industrial hemp 2018 farm bill

Update: The 2018 Farm Bill was just approved by the House. It now heads to President Trump’s Desk. 

At long last, it’s finally happening: The 2018 Farm Bill has made it out of conference and been approved by the Senate. It currently awaits approval from the House, which is expected this week. If Donald Trump signs the 2018 Farm Bill before the current legislative session ends on December 21, industrial hemp will be legal under U.S. federal law. Though we still are likely a few years out from full marijuana legalization, it appears that 2019 is going to be the “Year of Hemp” if Washington D.C. can make this happen before the deadline. Now, we’ll turn to the long awaited hemp-related text of the 2018 Farm Bill, as agreed to by the House and Senate. A copy of the full 2018 Farm Bill is available, via the U.S. Hemp Roundtable, here.

Some key provisions of the 2014 Farm Bill remain. “Industrial hemp” still means parts of the cannabis plant, whether growing or not, with less than 0.3% THC on a dry weight basis. Cannabis with more than 0.3% is still considered marijuana and is still classified as a schedule I substance. Additionally, the 2014 Farm Bill’s hemp provisions will continue for a year after the 2018 Farm Bill is signed. That means that the agricultural pilot programs that we know and love will stick around for a little bit longer.

However, the new version of the Farm Bill differs significantly in that industrial hemp is explicitly defined to include “all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” of industrial hemp. Technically, this isn’t necessarily a change in the sense that industry stakeholders (including yours truly) have long interpreted the 2014 Farm Bill to make derivatives and cannabinoids from industrial hemp legal. Now that interpretation has been codified into US law.

The CSA will also explicitly exempt “hemp” from the definition of marijuana. That means that the CSA will acknowledge two different types of cannabis, hemp and marijuana. Hemp is an agricultural commodity. Marijuana is a controlled substance. The problems that plague the marijuana industry including the lack of access to banking, bankruptcy, and federal intellectual property protections should no longer impact businesses dealing solely in industrial hemp. This distinction will also likely lead to increased research by the FDA and other agencies, and remove any question as to whether industrial hemp producers are subject to IRC 280e, which prohibits the taking of deductions related to the trafficking of Schedule I or II controlled substance.

The questions of the interstate transfer of industrial hemp is also addressed. Section 10114 of the 2018 Farm Bill states the following:

TRANSPORTATION OF HEMP AND HEMP PRODUCTS. — No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with subtitle G  of the Agricultural Marketing Act of 1946 (as added by section 10113) [the provisions on industrial hemp] through the State or the territory of the Indian Tribe, as applicable.
This is a major development as the 2014 Farm Bill did not require states to make any distinction between hemp and marijuana. The new provision means that states that don’t adopt an industrial hemp program cannot interfere with the transportation or shipment of industrial hemp. Though this may not go so far as to require each state to allow the sale of industrial hemp or hemp products, including Hemp-CBD, it does prevent states from interfering with the distribution of industrial hemp.

The 2018 Farm Bill also gives Indian tribes the authority to regulate industrial hemp. This is an important change as the Menominee tribe, who’s territory falls within the state of Wisconsin had its initial hemp crop destroyed by DEA agents. A Federal Court ruled that the 2014 Farm Bill required that hemp be cultivated in  compliance with state law and therefore, because Wisconsin had not implemented an agricultural pilot program to research industrial hemp, that the Menominee tribe could not legally cultivate hemp. The 2018 Bill explicitly gives tribes the ability to implement programs allowing the cultivation of industrial hemp.

One of the reasons the 2014 Farm Bill’s hemp provisions have been so murky is that no federal agency was given regulatory authority over hemp. The 2018 Farm Bill addresses this by appointing the United States Department of Agriculture (USDA). The USDA will oversee a state or tribe’s regulatory authority over industrial hemp. The state or tribe will submit a plan to monitor  and regulate the production of industrial hemp and the USDA will have 60 days to review the plans. Plans must track the land where hemp is cultivated, procedures for testing hemp and disposing of non-compliant hemp, and indicate how the state will enforce against violations of the 2018 Farm Bill.

