Federal law and policy

Recreational marijuanaWhite House Press Secretary Sean Spicer spoke today at a press conference on how he expects the Department of Justice to handle state-legal marijuana in America. In response to a question on how the Trump Administration will handle recreational marijuana, Spicer had this to say:

Well I think that’s a question for the Department of Justice . . . I do believe you’ll see greater enforcement of it. Because again there’s a big difference between the medical use … that’s very different than the recreational use, which is something the Department of Justice will be further looking into.”

There’s a big difference between [medical marijuana] and recreational marijuana, and I think when you see something like the opioid addiction crisis blossoming in so many states around this country, the last thing we should be doing is encouraging people. There is still a federal law that we need to abide by when it comes to recreational marijuana.”

Regardless of Spicer’s factually wrong take on the relationship between marijuana and opioid use, marijuana industry folks should not fret just yet.  Out of everything Spicer had to say, the key point is that marijuana enforcement falls on the Department of Justice and Attorney General Jeff Sessions. The job of the Press Secretary is “to act as spokesperson for the executive branch of the United States government administration, especially with regard to the President, senior executives, and policies” and the fate of the marijuana industry is not going to be decided in one White House press conference by the White House Press Secretary. The Department of Justice has so far declined to comment on Spicer’s briefing. It also bears mentioning that the Cole Memo setting out how the Department of Justice will treat state-legal marijuana (both medical and recreational) is still alive and well.

The bottom line. Though it is certainly unsettling to listen to Spicer predict increased enforcement of recreational marijuana businesses and to use stupid opium trope to boot, it is not time to lose heart or cash out. Will the jobs-focused Trump Administration really want to shut down cannabis businesses in multiple states and add a slew of hard-working people to the unemployment rolls? I don’t think so, but of course only time will tell.

 

California cannabis lawyerLast week, California lawmakers introduced a new bill to increase protections for California cannabis businesses from federal persecution. The timing couldn’t be better as a new president and incoming federal administration have many in the cannabis industry concerned about the future of legal marijuana in the United States.

California Assembly Bill 1578 would prohibit California state and local agencies from taking certain actions and assisting federal agencies in enforcing federal law against marijuana businesses for medical or recreational cannabis activities authorized under California law.

The prohibited activities would include:

  1. Using agency money, facilities, property, equipment, or personnel to assist a federal agency to investigate, detain, detect, report, or arrest a person for commercial or noncommercial marijuana or medical cannabis activity authorized by law in the State of California.
  2. Responding to a request made by a federal agency for personal information about an individual who is authorized to possess, cultivate, transport, manufacture, sell, or possess for sale marijuana or marijuana products or medical cannabis or medical cannabis products, if that request is made for the purpose of investigating or enforcing federal marijuana law.
  3. Providing information about a person who has applied for or received a license to engage in commercial marijuana or commercial medical cannabis activity pursuant to MCRSA or AUMA.
  4. Transferring an individual to federal law enforcement authorities for purposes of marijuana enforcement or detain an individual at the request of federal law enforcement for conduct legal under state law.

State and local agencies would only be allowed to take these actions if they receive a court order signed by a judge. Thus, AB 1578 would protect California cannabis businesses that are operating legally in the state from being handed over to federal law enforcement unless a judicial exception is made.

The bill is similar to other legislation proposed by California lawmakers and signed into law by California Governor Jerry Brown in September of last year. In Assembly Bill 2679, California lawmakers provided guidance for cannabis manufacturers currently operating in the state to increase their protection against misguided raids by local law enforcement. Then, under Senate Bill 443, California lawmakers revised the state’s asset forfeiture laws to reduce the risk of unfair property seizure by state and local law enforcement. SB 443 prohibits state and local law enforcement from transferring property seized under state law to a federal agency and also requires state agencies obtain a criminal conviction to receive a share of federally seized property or to recover their expenses.

If approved and signed into law, AB 1578 would be a good step to ensuring California cannabis businesses and consumers that the state of California is behind them and that it will not allow the federal government to interfere with their licensed and compliant cannabis businesses, at least not by providing the help of any state or local agencies.

Marijuana Cannabis and the DEA

The Drug Enforcement Administration (DEA) has made many a dubious claim about cannabis over the years. For this reason and countless others, our cannabis lawyers have consistently called to disband the DEA, believing it past the point where it can be redeemed. The good news it that the DEA took a hit last week for having posted false claims about cannabis.

