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Located in Harris Bricken's Portland office, Nathalie practices corporate law, intellectual property, real estate, and litigation, enabling her to assist companies with a wide range of legal and business challenges.

marijuana legalize blumenauer
Nice going Earl!

Oregon congressman Earl Blumenauer, one of Congress’ most vocal marijuana proponents, is the author of an eight-page document, which consists of a step-by-step plan to enact the end of  federal cannabis prohibition. Blumenauer’s plan, which he submitted to the Democratic Leader last Wednesday, is to legalize marijuana if the Democrats were to take back control over the House.

In his memo, Blumenauer argues that “democrats should lead the way” in ending cannabis prohibition and in making sure that Congress gets on the same page as the American people and the states on this issue.

Indeed, this year alone, House Republican leaders have prevented the passage of dozens of cannabis-related amendments and have barred every marijuana measure from advancing to a vote. Yet, recent legislative and referendum developments reveal the growing popularity of cannabis. In his memo, Blumenauer cites to polling showing that 69 percent of registered voters support legalizing marijuana.

The Oregon congressman explains that his proposed plan, to which he refers as a “Blueprint to Legalize Marijuana,” would enable a Democratic House to put pressure on the Senate, where support for cannabis reform has been slowly growing with now nearly 20 introduced bills.

“If we fail to act swiftly, I fear as the 2020 election approaches, Donald Trump will claim credit for our work in an effort to shore up support—especially with young voters,” Blumenauer wrote. “Democrats must seize the moment.”

The legislator recommends that congressional committees hold hearings on the topics in the first quarter of 2019 to debate potential policy solutions. For example, Blumenauer mentions that the Judiciary Committee could hold a hearing on descheduling the plant; that the Energy and Commerce Committee could examine marijuana research; and that the Financial Services cold look at hurdles marijuana growers and entrepreneurs are facing when attempting to access banking services and capital.

By the second quarter, Blumenauer claims that the committees should have the ability to start marking up legislation to narrow the gap between federal and state marijuana laws. The House would then have to pass a marijuana package combining the bills passed by those committees but would need to do so before the annual August recess.

“With the marijuana policy gap diminished, after months of hearings and markups, the House should pass a full descheduling bill and work with Senate allies to guide the bill through Senate passage,” he said. Blumenauer’s hope is for the descheduling to occur by December 2019.

On the same day he released his blueprint to legalize marijuana, Blumenauer also announced that he was introducing a new bill, aimed at fixing Canadian border issues related to marijuana, called the Maintaining Appropriate Protections for Legal Entry (“MAPLE”) Act. The Act would “exempt cannabis-use and/or participation in the cannabis industry as a disqualification for entry into the United States from a country that has ended its marijuana prohibition.” In addition, the Act would protect foreign nationals engaged in cannabis activities in states where it is legal from being deported.

Rep. Blumenauer’s efforts and strong advocacy for cannabis reform are encouraging steps that will hopefully inspire legislators across the aisle, whether or not Democrats take back control over the House, to end federal cannabis prohibition by the end of next year.

cannabis marijuana FDALast Wednesday, the Food and Drug Administration (FDA) announced it was seeking public comments regarding “abuse potential, actual abuse, medical usefulness, trafficking, and impact of scheduling changes on availability for medical use ….” of cannabis and other substances currently under international review. If you want to take FDA up on its offer, go here.

The FDA’s announcement was released as the World Health Organization (“WHO”)’s Expert Committee on Drug Dependence (“ECDD”) prepares to discuss the medical and legal status of cannabis in a November meeting in Geneva, Switzerland. Specifically, the ECDD is evaluating whether to recommend that certain international restrictions be placed or removed on the plant.

As we have previously discussed (here and here), marijuana is currently classified as a Schedule I substance under U.S. federal law and international drug treaties. Schedule I drugs, substances, and chemicals are defined as drugs with no currently accepted medical use and with a high potential for abuse. Consequently, nations that are signatories to these international drug treaties are expected to treat cannabis as an illegal substance. However, depending on the outcome of the survey conducted by the ECDD, the November meeting may bring us one step closer to the rescheduling of cannabis, giving signatories the freedom to decriminalize, and possibly legalize, the plant within their own borders.