The 2018 Farm Bill covers penalties for violations of approved state or tribal plans and breaks them into the following categories:

  • Negligent Violations occur when a hemp producer unintentionally violates a state or tribal plan for hemp cultivation by failing to provide a legal description of the land where hemp will be cultivated, failing to obtain the required license or authorization from the state or tribe, or produces cannabis with more than 0.3% THC. Producers who commit a negligent violation shall enter into and comply with a plan established by a state or tribe to correct the violation. The corrective action plan must include a date by which the producer corrects the violation and require that the producer periodically report to the state or tribe on compliance for no less than two years. Producers who commit negligent violations will not be subject to criminal or civil enforcement action beyond agreeing to submit to a corrective action plan. However, if a producer commits three negligent violations within a five-year window
  • Other violations occur when a hemp producer acts with a “culpable mental state greater than negligence.” Other violations could cover things like intentionally growing THC-rich marijuana under the guise of industrial hemp or completely disregarding the industrial hemp rules. Other violations will be referred to the Department of Justice or the “chief law enforcement officer of the State” where the industrial hemp is grown.

The 2018 Farm Bill will prohibit “any person convicted of a felony relating to a controlled substance” under state or federal law before, on, or after the date when the Farm Bill passes to produce hemp under the 2018 Farm Bill or participate in a state or tribal hemp program for a period of 10 years following the date of conviction. This prohibition will not apply to any person lawfully growing hemp with a license, registration, or authorization under a 2014 Farm Bill agricultural pilot program prior to the 2018 Farm Bill enactment. In addition, anyone who makes a false statement on an industrial hemp application will also be banned from the industry.

Finally, the 2018 Farm Bill would also extend federal crop insurance coverage to industrial hemp, meaning that the feds will actually insure a cannabis crop. Hemp producers can also apply for USDA certification and grants, as with other agricultural commodities.

Expect us to write more on this in the near term. This is an important day in the history of cannabis reform and will have a major and positive impact on the cannabis industry.

california cannabis licensing rulesThis past Friday, California’s three agencies charged with writing and enforcing cannabis regulations—the Bureau of Cannabis Control (BCC), the Department of Public Health (DPH), and the Department of Food and Agriculture (DFA)—made public their respective proposed final regulations, which are currently pending a 30-day review by the Office of Administrative Law before becoming law. Some of the most significant and controversial changes appear in the BCC’s proposed final regulations, which govern a variety of licensees such as retailers, distributors, testing laboratories, and microbusinesses, and which we will be writing about in the coming days.

As for the DFA, which issues and enforces rules for cannabis cultivators, the proposed final rules are substantially the same as the modifications the agency proposed back in October. While “substantially the same” might sound innocuous, it amounts to acceptance of the October modifications, many of which were significant. Below are some initial takeaways.

Cultivation license “stacking.” It looks like the “stacking” work-around for the acreage cap is going to be permanent. Remember the controversy surrounding the state’s decision not to limit accumulation of small cultivation licenses by a single licensee so as to essentially create a loophole to the 1-acre cap, to the benefit of big farms. However…

Shared facilities limitations. It also looks like the DFA’s proposed modifications regarding shared spaces between licenses are also going to be permanent, creating a challenge for license “stackers”. As we explained here, what the DFA was proposing (and which now appears likely to become final) was restricting the ability of a single licensee holding multiple licenses from being able to use shared facilities for its various licenses. And whereas the areas excluded from shared use under the October modifications included immature plant-growing areas, processing or packaging areas, and administrative holding areas, it looks like we can now add to that list areas used for storage of harvested cannabis, which is an item that was removed from the allowable list of shared usage areas this time around (although there is some ambiguity in how that particular regulation could be interpreted).

What this means overall is that things are going to be more difficult for licensees holding more than one license (especially of the same type), as they will now have to arbitrarily create various dedicated areas on the cultivation premises to serve each specific license, even if they’re the same kind of license with the same kind of operation in every respect.

