Cannabis attorneysMarijuana is a valuable asset and insurance can be a necessary tool in protecting that investment. We have written about how marijuana inventory can be covered under a general liability insurance policy. However, not all courts are willing to hold that an insurance policy covers cannabis.

In USAA v. Tracy (D. Haw. Mar. 16, 2012), a US District court in Hawaii ruled that a homeowner’s insurance policy does not cover medical marijuana. On May 18, 2010, USAA Casualty Insurance Company issued Barbara Tracy a homeowners’ insurance policy. Tracy was a medical marijuana patient who was permitted under Hawaiian state law to possess and grow marijuana. A thief stole 12 of Ms. Tracy’s marijuana plants, valued at $45,600, from Tracy’s property and she submitted a claim to USAA. USAA made an initial payment on the claim but Tracy argued that the amount was insufficient. USAA informed Tracy it would not make any further payment on the policy. Tracy sued USAA for breach of contract, seeking additional funds for the stolen cannabis plants. USAA moved for summary judgment to have Tracy’s claim dismissed, arguing that her marijuana was not covered under her policy.

USAA’s policy covered theft of “trees, shrubs, and other plants” and Tracy argued that this should include her marijuana plants. USAA first contended that Tracy did not have an insurable interest in medical marijuana. Hawaiian Law defines an insurable interest to be any “lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage.” USAA argued that an interest in medical marijuana is not “lawful” because Hawaii’s medical marijuana law “does not legalize the medical use of marijuana, but provides an affirmative defense to marijuana-related state law crimes for the medical use of marijuana.” USAA also pointed to the fact that Hawaii’s medical marijuana law states that “this part shall not be construed to require insurance coverage for the medical use of marijuana.” The court rejected both arguments by determining that Hawaii does permit the use of medical marijuana, making it lawful, and that although Hawaii’s medical marijuana law did not require insurance coverage, it does not prohibit insurance coverage. The court determined that Tracy did have an insurable interest in marijuana as legally compliant medical marijuana user.

However, the court was persuaded by USAA’s second argument that it could not purchase medical marijuana using insurance proceeds as that would violate federal law. The court cited to cases that established that Hawaiian courts can refuse to enforce contracts that violate federal law. The court ruled Tracy’s possession and use of marijuana violated federal law because it directly conflicted with the federal Controlled Substances Act, even though she was compliant with state law.  The court concluded that the insurance policy purportedly covering her marijuana plants was an illegal contract that could not be enforced and that USAA had no obligation to provide her insurance proceeds for the plants. As a result, it granted USAA summary judgment, holding that it did not owe Ms. Tracy anything more.

For more on insurance and marijuana, please see the following:

hawaiiThis is proving to be a big year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts will analyze one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments. We have finally hit the top ten. The remaining states all have legalized medical marijuana and the criminal penalties in the remaining states range from bad to good, but many have decriminalized the possession of small amounts of marijuana. Today we head to the middle of the Pacific Ocean to cover Hawaii. 

Our previous rankings are as follows: 11. Maryland; 12. Connecticut; 13. Vermont; 14. Rhode Island; 15. Kentucky; 16.Pennsylvania; 17.Delaware; 18. Michigan; 19. New Hampshire; 20. Ohio; 21. New Jersey; 22. Illinois; 23. Minnesota; 24. New York; 25. Wisconsin; 26. Arizona; 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Hawaii

Criminal Penalties. Hawaii punishes possession of less than one ounce of cannabis with a maximum of 30 days imprisonment and a fine of up to $1,000. Possession of one ounce to one pound earns up to a year in prison and a maximum $2,000 fine. Possession of 1-2 pounds earns up to 5 years in prison and a maximum fine of $10,000. The possession of larger amounts are classified as possession with intent to distribute, with the following penalties:

  •  2-25 pounds earns up to 10 years in prison and a maximum $25,000 fine.
  • Over 25 pounds earns up to 20 years in prison and a maximum $50,000 fine.