Legalization advocates are hopeful that a careful review of the medical values of the plant will result in the rescheduling of marijuana. Groups like the Marijuana Policy Project intend to submit scientific and anecdotal evidence detailing the benefits of cannabis. Their optimism is undoubtedly fueled by previous ECDD recommendations to deschedule “preparations considered to be pure CBD,” the non-psychoactive constituent of the cannabis plant, which the ECDD concluded did not appear to have abuse potential nor present a significant risk to the public health.

However, even if the ECDD report were to favor the legalization of cannabis, it would take some time to implement this global reform. In its announcement, the FDA explained that it will not make any recommendations to the ECDD regarding whether cannabis should be subject to international controls at the moment. Instead, it will defer such consideration until the ECDD has made official considerations to the Commission on Narcotic Drugs, which are expected to be made in mid-2019. Moreover, the FDA declared that any position it takes on this issue will be preceded by another Federal Register notice, soliciting public comments.

Of course, the United States could deschedule marijuana before the international community takes that step—after all Canada, Uruguay and Portugal have managed to go around the international ban. According to a recent Fox News interview of Representative Dana Rohrabacher (R-CA), the Trump administration intends to relax federal marijuana laws and regulations after the midterm election.

Rep. Rohrabacher declared he has been “talking to people inside the White House” about ending cannabis prohibition and that he has been “reassured” that the president will stick to his promise to protect state cannabis laws from federal interference.

While it is premature to determine whether the Trump Administration will soon loosen, and possibly legalize, federal cannabis laws, it is clear that the international effort to study the medical and legal status of cannabis are promising steps.

DEA and FDA are in a bit of a tiff over CBD.

Last week, following the highly-anticipated U.S. Food and Drug Administration (“FDA”) approval of Epidiolex, G.W. Pharma’s oral cannabidiol (“CBD”) solution for the treatment of seizure associated with Lennox-Gastraut and Dravet syndrome, the Drug Enforcement Administration (“DEA”) issued a Final Order rescheduling FDA-approved drugs containing cannabis-derived CBD with no more than 0.1 percent THC under Schedule V of the Controlled Substances Act (“CSA”).

The DEA’s decision to reschedule this very specific formulation of FDA-approved CBD was largely influenced by a joint recommendation made by the U.S. Department of Health and Human Services (“HHS”) and the FDA earlier this year (“Memo”). However, according to a letter released last week by HHS Assistant Secretary Brett Giroir (“Letter”), the FDA concluded that CBD and its salts “could be removed from control” because:

  • “There is little indication that CBD has abuse potential or presents a significant risk to the public health”;
  • “No evidence for a classic drug withdrawal syndrome for CBD, and no evidence that CBD causes physical or psychic dependence”;
  • “CBD does not appear to have abuse potential under the CSA”;
  • “There is no signal for the development of substance use disorder in individuals consuming CBD-containing products”; and
  • “It is unlikely that CBD would act as an immediate precursor to THC for abuse purposes.”

Upon sharing its conclusion with the DEA, the FDA was advised that removing CBD from the CSA would violate international drug treaties to which the United States is a signatory. Specifically, the DEA explained that the United States would “not be able to keep obligations under the 1961 Single Convention on Narcotic Drugs if CBD were decontrolled under the CSA”. Consequently, the FDA revised its recommendation and advised the DEA to place CBD in Schedule V—which applies to drugs with demonstrated medical value and deemed unlikely to cause harm, abuse, or addiction—instead. Nonetheless, the FDA declared that “[i]f treaty obligations do not require control of CBD, or the international controls on CBD…are removed at some future time, the above recommendation for Schedule V under the CSA would need to be revisited promptly.”

As we previously discussed, the World Health Organization (“WHO”) Expert Committee on Drug Dependence submitted a recommendation in July to the United Nations Commission on Narcotic Drugs (“CND”) that “preparations considered to be pure CBD” should not be scheduled under any international drug treaty. The CND is scheduled to consider this recommendation at its annual meeting in March 2019. Yet, even if the CND were to deschedule CBD, the DEA would be free to ignore the FDA’s recommendation (i.e., scientific advice) and continue resisting a broader rescheduling of CBD. After all, the United States is currently disregarding the scientific data supporting the therapeutic value of CBD and refusing to join the global medical community, which favors its use and descheduling. That being said, if CBD were to be descheduled at the global level, the United States, specifically the DEA (i.e., Jeff Session’s Department of Justice), would no longer be able to hide its personal biases behind international treaties.