Structures on site.  There is an interesting difference in the BCC proposed final rules compared to the DFA rules when it comes to the permanency of structures on the licensed premises. The BCC is aiming to require that all structures included as part of a BCC-licensed premises would have to be permanently affixed to the land, and this would specifically exclude things like shipping containers, mobile trailers, and non-affixed modular structured. We had suspected that the DFA might follow suit in its final proposed rules, especially because such structures are popular for cannabis farms, but it has not—no such explicit restriction appears in the DFA’s proposed final regulations.

Ownership, Financial Interests and Disclosure. There is also an interesting difference between ownership and financial interest holder disclosure requirements between the BCC and DFA proposed final rules. We previously wrote about how the BCC’s proposed final rules could sweep some landlords into the definition of “owner” or “financial interest holder” depending on the landlord’s relationship with the tenant. But another important difference between the BCC and DFA rules that we thought would be reconciled in the final rules but apparently will not be is the extent to which entities (as opposed to persons) that qualify as “owners” or “financial interest holders” of BCC licensee must undergo vetting and disclosure all the way up the chain of entity ownership, whereas there is no such explicit requirement for DPH or DFA licensees. We will be writing more on this specific difference in the coming days. Stay tuned.

employment law oregon cannabisOwning a cannabis business can present formidable challenges. Adhering to the OLCC rules can be complex in and of itself, but your business must also comply with an array of state and federal employment laws and regulations.

If you are an OLCC licensed cannabis business with employees, Harris Bricken employment lawyer Megan Vaniman will present a free webinar tomorrow, December 12, 2018 at 12pm PST to help you better understand these issues. Throughout the presentation, Megan will discuss how to navigate employment law for cannabis businesses, and provide you with tips and tricks to ensure compliance. Topics Include:

  • What to consider when hiring
  • Oregon’s sick leave requirements
  • Oregon and Portland’s “ban-the-box” ordinance
  • Final pay checks
  • Independent Contractor vs Employee designation

Moderated by Harris Bricken cannabis attorney Vince Sliwoski, Megan will also address audience questions throughout the presentation. Please register by clicking here. For any additional questions regarding the webinar, please contact firm@harrisbricken.com. We hope you can join us!

CBD product recall litigationWe counsel our cannabis (and non-cannabis) clients extensively on product liability issues, and have warned them that the federal illegality of their products will not shield them from the same products liability risks faced by companies in other industries. We extend the same warnings to our cannabidiol (CBD) clients, who, if they are operating outside of a state-run cannabis licensing regime, are actually in a position of even greater risk. Lack of regulation in the CBD space is to the detriment of consumers, who often cannot be certain what ingredients the products they purchase actually contain, or whether those products are safe and free of contaminants.

It’s only a matter of time before harmed consumers start suing CBD companies alleging defective, dangerous, or mislabeled products (and Proposition 65 violations). Here are some posts we’ve written about product liability in the cannabis industry, which are highly relevant to CBD companies as well:

Recently, Vice published an alarming article about a new study that detected synthetic marijuana and a compound in cough syrup in one CBD company’s vape products. The article summarizes the findings of Michelle Peace, a toxicologist and vaping expert at Virginia Commonwealth University who evaluates how electronic cigarettes are being used for substances other than nicotine. Peace received a tip that a product supposedly containing only CBD had psychedelic effects for a consumer. Upon further testing, she discovered that out of nine products tested, four contained synthetic marijuana (5-fluoro MDMB-PINACA (5F-ADB)) and one contained dextromethorphan, an ingredient in cough syrup.

Unfortunately, these findings do not surprise us. We’ve long been wary of the proliferation of CBD products with very little regulation from federal or state governments. Some states have taken steps to combat these unregulated products. In July of this year, the California Department of Public Health’s Food and Drug Branch (CDPH) issued an FAQ on CBD in food products stating:

“[A]lthough California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.”

In California, CBD products derived from marijuana and produced by licensed cannabis manufacturers may be sold, but unregulated, industrial-hemp-derived products intended for consumption may not.

So, what should CBD companies be doing to protect themselves from consumer product liability claims? Of course, we recommend implementing robust testing protocols that are in line with those required by state agencies of cannabis manufacturers. The first step in protecting your company is ensuring that your products are safe. In the same vein, be sure that everything you state about your product is accurate.