The sale or distribution of cannabis in Hawaii is punished based on the amount of cannabis, as follows:

  • Less than 1 ounce earns up to 1 year in prison and a maximum $2,000 fine.
  • 1 ounce to 1 pound earns up to 5 years in prison and a maximum $10,000 fine.
  • 1-5 pounds earns up to 10 years in prison and a maximum $25,000 fine.
  • Over 5 pounds earns up to 20 years in prison and a maximum $50,000 fine.

Hawaii lawmakers may soon pass groundbreaking decriminalization legislation. Extract reports that the State recently approved a proposal to study decriminalizing all drugs for personal use. Several states have decriminalized small amounts of cannabis but none have yet decriminalized all drugs.

Medical Marijuana. Hawaii first implemented medical cannabis in 2000, but overhauled the program in 2015 to allow for and to regulate marijuana dispensaries. To participate in Hawaii’s medical cannabis program, Hawaii patients must obtain a written authorization from a physician after being diagnosed with a qualifying condition, include the following:

  • Cancer
  • Glaucoma
  • HIV/AIDS
  • PTSD
  • Cachexia or wasting syndrome
  • Severe Pain
  • Severe Nausea
  • Seizures, including Epilepsy
  • Severe and Persistent Muscle Spasms, including Multiple Sclerosis
  • Crohn’s Disease

Physicians must register the names, addresses, patient identification numbers, and other identifying information of their cannabis patients with the Department of Public Safety. Hawaii recognizes medical marijuana authorizations from other states, but out-of-state cannabis patients must register with the State before purchasing marijuana.

Hawaii cannabis patients may possess up to four ounces of “usable marijuana,” which does not include the seeds, stalks, and roots of the cannabis plant. Hawaii also allows for home-growing of up to seven cannabis plants.

The Honolulu Civil Beat reports that eight companies were selected “to receive licenses to grow and sell medical marijuana: three on Oahu, two in Hawaii County, two in Maui County and one in Kauai County.”  Hawaii medical cannabis dispensaries were permitted to start dispensing cannabis to patients on July 1, 2016, but Hawaii’s medical marijuana program is not yet operational.

Bottomline. Hawaii has relatively light criminal penalties for marijuana possession and it is researching widespread decriminalization of all drugs, not just cannabis. Hawaii’s medical marijuana program shows promise, and recent changes and proposed changes in its cannabis and its drug laws indicate its lawmakers are learning from other states’ models. For these reasons, we rank the Aloha state number ten in our State of Cannabis series.

Cannabis insuranceWith the advent of state-legal cannabis, the businesses that make up the rapidly growing billion-dollar cannabis industry are still having to struggle to secure many professional services non-cannabis businesses obtain as a matter of course – most notably banking. One bright spot for cannabis businesses, however, is insurance. Dozens of insurance companies that cater to the cannabis industry have sprung up in recent years and federal courts have held cannabis inventories is insurable despite federal prohibition.

But, what if you cultivate state-legal marijuana at home for your own use? Will your general homeowner’s insurance policy cover cannabis plants in the event of theft or fire? A number of large insurance providers would tell you the answer is “no,” and federal court decisions do not consistently side with policyholders. Here is what you need to know about the state of the law and factors to consider when approaching the issue of insuring cannabis in your home.

A U.S. District Court in Hawaii ruled in 2012 that the federal prohibition on cannabis meant that a homeowner’s insurance policy did not cover the theft of medical marijuana plants grown in accordance with state law. The policy in question contained an exclusion for coverage of “cocaine, LSD, marijuana and all narcotic drugs,” but included an exception for “legitimate use of prescription drugs by a person following the orders of a licensed physician.” The plaintiff argued that because she had fully complied with Hawaii’s medical marijuana laws, her plants should have been covered under her homeowner’s insurance policy. The court disagreed, concluding that it could not enforce the insurance contract against the insurer because of the Controlled Substances Act and the supremacy of federal law. A more recent case, on the other hand, should give policyholders hope: a 2016 decision in the U.S. District Court in Colorado held in favor of a cannabis business that sought coverage for its cannabis inventory. Like many aspects of state-legal cannabis, however, the insurability of cannabis is likely to remain uncertain and contested and state-by-state until there is reform at the federal level.