In December 2016, the nonprofit medical marijuana advocacy group, Americans for Safe Access (ASA) formally requested the DEA either remove or correct misinformation regarding cannabis on the DEA’s website. ASA made its claims under the federal Information Quality Act, which ensures “the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies.” ASA contends that the DEA failed to meet the Information Act’s and the ASA’s executive director explained why it was challenging the DEA on its inaccurate marijuana claims:

For years, the DEA has published scientifically inaccurate information about the health effects of medical cannabis, directly influencing the action —and inaction— of Congress. We are simply taking the DEA’s own statements, which confirm scientific facts about medical cannabis, and analysis that has long been accepted by a majority of the scientific community. Our request is simple: the DEA must change its public information to better comport with its own expressed views, so that Congress has access to the appropriate tools to make informed decisions about public health. Alternatively, ASA requests that the DEA simply remove the inaccurate statements or the documents in their entirety.

ASA’s take-down request focused on “The Dangers and Consequences of Marijuana Abuse,” an article available on the DEA’s website that contained 25 allegedly inaccurate statements, including the following:

  • “Marijuana use can worsen depression and lead to more serious mental illness such as schizophrenia, anxiety, and even suicide.”
  •  “Marijuana takes the risks of tobacco and raises them. Marijuana smoke contains more than 400 chemicals and increases the risk of serious health consequences, including lung damage.”
  • “Teens who experiment with marijuana may be making themselves more vulnerable to heroin addiction later in life, if the findings from experiments with rats are any indication.”

The ASA pointed out that the DEA itself had contradicted many of these 25 claims in a DEA report from August 2016 on its decision not to initiate proceedings to reschedule marijuana, including the following:

  • “At present, the available data do not suggest a causative link between marijuana use and the development of psychosis.”
  • “The HHS concluded that new evidence suggests that the effects of smoking marijuana on respiratory function and cancer are different from the effects of smoking tobacco.”
  • “The HHS cited several studies where marijuana use did not lead to other illicit drug use. Two separate longitudinal studies with adolescents using marijuana did not demonstrate an association with use of other illicit drugs.”

By using the DEA’s own research against it, ASA forced the DEA into a corner where it had to either disavow its August 2016 report or admit that its website was incorrect. By removing the offending page, the DEA chose the latter.

Count one for the good guys.

 

Marijuana cannabis potPresident Trump’s actions have sparked massive activist energy from progressives. His Executive Order on immigration created waves of protests at cities and airports across the country. Those protests have been significant in getting lawmakers that oppose Trump’s actions to take stands where possible. Without massive protests, Washington’s Attorney General Bob Ferguson may never have brought the case that put a temporary stand to the immigration executive order. The protests may also have had a chilling effect on new executive orders that would generate more protests, including one order that would have curbed LGBT rights that appears to have been scrapped. Basically, the activism appears to have had some impact.

What will it look like if the Trump Administration goes after cannabis?

With the confirmation of Jeff Sessions as Attorney General, we now have an ardent pot critic in charge of our country’s law enforcement apparatus. Because of the Rohrabacher Amendment, the Department of Justice cannot use resources to interfere with state implementation of medical marijuana laws, which includes medical marijuana businesses at least in the Ninth Circuit. However, recreational states such as Washington, Oregon, and Colorado could be targeted if Sessions and Trump decide to make this an issue.

If they do decide to go hard after recreational marijuana, with either a general notice or targeted civil actions or even criminal law enforcement actions against cannabis entrepreneurs, what will the public reaction be? It isn’t automatic that legal changes a majority of Americans oppose will lead to massive reaction and protesting. The administration has appointed someone to the Federal Communications Commission who threatens the open internet we have today and would like to replace it with a system where internet service providers can curate content. Yet, there have been no protests or even much public opposition by political leaders against this appointment. Net neutrality as a concept is very popular, but it does not provide the same energy spark as civil rights, LGBT rights, or immigration.

One of the best ways to prevent an attack on the rights of states to treat marijuana how they see fit is to convince federal officials that marijuana issues will spark the same kind of energy as the refugee ban. This means that people who don’t care at all about cannabis as a product have to get involved. There were tons of people involved in the immigration protests that have probably never known a Syrian refugee or Iraqi immigrant, but they protested because Trump’s immigration order struck them as un-American.