And oftentimes, one of the best ways to mitigate against product liability claims is to institute a product recall, and having a product recall plan in place will facilitate this. In crafting that plan, below are some recommendations we’ve made before, which bear repeating:

  1. Create an overall recall strategy.
  2. As part of your recall plan, create definitions and standards for classes of recall and the depth and scope of any given recall. If your state or local laws do not provide basic recall standards for cannabis businesses, check out the FDA’s website under Guidance for Industry: Product Recalls, Including Removals and Corrections.
  3. Appoint a recall committee within your company, to be led by experienced personnel capable of evaluating and investigating product complaints to determine if a recall is warranted. This also entails your developing a product complaint form that will be utilized by customers. It is important to learn about product problems as early as possible.
  4. Develop a complaint receipt and evaluation method to ensure your product complaint processing and investigations are logical, efficient, and comprehensive. There are few things worse than receiving product safety complaints and then ignoring them until the situation is out of control.
  5. Truly ponder what your product complaint investigation will entail. What facts should your recall committee be gathering when seeking to determine if a product complaint is valid or if a recall is warranted? What should your recall look like, as based on the facts and circumstances and the threat your product may pose to consumers and vendors?
  6. Create a distribution list so your product recall committee can quickly and easily identify all affected products and product lots for disposition and potential destruction. The distribution list should — at minimum — include the names of all affected consumers and vendors, their contact information, and the dates on which the products were sold to them or consumed by them, and it should also include any side effects, injuries, or illnesses resulting from product use. Time is of the essence here. Our firm had a regional food client that inadvertently failed to issue a recall notice to one of many supermarket chains to which it sold its food. This supermarket chain was so angry about having been kept out of the loop that it refused ever to purchase our client’s product again. Then other supermarket chains learned of our client’s failure to notify this one supermarket company and they too ceased all of their purchasing. Needless to say, our client company no longer exists. Don’t let this sort of thing happen to you.
  7. Institute a method of stock recovery so all tainted product in inventory is effectively quarantined from sale and distribution.
  8. Generate your recall notice and be very careful with your wording in how you alert vendors and consumers to the recall. You want to effectively communicate that a product has been affected and how to deal with that, but you also want to minimize whatever liability your product problems may create for the company. On a case by case basis, consideration should also be given to drafting a press release to help the company’s PR. For this you absolutely need attorney help.
  9. Make sure to as quickly as possible (preferably in advance) alert your outside advisors (your lawyers, your insurance broker, etc.) regarding your recall.
  10. Set out in your recall plan your options for product disposition. Will you destroy a product? Cleanse and then repurpose it? Lay out your options in your plan now so you are not scrambling to try to figure out your possible options later, when you have no time to do so.
  11. Record everything you do. Document every effort you make and record all your communications with consumers and vendors. If there is a legal action later, you will want to be able to show the court that you took all reasonable steps to ensure consumer safety.

In addition to the foregoing, we also recommend regular compliance audits to ensure that your procedures are safe, legal and effective. It is only a matter of time before CBD product liability claims start to proliferate, and CBD companies should prepare for that reality now.

marijuana montana employmentMedical marijuana is legal in Montana. Unfortunately, that does not prevent local employers from terminating workers for legal, off-work use of marijuana in the state.

In 2010, while already employed by Charter Communications, LLC, Lance Carlson was issued a medical marijuana card under Montana Medical Marijuana Act to treat chronic low back and stomach pain. The medical marijuana card allowed Mr. Carlson to legally use marijuana to treat the conditions. In 2016, Mr. Carlson was involved in a work-related motor-vehicle accident. A urinalysis that followed the accident tested positive for THC. Mr. Carlson was promptly terminated as a result of the drug test.

Mr. Carlson initially brought suit against his former employer in Montana state court, alleging the former employer had wrongfully terminated him in violation of the Discrimination Under the Montana Human Rights Act— specifically, that his employer had discriminated against him because of a disability. The case was removed to Federal District Court. Charter Communications quickly moved for a motion to dismiss arguing that the Montana Marijuana Act allowed them to terminate Mr. Carlson for his medical marijuana use. Mr. Carlson appealed the decision to the Ninth Circuit.