So, what should you do to protect yourself and your plants if you grow at home?

  1. Look at your policy and talk to your insurance provider. The terms of a homeowner’s insurance policy can vary, but most include some version of the language above regarding controlled substances and illegal activities. Only your insurance provider can tell you if it considers state-legal cannabis cultivation to violate this clause. Some insurers are more aggressive about enforcing these provisions than others.
  2. Do not become a business. Nearly all homeowner’s insurance policies do not cover business activities. The definition of what that means is not uniform in all jurisdictions, but be especially careful if you are a caregiver cultivating marijuana for someone else or if you sell your excess cannabis supply into state-legal channels.
  3. Stay compliant with state laws. It should go without saying, but be sure to maintain compliance with all state laws. At issue in the case from Hawaii was whether the plaintiff had more than the allowed number of cannabis plants under Hawaii state law. Even if you have a friendly insurer, failing to follow state marijuana laws will be a deal breaker. No insurer will be obligated to cover damage or theft to marijuana plants in excess of state limits.

For more on growing cannabis in your home state, check out the following:

 

Home grown cannabisAs cannabis reform has spread across the United States, it has given birth to a marketplace increasingly driven by business interests. This is the fourth installment in our series looking at how the changing landscape of cannabis policy affects a key group of often-overlooked stakeholders: medical marijuana patients who choose to cultivate their own supply of medicine. Go here for the home grown laws in Washington and Oregon, here for the home grown laws in California and Alaska, here for the home grown laws in Michigan and Illinois, and here for the laws in New York, Rhode Island, and Vermont. Though there are undeniably many benefits to the expansion and professionalization of the commercial cannabis industry, it is also important to account for these small-scale medical marijuana producers that started it all.

This week we look at the laws governing home cultivation of cannabis in Hawaii, Nevada, and New Mexico. These three states’ home grow laws each largely track medical marijuana laws nationally, but demonstrate the inexact legislative science of allowing patients an adequate yet reasonable supply of medical marijuana.

Hawaii. Hawaii first implemented medical marijuana legislation in 2000 and has made reforms a number of times since. Its current patient cultivation laws mirror those of many other medical marijuana states. Qualifying patients may possess an “adequate supply” of marijuana, which is defined as an amount not to exceed four ounces of usable marijuana. Patients and designated caregivers may possess no more than seven cannabis plants at one time. Patients and their designated caregivers can cultivate only at the patient’s residence, at the caregiver’s residence, or at another site owned or controlled by the patient or caregiver. Each cannabis patient can maintain only one grow site and must register the site with state authorities.

Nevada. Nevada first approved medical marijuana in 2001 by voter initiative, removing criminal penalties for users of medical marijuana who have “written documentation” recommending marijuana to alleviate an approved condition. Patients who cultivate cannabis for their own consumption, or their designated caregiver, may possess up to twelve plants. From those twelve cannabis plants, patients are allowed to possess as much as two and a half ounces of cannabis in a two-week period. Patients are allowed to cultivate their own marijuana only if they live more than twenty five miles from the nearest medical marijuana dispensary.

Keep in mind that Nevada has seen movement towards significant additional cannabis reform that voters could approve as soon as November of this year, so these laws may change substantially in the near future.

New Mexico. New Mexico legislators voted to approve medical marijuana in 2007. New Mexico’s laws are fairly patient-friendly, allowing possession of up to six ounces of usable marijuana and four mature plants. In addition, patients may possess twelve seedlings. New Mexico law defines usable marijuana as dried marijuana leaves or flowers, excluding seeds and stalks. Patients may only cultivate marijuana at their own residence or property. Additionally, cannabis patients must apply for a Personal Production License from the New Mexico Department of Health.

Earlier this month, the Hawaii Department of Health issued interim regulations for the state’s new medical marijuana program, just weeks before groups will be submitting their applications for one of eight vertically integrated dispensary licenses. 