In the same way, using federal law enforcement authority to attack businesses and individuals that are fully compliant with a marijuana state regulatory system is deeply un-American. It has never been the job of the federal government to involve itself in intrastate issues unless it is trying to protect civil rights or voting rights. Every success the federal government has had at the intrastate level has been to curb discrimination and protect the rights of workers, voters, and others against state actions that violate federal law or the constitution. Federal action against intrastate activity outside of those types of issues has been seen as brazen overreach.

If we grant that public reaction and public protest is a real check on federal authority, then people who care about cannabis rights must place the issue within the framework of fundamental American values. Only through that structure, and through adoption of that structure by people who are not cannabis users or business owners, will there be enough potential or actual public backlash to avoid the administration upending the current cannabis status quo.

Cannabis real estate lawyersSince licenses to grow, process, or sell cannabis are usually tied to a specific real property location, it is not surprising that cannabis businesses often need real estate help. The following are some basic points we try to convey to our cannabis clients about real estate in a cannabis context.

1. Location. Location. Location. Choosing the right location is important for any business, but this is especially true for a cannabis business. Finding a suitable and state-and-local-law-compliant location for a marijuana business can be difficult. Most states, cities, and counties limit where marijuana businesses can physically operate. States and cities often require cannabis businesses be at least 1,000 feet away from schools and parks because federal criminal law sentencing guidelines tack on extra sentencing time for cultivating, processing, or distributing cannabis within 1,000 feet of a school or park. Local zoning laws can also significantly restrict location options and these can vary greatly from local government to local government. Regulations that limit the number of cannabis stores or grow sites allowed in a given county are also common, as are moratoriums and outright bans.

2. Find a Landlord With Whom You Can Work. Most commercial landlords will not rent out their space to a cannabis business. Because cannabis remains illegal under federal law, landlords can face arrest for violating the federal Controlled Substances Act or, more realistically, losing their property via a civil asset forfeiture. Look what happened to the landlord in the Harborside case. The landlord-tenant relationship can be strained if the landlord is not informed of the nature of the tenant’s business and the risk associated.

3. Make Sure Your Lease Works for the Cannabis Industry. “Boilerplate” lease agreements do not work for cannabis businesses. For example, the typical Commercial Broker’s Association lease states that any illegal activity on the property will constitute a lease default. We usually write our commercial marijuana leases to forbid only those actions that violate state law and federal law with the exception of the federal Controlled Substances Act. Commercial leases also typically contain a provision governing the activities permitted on the leased property. If the tenant is a marijuana retailer, the permitted use provision should explicitly permit the “retail sale of marijuana.” Leaving the permitted use provision vague only increases the chances of the cannabis business tenant being found in breach of the lease for having conducted an activity not permitted on the property.

4. Know Your Property. Our cannabis real estate lawyers are far too frequently brought in on long simmering real estate deals only to have to tell both sides that there will need to be major changes in the deal points for the deal to work at all. Before getting too far down the negotiating path, it is wise to at least secure a real property report. These reports will show ownership history, encumbrances (such as mortgages) on the land, and any easements or other restrictions on property use. For example, if there is an unpaid mortgage on the land, the holder of that mortgage can foreclose on the property, even though the current owner was not the one who entered into the transaction. Even a tenant who is not purchasing the property should be informed of the property’s history and the risks associated with that property.

For more on cannabis and real estate, check out the following:

Cannabis exportsIsrael is moving toward authorizing the export of medical marijuana. Israel is an example of how advanced a market can get with a relatively small number of potential customers. With only around 23,000 patients, Israeli’s medical marijuana businesses have thrived, benefiting from the country’s open approach to research, unlike in the United States. So, how will potential Israeli exports affect markets in the United States?

Countries can regulate trade on two fronts — outgoing goods (exports) and incoming goods (imports). On the export side, countries will generally have limits or bans on the export of munitions or military items, items that have military applications, and items intended to go toward countries or individuals that the U.S. has designated under its sanctions regime. For imports, countries will generally track what is coming in for customs purposes to levy import duties and will require proof of licensure for the import of regulated goods that require licenses to possess. Israel may allow the exports, but it doesn’t mean that the United States will allow the imports. Because marijuana is still a controlled substance that is illegal to possess without permission from the DEA, medical marijuana patients in the United States likely won’t be able to import marijuana for their own use.