The Ninth Circuit, in an unpublished opinion, upheld the district court’s dismissal. The Ninth Circuit specifically relied on the carve-out of Montana’s medical marijuana act that states employers are allowed to prohibit employees from using marijuana. Mr. Carlson challenged that exact regulation as unconstitutional. However, the Ninth Circuit determined it was constitutional because it was “rationally related to Montana’s legitimate state interest in providing careful regulation of access to an otherwise illegal substance for the limited use by persons for whom there is little or no other effective alternative…”

Given the general trend for acceptance of marijuana, the Ninth Circuit decision is disappointing, even though it is unpublished and therefore sets no legal precedent. However, the problem does not generally lie with the Ninth Circuit, but instead with Montana’s state law. Now is the time to lobby Montana officials to have the Montana Medical Marijuana Act revised to protect employee’s off-work medical marijuana use.

Montana is not alone in allowing employers to terminate employee for their legal off-work use of marijuana. Oregon, similarly, has a statute that does not require employers to accommodate employees’ off-work use of medical marijuana. Way back in 2010, the Oregon Supreme Court ruled that the statute prohibiting disability discrimination in employment does not protect medical marijuana users. Washington’s laws do not require employers to accommodate employee’s medical marijuana use either. Colorado, another state on the forefront of adult use legalization, still allows employers to terminate employees for medical marijuana use, too.

While Oregon and California have struggled to pass legislation protecting employee’s off-work medical marijuana use, other states have managed. These laws typically create a carve-out for employers who contract with the federal government and therefore are required to have a drug-free workplace. Federal legislators also have recently introduced legislation  to protect off-work marijuana use. Currently the bipartisan bill is stalled in the Oversight and Government Reform Committee.

I suspect eventually the states discussed in this blog post will catch up with the changing of the times, but until then, be aware that many states allow employers to terminate employees for their legal use of marijuana—medical or otherwise.

Editor’s Note: This blog post first ran on December 6. We are re-publishing it here because a platform glitch erased the initial publication.

Oregon psilocybin psychedelic mushrooms

Back in August, I covered the landmark Food and Drug Administration (FDA) drug trial approval for psilocybin, the naturally occurring, psychedelic ingredient found in around 200 species of mushrooms. I speculated that if everything goes well, we could see an approved psilocybin drug hit the market sometime in the next 5 to 10 years. I also mentioned that it’s possible that psilocybin could be legalized in certain states before that, including Oregon. Last month that came one step closer to happening, when Oregon Attorney General approved ballot measure language to legalize psilocybin statewide.

Initiative Petition 2020-12 (the “Initiative”) can be found here, and a link to the Official PSI 2020 Campaign Website can be found here. If you just want to see a summary of the Initiative ballot title as it would appear in 2020, though, we’ve got you covered:

Currently, federal/state law prohibits the manufacture, delivery, and possession of psilocybin (hallucinogen from fungus). Initiative amends state law to reduce most criminal penalties for unlawful/unlicensed psilocybin manufacture, delivery, possession to violations or misdemeanors; retains felonies for large weight of psilocybin and/or some convicted felons. Initiative amends state law to require Oregon Health Authority (OHA) to establish Oregon Psilocybin Services Program to allow licensed/regulated production, processing, delivery, possession of psilocybin, and administration of “psilocybin service” (defined) by licensed “facilitator” (defined) to “qualified client” (defined). Grants OHA authority to implement, administer, and enforce program. Establishes fund for program administration and OHA appointed advisory board to advise OHA director. Preempts local laws inconsistent with program except “reasonable regulations” (defined). Other provisions.

That’s a fair bit to digest, but if you’ve been around this stuff for a while you might observe that the Initiative offers a structure similar to Oregon’s early-stage medical marijuana program. That program also: 1) was borne of an initiative back in 1998; 2) was solely administered by OHA (through its predecessor); 3) reduced criminal penalties, and 4) created a doctor-patient-caregiver program similar to the facilitator-client concept on offer for psilocybin. It appears that the Initiative’s chief petitioners are wisely working off the model.