As we’ve written before, Hawaii’s medical cannabis program has its quirks. It restricts intrastate transportation of cannabis, which means no cannabis can be transported between Hawaii’s various islands. This will mean that each vertically integrated licensee must do everything on its own — from seed to sale — on their designated island.

Hawaii and Medical MarijuanaHawaii also has established detailed product testing requirements for pesticides, residual solvents, and microbiological heavy metal contaminants. Product testing has become a hot button issue in the Cannabis industry and so it is critical that testing requirements be set just right. 

Hawaii will be setting limits for residual solvents in cannabis extracts. Solvents are used to separate the THC and terpenes from the plant matter, and minuscule amounts can remain in any eventual concentrated cannabis product produced. Hydrocarbon residues found in solvents are potentially harmful to your health, which is why many companies avoid solvent extractions and produce their concentrates using CO2. The problem is that after the extraction process is completed the extraction equipment requires cleaning and degreasing, and many cleaning agents contain hydrocarbons such as hexane. Hawaii’s regulations limit hexane to ten parts per million which may be low enough so that the CO2 extracts could pick up the hexane left over on the extraction equipment and in turn cause the concentrated cannabis products to fail the required tests even though no solvents were used in the extraction process itself. 

Hawaii could also run into issues with its heavy metal contaminant limits. Massachusetts initially set its heavy metal testing requirements so low that many cannabis products failed simply because the plants from which they came contained ambient levels of heavy metals. Hawaii, on the other hand, may have set its heavy metal contaminant limits too high. A leading reference standard—the American Herbal Products Association’s Cannabis Monograph—recommends people consume no more than six to ten micrograms of lead each day. By comparison, the Food and Drug Administration takes regulatory action against children’s candy manufacturers for anything above .1 ppm. Hawaii’s limit for lead is set at six parts per million (6ppm), which equates to six micrograms of lead per gram of product. In other words, a Hawaii cannabis patient could surpass the AHPA’s recommended exposure limit by consuming just one gram of cannabis a day. Because Hawaii’s 6ppm limit applies regardless of the type of cannabis product, someone consuming a heavier cannabis product, such as an oil or a tincture, could potentially ingest several dozen grams of cannabis products each day, blowing well past the recommended exposure limit.

The biggest problem we see with Hawaii’s cannabis testing requirements ties in with its ban on inter-island transport. This ban means that each island is going to need its own testing facility. Detecting six parts per million of lead or ten parts per million of hexane requires expensive, state of the art laboratory equipment, and outfitting a lab with the mass spectrometers and liquid chromatographs needed for this sort of testing could cost several million dollars. In the non-cannabis agricultural product testing world, most samples are shipped across state or even international borders. In Hawaii, however, the restriction on intrastate transportation of cannabis applies to all forms of cannabis, regardless of whether it is finished product intended for sale to patients or samples for laboratory testing. Given the cost of these labs, we are concerned many Hawaii cannabis licensees will have no option for submitting their cannabis to state mandated tests. 

With license deadlines looming, Hawaii cannabis licensing applicants will soon be forced to demonstrate how they will comply with regulations that are virtually impossible to comply with. We are counting on Hawaii’s regulators not allowing the state’s testing rules to clip the wings off Hawaii’s medical cannabis program before it even takes flight. 

Marijuana delivery rules vary greatly and can be very complicated. Businesses that want to offer delivery to consumers must comply with state laws and regulations. Some states, like Washington, have a blanket prohibition against businesses delivering marijuana to consumers. Conversely, Oregon recently announced rules to allow retail deliveries. This post examines how the Alaska, California, Hawaii, and Oregon regulate marijuana delivery.

Cannabis delivery. When it absolutely positively needs to get there fast.
Cannabis delivery: when it absolutely positively must get there fast.

Alaska. Alaska will allow cannabis delivery services, but the regulatory details of cannabis delivery in Alaska remain unclear. Alaska has not yet started issuing licenses for businesses to sell marijuana and its sale remains illegal. The Alaska Marijuana Patrol Board is currently considering rules to regulate the market. Those rules will likely impact how businesses deliver marijuana in Alaska. Until those rules are in place and the state starts issuing licenses for the sale and delivery of marijuana, businesses that deliver marijuana may face criminal prosecution.

For more on Alaska cannabis laws, go here.

California. California recently overhauled its medical marijuana laws by passing of three new bills. Assembly Bill 266  explicitly allows dispensaries to deliver medical marijuana to qualified patients or primary caregivers. However, local jurisdictions still have the ability to prohibit marijuana deliveries and to set the tax rate for delivery transactions.

Only licensed dispensaries are allowed to deliver marijuana and all dispensary employees involved with a delivery must carry a copy of the dispensary’s license, along with a government-issued ID. Additionally, the dispensary must bring a physical copy of the delivery manifest.

For more on California cannabis laws, go here.

Oregon. The Oregon Liquor Control Commission (OLCC) recently issued temporary rules for recreational marijuana that allow Oregon marijuana retailers to deliver marijuana to a residence, but not to “commercial businesses” such as dorms and hotels. Before a retailer begins offering delivery services, it must obtain written permission from the OLCC.

Retailers may only deliver cannabis to an individual who has made a “bona fide order” for it. These orders must include the individual requestor’s name, date of birth, date of delivery, address, amount of marijuana purchased, and a statement that the marijuana is for personal use and not for resale. The delivery person must verify that the individual receiving the delivery is at least 21 years old and is the person who placed the bona fide order. A bona fide cannabis order may be done online.

Retailers are allowed to deliver only between 8:00 a.m. and 9:00 p.m. The recipient of the cannabis must sign a document stating that he or she received the cannabis. The delivery person may not deliver marijuana if the recipient is visibly intoxicated at the time of delivery. Only one order per day may be delivered to a single physical address. Marijuana for delivery must be in a container with a label that says: “Contains marijuana: Signature of person 21 years of age or older required for delivery.”

Retailers are not allowed to carry or transport more than “a total of $100 in retail value worth of marijuana items designated for retail delivery.” The retailer may not make unnecessary stops during the cannabis delivery nor deviate substantially from the route created in the retailer’s manifest for that delivery. Retailers must keep a record of every marijuana delivery for at least a year. Deliveries may only be made in the city or unincorporated county where the retailer is licensed. Marijuana cannot be delivered to a residence located on privately owned land.

For more on Oregon cannabis laws, go here.

Hawaii. Hawaii recently overhauled its medical marijuana program but those changes do not allow for delivery of medical marijuana to patients. House Bill 321 states that a “dispensary shall be prohibited from off-premises delivery of marijuana or manufactured marijuana products to qualifying patients or to primary caregivers of qualifying patients.”

For more on Hawaii cannabis laws, go here.

The Bottom Line. Marijuana delivery rules vary greatly by state and by localities within the states. In those states that allow for commercial deliveries of cannabis (Alaska, California, and Oregon) the rules are new, complicated, and uncertain. Be careful out there.

 

Hawaii and Medical Marijuanablogged previously about how Hawaii attorney ethics rules prohibit lawyers from assisting cannabis businesses. That just changed.

Yesterday, the Supreme Court of Hawai’i amended its rules to now allow lawyers to advise cannabis businesses. Just four days after the public comment period ended on the proposed rule change — which is astonishingly fast by any standard — the Court issued an order changing Hawaii’s attorney ethics rules to allow attorneys to represent cannabis businesses. This is a good and a timely change, coming when so many in the cannabis business are just gearing up to go through Hawaii’s rigorous cannabis licensing application process.

Hawaii’s amended ethical rules now read (the changes are underlined):

Rule 1.2(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning, or application of the law, and may counsel or assist a client regarding conduct expressly permitted by Hawai’i law, provided that the  lawyer counsels the client about the legal consequences, under other applicable law, of the client’s proposed course of conduct.

This change is identical to the rule approved last week by the Illinois Supreme Court, which took more than a year to consider and pass. Usually, when state supreme courts modify their ethics rules, their effective date is delayed by a few weeks or months (Illinois’s change officially takes place January 1, 2016). What’s unusual about Hawaii’s rule change is that it is effective immediately, meaning that the ethical landscape for attorneys advising cannabis businesses changed literally overnight.

The Hawaii State Bar Association is putting on its annual convention this week and Hawaii’s new medical marijuana dispensary laws is one of its hot topics. I will be speaking at the afternoon panel on marijuana regulatory and security considerations, and it’s comforting to know that the attorneys in attendance won’t have to take anything with (ethical) grains of salt.

Canna Law Group’s lead government relations attorney will be speaking on Friday at the Hawaii Bar Association’s upcoming annual convention during a full-day course titled Medical Marijuana Dispensaries: It’s the Law. Needless to say, it will be focusing on the recent and substantial legal changes to the Hawaii medical marijuana program:

The legal landscape for cannabis in America is in a state of change as medical cannabis programs are adopted in more states and others move forward with recreational use programs. With the 2015 passage of House Bill 321, Act 241, Hawaii is also undergoing change as patients, physicians, businesses, and the community-at-large prepares for medical cannabis dispensaries to open in 2016, more than 15 years after the passage of Hawaii’s laws recognizing the use of medical marijuana. Learn more about what’s happening with medical cannabis at both the national and state levels.

This will be part of the session entitled Legal and Operational Considerations for Hawaii Medical Cannabis Dispensaries, moderated by Hawaii State Representative Della Au Belatti.

Come to this seminar to learn about Hawaii's medical cannabis industry.
Come to this seminar to learn about Hawaii’s medical cannabis industry.

The Hawaii State Bar Association describes this session as follows:

Course Description. Pursuant to House Bill 321, Act 241, eight licensed medical cannabis dispensaries may begin dispensing medical cannabis on July 15, 2016, with the approval of the Hawaii Department of Health. But before the first dispensaries can even open their doors, numerous legal and operational challenges face these businesses and the ancillary businesses that will develop around these dispensaries. This panel will provide an overview of various legal and operational considerations that will have to be addressed by businesses engaged in Hawaii’s medical cannabis dispensary system.

 

Anyone interested in what it is going to take to legally operate a cannabis business in Hawaii should seriously consider attending. Attorneys can earn up to six hours of Continuing Legal Education credit.

 

If you’re around, stop by and say aloha.

As Hawaii’s new regulated medical cannabis program rolls out, the Disciplinary Board of the Hawaii Supreme Court recently issued a formal opinion clarifying that its ethical rules preclude lawyers from assisting cannabis businesses.

Will Hawaii allow cannabis business lawyers?
Will Hawaii allow cannabis business lawyers?

Just a few days later, more than 20 Hawaii attorneys, including former Honolulu Mayor Peter Carlisle and former Attorney General David Louie, formally asked the Hawaii Supreme Court to amend Hawaii Rules of Professional Conduct (HRPC) to permit lawyers to counsel cannabis businesses. The court promptly announced it would consider the proposed amendment, and the fate of the state’s cannabis industry now rests in the hands of its five high court justices.

Let’s break down why this decision could have such massive implications for Hawaii’s new medical cannabis industry.

The Issue with Rule 1.2(d). Some context is important. Each state’s supreme court establishes rules of professional conduct that govern lawyers’ ethical obligations. Every state has a version of Hawaii’s Rule 1.2(d), which provides the following:

A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning, or application of the law.

Basically, this means lawyers can tell their clients whether doing something violates the law, but they cannot help their clients to violate the law. Television character Saul Goodman from Breaking Bad and Better Call Saul perfectly embodies why Rule 1.2(d) is necessary.

Ordinarily, this sort of ethical rule prohibits attorneys from advising a client to commit any crime under either state or federal law. This rule is obviously problematic for lawyers counseling cannabis businesses engaging in conduct that is (yes, still) criminal under federal law. This problem has prompted a growing number of states to revisit their ethical rules as they relate to their regulated cannabis businesses. For example, Colorado, Washington, Nevada, Arizona and Connecticut have all determined, in one way or another, that their lawyers can counsel cannabis businesses notwithstanding the conflict with federal law. When the cannabis business lawyers at our firm started representing cannabis businesses back in 2010, things were much murkier, and we’ve helped at least two states clarify their rules to formally permit representation of cannabis businesses.

Hawaii’s High Court Disagrees, For Now. Hawaii became the second state (after Maine) to formally prohibit its lawyers “from providing legal services to facilitate the establishment and operation of a medical [cannabis] business.” Even though Hawaii’s Disciplinary Board recognized that the state’s medical cannabis businesses “would greatly benefit from legal services,” the three-page opinion makes clear that it interprets Rule 1.2(d) to bar attorneys from advising state-legal cannabis businesses unless Congress changes federal law or the Hawaii Supreme Court formally amends this ethical rule.

What’s the hurry? Key deadlines are looming. Act 241 establishes very specific deadlines by which Hawaii’s Department of Health must promulgate rules, accept applications, and award licenses. Potential licensees must create a corporate entity that controls at least $1.2 million for a 90-day period before Hawaii’s January 29, 2016 application submission deadline. If Hawaii’s Supreme Court does not amend Rule 1.2(d) before the end of this month, many cannabis businesses will be forced to raise substantial capital without benefit of legal counsel, which can cause very messy and expensive headaches down the road.

The Hawaii Supreme Court will accept public comment on the proposed rule change until October 16th. The following week, I will be in Honolulu speaking at the University of Hawaii William S. Richardson School of Law and at the Hawaii State Bar Association’s 2015 Bar Convention about medical cannabis regulations. These events are open to the public, and attorneys can earn up to 6 hours of CLE credit at the HSBA Convention.

In the meantime, stay tuned.

Hawaii’s new medical cannabis program has people across the country seeing green in the Rainbow State. What’s got so many stoked even though Hawaii has had legal cannabis since 2000?

Hawaii and medical marijuanaHawaii’s substantial pre-existing patient base of around 13,000 people means cannabis licensees won’t have to bear the risk of patients struggling to find doctors. Some estimate the patient count could double between now and the first available product. Some regulated states, like Illinois and Minnesota, have had to develop patient bases from scratch, which makes it extremely difficult for licensees, especially cultivators. Though Hawaii has a relatively small population (1.4 million), its broad list of conditions (including severe pain and PTSD) means it likely will have a higher patient base than more populous states with more restrictive qualifying conditions.

Moreover, Hawaii is among a growing number of states with reciprocity, and it’s doing so pretty liberally. Some states with reciprocity, like Maryland, require out-of-state patients to obtain medical treatment in that state to obtain a card. Not so for Hawaii, where patients who register with the Hawaii Department of Health (with no apparent strings attached as to why the patient is in the state) qualify.

Hawaii’s political climate is hospitable to developing a medical cannabis program that can take off the ground quickly. Regulators at the Department of Health are currently in the process of developing their regulatory infrastructure with comparatively few obstacles.  Democratic supermajorities in both chambers of the legislature and a Democratic governor make it unlikely that political infighting will stymie the program’s rollout.

Hawaii House Bill 321, passed in May and signed by the Governor in July, contains the following deadlines for 2016:

  • January 4th – Interim rules released
  • January 11th – Applications available
  • January 26th – Applications due
  • April 15th – Licensees selected
  • July 15 – First licensees can operate

These dates are statutory mandates and if they are achieved as expected, it will be the shortest time between releasing rules and receiving applications for any state with a competitive licensing regime for cannabis businesses.

Despite a statutory requirement that Hawaii residents must have majority interest in licenses, major cannabis industry players from outside Hawaii are already lining up to break into this new market. The key for these established industry players will be finding the right local partners who can capably garner community support. Conversely native Hawaiian companies that choose to partner with out-of-state operators should make sure that those operators have a demonstrated track record in other states and have the capacity to follow through with their commitments on operational support in Hawaii.

Expect a lot of action in the next several months. As always we’ll be keeping our eyes on developments and reporting back.