amy klobuchar marijuana cannabis

Every Saturday, we have been running a series of blog posts that take a close look at the Democratic Party candidates for President in 2020. We examine each candidate’s historic approach to marijuana law and policy, and we also canvas their current respective stances on marijuana.

Over the past eight weeks, we covered Joe BidenBernie SandersKamala Harris, Elizabeth WarrenPete ButtigiegCorey BookerBeto O’Rourke and Andrew Yang.  Today, we turn to Minnesota senator Amy Klobuchar.

Grade: C+

Stance on marijuana: Amy Klobuchar supports legalizing marijuana, as she told the Washington Post in February. However, she has never been at all vocal on this issue.

History: Like many of her fellow Democratic presidential candidates, Klobuchar’s stance on marijuana has evolved over her political career. Klobuchar began her career as County Attorney of Hennepin County. In a 1998 debate leading up to her election, Klobuchar made clear she opposed legalization:

“I am opposed to the legalization of marijuana. I believe when you look across the world at what’s been happening, people have realized that legalizing drugs is not the answer.”

During her career as County Attorney, Klobuchar won a “tough on crime” reputation, imprisoning many individuals on drug convictions

Klobachur’s stance on cannabis has softened in the past couple years. Klobuchar was elected to the Senate in 2007, but only recently signed on to marijuana-related legislation. In 2018, she cosponsored the STATES Act, which if passed would protect states that choose to legalize marijuana (but would not end prohibition at the federal level). The same year, she also cosponsored legislation to increase research surrounding marijuana as well as to review whether CBD should remain on the controlled substances list. Unlike the rest of her fellow Democratic candidates in the Senate, however, Klobuchar did not sign on to The Marijuana Justice Act, which would legalize marijuana if passed.

Though this past February Klobuchar stated she supports legalizing cannabis, the word “cannabis” (or any of its synonyms) does not appear anywhere on her website or on her social media. Klobuchar’s plan for her first 100 days as president (which she links to on her website) does include starting “the evaluation process to reschedule marijuana.” Klobuchar’s website also addresses criminal justice reform where she promises to “create federal incentives so that states can restore some discretion from mandatory sentencing for nonviolent offenders.” Strangely, “restore some discretion” is a link to a CNN article with the headline “Amy Klobuchar says she supports legalizing marijuana.” Klobuchar also does not directly address the War on Drugs or federal legalization of cannabis

Conclusion: Klobuchar receives a “C+” grade because of her less than stellar history on cannabis and for her silence on legalization. Though Klobuchar stated support for legalizing marijuana, she obviously wants to distance herself from the issue by excluding any mention of marijuana from her social media and website. Klobuchar’s legislative history is also disappointing. Before 2018, the senator did not sponsor any bills related to marijuana. She has recently signed on to marijuana-related bills, but she is the only Democratic presidential candidate in the Senate who chose not to cosponsor The Marijuana Justice Act. Her pro-legalization stance, communicated in a single “statement” sent to The Washington Post, is not convincing. She comes across as having softened on legalization more for political reasons than out of any true commitment and she has done very little to demonstrate that she really wants to legalize marijuana.

hemp cbd bank credit union

Commercial marijuana activity remains a federal crime,  and the Bank Secrecy Act (“BSA”) generally prohibits financial institutions from accepting marijuana-generated dollars. Financial institutions that work with marijuana businesses must conduct due diligence to ensure that marijuana businesses are complying with state law. That includes regularly submitting Suspicious Activity Reports (“SARs”) to the Financial Crimes Enforcement Network (“FinCEN”). Regulated commercial hemp activity is not a federal crime, but hemp’s close proximity to marijuana makes it a generally high-risk endeavor for financial institutions who generally don’t have a high risk tolerance to begin with. That has made it very difficult for many hemp and hemp-derived CBD (“Hemp-CBD”) businesses to access bank accounts. That is changing.

On August 19, the National Credit Union Administration (“NCUA”) released Interim Guidance on Serving Hemp Businesses. The Guidance lays out what credit unions need to incorporate into their Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) compliance programs in order to work with hemp businesses.

First, credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.

Second, if a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program. Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.

Third, when deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.  For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate. For example, certain hemp-derived products may now or in the future be regulated by state health departments and/or the U.S. Food and Drug Administration.

NCUA’s guidance is written for credit unions but these guidelines are important for hemp businesses because it gives insight into what credit unions are going to need from hemp businesses. Below are some questions any hemp business should be prepared to answer when seeking an account with a credit union.

Where was the hemp grown? For cultivators, this question should be easy as they are the ones growing hemp and can easily provide a credit union a copy of the license or permit provided by a state department of agriculture that authorizes the production of hemp under the 2014 Farm Bill, which currently governs domestic hemp cultivation, or the 2018 Farm Bill which will govern cultivation after the USDA starts approving state hemp plans. Companies that are manufacturing products that contain hemp or selling finished Hemp-CBD products, this may present more of a challenge if they haven’t been closely tracking the source of their hemp. Manufacturers and distributors should have copies on file of every hemp cultivator who grew hemp that is contained in their products and should be prepared to explain to a credit union how they keep track of this information.