The steep and imminent challenge for the petitioners is the requirement to gather 140,000 signatures over the next 18 months in order to get the Initiative onto the ballot. If that somehow happens, an even steeper challenge will be convincing 51% of everybody to vote “Yes” to legalizing psilocybin. All in all, it feels like a bit much, even for Oregon. Our guess is that the signatures hurdle will sink the initiative, as recently occurred with a similar effort in California.

Still, you never know. Oregon can boast a history of progressive action on controlled substances, dating back to 1973 when it became the first state to decriminalize possession of small amounts of cannabis. That action was taken against the strong headwinds of the recently enacted federal Controlled Substances Act. Today, the zeitgeist is quite a bit different.

If you want to get involved in legalizing psilocybin in Oregon, the landing page for volunteers is here. Otherwise, we will keep you posted on any major developments as they arise.

california cannabis BCC

Today, the Bureau of Cannabis Control (BCC) published its Proposed Text of Regulations Submitted to Office of Administrative Law for review here. We are still in the process of reviewing everything, but there are enough ambiguities to cause us a good deal of concern, particularly with respect to IP licensing and contract manufacturing agreements.

We are also reviewing the BCC’s responses to comments submitted on the proposed regulations back in early November, of which there are about a thousand pages. We’ll be analyzing the regulations section by section and writing about all of the changes over the course of the next week.

Stay tuned.

marijuana bank fincen
Slowly but surely, it’s happening for canna businesses.

According to a recent report from the U.S. Treasury Department’s Financial Crime Enforcement Network (“FinCEN”), a growing number of financial institutions are willing to work with cannabis businesses. As of September 30, 375 banks and 111 credit unions were managing marijuana business accounts.

These numbers reveal a steady growth in the number of financial providers willing to engage with the cannabis industry, despite its federal illegality. The report confirms what our cannabis business lawyers have observed over the past few years in Washington and Oregon: namely, most of our licensed cannabis business clients in those states are banked, and it isn’t as hard as it used to be to acquire a basic merchant account. (California is a different story.)

Nationwide, though, most financial services providers have been reluctant to serve the marijuana industry for years, fearing the federal cannabis prohibition would trigger liability under money laundering laws. Earlier this year, many concluded that banks would refuse to associate with cannabis businesses following the decision by then-U.S. Attorney General Jeff Sessions to retract policy protections for licensed marijuana businesses from federal interference. However, the latest FinCEN report reveals that those fears were mostly speculative.

The American Bankers Association, which recently conducted a survey on the issues faced by banks that are serving cannabis businesses, is advocating for greater legal clarity to banks operating in states where recreational and medical cannabis has been legalized. Indeed, the guidelines currently used by the financial services industry are those published in 2014 by the FinCEN and could use an update given the continued ascendance of marijuana reform.

Several key officials of the Trump administration have also expressed the need to clarify cannabis banking issues. For instance, Treasury Secretary Steven Mnuchin stated in congressional testimony that he wants businesses operating in states where marijuana is legal to be able to store their profits in banks.

I assure you that we don’t want bags of cash … We do want to find a solution to make sure that businesses that have large access to cash have a way to get them into a depository institution for it to be safe.”

In June, Federal Deposit Insurance Corporation Chariwoman Jelena McWilliams explained that she instructed her staff to consider ways to address the banking issues, but that the agency’s hands were “somewhat tied” until federal law legalizes cannabis.

Support for clarification and for fixing marijuana banking problems also comes from the states. A few months ago, a coalition of the top financial regulators located in thirteen states asked Congress to take action to protect banks working with the cannabis industry.

In their letter, the regulators wrote:

It is incumbent on Congress to resolve the conflict between state cannabis programs and federal statutes that effectively create unnecessary risk for banks seeking to operate in this space without the looming threat of civil actions, forfeiture of assets, reputational risk, and criminal penalties.”