But for researchers, access to Israeli medical marijuana strains would be a huge boon. For years, the only marijuana researchers can use has been controlled by the National Institute on Drug Abuse at a licensed facility at the University of Mississippi. This has been a problem because NIDA’s Mississippi marijuana has often been found by researchers to be of inferior quality, and many research projects have ground to a halt after receiving all required licensing and permits because the NIDA facility simply didn’t have the type of marijuana that needed to be researched. In August, the DEA announced a new policy that would potentially expand the list of permitted facilities for the cultivation of cannabis for research. In that policy statement, the DEA used the Single Convention on Narcotics to provide it some cover for its continued limitations on cannabis growing for research. The primary limitation for those permitted by the DEA to cultivate marijuana is that they receive written permission from the DEA each time that they distribute marijuana.

The DEA continues with these limitations for a number of reasons as we have discussed here and here. But the DEA’s best arguments for its ongoing limitations are based on the U.S.’s obligations under the Single Convention. Articles 23 and 28 of the Single Convention make clear that countries that allow cultivation of cannabis for research purposes must ensure that research marijuana not be diverted to the illegal market. This is only a problem for the DEA domestically when the cultivation is in the United States, though. If the DEA licenses importers, only a limited quantity of marijuana comes into the United States, and protection against diversion from the grow operation is the problem of the exporting country.

The DEA has authorized importation before. In December 2015 it granted Catalent CTS, LLC of Missouri a registration to import “finished pharmaceutical products containing cannabis extracts in dosage form for clinical trial studies.” These imports would presumably be from GW Pharmaceuticals, which has a massive facility in the United Kingdom.

But Israel’s medical marijuana cultivators have a strong reputation around the world, and researchers will be eager to run trials with strains of cannabis they cannot get anywhere else. It will take some time for Israel to move the marijuana export allowance through its legislature (it has only been voted out of committee), but don’t be surprised if a number of U.S. based researchers start applying to the DEA for import permits and start getting their cannabis from Israel.

The future of the cannabis industry under President Trump remains hazy and Judge Neil Gorsuch’s Supreme Court nomination does little to clear the fog. Judge Gorsuch currently serves on the 10th US Circuit Court of Appeals. Though he is a native of cannabis-friendly and uber-liberal Boulder, Colorado, he is himself a conservative judge. As far as we can tell, he has never publicly opined on cannabis legalization, but he has authored a few opinions relating to cannabis that give at least a hint at his stance on cannabis.Neil_Gorsuch_10th_Circuit

In US v. Daniel and Mary Quaintance, defendants were indicted on federal charges of conspiracy and possession with intent to distribute cannabis. The Quaintances claimed protection under the Religious Freedom Restoration Act which prohibits the federal government from “substantially burdening” sincere religious exercise. The Quaintances argued that marijuana was a sacrament at their church and therefore their use cannabis use was legally protected.

The District Court denied the defendants’ motion to dismiss. Judge Gorsuch upheld the lower court’s ruling because “extensive evidence” showed that “the Quaintances’ professed beliefs are not religious but secular” and that the facts indicated “that the Quaintances don’t sincerely hold religious beliefs they claim to hold, but instead seek to use the cover of religion to pursue secular drug trafficking activities.” My reading of this case says that most judges would have ruled the same way, based on the facts.

In Family of Ryan Wilson v. City of Lafayette and Taser International, Judge Gorsuch held lawful a Colorado police officer’s fatal use of a Taser on a man fleeing a cannabis arrest. Judge Gorsuch acknowledged that the manufacturing and processing of marijuana may not be “inherently violent crimes” but that the officer was justified in assuming that a person illegally growing marijuana may be armed and so the officer was also justified in using a Taser. Yes, a person illegally growing marijuana may be armed, but so may anyone else. Judge Gorsuch’s ruling in this case seems to indicate he does not have a particularly good view of those who grow cannabis, at least illegally.

Feinberg et al. v. IRS provides the most insight into Judge Gorsuch’s thoughts on legal cannabis. In this case, a Colorado dispensary argued that Fifth Amendment protections allowed them not to report data to the Internal Revenue Service. The Fifth Amendment shields individuals from testifying to criminal activity likely to lead to prosecution. The petitioners argued that marijuana production and distribution is a crime under federal law and by reporting their marijuana business activities to the IRS they would be inviting federal prosecution. Though Judge Gorsuch ruled against the petitioners, his written analysis did not embrace the federal government’s often perplexing stance on marijuana.

Judge Gorsuch acknowledged that the federal government sends a “mixed message” on legal cannabis, with the Department of Justice instructing prosecutors not to enforce federal law in states like Colorado but with the IRS refusing to recognize business expense deductions for marijuana businesses because their conduct violates federal law:“[s]o it is that today prosecutors will almost always overlook federal marijuana distribution crimes in Colorado but the tax man never will.”

Judge Gorsuch also noted the government’s inconsistent argument as to why marijuana businesses are both illegally and yet cannot claim Fifth Amendment protection for tax purposes:

Yes, the Fifth Amendment normally shields individuals from having to admit to criminal activity. But, the IRS argued, because DOJ’s memoranda generally instruct federal prosecutors not to prosecute cases like this one the petitioners should be forced to divulge the requested information anyway. So it is the government simultaneously urged the court to take seriously its claim that the petitioners are violating federal criminal law and to discount the possibility that it would enforce federal criminal law.

Finally, and now that Trump has selected Jeff Sessions as his AG, prophetically, Judge Gorsuch noted the shaky legal footing under which the cannabis industry has flourished:

It’s not clear whether informal agency memoranda guiding the exercise of prosecutorial discretion by field prosecutors may lawfully go quite so far in displacing Congress’s policy directives as these memoranda seek to do. There’s always the possibility, too, that the next…Deputy Attorney General could displace these memoranda at anytime.”

Judge Gorsuch is only 49 years old, meaning his lifelong tenure on the highest court could span decades and will almost certainly involve a cannabis case or two. Though the above cases reveal very little about Judge Gorsuch’s position on cannabis, his overall judicial philosophy may bode well. He is a strict constructionist when it comes to interpreting our Constitution and strict constructionists tend to favor states’ rights. If Judge Gorsuch does indeed favor states’ rights, as we suspect, this should mean that he will have no problem with individual states (as opposed to the Federal Government) deciding on their own cannabis laws.

Let’s hope so.

Cannabis Marijuana pot weedThe world of cannabis has been abuzz since November with anxiety over what a Trump administration could mean for the industry and the future of state- and federal-level cannabis reforms. This was only made worse by the nomination of notoriously anti-marijuana senator Jeff Sessions as Attorney General. Following his party-line approval by the Senate Judiciary Committee yesterday, Sessions is likely to be confirmed by the full Senate by a similar vote in short order. Though hope springs eternal, some in the cannabis industry are bracing for the worst and looking for ways to ensure the rapidly growing industry’s does not go to pot (pun intended) under Trump.

One recent source of optimism is last week’s announcement that Boulder County, Colorado, District Attorney Stan Garnett will be part of a group of prosecutors advising the Trump administration on marijuana policy. The group – comprised of 14 district attorneys, including some from weed-friendly states California and Oregon – is part of the National District Attorneys Association, a prosecutor and criminal justice policy think tank. Advocates for relaxed marijuana laws hope Garnett’s appointment foreshadows a group that will be a voice of reason to the administration and a force against rolling back marijuana reforms in legal states.

Yet it remains unclear exactly what role the NDAA group will play in advising the administration and how its cannabis agenda will take shape. After all, in discussing his selection, Garnett (who is also Colorado’s NDAA state director) remarked that he “always end[s] up on the more liberal position than anyone else, particularly on marijuana.” This observation is borne out by a report entitled “Policy Positions on Control and Enforcement” adopted by NDAA in 2005. Though dated, it reflects NDAA’s most recent official positions on cannabis reforms – and it is not a pretty picture.

In the report, NDAA states that it “opposes the legalization of illicit substances” and notes that it “specifically opposed” California’s 1996 legalization of medical marijuana. It goes on to state that NDAA “opposes the opposition of any state legislation or adoption of voter initiative that legitimizes and legalizes the ‘medicinal use’ of marijuana.” NDAA also alleges in the report that the cannabis reform movement’s “strategy is to legalize all illicit drugs” using “the sick and dying as pawns” and “myths” that cannabis is not harmful, among other claims. One might assume that the NDAA’s position likely evolved in the intervening years, but, according to Garnett, the group’s first meeting saw some prosecutors urge that the governor of every medical and recreational cannabis state be sent a letter demanding closure of all cannabis businesses in 90 days. Garnett, to his credit, “was not shy” about denouncing the idea, but one must wonder how much one or even a small contingent of forward-thinking committee members can affect institutional policy.