Who is buying hemp? According to the Guidance, the NCUA does not believe that credit unions are required to submit SARs when working with hemp businesses, but they are still mandated to submit SARs for suspicious activity. That means the credit union is going to watch a hemp business’ account activity closely. If a hemp business is receiving payments from a suspicious account, that will raise red flags. Also, most states that allow for hemp cultivation do not allow the direct sale of raw hemp to unlicensed individuals. Some states issue processing, manufacturing, or wholesaling licenses. Hemp cultivators should be prepared to explain who is buying their hemp and should provide a credit union copies of the license or permits of their buyers, if applicable. Cultivators should also be prepared to explain how they transport hemp to buyers, especially if raw hemp is moving across state lines as many states have specific regulations on the topic. If a state doesn’t require a license to process or manufacture hemp, hemp cultivators should be prepared to explain that as well.

What products are you selling, where are you selling them, and how are they marketed? Lets cut to the chase: much of the interest in hemp is due to Hemp-CBD and the legality of Hemp-CBD varies widely from state-to-state and that the Food and Drug Administration’s (“FDA”) position is that Hemp-CBD cannot be added to food, dietary supplements, or unapproved drugs. NCUA indicated that credit unions must be aware of restrictions and regulations under other state and federal law. This question is going to be a major focus for distributors of Hemp-CBD products, but hemp manufacturers or cultivators should be prepared to answer this as well if they are selling directly to consumers or know that they are in the production chain of Hemp-CBD products. Credit unions are going to look out for Hemp-CBD in foods and dietary supplements, as the FDA has clearly stated that Hemp-CBD may not be legally added to these products. The credit union will also want to see marketing materials to watch out for medical claims as such claims will cause the FDA to categorize a product as an unapproved drug. The FDA’s position on Hemp-CBD in cosmetics and smokable hemp is not as hostile but some states have enacted laws or regulations prohibiting smokable hemp. States also differ widely on how they treat Hemp-CBD, generally including: what types of products are prohibited, standards for THC testing, requirements for labeling and packaging, manufacturing standards, and whether products must be registered in a given state, just to name a few examples. Hemp businesses should be prepared to explain how they are complying with regulations in each state where they do business.

How are you monitoring regulatory changesWith the ever-changing laws and regulations, hemp businesses should expect to discuss the efforts they make to stay up-to-date on law and policy regarding hemp. A credit union is going to want to know that its hemp clients are well informed and carefully tracking the industry with procedures in place to comply with new regulations.

The above questions are not a comprehensive checklist, but if you are prepared to answer each in detail, you’ll be in a good position when it comes time to meet with your local credit union. If not, contact our Hemp-CBD attorneys to help get your business on track.

doterra young living cannabis cbd mlm

Recently I wrote about the two dominant global MLM essential oil companies based in Utah: Young Living and doTERRA. Last month Young Living announced it is entering the CBD oil market, but doTERRA publicly stated on its website that it will not (yet) follow suit, even though everyone and their dog are clamoring for CBD oil and CBD oil-derived products. doTERRA only hints that it may produce CBD oil if it can be produced according to doTERRA’s rigorous standards for its products, but “Right now, it is not possible to deliver a CBD oil that meets [doTERRA’s] CPTG® standards.”

Instead, doTERRA has gone to great lengths to educate its distributors (wellness consultants) both about the medical and legal issues surrounding CBD oil. On its website in a post modestly titled Everything You Need to Know About CBD, doTERRA provides a part-medical part-legal treatise, complete with embedded video, a PowerPoint presentation, and 24 footnotes to medical journals and federal laws. Its thoroughness means that it is a beast to digest if you did not double major in pre-med and pre-law, but doTERRA makes some compelling points about the current unsettled state of CBD.

On the legal side, doTERRA takes a conservative approach:

  • doTERRA advises its distributors to “remain cautious” against products that may not follow the Federal Food, Drug, and Cosmetics Act (the “FD&C Act”) that may put health and safety at risk. This point is well taken, as we mentioned in a prior blog post entitled Four Important Considerations for Any Hemp CBD Company.
  • Relatively little medical and scientific research has been completed regarding CBD and its “perceived health benefits” (see FDA Says It Is Speeding Up The CBD Regulation Process). This point is also well taken with respect to U.S. regulators. Neither the FDA nor the USDA have issued implementing regulations yet regarding hemp-derived CBD.

Young Living is aware of these potential legal issues with the current state of CBD, and it has taken proactive steps to mitigate potential negative effects. In its acquisition of Colorado-based Nature’s Ultra that produces 0.0% CBD oil (no THC content), Young Living has opted to keep Nature’s Ultra as a separate operating company rather than integrating its operations within Young Living. Nature’s Ultra’s CBD oils can be purchased with Young Living’s essential oils blended into its products rather than the other way around.

