s overall strategy on reducing violent crime and with Administration goals and priorities,” the memo reads. “Another subcommittee will explore our use of asset forfeiture and make recommendations on any improvements needed to legal authorities, policies, and training to most effectively attack the financial infrastructure of criminal organizations.” Those existing policies that Sessions refers to in the memo could very well be the 2013 Cole Memorandum, an Obama administration decree that essentially set up a framework for states with legal cannabis laws to avoid federal enforcement of the Controlled Substances Act.
In the past, Sessions has said he thinks the Cole Memo is valid, but remains skeptical of medical cannabis. In the last several months, comments made by Sessions and White House press secretary Sean Spicer have sparked outrage and growing fears among stakeholders in the cannabis industry, including major business players and state lawmakers. As a general feeling of uncertainty surrounding federal cannabis policy grows, many are looking for a safe haven, which could mean looking to markets outside of the U.S., like Canada, for example.
Washington State’s former Attorney General Rob McKenna, Washington State’s former Chief Deputy Attorney General Brian Moran, and Maryland’s former Chief Deputy Attorney General Kay Winfree recently went on the record identifying the BioTrack THC traceability system as fully compliant with the Cole Memo. “The key to meeting the requirements of the Cole Memorandum is ‘both the existence of a strong and effective state regulatory system, and an operation’s compliance with that system’,” says the former attorney general and chief deputy attorneys general in a press release. “As described above, Washington State has a robust, comprehensive regulatory scheme that controls the entire marijuana supply chain.
The flagship component of this regulatory scheme is the WSLCB’s seed to sale inventory system, the BioTrackTHC Traceability System.” Those commendations from a former attorney general could provide some solace to business operating with the seed-to-sale traceability software.
Still though, worries in the industry are fueled by speculation and a general lack of clarity from the Trump Administration and the Department of Justice. In an email obtained by an open records request and first reported by the International Business Times, a DEA supervisor asked a Colorado prosecutor in the state attorney general’s office about a number of cannabis-related prosecutions. The DEA supervisor asked for the state docket numbers of a handful of cases, including one involving cannabis being shipped out of state, according to The Denver Post. “Some of our intel people are trying to track down info regarding some of DEA’s better marijuana investigations for the new administration,” reads the email. “Hopefully it will lead to some positive changes.” So far, only speculations have emerged pertaining to its significance or lack thereof and what this could possibly mean for the future of federal cannabis policy.
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