Let’s face it people, prosecutors are not generally friendly to cannabis.

It also appears the group’s role and influence in the Trump administration has been overhyped. As reported by Leafly, the Director of Policy and Government affairs at NDAA said in a statement that “[c]ontrary to other reporting, the working group is not affiliated with any other organization or entity, including the incoming administration.” So do not get your hopes up that some pro-cannabis Justice League of prosecutors is about to save the day if Sessions decides to crack down on weed.

It is undoubtedly a positive development that Garnett and other pro-cannabis reform prosecutors are in a position to help shape an important trade group’s position on marijuana. But, industry stakeholders and advocates should temper their expectations for the impact and direction of the NDAA taskforce.

Like pretty much everything else related to cannabis and the Trump administration, the safest stance is probably wait and see.

Cannabis regulatory lawyersIn December 2016, the DEA issued a rule defining “Marihuana Extracts” to include extracts “containing one or more cannabinoids from any plant of the genus Cannabis.” This rule went into effect on January 13, 2017. That same day, The Hemp Industry Association, Centuria Natural Foods Inc., and RMH Holdings LLC filed a petition with the US Court of Appeals for the Ninth Circuit challenging that DEA rule.

The Controlled Substances Act is a federal law that determines what substances are illegal drugs. Congress authorized the Department of Justice to add and remove substances to the Controlled Substances Act (CSA), and the DOJ has delegated that authority to the DEA. The DEA promulgated the “Marihuana Extract” rule pursuant to that grant of authority, meaning that products the DEA defines as fitting the “Marihuana Extract” definition are illegal substances.

Rules can have a similar effect as laws but if a rule conflicts with a law, the law will prevail. In other words, Congressional laws that conflict with a DEA rule should outweigh the DEA rules. The Petitioners who are appealing the DEA rule are arguing that the “Marihuana Extract” rule outlaws parts of the cannabis plant that Congress specifically made legal in the CSA and in the 2014 Farm Bill.

Congress placed marijuana on Schedule I of the CSA and defined it to include all parts of the plant Cannabis sativa L., except the mature stalks of the plant and seeds incapable of germination. Stalks and products derived from those stalks are not illegal because they are not marijuana. This distinction allowed for legal production of hemp products even though marijuana remains federally illegal. The 2014 Farm Bill also allows states to implement programs to legally grow industrial hemp. “Industrial hemp” is defined to mean “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

Prior to the “Marihuana Extract” rule, only one cannabinoid was explicitly named in Schedule I of the CSA: THC which is known for causing marijuana’s euphoric “high.” Other cannabinoids, like CBD, were not specifically prohibited. This meant products derived from mature stalks of cannabis that did not contain THC were arguably legal as no part of that product was prohibited by the CSA. Now those same products are illegal because they contain other cannabinoids that are now defined as controlled substances according to the “Marihuana Extract” definition. The definition also applies to industrial hemp grown pursuant to the Farm Bill. The Petitioners who are appealing to the Ninth Circuit argue that the DEA’s rule is inconsistent with the CSA and the Farm Bill and that the court should therefore find the rule invalid.

Petitioners also argue that the DEA failed to comply with the Administrative Procedure Act in creating this rule. In addition to complying with the CSA, the DEA must also follow the Administrative Procedure Act, which essentially sets forth the procedures governmental bodies must follow in enacting new rules. The Petitioners argue that under the APA the “Marihuana Extract” rule invalid as it:

  • Is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with other law (such as the Farm Bill and the CSA);
  • Is unconstitutional;
  • Exceeds the DEA’s statutory authority; and
  • Was created without following necessary procedures.

This is not the first time the DEA has faced legal challenges for interfering with legal hemp. In 2001-2003 the DEA attempted to treat hemp food products as Schedule I substances because they contained trace amounts of THC. The Ninth Circuit Court of Appeals ruled that the presence of THC does not alone make a product a controlled substance. Petitioners plan to use this ruling to assert that cannabinoids that occur in legal portions of the cannabis plant are not controlled by the CSA and may not be regulated as marijuana by the DEA.

Since the DEA issued this rule my firm’s cannabis regulatory lawyers have received a daily stream of calls from businesses wanting to know whether the CBD products they are producing, selling or buying are now illegal. Specifically, most of these callers want to know whether products containing CBD that are derived from hemp and do not contain THC are still legal. At this point, the jury (or really the judge) is still out and we — like everyone else — will be waiting to see how the courts rule.

California CannabisOn January 18, 2017, California state regulators attended a cannabis event in Sacramento to discuss cannabis policy and what lies ahead for California. Though previous reports indicated that California cannabis licensing could be delayed for an additional year, state regulators at the event promised a licensing program would be operational by January 1, 2018.

Lori Ajax, the Chief of the California Bureau of Medical Cannabis Regulation (soon to be renamed again to the Bureau of Marijuana Control under Proposition 64), told the audience:

We will not fail. We will make this happen by Jan. 1, 2018, because we have to […] It may not be pretty. But we will get there.”

Since Prop 64 passed last November, California regulators are now in charge of crafting comprehensive regulations and issuing state licenses to not only medical marijuana businesses but to recreational cannabis businesses as well. This includes 17 license types for medical businesses and 19 licenses types for recreational businesses, covering cultivation, manufacturing, retail dispensaries, distribution, testing, and transportation. The authority to regulate and license these cannabis businesses is divided among ten California state agencies.

The California Department of Food and Agricultural will oversee cannabis cultivation activities, and it created a new division, the CalCannabis Cultivation Licensing program, to issue permits and develop regulations for cultivators, including setting up a track and trace system for all cannabis plants that enter the California market. Amber Morris, a branch chief for CalCannabis Cultivation Licensing, was also in attendance at the event in Sacramento and she said that California state departments are working with economists to create a tiered permit fee program that will assign fees to cannabis cultivators based on the size and scale of their businesses.

A big challenge faced by state regulators is the lack of banking available to cannabis businesses and affiliated companies. Ajax expressed her hope that there would be some clarity on the matter by the time state licenses are issued, stating that banking is “a challenge for us, too. As we set up our online permitting system, we would like to accept credit cards. We don’t want to have to accept wads of cash.”

The banking issue has been high on the mind of California lawmakers, as we get closer to statewide regulation. In December, California Treasurer John Chiang wrote a letter to President Donald Trump seeking guidance ahead of California’s licensing program. In his letter, Chiang wrote that the new program could “exacerbate” the banking problem because California’s cannabis economy will be so large.

Due to federal prohibition on marijuana and anti-money laundering regulations issued by the Financial Crimes Enforcement Network (FinCEN), banks are reluctant to work with cannabis businesses. The banking challenge is not unique to California and it affects businesses in legal marijuana states across the United States. Several U.S. senators sent a letter to FinCEN in December asking for more guidance and explaining how the dearth of cannabis banking promotes tax fraud and creates a public safety issue because cannabis businesses are forced to deal in large amounts of cash.

Under the new California cannabis licensing program, state agencies will need to collect fees from licensed cannabis businesses. Yet most of these agencies have only one office — in Sacramento — which means anyone paying their fees in cash will need to carry that cash with them all the way to the capitol. To address this issue, California legislators recently introduced new legislation to increase the number of government offices that can accept payments from cannabis businesses for state fees and taxes. The legislation, known as the Cannabis Safe Payment Act, is sponsored by the Board of Equalization (BOE), which has been collecting sales tax from California medical marijuana businesses since 1996.

The BOE currently accepts payments in cash from cannabis businesses at its 22 offices across the state. However, to reach these offices, many California cannabis cultivators have to travel great distances with “bags of cash” in their cars, which BOE Chairwoman Fiona Ma agrees “is not the safest method of paying your taxes.” Thus, Ma states that the BOE’s “priority has to be increasing safety—for the business owner, the public, law enforcement, and state employees by enabling cannabis businesses to pay their taxes and fees in as many a safe and secure locations as possible.” Under the Cannabis Safe Payment Act, California counties that receive approval by board of supervisors and tax collectors will be able to accept cash payments from local cannabis businesses on behalf of the BOE and other state agencies.

With promises from the Marijuana Bureau to begin issuing state licenses by January 1, 2018, collaboration from state agencies to develop regulations and set permit fees, and efforts from state lawmakers to alleviate banking challenge, California legislators are showing they are hard at work creating a viable state licensing program for cannabis businesses. For cannabis businesses planning to take advantage of California’s new cannabis program, a lot of work lies ahead and you should start preparing now.