On the medical side, doTERRA provides extensive information regarding cannabinoids:

  • The human body has cannabinoid receptors that are broken down into two categories:
    • CB1 receptors – affect the brain and central nervous system (pleasure and reward) (more widely distributed throughout the body).
    • CB2 receptors – immune system (inflammatory system) (less widely distributed than CB1 receptors).
  • THC works directly on both CB1 and CB2 receptors.
  • CBD works indirectly on both CB1 and CB2 receptors by slowing down the work of an enzyme called fatty acid amide hydrolase (“FAAH”), which breaks down anandamide (your body’s naturally-produced cannabinoid as a response to strenuous exercise (runner’s high), stress (fight or flight), and other related stimuli (stepping on a pile of your kid’s Legos in the dark)), which is why anandamide is called an endocannabinoid).
    • A slower breakdown in anandamide means it is present in the body longer and continues to interact with the body’s CB1 and CB2 receptors.

Finally, in good competitive market fashion, doTERRA educates its distributors that it already has a superior product to CBD oil called Copaiba oil:

  • Copaiba oil contains beta-caryophyllene (“BCP”), which is a cannabinoid and a sesquiterpene (delivers oxygen molecules to cells) found in hundreds of different plant species.
  • Copaiba oil comes from distilling the oleoresin of varieties of copaiba trees, which are found in Brazil. The resin is harvested similar to the method used to extract maple sap from maple trees.
  • BCP interacts directly with the body’s CB2 receptors (“no risk of psychoactive effects”), “soothing tissues and helping to manage healthy inflammatory responses.”
  • doTERRA’s copaiba essential oil contains 55% BCP content, which is the “highest BCP content of any known oil.”
  • Its efficacy means only “a drop or two” is needed for its BCP to start affecting the human body, so its price point is significantly lower than CBD oil per application (They can’t call it a “dose” because “These statements have not been evaluated by the Food and Drug Administration” and “This product is not intended to diagnose, treat, cure, or prevent any disease.”)
  • Copaiba oil has been produced under doTERRA’s rigorous proprietary CPTG® standards.

But at the end of the day, copaiba oil is not CBD oil. BCP is not CBD, even though it contains two of the same three letters and may be confusingly similar enough for doTERRA’s wellness advocates to have an opening in the conversation to educate the market about BCP’s benefits. doTERRA is hoeing a hard row right now, but there is a segment of the doTERRA and Young Living essential oil market that is hesitant to use products that have not been approved by the FDA or that have any trace of THC content, as I explained my prior blog post. If copaiba oil is as effective as and can be purchased at a fraction of the price of CBD oil, it may get some takers, but because it does not interact with the CB1 receptors, it may be a hard sell. And copaiba oil is not as cool or edgy as CBD oil. Will doTERRA eventually produce CBD oil? Almost certainly. Will doTERRA’s consultants be able to educate the market about copaiba and BCP and keep pace with Young Living’s sales of its CBD oil through Nature’s Ultra? Probably not. The developments over the next several months will be interesting as these two competitors continue to fight for market dominance.

cannabis receivershipThank you to everyone who joined us for the “The Top 12 Alternative Dispute Resolution Strategies” webinar last week. We received a ton of questions on a lot of really interesting topics, and we will be spending the next few weeks addressing those we couldn’t fully get to during the one-hour period.

We received a few questions on the topic of cannabis receiverships. As we discussed in the webinar, we’re seeing that a good amount of cannabis litigation has to do with “partnership” (technically, LLC member) disputes. You also might have or will find yourself in trouble because you chose a business partner you’re not happy with, and you want that partner to exit. While you evaluate your options (litigation or alternative dispute resolution) and proceed whichever way makes most sense for you, who will run the day-to-day of your business while you duke it out?

The best answer for some marijuana companies is a court-appointed receiver. These receivers are neutral third-parties that will take over a business’ operations while it’s involved in legal proceedings. A receiver’s sole purpose is to preserve and protect the business during this period – and, if you take care to ensure that your receiver is well-versed in the cannabis industry, he, she or it can typically handle everything from sales to personnel to accounting.

Some clients have viewed receivership as a “last resort” option as most don’t like to relinquish control of a business they’ve grown from the bottom up. This is a valid concern, as a receiver’s powers over a business is usually extremely broad – it can manage all funds, replace a management company, hire and fire employees, obtain new legal counsel, etc. However, especially in the case of a partnership dispute, there are definite upsides. If you’re concerned that funds are being commingled, misappropriated, or flat out stolen, putting in a receiver can safeguard against those concerns for the time-being. Similarly, if you suspect that your partner is unmotivated or may be sinking the ship intentionally, a receiver can step in and make sure that the business is being run optimally. In great cases, a receiver may make the business better than ever by implementing better business practices (think: actually setting up books and records) and stopping any unnecessary bleeding (think: reducing exorbitant salaries or theft of cash and inventory).

Also consult with your attorneys about whether modified receiverships make more sense – in circumstances where a total receivership is inappropriate, the court may consider a “limited purpose receiver” to take charge of a defined aspect of a business (hold the funds, collect the accounts, take charge of the accounting functions, prosecute and settle a lawsuit), leaving you and your partner to run the rest of the business. A receivership may also be used in combination with other remedies, such as injunctions, to accomplish your desired results.

Another thing to note is that any interested party can ask the court to appoint a receiver, like a creditor. This is especially useful as cannabis businesses can’t obtain bankruptcy protection. So, even if a lender can’t go to bankruptcy court, they can go to a state court and ask for a receiver to be appointed to give a distressed cannabis business a better chance of succeeding.

Receivers typically bill hourly (like attorneys and accountants), and they take their fees from the business unless another arrangement has made. Depending on the level of control, a receiver’s total compensation can really range – obviously, another important consideration to keep in mind. Despite the cost, we anticipate that receivers will become much more common in the cannabis industry as it continues to grow.

If you find yourself in a dispute, and particularly a partnership dispute, check your company agreements to make sure a receivership is allowed and consider whether a receiver might help alleviate a lot of your business concerns while your attorneys fight for your legal ones.

california cannabis l.a. social equity phase 3The final countdown is on for Round 1, Phase 3 retail licensing in Los Angeles. On September 3rd at 10 a.m., the L.A. Department of Cannabis Regulation (DCR) will open the flood gates to would-be Round 1 applicants. And in its own announcements on the subject, the DCR states that it has verified over 800 social equity applicants (out of 1800 applicants that applied–though the City is continuing to process people) that will vie for the first 100 coveted Type 10 retail licenses (75 of which will go to Type 1 social equity applicants and 25 of which will go to Type 2 social equity applicants). Where Round 1 licensing is first come, first served with an online application via the City’s Accela licensing portal, it’s going to be fast and furious on September 3rd to get a license.

In case you missed it, I’ve written many times about the evolution of and qualifications for Phase 3 licensing in L.A–see here, here, and here (and here for delivery licensing). Importantly, if you failed to get your social equity applicant qualified by the City by July 29th, you’re automatically out. And if you were proposing to apply in an area already hit by undue concentration, you’re also toast. The City announced that the following community plans are off limits for Round 1 applicants:

  • Central City
  • Central City North
  • Harbor Gateway
  • Sherman Oaks – Studio City- Toluca Lake – Cahuenga Pass
  • Sun Valley- La Tuna Canyon
  • Venice

The City’s useful licensing map shows us what’s still up for grabs by community plan when it comes to undue concentration limitations.

If you’re applying in an area that’s reached undue concentration, the City isn’t leaving you completely hanging. Instead, you must first receive a finding of Public Convenience or Necessity (PCN) from the City Council before DCR will accept and process your application. You can still file on September 3rd, but you’ll be re-routed automatically to the PCN process. You have to pay a $1,499 PCN fee within 10 calendar days of submitting the PCN request. The PCN request is then transmitted to the Office of the City Clerk for City Council consideration. Importantly, “PCN requests are not pending applications, do not receive a timestamp, and do not prevent another applicant from submitting a competing PCN request in the same area.”

One of the hallmark criteria for Round 1, in addition to meeting the social equity qualification, is proof of right to real property for your intended license type. And the City has revealed what it wants to see to prove this requirement–either a lease or deed in the name of the applicant, with proof of deposit in the event of a lease (see discussion below). The real property also has to meet all sensitive use buffers and zoning requirements, too.

If you’ve checked the boxes on social equity verification and your property meets the sensitive use buffer, zoning, and undue concentration requirements (and you have a lease or deed in the name of the licensing applicant), you should be turning your immediate attention to the licensing checklist recently compiled by DCR. Here are the key elements for filing on September 3rd:

  1. You need your own Accela account and you should create it way before September 3rd to avoid technical glitches. I highly recommend having your own Accela account and not having a lawyer or a consultant create that account and then submitting your application on your behalf. This is the easiest and best way to know and be sure in a first come, first served system that you’ve submitted everything yourself (including attestation forms that must be executed by the applicants, themselves). It’s completely fine to have your lawyer or your consultant looking over your shoulder to confirm you’re doing everything correctly as you go along, but applicants should be the primary on the account and be the ones to actually submit, in my opinion.
  2. Get really friendly with Zimas for the City as you will have to, in real time, verify that your property qualifies under City rules.
  3. As soon as possible, prepare the documents you need to generate for yourself (meaning, the information required hereunder will not be provided on a form generated by DCR):
    • Lease or deed. Please remember that putting together a decent cannabis lease is no picnic and be aware of the many pitfalls, especially as the lease may actually go live if you secure a Round 1 license. Also, DCR will not accept non-binding documents like letters of intent, and the lease or property deed must be in the legal name of the applicant applying for the license. If you submit a lease, you must also provide a proof of depositProof of deposit for a lease “in the form of a financial record that reflects the deposit, including but not limited to a copy of a check, money order, or financial institution document may be submitted.”);
    • Premises diagram. This diagram has to be drawn to scale; if the proposed premises consists of only a portion of a property, the diagram must be labeled indicating which part of the property is the proposed premises; and the diagram has to show the boundaries of the property and the proposed retail premises to be licensed, showing all boundaries, dimensions, entrances and exits, interior partitions, walls, rooms, windows, and doorways. Notably, the diagram does not need to provide any information not listed above, such as the placement of security cameras or specific descriptions of the types of activities that will take place in each area of the premises); and
    • Equity share documents. You have to provide DCR all business records and agreements necessary to demonstrate that the verified social equity applicant maintains at least the minimum equity share in the applicant business entity. Basically all corporate governance and any equity transactional documents and/or agreements having to do with economic and/or control rights (including management agreements and even loans) have to be forked over to the DCR.  And “equity share” means a share of all of the following: a business’s profits, including dividends, distributions or other payments; the proceeds of a sale of a business’ assets, liquidation of a business, merger of a business into another business, or another transaction that would constitute the end of an original business; and the voting rights on fundamental decisions relating to the business. Without a doubt, there will likely be many applicants that do not submit secret side letters they have with their partners or other arrangements that violate L.A.’s social equity program, so winners in Round 1 may expect a swift audit by DCR to ensure compliance with the equity share rules).
  1. 4. The remaining documents required by the City for Round 1 will all be provided in a form format in the Accela portal. They are:
    • Ownership and financial interest holder disclosure form (note that DCR, unlike the Bureau of Cannabis Control (BCC), is not as concerned with multi-layered corporate structure disclosures–full organizational charts are optional on September 3rd);
    • Financial information form (this is identical to the BCC’s form for state licensing);
    • Proposed staffing and security plan;
    • Labor peace agreement attestation;
    • Indemnification agreement; and
    • Radius map attestation (this requirement is kind of a hybrid where applicants have to provide a copy of their own radius maps, too. This radius map can be either (i) a radius map prepared by a mapping or surveying company or (ii) a ZIMAS map prepared by the applicant along with the attestation.)

Applicants should not hesitate to begin forming their business entities and generating their “equity share” documents, which are extremely important and will take time to structure and negotiate (and they should afford contingencies for what happens if a Round 1 license is not secured). In addition, applicants, right now, should begin gathering the necessary information to satisfy all of the disclosure requirements they’ll have to face on September 3rd.  Without a doubt, Round 1 in L.A. has been long anticipated and many, many applicants will fight for the first 100 licenses. A combination of organization, preparation, and speed at the computer will rule the day for Round 1 in Los Angeles. So, prepare now!

california hemp cbdCalifornia’s legislature introduced a potentially game-changing hemp-derived cannabidiol (“Hemp CBD”) bill in January 2019: Assembly Bill 228 (“AB-228”). For those of you who aren’t familiar with AB-228, see my posts hereherehere, and here. AB-228 would change California’s anti-Hemp CBD policies, and the highlights of some of the more significant changes from the recent version are:

  • Licensed cannabis companies wouldn’t be precluded from being in the hemp business;
  • Hemp products that are foods, beverages, or cosmetics would have some minimal labeling requirements;
  • Food manufacturers that make hemp products would be required to obtain certain registrations and would need to demonstrate that their hemp comes from a jurisdiction that has an “established and approved industrial hemp program” that meets all federal requirements for the sale and cultivation of hemp;
  • The CDPH wouldn’t be able to conclude that foods, beverages, or cosmetics are adulterated just because they contain CBD; and
  • Raw hemp products would need to undergo certain lab testing and get certificates of analysis prior to sale.

AB-228 has made it all the way through the California Assembly and part of the way through the California Senate, with almost complete support along the way. AB-228’s most recent hearing in the Senate Appropriations Committee was on August 12, 2019, during which time the bill was placed in the “Suspense File”. The Suspense File is described as follows:

The Suspense File process has been a part of the Committee Rules since the mid-1980s as a way to consider the fiscal impacts to the state of legislation as a whole.  The committee analysis indicates whether a bill’s fiscal impacts meet the criteria for referral to the Suspense File.

Bills that meet the Committee’s Suspense threshold will be placed on the Suspense File after testimony is taken at a regular-order hearing.  A vote-only Suspense Hearing will be held prior to the deadlines for fiscal committees to hear and report bills to the Senate Floor.  Bills will either move on to the Senate Floor for further consideration or be in held in committee and under submission.

At the Suspense File hearing bills are taken up alphabetically by author.  There is no public testimony.

Being in the Suspense File doesn’t mean that AB-228 won’t pass—it just means that it’s on hold for the time being. In fact, this isn’t the first time that AB-228 has wound up in a suspense file. AB-228 sat in the California Assembly’s Suspense File just a few months ago.  We don’t yet know when AB-228 will be heard next, but hopefully sometime this year.
Of equal importance is SB-153, California’s proposed bill to update its hemp cultivation laws, which I wrote about previously here. For a summary of SB-153’s important provisions:
  • Adding a new definition of “industrial hemp”;
  • Narrowing the scope of who qualifies as an established agricultural research institution to be more consistent with federal law;
  • Requiring CA to submit a 2018 Farm Bill-compliant hemp production plan to the U.S. Department of Agriculture;
  • Requiring registrations for commercial and non-commercial growers who don’t qualify as established agricultural research institutions; and
  • Creating enforcement provisions, penalties for false statements on applications, and a bar on persons from being a part of the industrial hemp program if they had a conviction relating to controlled substances in the prior 10-year period.

SB-153 was recently modified further in the California Assembly, and one of the interesting new modifications is the following:

Industrial hemp shall not be cultivated on a premises licensed by the department to cultivate or process cannabis. Industrial hemp, regardless of its THC content, that is cultivated on a premises licensed by the department for cannabis cultivation shall be considered cannabis as defined in subdivision (f) of Section 26001 of the Business and Professions Code and subject to licensing and regulatory requirements for cannabis pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.

So the message here is that California Department of Food & Agriculture licensees won’t be able to cultivate industrial hemp on their licensed premises, and that if they cultivate plants with less than .3% THC, the state will consider them “cannabis” and subject them to all state-level cannabis regulations.

SB-153 was passed off to the Assembly Appropriations Committee, but it doesn’t appear that a hearing has been set yet.

Stay tuned to the Canna Law Blog for developments on AB-228 and SB-153.

georgia hemp cannabis

The Agriculture Improvement Act of 2018 (“2018 Farm Bill”) legalized hemp by removing the crop and its derivatives from the definition of marijuana under the Controlled Substances Act (“CSA”) and by providing a detailed framework for the cultivation of hemp. The 2018 Farm Bill gives the US Department of Agriculture (“USDA”) regulatory authority over hemp cultivation at the federal level. In turn, states have the option to maintain primary regulatory authority over the crop cultivated within their borders by submitting a plan to the USDA. This federal and state interplay has resulted in many legislative and regulatory changes at the state level. Indeed, most states have introduced (and adopted) bills that would authorize the commercial production of hemp within their borders. A smaller but growing number of states also regulate the sale of products derived from hemp.

In light of these legislative changes, we are presenting a 50-state series analyzing how each jurisdiction treats hemp-derived cannabidiol (“Hemp-CBD”). Each Sunday we will summarize a new state in alphabetical order. So far, we have covered Alabama,  AlaskaArizonaArkansasCaliforniaColoradoConnecticutDelaware, and Florida. This week, we look at the Peach State.

Earlier this year, Georgia jumped on the hemp bandwagon by enacting HB 213, which legalized the commercial production of hemp and hemp products in the state. Under the new law, which is codified in O.C.G.A. § 2-23-1 et seq., only growers and processors licensed by the Georgia Department of Agriculture (“GDA”) will be permitted to grow and process hemp in the state. Note that licenses will not be issued by the GDA until final rules and regulations are in place. The GDA’s process of drafting rules and regulations began in July with the agency released proposed rules that are now open for public comments.

The proposed rules provide that licensees shall comply with specific testing, storage, recordkeeping and transportation requirements. For example, in Georgia, no licensed grower or processor may transport hemp without a hemp transportation permit issued by the GDA. Hemp may only be transported to permittees or to storage facilities owned by the licensees and listed on the licensee’s approved license application.

The proposed rules also address the manufacture of hemp products. Hemp product means “all products with the federally defined THC level for hemp derived from, or made by, processing hemp plants or plant parts that are prepared in a form available for commercial sale, but not including food products infused with THC unless approved by the United States Food and Drug Administration.” (Emphasis added).

Although the manufacture and sale of Hemp-CBD food is expressly prohibited – and reiterated in a May 10 press release issued by the GDA – the manufacture and sale of other Hemp-CBD products, such as smokables and cosmetics, is not clearly authorized nor restricted. However, the GDA’s proposed rules provide that “[n]othing in these Rules shall be construed as authorizing any person to violate any Federal law or regulation” and requires that licensed processors comply with the federal Food, Drug and Cosmetic Act and other rules and regulations related to product manufacturing, consumer safety and public health.

As this summary reveals, the proposed rules address the fundamental issues that surround the production of hemp but are vague on the manufacture and sale of Hemp-CBD products, with the exception of food. As the public comment period evolves, it will be interesting to see whether the GDA clarifies this issue and whether other state agencies, such as the Georgia Department of Health, provide additional guidelines on the production of these products.

andrew yang marijuana cannabis

Every Saturday, we have been running a series of blog posts that take a close look at the Democratic Party candidates for President in 2020. We examine each candidate’s historic approach to marijuana law and policy, and we also canvas their current respective stances on marijuana.