Finally, back in June, a bipartisan group of twelve governors urged lawmakers to pass the Strengthening the Tenth Amendment Entrusting States (“STATES”) Act, which proposed to amend the Controlled Substance Act to exempt state-legal marijuana activities.

This growing support for permanent protections of banks that serve cannabis businesses is a promising sign that legal reform is on its way. The newly formed Democratic House has expressed a strong desire to move cannabis legislation, including banking issues, in the new year. Only time will tell whether the Republican-controlled Senate will allow it.

california cannabis litigation
We see litigation in the California industry’s future.

Because California’s cannabis regulatory scheme is still in relative infancy, 2018 has looked the same for most operators: applying for annual licenses and waiting (and then continuing to wait) for them to issue or fighting to get temporary license applications submitted before they can no longer be issued. But what happens in two or three years after hundreds or thousands of commercial cannabis licenses have been issued? A host of administrative and civil litigation, probably.

California’s cannabis regulators have immense power that’s not just going to disappear after they issue licenses. The Bureau of Cannabis Control, which regulates a number of different license types, arguably has more police power than the actual police. Section 5800 of the BCC’s readopted emergency regulations, for example, gives the BCC “full and immediate access”, without prior notice, to enter premises, inspect cannabis or vehicles, and copy books and records, and failure of a party to comply with a BCC investigation can be subject to discipline.

Not only do the agencies have broad investigative power, but the subject matter of what they can investigate—all the various regulations that companies have to comply with—is immense. The regulators are not going to sit around and assume that licensees are following the law, the regulations, or even their own operational plans submitted with their applications—they are almost certainly going to use their investigative power to root out non-compliant operators. This should come as no surprise as the BCC, for example, has already taken some action against allegedly unlicensed cannabis operators. Our cannabis lawyers in other states with older licensing schemes have already seen targeted agency investigations and enforcement actions.

There are really endless ways that the agencies may choose to investigate or enforce their regulations, but it’s safe to say that they will prioritize enforcement against unlicensed operators. They may also go after some other easy targets—selling to underage persons, violations of advertising or delivery regulations, track-and-trace non-compliance, and so on. Rest assured, too, that administrative rules will continue to evolve, and licensed businesses that do not keep up on compliance will also be vulnerable.

Not only are the next few years likely to see an increase in administrative actions, but they are also likely to see a swath of civil litigation between licensees and internally. With the development of so much new technology and other intellectual property, we expect to see a good deal of trade secret and other IP litigation. Prop 65 and other forms of false advertising litigation are likely to continue as well. And internally, members of cannabis companies may start to bring lawsuits against each other or their companies for a number of reasons—from simple things like alleged mismanagement of company assets to fraud in soliciting investors.

The future of the California cannabis industry isn’t entirely certain, but it’s likely going to involve a lot of time before arbitrators, judges and other dispute resolution officiants.

california cannabis CLE ethics

Representing cannabis businesses is fraught with ethical traps. Cannabis businesses require guidance in navigating complex and shifting state and local regulations, and providing that guidance in a federally illegal landscape requires a delicate dance. To learn about and discuss potential pitfalls in representing California cannabis businesses, join us on December 7 at 12pm PST for a webinar entitled “Ethically Navigating Local and State Licensing for Cannabis Businesses.”

At the webinar, attorneys Julie Hamill of Harris Bricken and Ruben Duran of Best Best & Krieger will provide tips on how to traverse the ever-changing landscape of local and state licensing without getting your clients or yourself in trouble. The attorneys will cover changes to the California Rules of Professional Conduct, updates to federal policies and state regulations, and cautionary tales of cannabis attorneys who have found their ethics called into question.

Program Highlights:

  • Continuing tension between state and federal laws
  • Applying the new Rules of Professional Conduct
  • Regional bar association ethics opinions
  • Attorney-Client privilege concerns
  • Public law: conflicts of interest and bribery
  • Real life ethical scenarios

This is an intermediate level program worth 1 MCLE credit in Legal Ethics. Some experience with cannabis law is assumed. Please go here to register!

For more of Julie’s work, please check out the below posts: