Tag Archives: policy

NCIA Federal Policy Update: Q&A with Aaron Smith

By Aaron G. Biros
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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.

Aaron Smith, executive director of NCIA

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.

Steven Burton

Top 4 Food Safety Hazards for the Cannabis Industry

By Steven Burton
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Steven Burton

As many US States and Canadian provinces approach legalization of cannabis, the question of regulatory oversight has become a pressing issue. While public awareness is mainly focused on issues like age restrictions and impaired driving, there is another practical question to consider: should cannabis be treated as a drug or a food product when it comes to safety? In the US, FDA governs both food and drugs, but in Canada, drugs are regulated by Health Canada while food products are regulated under the CFIA.There are many food safety hazards associated with cannabis production and distribution that could put the public at risk, but are not yet adequately controlled

Of course, there are common issues like dosage and potency that pharmaceutical companies typically worry about as the industry is moving to classifying its products in terms of percentage of chemical composition (THC, CBD, etc. in a strain), much as we categorize alcohol products by the percentage of alcohol. However, with the exception of topical creams and ointments, many cannabis products are actually food products. Even the herb itself can be brewed into teas, added to baked goods or made into cannabis-infused butters, oils, capsules and tinctures.

FDAlogoAs more people gain access to and ingest cannabis products, it’s only a matter of time before food safety becomes a primary concern for producers and regulators. So when it comes to food safety, what do growers, manufacturers and distributors need to consider? The fact is, it’s not that different from other food products. There are many food safety hazards associated with cannabis production and distribution that could put the public at risk, but are not yet adequately controlled. Continue reading below for the top four safety hazards for the cannabis industry and learn how to receive free HACCP plans to help control these hazards.

Aflatoxins on Cannabis Bud

Just like any other agricultural product, improper growing conditions, handling and storage can result in mold growth, which produce aflatoxins that can cause liver cancer and other serious health problems. During storage, the danger is humidity; humidity must be monitored in storage rooms twice a day and the meter must be calibrated every month. During transportation, it is important to monitor and record temperatures in trucks. Trucks should also be cleaned weekly or as required. Products received at a cannabis facilities should be tested upon receiving and contaminated products must always be rejected, segregated and disposed of safely.

Petri dish containing the fungus Aspergillus flavus. It produces carcinogenic aflatoxins, which can contaminate certain foods and cause aspergillosis, an invasive fungal disease.
Photo courtesy of USDA ARS & Peggy Greb.

Chemical Residues on Cannabis Plants

Chemical residues can be introduced at several points during the production and storage process. During growing, every facility should follow instructions for applying fertilizers and pesticides to crops. This includes waiting for a sufficient amount of time before harvesting. When fertilizer is being applied, signs must be posted. After cannabis products have been harvested, chemical controls must be in place. All chemicals should be labelled and kept in contained chemical storage when not in use to prevent contamination. Only food-grade chemicals (e.g. cleaners, sanitizers) should be used during curing, drying, trimming and storage.

Without a comprehensive food safety program, problems will inevitably arise.There is also a risk of excessive concentration of chemicals in the washing tank. As such, chemical concentrations must be monitored for. In general, water (obviously essential for the growing process) also carries risks of pathogenic bacteria like staphylococcus aureus or salmonella. For this reason, city water (which is closely controlled in most municipalities) should be used with an annual report and review. Facilities that use well water must test frequently and water samples must be tested every three months regardless.

Pathogenic Contamination from Pest Infestations

Insects, rodents and other pests spread disease. In order to prevent infestations, a pest control program must be implemented, with traps checked monthly by a qualified contractor and verified by a designated employee. It is also necessary to have a building procedure (particularly during drying), which includes a monthly inspection, with no holes or gaps allowed. No product should leave the facility uncovered to prevent fecal matter and other hazards from coming into contact with the product. Contamination can also occur during storage on pallets, so pallets must be inspected for punctures in packaging material.

Furthermore, even the best controlled facility can fall victim to the shortcomings of their suppliers. Procedures must be in place to ensure that suppliers are complying with pest and building control procedures, among others. Certifications should be acquired and tracked upon renewal.

Pathogenic Contamination Due to Improper Employee Handling

Employee training is key for any food facility. When employees are handling products, the risk of cross-contamination is highest. Facilities must have GMP and personnel hygiene policies in place, with training conducted upon hiring and refreshed monthly. Employees must be encouraged to stay home when sick and instructed to wear proper attire (gloves, hair nets, etc.), while glass, jewelry and outside food must not be allowed inside the facility. Tools used during harvesting and other stages may also carry microorganisms if standard cleaning procedures are not in place and implemented correctly by employees.

As the cannabis industry grows, and regulatory bodies like the FDA and CFIA look to protect public safety, we expect that more attention will be paid to other food safety issues like packaging safety (of inks and labels), allergen control and others. In the production of extracts, for example, non-food safe solvents could be used or extracts can be mixed with ingredients that have expiration dates, like coconut oil. There is one area in which the cannabis industry may lead the way, however. More and more often, risks of food terrorism, fraud and intentional adulteration are gripping the food industry as the global food chain becomes increasingly complex. It’s safe to say that security at cannabis facilities is probably unparalleled.

All of this shows that cannabis products, especially edibles (and that includes capsules and tinctures), should be treated the same as other food products simply because they have the same kinds of hazards. Without a comprehensive food safety program (that includes a plan, procedures, training, monitoring and verification), problems will inevitably arise.

Vermont Legislature Votes to Legalize Cannabis

By Aaron G. Biros
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Vermont could become the ninth state to legalize recreational cannabis soon, and the first to do so via the legislature. The Vermont Senate just voted to pass H. 511, a bill that would legalize cannabis for adults. The bill now goes to Governor Phil Scott’s desk for his signature, and he has indicated previously that he will sign this bill into law.

On Thursday, January 4th, the Vermont House passed this bill, sending it to the Senate for concurrence. Now that the Senate has passed the bill and Gov. Scott is expected to sign it into law, it is beginning to look like Vermont will be the first state to legalize recreational cannabis through the legislature, which is a monumental accomplishment.

Vermont Statehouse, Montpellier, VT
Image: Tony Fischer, Flickr

This could also be an important milestone for the East Coast, as legislatures in New Hampshire, New Jersey, Rhode Island, Connecticut and Delaware are seriously eyeing legalization bills as well. New Hampshire lawmakers in the state’s House approved a similar bill recently.

Matt Simon, New England political director for the Marijuana Policy Project, sees this as a massive win for the legalization movement. “Vermont is poised to make history by becoming the first state to legalize marijuana cultivation and possession legislatively, rather than by ballot initiative,” says Simon. “We applaud lawmakers for heeding the calls of their constituents and taking this important step toward treating marijuana more like alcohol.”

H. 511, the bill the Vermont Senate just approved, would eliminate penalties for possession of up to one ounce of cannabis and remove penalties for having two mature plants and four immature plants. A task force appointed by the governor will work on a report to investigate how the state should tax and regulate sales by December of 2018.

Jeff Sessions and Eric Holder

Jeff Sessions Rescinds Cole Memo

By Aaron G. Biros
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Jeff Sessions and Eric Holder

According to The Associated Press, U.S. Attorney General Jeff Sessions rescinded the Cole Memo today, an Obama-era policy barring Department of Justice officials from going after state-legal cannabis businesses. This move comes just after California, the nation’s most populous state, legalized adult use sales of cannabis. Previously, the Cole Memo has served as a kind of stopgap for states to conduct legal cannabis markets, giving them peace of mind that the federal government wouldn’t interfere.

Sen. Jeff Sessions (R-AL)
Photo: Gage Skidmore, Flickr

Ushering in 2018 with a bang, California’s cannabis businesses finally celebrated their new market launch on New Year’s Day. Even CNN rang in the New Year with copious amounts of cannabis, sending journalist Randi Kaye to Denver where she was passed joints and even donned a gas mask bong.

One fifth of the entire United States population now live in states where adult use cannabis sales are legal. A majority of states in the country have some form of cannabis legalization law on the books.

According to The Associated Press, AG Sessions’ new policy will leave it up to federal prosecutors to determine how they wish to enforce federal law and the controlled substances act. Sessions has been historically conflicted with federal policy surrounding legal cannabis and has repeatedly expressed his disdain for the drug.

But his back and forth on policy directives has been largely symbolic until now. In January last year, Sessions said he would uphold federal law but expressed openness to ending the conflict between state and federal laws. In February of last year, he tied legal cannabis to violence in a press conference where he alluded to greater enforcement. But flip-flopping again in March of last year, he said the Cole Memo is valid and appropriate after a speech.

Sen. Cory Gardner (R-CO)
Image: Gage Skidmore, Flickr

The Trump Administration’s confusing and often-unclear stance on cannabis has only fueled more speculation, worries and fear that cannabis businesses are no longer safe from federal prosecution.

The cannabis industry and politicians around the country were quick to respond to the AG’s new policy shift. Sen. Cory Gardner (R-CO) said he would be holding up DoJ nominees, “until the Attorney General lives up to the commitment he made to me prior to his confirmation.” The Cannabis Control Commission of Massachusetts, the regulatory body tasked with overseeing the state’s legal cannabis industry, says “nothing has changed” and that it will continue their work to legalize and regulate the cannabis industry.

Steve Schain, Esq. practicing at the Hoban law Group

Steve Schain, Esq., an attorney with Hoban Law Group, a prominent cannabis law firm, says this only fuels the confusion. “With Jeff Sessions threatening to singlehandedly crush $7.2 billion legalized marijuana industry spanning 30 states, generating millions in taxes and providing tens of thousands of jobs, much confusion abounds,” says Schain. “While unclear if merely a ‘knee jerk reaction’ to California program’s launch breadth of coverage, unless and until the United States Department of Justice provides an official statement, publication, or other specific information, neither legalized marijuana’s current status – nor the Federal Government lack of Congressional mandate or funds to derail state programs – has changed.”

Omar Figueroa, a well-known California cannabis attorney, urges clients and friends to start getting informed. “Which district is your ‘commercial cannabis activity’ operation(s) located? Who is the US Attorney for that district? What is that US Attorney’s cannabis policy? The answers to these questions just became extremely important. Please contact us for legal advice and representation.”

Advocates and activists were also very quick to condemn Sessions’ move, including Matthew Schweich, interim executive director for the Marijuana Policy Project (MPP). “This extremely misguided action will enable a federal crackdown on states’ rights with regard to marijuana policy,” says Schweich. “Attorney General Sessions has decided to use the power of the federal government to attack the ability of states to decide their own laws. A majority of Americans support legalization, and Sessions has simply decided to ignore their views. In the states where marijuana is legal, voters approved those legalization policies at the ballot box. This is a direct attack on the will of the people.”

National Cannabis Industry Association (NCIA) Executive Director Aaron Smith gave the following statement in a press release:

“This news from the Department of Justice is disturbing, especially in light of the fact that 73% of voters oppose federal interference with state cannabis laws. But, the rescinding of this memo does not necessarily mean that any major change in enforcement policy is on the horizon. This has been, and still will be, a matter of prosecutorial discretion. We therefore hope that Department of Justice officials, including U.S. Attorneys, will continue to uphold President Trump’s campaign promise to not interfere with state cannabis programs, which have been overwhelmingly successful in undercutting the criminal market.

In addition to safely regulating the production and sale of cannabis, state-based cannabis programs have created tens of thousands of jobs and generated more than a billion dollars in state and local tax revenue to date. Any significant change in federal enforcement policy will result in higher unemployment and will take funds away from education and other beneficial programs. Those revenues will instead go back to drug cartels and other criminal actors.”

Could this move be a genuine policy shift that will cause a crackdown on the legal cannabis industry? One action that could prevent the DoJ’s ability to target cannabis businesses relies on a Senate vote passing the Leahy Amendment as part of the Omnibus Appropriations Bill. That amendment would prevent the DoJ from using resources to go after state-legal medical cannabis laws, but does not exactly protect companies operating under adult use and recreational laws.

Is it possible that this is just the Trump Administration moving public eyes away from the bombshell revelations in Michael Wolff’s book and Trump’s feud with Steve Bannon? The current administration has a history of creating headlines amidst unrelated controversy, deflecting a public relations crisis from the public eye.

What’s Happening on Capitol Hill? Part 4: Banking & Tax Reform

By Brian Blumenfeld, J.D., M.A.
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To round out our federal reform review, we look at the bills introduced into the 115th Congress that attempt to resolve the banking and taxation problems faced by state-legal cannabis businesses. As this is perhaps the biggest thorn in the side of the cannabis industry, any movement by the feds on these issues will be welcomed. As it turns out, there are four proposals currently pending for fixing the broken cannabis financial services system, with each proposal comprising a pair of House-Senate companion bills. We look at each pair in turn.

Group 1

S. 1156 – SAFE Act; or, Secure and Fair Enforcement Banking Act

HR. 2215 – SAFE Act; or, Secure and Fair Enforcement Banking Act

Policy: These SAFE Acts would prohibit federal prosecutors and federal regulators from preventing or disciplining in any way a depository institution simply because that depository institution serviced a cannabis-related business.

Impact: The impact of these bills would be widespread for both the cannabis industry and for financial service institutions looking to capitalize on the cannabis industry. For banks, the bills would remove all of the barrier-risks that are now keeping them out of the cannabis business. Currently, the feds have handed down policy guidance to banks stating that as long as they submit what are called “Suspicious Activity Reports, or “SARs” for cannabis-related accounts, and conduct their due diligence to ensure such accounts are complying with state law, then those banks will not be pursued by federal law enforcement. The problem with this guidance is that it is only policy, it is not law, and so it can change on as little as an administrative whim. The protection from cannabis business risk, most banks have determined, is therefore temporary at best and illusory at worst. Passage of the SAFE Act would instantly change all of that and initiate a banking bonanza. Banks will be racing to profit off of what is amounting to a newly minted billion dollar industry. Cannabis businesses will benefit greatly from all of this. Not only will they be able to stop operating strictly in cash and have access to all the traditional financial services that other businesses heavily rely on, but they will also be the beneficiaries of a highly competitive, and therefore affordable and efficient, cannabis banking market.

Procedural Status:

S. 1156

  • Introduced: May 17, 2017 by Senator Jeff Merkley (D-OR)

    Senator Jeff Merkley (D-OR)
    Image: Medill DC, Flickr
  • Cosponsors: 3 Republicans, 7 Democrats, 1 Independent
  • Referred to Senate Committee on:
    • Banking, Housing, and Urban Affairs

HR. 2215

  • Introduced: April 27, 2017 by Representative Ed Perlmutter (D-CO)
  • Cosponsors: 7 Republicans, 44 Democrats
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Financial Services

Group 2

S777 – Small Business Tax Equity Act of 2017

HR 1810 – Small Business Tax Equity Act of 2017

Policy: These bills would carve out an exception to IRC 280E allowing cannabis businesses to deduct ordinary business expenses from their federally taxable revenues.

Impact: If enacted these bills will dramatically ease the tax burden for cannabis businesses. Currently, even when they are in perfect compliance with state law, cannabis businesses are not permitted to deduct ordinary business expenses. This means that net taxable revenues are, and are going to continue to be, substantially higher than net taxable revenues for businesses in any other industry. If enacted, profit margins—and therefore product quality, operational efficiency and innovation—are going to uptick across all states that have legalized.

Procedural Status:

Senator Ron Wyden (D-OR)
Image: JD Lasica, Flickr

S. 777

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: 1 Republican, 4 Democrats
  • Referred to Senate Committee on:
    • Finance

HR. 1810

  • Introduced: March 30, 2017 by Representative Carlos Curbelo (R-FL)
  • Cosponsors: 10 Republicans, 24 Democrats
  • Referred to House Committee on:
    • Ways and Means

Group 3

S. 780 – Responsibly Addressing the Marijuana Policy Gap Act of 2017

HR. 1824 – Responsibly Addressing the Marijuana Policy Gap Act of 2017

Policy: These bills combine to accomplish what each of the foregoing pairs accomplish separately. IRC 280E would no longer apply to state-legal cannabis businesses, and banking would become available for them as well. Additionally, advertising prohibitions in the CSA and the Communications act of 1934 would be removed, with the one exception that advertisements inducing travel from a state where cannabis is not legal to a legal cannabis state would be prohibited. Under Title II of the acts, barriers to federal bankruptcy proceedings would be removed. These bills would also reform the CSA as it relates to criminal liability for individuals, criminal record expungement and medical research for institutions, all of which are noteworthy but neither of which directly impact the legal cannabis industry.

Impact: For the impact of IRC reform, see “Impact” section under S.777/HR.180. For the impact of banking reform, see “Impact” section under S.1156/HR/2215.

By leaving advertising guidelines completely up to the states, we would probably witness the easing of advertising restrictions by the states. Currently, states have tight advertising rules because, after protecting consumers, they do not want their state’s legal cannabis industry to draw attention from the feds in any way. That concern would become moot and we could see more advertising in and across legalized states. This would drive competition across larger markets, in terms of both product and service quality and branding/marketing strategy.

Access to federal bankruptcy proceedings would clarify the landscape for all potential financial scenarios in the lifecycle of cannabis businesses, which in turn will ease uncertainty concerns of potential investors. The bankruptcy provision, combined with the banking provisions will undoubtedly open access to capital for cannabis businesses looking to grow operations and market presence.

Procedural Status:

S. 780

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Finance

HR. 1824

Representative Earl Blumenaur (D-OR)
Photo: Bridget Baker, 92bridges.com
  • Introduced: March 30, 2017 by Representative Earl Blumenaur (D-OR)
  • Cosponsors: 0 Republicans, 8 Democrats
  • Referred to House Committees on:
    • Judiciary
      • Crime, Terrorism, Homeland Security, and Investigations
      • Regulatory Reform, Commercial and Antitrust Law
      • Immigration and Border Security
    • Energy & Commerce
      • Health
    • Ways and Means
    • Financial Services
    • Natural Resources
      • Indian, Insular, and Alaskan Affairs
    • Education and the Workforce
    • Veterans’ Affairs
      • Health
    • Oversight and Government Reform

Group 4

S. 776 – Marijuana Revenue and Regulation Act

HR. 1823 – Marijuana Revenue and Regulation Act

Policy: Subchapters A and B of these bills would impose two additional federal tax requirements on cannabis businesses. The first would be an excise tax on all producers, beginning at a rate of 10%, and growing each year that a producer is in business to a cap of 25% at five years. The second tax would be an occupational tax of $1,000 per year, to be paid by the principals of any cannabis producer or warehouse proprietor. Significantly, these bills would also authorize the federal government to regulate operations in the industry.

Impact: The tax impact of these bills would be a straightforward additional tax that cannabis businesses would have to pay, on top of state and local taxes. The burden of additional taxes will inevitably impact profit margins, initial decisions on whether or not to enter the market and strategies for expansion and innovation. The impacts of federal authorization and regulatory requirements was discussed in the second article of the series, specifically under the “Impact” section of HR1841

Procedural Status:

S. 776

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Finance

HR. 1823

  • Introduced: March 30, 2017 by Representative Earl Blumenaur (D-OR)
  • Cosponsors: 0 Republicans, 8 Democrats
  • Referred to House Committee on:
    • Ways and Means

Enforcement of Intellectual Property Rights for Cannabis Put to Test in Federal Court

By Dr. Travis Bliss
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A number of cannabis businesses have pursued federal intellectual property protection for their cannabis-related innovations, such as U.S. patents that protect novel cannabis plant varieties, growing methods, extraction methods, etc. Enforcement of such federal IP rights requires that the IP owner file suit in federal court asserting those rights against another cannabis company. However, given that cannabis is still illegal under federal law, the industry is uncertain about whether a federal court will actually enforce cannabis-related IP rights. This question might be answered soon.

The potential impact of this case goes way beyond the two parties involvedOrochem Technologies, Inc. filed a lawsuit in federal court in the Northern District of Illinois on September 27, 2017, seeking to assert and enforce trade secret rights against Whole Hemp Company, LLC. According to the complaint, Orochem is a biotechnology company that uses proprietary separation methods to extract and purify cannabidiol (CBD) from industrial hemp in a way that produces a solvent-free and THC-free CBD product in commercially viable quantities.

The complaint goes on to say that Whole Hemp Company, which does business as Folium Biosciences, is a producer of CBD from industrial hemp and that Folium engaged Orochem to produce a THC-free CBD product for it. According to the allegations in the complaint, Folium used that engagement to gain access to and discover the details of Orochem’s trade secret method of extracting CBD so that it could take the process and use it at their facility.

The complaint provides a detailed story of the events that allegedly transpired, which eventually led to an Orochem employee with knowledge of the Orochem process leaving and secretly starting to work for Folium, where he allegedly helped Folium establish a CBD production line that uses Orochem’s trade secret process. When Orochem learned of these alleged transgressions, it filed the lawsuit, claiming that Folium (and the specific employee) had misappropriated its trade secret processes for extracting and purifying CBD.

While the particular facts of this case are both interesting and instructive for companies operating in the cannabis industry, the potential impact of this case goes way beyond the two parties involved.

If it moves forward, this case will likely provide a first glimpse into the willingness of federal courts to enforce IP rights that relate to cannabis. Orochem is asserting a violation of federal IP rights established under the federal Defend Trade Secrets Act (DTSA) and is asserting those rights in federal district court. As a result, the federal district court judge will first need to decide whether a federal court can enforce federal IP rights when the underlying intellectual property relates to cannabis.

If the court ultimately enforces these federal trade secret rights, it could be a strong indication that other federal IP rights, such as patent rights, would also be enforceable in federal court. Since the outcome of this case will likely have a far reaching and long lasting impact on how the cannabis industry approaches and deals with intellectual property, it’s a case worth watching.

What’s Happening on Capitol Hill? Part 3: The Medical Bills

By Brian Blumenfeld, J.D., M.A.
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This article continues the bill-by-bill review begun in the August 1st article on cannabis reform legislation proposed in the 115th Congress. In the next article and final piece in this series, we will examine the banking and tax reform bills related to cannabis.

Medical Cannabis Reform Bills 

S. 1008 – Therapeutic Hemp Medical Act of 2017

HR. 2273 – Charlotte’s Web Medical Access Act of 2017

Policy: These bills would amend the CSA to end federal prohibition over all CBD products and all hemp plants with THC content levels of below 0.3%. In other words, people and businesses would be free to grow hemp and/or manufacture CBD products without any fear of federal prosecution. These products would most likely then fall under the regulation of other federal and/or state agencies, but the bills do not specify what agencies they might be or what controls might be put in place.

Impact: The impacts from these bills nationwide have the potential to be massive. Hemp is a plant that can be put to highly effective use in many different industries, from textiles and construction to foodstuffs and seafaring. The efficiency of its growth and the breadth of its utility will make it a highly valuable commodity and a competitor with many other raw materials. For state-legal cannabis businesses, the legalization of CBD and hemp at the federal level could fundamentally change the market for those products. States that legalized cannabis already have provisions in place dealing with hemp and CBD—sometimes alongside their cannabis laws, sometimes handled by a separate state agency—and they could either leave those as they are or open up those markets to interstate activity. In states that have not legalized, CBD and hemp are typically included in the state’s definition of cannabis, and therefore they will remain illegal under state law unless further action is taken. Most likely, if federal prohibition ends on hemp and CBD, state prohibition will follow suit. Because legalization at the federal level will allow for interstate commerce in hemp and CBD, expect the emergence of a nationwide market, driven by online sales and interstate marketing, and developing independently from a cannabis industry still constrained to in-state activities.

Procedural Status:

Senator Cory Gardner (R-CO) Photo: Gage Skidmore, Flickr

S. 1008

  • Introduced: May 2, 2017 by Senator Cory Gardner (R-CO)
  • Cosponsors: 7 Republican, 4 Democrat
  • Referred to Senate Committee on:
    • Judiciary

 HR. 2273

  • Introduced: May 1, 2017 by Representative Scott Perry (R-PA)
  • Cosponsors: 10 Republicans, 10 Democrats
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Financial Services

S. 1276 – Cannabidiol Research Expansion Act

Policy: This bill would accomplish two objectives: First, it would open channels for researchers to access and experiment with cannabis and cannabis extracts. Second, it would initiate the process at the end of which the Attorney General must make a determination as to which Schedule of the CSA is most appropriate for cannabidiol (CBD).

Impact: The impact on this legislation to state-legal cannabis businesses is rather remote—in both time and practice. The research access provisions will certainly create an uptick in medical and psychological research activity, the outcomes of which will add to our knowledge of how consuming cannabis in different forms and amounts effects the brain and body. This type of government-regulated research takes many years to process and complete, as both bureaucratic and scientific standards must be met. As for initiating the re/de-scheduling review process for CBD, this is a direct response to the 2016 denial by the DEA to re/de-schedule cannabis. That determination, published in the Federal Registrar on August 12, 2016, was made following a comprehensive study of the medical benefits and harms of cannabis conducted by the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA). Although such an in-depth study and its resulting negative determination pronounced so recently would normally rule out the chances of success for another re/de-scheduling attempt so soon after, the DEA did leave the door open with its statement that it “did not focus its evaluation on particular strains of marijuana or components or derivatives of marijuana.” It is just this door that S. 1276 seeks to exploit. By focusing the re/de-scheduling process on CBD specifically, the presumption is that the outcome of the scientific CBD studies would have a far better chance at satisfying the re/de-scheduling criteria set forth in the CSA. If such a determination was made, then the impact would come in two potential varieties. One, CBD would be rescheduled and become available for medical use according to FDA rules applicable to other prescription drugs. Two, CBD would be descheduled and would fall under the prerogative of the states, in which case the above analysis for S. 1008 and HR. 2273 would pertain.

Senator Dianne Feinstein (D-CA)
Photo: Daniel Torok

Procedural Status:

S. 1276

  • Introduced: May 25, 2017 by Senator Dianne Feinstein (D-CA)
  • Cosponsors: 3 Republican, 2 Democrat
  • Referred to Senate Committee on:
    • Judiciary

S. 1374 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 2920 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 715 – Compassionate Access Act of 2017

HR. 714 – Legitimate Use of Medical Marijuana Act (LUMMA) of 2017

Policy: All four of these bills would make an exception to the CSA for state medical cannabis laws. Federal prohibition, in other words, would end for medical cannabis in those states that have legalized, and it would be left to those states to devise how it would be regulated. In states that have not legalized, both state and federal prohibition would remain. The companion CARERS Acts in the House and Senate, along with HR. 714, would also amend FDA rules to widen access to cannabis for research purposes.

Impact: The impact of these bills on the rules for state-legal medical cannabis businesses would be relatively minor in terms of functionality. This is so because they leave not only the determination to legalize up to the states, but they leave the design of the regulatory system up to the states as well. In other areas, however, big changes will be seen that benefit the industry: banking will open up for state medical businesses, and so will the opportunity to write-off ordinary business expenses. Investment risks over legality will end, making for easier access to capital. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. Enactment of any of these bills would be a big win for medical cannabis.

Senator Cory Booker (D-NJ) Photo: David Shinbone, Flickr

Procedural Status:

S. 1374

  • Introduced: June 15, 2017 by Senator Cory Booker (D-NJ)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Judiciary

HR. 2920

  • Introduced: June 15, 2017 by Representative Steve Cohen (D-TN)
  • Cosponsors: 1 Republicans
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Veterans’ Affairs
      • Subcommittee on Health

HR. 715

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith (R-VA)
  • Cosponsors: 2 Republicans, 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations

HR. 714

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith
  • Cosponsors: 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health

HR. 2020 – To Provide for the Rescheduling of Marijuana into Schedule III of the CSA

Policy: As its wordy title indicates, this bill would bypass the schedule review process and by legislative fiat move cannabis from Schedule I to Schedule III of the CSA.

Representative Matt Gaetz (R-FL)

Impact: Businesses handling drugs in Schedule III must register with the DEA and comply with DEA record keeping and security requirements. Doctors would be permitted to prescribe cannabis products. Importing/exporting will become available by permit, which would bring state businesses into competition with foreign cannabis firms. The biggest impact will be that cannabis sold pursuant to federal law will have to undergo the FDA’s New Drug Application process conducted by the Center for Drug Evaluation and Research, the largest of the FDA’s five centers. This includes clinical testing and a comprehensive chemical/pharmacological review. The drug would then be subject to FDA regulation for marketing and labelling. For states that wanted to maintain their legal medical cannabis systems, a conflict would remain because cannabis cultivators and dispensaries could operate in compliance with state law while simultaneously failing to meet new FDA and DEA requirements. States will then have a choice: bring state laws into line with federal laws, creating all of the advantages of federal legality discussed above, yet causing major disruptions to the industry; or retain the status quo, allowing the industry to grow as is with all of the in-state advantages but without the advantages of federal legalization. This all would of course leave behind recreational cannabis which would remain in the legal gray zone.

  • Introduced: April 4, 2017 by Representative Matt Gaetz (R-FL)
  • Cosponsors:
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary

HR. 331 – States’ Medical Marijuana Property Right Protection Act

Policy: Section 881(a)(7) of the CSA subjects to federal forfeiture all property involved with cannabis activities. This bill would make an exception to that provision for all property in compliance with state medical cannabis laws.

Impact: Although not legalizing medical cannabis, this bill would be a strong step in the direction of legitimizing state-legal medical cannabis businesses. As a result of the property forfeiture clause of the CSA, two impediments faced by the medical cannabis industry is that investors are hesitant to invest and land lords are hesitant to lease or otherwise engage the medical cannabis market. By eliminating the risk of such property loss due to the federal-state conflict, this bill would have the very welcomed impact of easing access to capital and expanding opportunities for land use.

  • Introduced: January31, 2017 by Representative Barbara Lee (D-CA)
  • Cosponsors:
  • Referred to the House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

Massachusetts Recreational Consumer Council Launches Education Program

By Aaron G. Biros
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The Massachusetts Recreational Consumer Council (MRCC) is an interesting nonprofit that recently launched an educational campaign, called Consume Responsibly Massachusetts. For many cannabis advocates who watched their states legalize the drug, consumer education is a very important part of moving forward. As states across the East Coast implement regulatory frameworks for the cannabis industry, there is a sense of urgency to make sure the rules are right the first time, and that cannabis businesses become responsible stewards of their new market.

In the wake of pesticide recalls in the west and related public health concerns, the issues surrounding consumer safety and how states protect that are now front and center. “The purpose of Consume Responsibly Massachusetts is to keep adult-consumers informed of their rights in the state,” says Jefferson. “It’s also an ongoing effort to bring consumers into the world of cannabis politics and science.”

The MRCC’s mission is to help protect the safety of recreational cannabis consumers by bridging the information gap between businesses, legislators and communities. “We work at the state and local level advocating for sensible recreational marijuana policy and regulations,” reads a press release. According to Kamani Jefferson, president of the MRCC, bridging that gap requires a lot of community engagement. “I was a field organizer on the Campaign to Tax and Regulate Marijuana here in Massachusetts so this is extremely important to me,” says Jefferson. “MRCC participated in this year’s Cambridge 5K Freedom Run.” He says getting out in the community like this is one of many ways to help provide educational opportunities, help promote local cannabis businesses and get rid of the “lazy stoner stigma.”

Kamani Jefferson, president of the MRCC

For the MRCC, the issue of craft cannabis is a significant part of the organization’s philosophy, in addition to product safety and others. “Craft Cannabis will benefit the consumer in an entirely new way,” says Jefferson. “Members of the community will have a chance to provide products and directly affect the economy.” Because local owners tend to be more involved in their towns, Jefferson says residents will get to make more of an impact than nonlocal owners. And he’s right- small, local businesses contribute substantially more to local economies and communities than large companies. Between 1993 and 2013, small businesses created roughly 63% of all new jobs in the United States. With the new cannabis market comes a promising opportunity for local economies.

“The Massachusetts cannabis industry is developing and growing fast,” says Jefferson. “Aside from the medical marijuana production sites, the new recreational marijuana law grants production participation in the regulated recreational marijuana industry to farmers, in the form of craft marijuana cultivator cooperative systems.” While he thinks this is a good opportunity for small businesses and communities alike to gain a foothold in the market, Jefferson is hesitant to endorse Massachusetts’ regulatory policies. “A lack of regulatory oversight from the CCC [Cannabis Control Commission] places the cannabis industry in a vulnerable position,” says Jefferson. “If we want clear, consistent standards for clean and safe products prioritized, then we need consistent testing data.” Jefferson is arguing for more regulatory oversight for safety issues, such as contaminant testing. This is one of a handful of issues they are pressing for sensible cannabis policy in Massachusetts.

Here are some of the issues they support:

  • Local Cannabis: Equitable licensing for small and medium sized local businesses from members of the community.
  • Quality Control: Access to a variety of clean and safe cannabis products in retail dispensaries, tested for harmful contaminants, mold, pesticides and fungicides.
  • Responsible + Safe Consumption: Access to educational materials about proper dosage, methods of ingestion, quality analysis, understanding product labels and general cannabis information.
  • High Potency Flowers, Edibles, & Concentrates: Access, non-restriction to high potency marijuana products of all forms.
  • Home Grow: Ability to grow at least 6 plants per person, 12 per household as stated in Question 4.
  • Social Use: The ability to consume in designated establishments outside of the household.
  • Expungement: Sentence commutation and record expungement for convictions involving non-violent marijuana charges that are now legal.
  • Research: University supported biological, behavioral and cognitive marijuana research to further our understanding and capabilities of the cannabis plant.

What’s Happening on Capitol Hill? Part 2: A Bill-By-Bill Review

By Brian Blumenfeld, J.D., M.A.
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Since the first session of the 115th Congress convened on January 3, 2017, twenty-four cannabis reform bills have been introduced, fifteen in the House and nine in the Senate. All of them address in varying ways the puzzles that have emerged as more and more states legalize cannabis in the face of federal prohibition. Some are narrow, some are broad, some are for medical cannabis only, some for recreational too, some have more bipartisan support than others, but all indicate in some manner the direction federal reform will eventually take.

H.R.1227 – Ending Federal Marijuana Prohibition Act of 2017

Understanding the content and status of these bills and what they would mean for the industry if/when they are enacted, will help stakeholders anticipate changes that we know are bound to drop, and therefore be better prepared to adapt to them when they do.

Generally lacking in the journalism on cannabis is coverage and analysis of federal proposals deep enough to provide a useable understanding of the policies they stand to codify. As CIJ is dedicated to providing just such useable information to industry-insiders, this bill-by-bill review fills the gap.

All twenty-four bills fit rather neatly into one of three categories: De-scheduling/State Control Reform, Medical Cannabis Reform and Banking/Tax Reform. This second article in the series will look at the first category, and the next article will wrap up the last two.

De-Scheduling/State Control Reform

HR 1227 – Ending Marijuana Federal Prohibition Act of 2017

Policy: The bill proposes two major changes to the CSA. The first is to strike cannabis from the statute, essentially leaving the regulation or prohibition of it up to each state. The second is to insert into the CSA a provision that makes it a federal offense to transport cannabis from one state to another in any way that violates state law. In other words, if a state wished to continue prohibiting cannabis, it would be both a federal and state crime for anyone to transport cannabis into that state. Likewise, if a state wished to legalize and regulate cannabis, but wanted to prevent out-of-state cannabis from entering, the transportation provision would permit that state to do so.

Impact: Industries in states that have already legalized cannabis will structurally remain the same. Banking will open up for these state businesses, and so will the opportunity to write-off ordinary business expenses. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. The big potential change will be seen if two or more contiguous states that have legalized cannabis decide to permit transport of the drug between their states. Markets will expand, opening access to new customers and challenges from new competitors. Licensees may also have the option to venue shop, and we could see states themselves competing with one another to attract cannabis business with the carrot of favorable regulations.

Representative Thomas Garett (R-VA)
Photo: C-SPAN

One possible pitfall to keep in mind is that this legislation could violate something in constitutional law known as the Dormant Commerce Clause—a topic CIJ will cover should it surface.

Procedural Status:

  • Introduced on February 27, 2017 by Representative Thomas Garett (R-VA)
  • Cosponsors: 4 Republican, 11 Democrat, 1 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 2528 – Respect States’ and Citizens’ Rights Act of 2017

Policy: This bill would add to the CSA a provision specifically declaring no congressional intent to preempt state cannabis laws.

Representative Diana DeGette (D-CO)
Photo: Center for American Progress Action Fund, Flickr

Impact: HR 2528 would rule out the potential for a judicial resolution to the federalism controversy. Most legal challenges to state legalization regimes have relied on a theory of Supremacy Clause preemption. Most notably was the 2014 case initiated by Oklahoma and Nebraska against Colorado, which you can find broken down here. Although the Supreme Court denied to hear that case, the issue is outstanding and remains an important factor, if not the central factor, in cannabis cases currently pending in federal court. Under this reform, state cannabis laws would be safe from invalidation, but it is less clear whether a mere anti-preemption clause would strip the federal government of its other powers under the CSA, or alter in any way the current status of cannabis as a Schedule I controlled substance. Questions arising under such uncertainty would likely have to go through long and hotly contested litigation before we have concrete answers. So although this proposal would resolve the ticklish issue of preemption, it leaves unaddressed the many other conundrums posed by federal-state divergence.

Procedural Status:

  • Introduced on May 18, 2017 by Representative Diana DeGette (D-CO)
  • Cosponsors: 1 Republican
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 1841 – Regulate Marihuana Like Alcohol Act

Policy: This bill sets to accomplish a number of different reforms: remove cannabis from CSA; allow for import and export except into states that wish to prohibit cannabis altogether and/or prohibit its importation into the state; decriminalize cannabis use on national forest land; require a permit from the Secretary of the Treasury to import cannabis and to engage in any cannabis business activity; mandate businesses that obtain a Treasury permit to also comply with all State laws (so if state wants to continue to prohibit, they may); share jurisdiction over the administration and enforcement of the new federal laws between the DEA and the Bureau of Alcohol, Tabaco, Firearms and Explosives which is to be renamed the Bureau of Alcohol, Tobacco, Marijuana, Firearms and Explosives.

Representative Jared Polis (D-CO)
Photo: Joshua Lawton, Flickr

Impact: If enacted, this bill will have many of the same impacts as the abovementioned HR 1227- Ending Marijuana Federal Prohibition Act of 2017. The IMPACT section for that bill will also pertain to this bill, with the following exception: by requiring a permit to operate a cannabis business from the Department of Treasury, the bill would add a layer of regulation on top of state law. Treasury Permits would be conditioned on permitees complying “with all other Federal laws relating to production, sale and consumption of marijuana.” Although §302 of the bill limits Treasury’s discretion in denying applications to only certain, enumerated disqualifying factors, the “other Federal laws” the bill refers to could embody any number of policy and jurisdictional preferences either enacted by the Congress or promulgated by the executive agencies charged with administration. At the current stage of speculation the best we can say is that descheduling cannabis under this bill would be a benefit to the industry, but out of all of the present proposals the provisions authorizing federal regulation present the greatest uncertainty for the shape the future of the industry might take.

Procedural Status:

  • Introduced on March 30, 2017 by Representative Jared Polis (D-CO)
  • Cosponsors: 1 Republican, 14 Democrat
  • Referred to House Committees on:
    • Judiciary
    • Energy and Commerce
    • Ways and Means
    • Agriculture
      • Subcommittee on Conservation and Forestry
    • Natural Resources
      • Subcommittee on Federal Lands

HR 975

Statute: Adds one sentence to the CSA that excludes its application to any person acting in compliance with State cannabis laws.

Representative Dana Rohrabacher (R-CA)
Photo: Gage Skidmore, Flickr

Impact: The bill would have the same impact as the above HR 1227 – Ending Marijuana Federal Prohibition Act of 2017, with the only exception that the transportation provision in HR 1227 makes it clear that states will be permitted to prohibit the importation of cannabis from other states if they want to. This bill, without speaking directly to the matter of interstate importation, could leave the question open-ended until resolved through judicial interpretation.

Procedural Status:

  • Introduced on February 7, 2017 by Representative Dana Rohrabacher (R-CA)
  • Cosponsors: 8 Republican, 12 Democrat, 2 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

Legislative Update

On Tuesday, August 1st, Senator Cory Booker (D-NJ) introduced the twenty-fourth cannabis reform bill. The bill has yet to be assigned a number or referred to committee, but it is called the Marijuana Justice Act of 2017, and makes some interesting contributions to the lineup of reform proposals.

Sen. Cory Booker (D-NJ)
Photo: Nick Fisher, Flickr

For legalization purposes, the bill both removes cannabis from the CSA and removes prohibitions on importing and exporting. The above analysis for descheduling and import/export would apply to Booker’s bill in the same way. The interesting twist thrown in is how criminal and racial justice objectives are linked to incentives for states to legalize. The ultimate decision to legalize or not in a given state will continue to be the prerogative of each state, but the catch is that if a state does not legalize cannabis and the number of arrests for cannabis offenses in that state disproportionately impacts minority or low-income citizens, then the federal government will pull funding it provides to that state for criminal justice-related programs. This could push more states who would otherwise not legalize onto the reform bandwagon. Such states will have to pit how much they value federal funds against how much they value criminalizing cannabis. If the former outweighs the latter, policy logic will dictate that they legalize. Updates on this bill, and movement on any others, will be tracked by CIJ.

For the next piece in this series, we will review the bills currently pending in Congress that cover medical cannabis reform and banking/tax reform. Stay tuned for the latest on what’s happening around Capitol Hill and in federal cannabis policy circles.

What Does The Constitution Have To Say About Cannabis Legalization?

By Brian Blumenfeld, J.D., M.A.
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With the Trump Administration sending mixed signals on legal cannabis, and with Congress beginning to ramp up efforts for reform, in order for industry stakeholders to best understand where we are headed, it will be helpful to remember how we got here. As readers may be aware, the current status of federal cannabis law can be traced back to the legislative prong of Richard Nixon’s War on Drugs. His Controlled Substances Act of 1970 (CSA) made it a federal crime for anyone to use or possess any amount of marijuana anywhere in the U.S. Current federal cannabis policy, on the other hand, complicates the matter, and can be traced back to a memorandum issued in 2013 by then-Deputy Attorney General James M. Cole. The Cole Memo instructed U.S. attorneys general in states that have legalized marijuana to use their limited resources in prosecuting CSA offenses only if they violated specific federal enforcement priorities. The highest of these priorities include diverting legal marijuana business revenues to illegal drug operations, transporting marijuana over state lines, making marijuana accessible to minors, and growing marijuana on federal lands. The problem is that the Cole Memo is only a policy, it is not law; and so not only can the current administration unilaterally change it whenever it wants, but state-legal cannabis businesses, their employees and customers are breaking federal law every single day!

Former Deputy Attorney General James M. Cole
Photo: Shane T. McCoy

This is a very unusual situation to be in for both the states and the feds, and it raises two basic constitutional questions: What gives the feds the right to make cannabis illegal everywhere in the U.S.? And how can states simply defy the prohibition?

The first question was in fact answered by the U.S. Supreme Court in 2005 when two California women (Diane Monson and Angel Raich), both with very serious illnesses, sued the federal government for confiscating their state-legal medical cannabis. The feds defended their actions by claiming that the Constitution’s Commerce Clause gave them the authority to march into California, march into the homes of these women, and enforce the CSA. Diane and Angel argued that the Commerce Clause only gives the feds the authority over interstate commerce; and since their cannabis was grown by themselves, used by themselves, never bought or sold, or transported out of the state, it was therefore wholly intrastate cannabis and had nothing at all to do with interstate commerce. The Court sided with the feds, ruling that even though the cannabis was intrastate, when you take all intrastate cannabis activity like that and add it together, it will have a substantial impact on the interstate cannabis market. Because of that connection it was ‘necessary and proper’ for the feds to enact the CSA and enforce it anywhere in the country they wanted. Although there is still much debate over this ruling, it remains the law of the land to this day.

United States Constitution
Photo: National Archive

Fast forward to 2014. The states of Nebraska and Oklahoma sued Colorado claiming that by legalizing marijuana, Colorado was violating federal law under the CSA. Because federal law overrides state law when they conflict, then Colorado’s cannabis laws must be struck down, or so they argued. In response Colorado took a very interesting position that built on the hard realities of the cannabis market. It is best to explain it in four parts. First, they cited the fact that the federal government lacked the resources to enforce the CSA, a claim which the feds have admitted to themselves. Second, Colorado pointed to a constitutional doctrine called ‘anti-commandeering’, which says that they have no obligation to criminalize cannabis at all. If the feds want to make it a federal crime, that is one thing; but that does not mean CO must make it a state crime as well. Third, Colorado said that by regulating cannabis as extensively and strictly as they have done, they are reducing the amount of cannabis activity compared to not regulating it at all. Taken together, this means that because Colorado does not have to criminalize cannabis, and because the federal government cannot enforce their own criminalization, then Colorado is actually helping out the feds by regulating the drug instead of allowing for a free-for-all under state law.

The Congressional Cannabis Caucus Announced

In March of 2016 the Supreme Court declined to hear the case in full or issue an opinion, which had the effect of giving a default victory to Colorado. Among political and legal commentators the speculation is that enough justices on the Court either agreed with the logic of Colorado’s position or wanted to wait for this federal-state controversy to be worked out by Congress. Because it was only a default victory, the constitutional status of the legal cannabis industry remains on unprecedented and unstable ground. The Controlled Substances Act has not yet been found to preempt state law, so cannabis businesses are still able to operate legally in their state. But because the CSA still applies to everyone, they do so at the whim of the Trump Administration’s policy preferences. The confusion that this presents has put cannabis businesses in many difficult situations, and it serves as the legal backdrop for such familiar problems as access to banking and contract enforcement.

Currently, legislative and judicial fixes are in motion. Related cannabis litigation is pending in federal court at the 10th Circuit Court of Appeals in Denver. And a Cannabis Caucus has formed in the U.S. Congress to address the shortcomings of the CSA. In the coming articles we will explore both of these routes to reform, the likelihoods of various possible outcomes, and the impact they will have on the legal cannabis industry.

Editor’s Note: For readers interested in learning more about this topic click here for Brian’s research article published by the Virginia Journal of Social Policy & the Law