Over the past seven weeks, we covered Joe BidenBernie SandersKamala Harris, Elizabeth WarrenPete ButtigiegCorey Booker and Beto O’Rourke.  Today, we turn to entrepreneur and attorney Andrew Yang.

Grade: B+

Stance on marijuana: Andrew Yang supports legalizing marijuana as part of his criminal justice platform. As stated on his website, Yang believes legalizing marijuana “would improve safety, social equity, and generate tens of billions of dollars in new revenue based on legal cannabis businesses.” Yang has also promised to pardon all who are imprisoned on non-violent marijuana convictions. He has criticized the War on Drugs and plans to decriminalize illicit drug use in general.

History: Yang has no record of marijuana legislation as his political career began with his 2020 presidential campaign. He has also not voiced support for any marijuana reform legislation. Additionally, criminal justice reform is not one of Yang’s “3 Big Policies” (Universal basic income, Medicare for all, and “human-centered capitalism”), indicating that it is not his top priority.

To his credit, Yang’s website details a comprehensive criminal justice reform platform which, among other things, includes reviewing mandatory minimums and harsh felony laws. Specifically addressing the War on Drugs, Yang’s website calls for decriminalizing the possession and use of small amounts of opioids. He hopes to provide treatment rather than punishment for sufferers of addiction.

Though marijuana is not a main focus of his campaign, Yang has advocated for the legalization of marijuana in interviews, as well as on social media and his website. This past December, Yang clearly established his views on legalization in a post on Twitter:

Our criminalization of marijuana is stupid and racist, particularly now that it’s legal in some states. We should proceed with full legalization and pardon of those in jail for non-violent marijuana-related offenses.

Yang’s statement references the disproportionate number of people of color arrested on marijuana charges. He again talked about the criminalization of marijuana and racial inequity during interviews in February and March. In July, he shared an interview on Twitter where he supported legalizing marijuana, equating it to cigarettes and alcohol.

Though Yang’s ultimate goal is to legalize marijuana, he suspects the process will take time. During this time, Yang wants to provide veterans with waivers so they could receive their marijuana prescriptions through the VA, regardless of the legal status of marijuana in their state. Veterans could potentially use the waivers for other illegal substances if they are proven to be therapeutic.

Conclusion: Yang receives a “B+” grade. Yang’s rhetoric is promising, but he lacks a legislative record on marijuana reform and criminal justice reform is not one of his “3 Big Policies.” His views on cannabis are good, but it is not clear how important they are to him. As president, Yang would likely be an advocate for legalizing marijuana, but it is unclear whether he is dedicated enough to make it happen.

hemp cbd cannabis contractState governments and the federal Food and Drug Administration (“FDA”) take wildly different approaches when it comes to Hemp-derived cannabidiol (“Hemp CBD”), and for the most part, the ball is still in the government’s court to actually regulate hemp and Hemp CBD. The Food and Drug Administration (“FDA”) and U.S. Department of Agriculture (“USDA”) haven’t issued regulations yet, states like California are still considering laws that would allow (or ban) many Hemp CBD products, and the interstate transport protections under the 2018 Farm Bill arguably still haven’t been fully implemented because the USDA hasn’t even reviewed a single state hemp production plan.

All of this makes for a lot of uncertainty for Hemp CBD companies, both in terms of how they operate internally and how they contract with third parties. It can be tough enough for Hemp CBD companies to comply with the little available guidance that’s out there, but things get increasingly difficult when Hemp CBD companies have to trust that their suppliers, manufacturers, distributors, or other partners are actually following the rules or even trying to follow the rules.

It almost goes without saying that when doing business, comprehensive written contracts that detail each party’s rights and obligations are essential. Our Hemp CBD lawyers still see comprehensive transactions memorialized on one- or two-page, bare-bones contracts or even on a “handshake” basis. This is almost always a bad idea, and is especially dangerous in an industry with so many legal and regulatory pitfalls and constant changes in the law. Hemp and Hemp CBD products should be treated like any other commodity, and legitimate contracts should be a serious consideration. No matter what kinds of Hemp CBD contracts a company might enter into, there are some important things that companies should at least consider when inking a transaction.

#1 Making Sure the Hemp is Legal

Hemp and Hemp CBD purchasers should want reassurances that the hemp or Hemp CBD products they are purchasing was grown in accordance with both state and federal law, using approved seed cultivars, passes stringent state testing requirements, etc. It’s not enough to just trust a seller or to assume that because hemp is being sold, it’s legal. Failure to vet suppliers could lead to serious legal ramifications. This doesn’t just apply to purchasers of biomass—buyers of manufactured products can ask the same (and even more) questions. If the hemp isn’t grown in accordance with the law, then that could legally “taint” all products made from that hemp and pose risks to everyone in the supply chain.

#2 Making Sure the Hemp is “Hemp”

One of the biggest concerns for Hemp CBD companies should be ensuring that the product that they are purchasing is not “cannabis” or “marijuana” as defined under state or federal law. The difference between “hemp” on one hand, and “cannabis” or “marijuana” on the other, usually is the .3% THC threshold (although states are taking varied approaches to how this is measured). If what’s cultivated has .3% or less it’s hemp and could be legal under federal and state law. But if it has any more than .3% THC, it may be considered cannabis and then be illegal under federal law, or be unregulated (and by extension, illegal) under local law. Even though more and more states are requiring lab testing, it’s always a good idea to include lab testing as a requirement in a contract.

#3 The Chain of Custody

Even if the parties ensure that lab testing is performed or that hemp is legal where it came from, it can be a moot point if the results aren’t properly used. If a government decides to investigate a Hemp CBD company, it may demand proof that what they’re making actually contains legally produced hemp. If companies can’t prove the “chain of custody” of the hemp, an investigator could conclude that the hemp at issue was not grown in accordance with state law. It’s much easier to get all the chain of custody information in a contract, rather than hoping your suppliers will give an investigator information that will help you.

#4 Watching the Advertisements

In the next few years, we’re likely to see more and more litigation over claims made in connection with Hemp CBD products (one such case alleging misleading statements on a company’s website was just filed in August 2019). We’ve already seen the FDA send warning letters to companies who make medical claims on in connection with their Hemp CBD products, and it’s likely that in the coming days the Federal Trade Commission (“FTC”) could take action against online advertisers (I recently wrote about the FTC dangers relative to using social media influencers to advertise cannabis, which are very similar for Hemp CBD companies). Hemp CBD companies can in many cases face penalties if third parties market their products unlawfully. Hemp CBD companies should take a hard look at what’s in their third-party contracts relative to marketing.

 

cannabis patent litigation claim construction

 

In following the progress of the first-ever cannabis patent litigation case, United Cannabis Corporation v. Pure Hemp Collective, Inc., the parties are now in a special phase of patent litigation called “claim construction.” Claim construction is specific to patent cases, and it’s the process of deciding what the various terms of the asserted patent claims actually mean. Claim construction is generally where most cases are decided.

The process begins when the parties actually go through the claims and propose their definitions to each other. Typically, the parties will end up agreeing on a lot of the terms so that the Court only has to decide a few things (which the Court usually appreciates). Then, the parties will prepare briefs and advocate their own meanings at a hearing. That hearing is called a “Markman hearing” (after the Supreme Court case that created this process), and it usually requires each side to present experts, scientists, demonstratives, and technological tutorials to ascertain the appropriate meaning of relevant key words used in the patent claim. Although Markman hearings can occur at different times in different cases, they generally occur during discovery and well in advance of trial.

Here, the parties dispute just two terms: “cannabinoids” and “infused in a medium chain triglyceride (MCT).” Let’s discuss the parties’ arguments concerning “cannabinoids”:

The patent claim includes the phrase, “at least 95% of total cannabinoids,” and Pure Hemp argues that “cannabinoids” should be interpreted as cannabinoid content – a term to describe different amounts of cannabinoids, and to describe how to calculate cannabinoid content as a percentage. On the other hand, UCANN argues that “cannabinoids” should simply be construed as “more than one cannabinoid.” This is a small, technical, but really important distinction to make because Pure Hemp’s proposed interpretation would really limit what UCANN is attempting to claim as its own.

After the parties present their interpretations, the Court will decide how to construe the patent claims at issue by undertaking the following process:

  1. Read the claims at issue.
  2. Read the “written description” of the patent specification, and any drawings if they exist.
  3. Consider which terms of the claim are at issue or in dispute as to its meaning.
  4. Read the other claims in the patent to obtain a holistic understanding.
  5. Read the prosecution history if it exists.
  6. Consider any other objective evidence of the meaning of claim language that is available – specification, prosecution history, ordinary/dictionary meaning, evidence that a specific term means something different to a person having ordinary skill in the art (“POSITA”).
  7. Understand the invention that is described in the specification.
  8. Determine what the claims objectively disclose to the POSITA as to what the inventor actually claimed (whether or not that objective meaning corresponds to the invention that was just determined to be disclosed in the specification and without regard to how that objective meaning will affect validity or infringement).

For each term, the judge can adopt either party’s definition or neither party’s definition. Regardless, once the Markman opinion issues, it’s often clear whether the patent is valid and if the defendant is liable for infringement.

In our case, the parties jointly requested a Markman hearing in mid-June. On July 15, 2019, the Court issued an order denying their request, and indicated: “Having reviewed the claim construction briefs, the Court finds that no evidentiary hearing is necessary to resolve the parties’ disputes … the Court will resolve the claim construction dispute in due course.” We’ll continue to monitor the docket and provide an update on how the Court rules as soon as we can. Previous updates on this case can be found here, here, here, and here.