We will continue to monitor these actions and provide any domestic or international updates. In the mean time, feel free to contact us with any questions you might have on CBD-related issues.

2018 farm bill industrial hemp CBD
Uncertainty continues for hemp legalization.

On September 30, the Agricultural Act of 2014, more commonly known as the “2014 Farm Bill” (the “Farm Bill” or the “Act”) expired before the enactment of its potential successor, the Hemp Farming Act of 2018 (the “2018 Farm Bill”)—it is also unlikely that the 2018 Farm Bill will be revisited before the November elections. The Conference Committee’s failure to meet this deadline has led to numerous inquiries regarding the legal status of state industrial hemp pilot programs over the next few months, and that of CBD products derived from industrial hemp (“Hemp-CBD”). This post discusses the reasons for which existing industrial hemp pilot programs and Hemp-CBD remain lawful at this time.

Section 7606 of the 2014 Farm Bill created a framework for the legal cultivation by states of “industrial hemp” without a permit from the Drug Enforcement Administration (the “Hemp Pilot Programs”). Broadly speaking, the 2014 Farm Bill only protected cultivators registered under a state’s hemp research pilot program, who cultivate cannabis containing no more than 0.3% of THC, and who meet the requirements imposed by their state department of agriculture.

The 2018 Farm Bill, which contains more robust protections for Hemp-CBD, failed to pass last week, in part, because it remained held up in committee. As we explained before, the Senate and the House versions of the bill would first need to be reconciled (the Senate version would legalize industrial hemp in all fifty states whereas the house version is silent on this issue). A reconciled 2018 Farm Bill would have to pass the Senate and the House, before ultimately landing on the President’s desk for signature. Sen. Pat Roberts (R-Kan.), Chairman of the Senate Committees on Agriculture, is hopeful that members of both chambers will resolve those differences during the lame-duck session, the period between the November 6 election and the end of the year. However, until they do, no farm bill technically exists. Therefore, where does this leave existing Hemp Pilot Programs?

Although the Hemp Pilot Programs were enacted pursuant to the 2014 Farm Bill, they do not expire with it. Indeed, section 7606 of the Act contains no explicit sunset provision. Moreover, on September 28, the President signed an appropriation “minibus” funding bill (“H.B. 6157”) into law. The law provides, in part, for a continuing resolution through December 7, 2018, for any appropriation bill not enacted before October 1. The Agriculture Appropriations Act of 2018, which expressly prohibits federal law enforcement agencies from interfering with the State Hemp Pilot Programs, is on the list of appropriation bills. Accordingly, Congress’ actions reveal that the Hemp Pilot Programs did not expire with the 2014 Farm Bill on September 30, and that they remain in place, at least until December 7.

The expiration of the 2014 Farm Bill has further exacerbated the confusion surrounding industrial hemp and Hemp-CBD. However, we are hopeful that Congress will enact the 2018 Farm Bill before the end of the year. At the very least, Congress will extend the continuing resolution for appropriation until the chambers resolve their differences. But for now, we must embrace this state of uncertainty and accept that change—whatever it might be—is coming.

oregon marijuana cannabis data securityLast week we discussed the data breach notification laws with which cannabis companies doing business in Oregon must comply following a cyber intrusion. Today, we discuss the safeguards these companies must adopt to protect the security, confidentiality and integrity of customers and employee (collectively, “Consumer”)’s personal information, who reside in Oregon.

Pursuant to Oregon Revised Statutes (“ORS”) § 646A.622 any business that “owns, maintains or otherwise possesses, and has control over or access to,” written and electronic data that includes personal information used for business purposes, must develop, implement, and maintain reasonable safeguards to protect the personal information.

Generally, “personal information” means a Consumer’s first name or first initial and last name in combination with, for example, a Consumer’s social security number, driver license number or financial account information, if (1) encryption, redaction or other methods have not rendered the data element or combination of data elements unusable; and (2) the data element or combination of data elements would enable a person to commit identity theft against a consumer.

The company must act in accordance with this law by:

(1) Complying with:

  • State or federal laws with greater protections for personal information than ORS § 646A.622;
  • Gramm-Leach-Billey Act as of January 1, 2016 as of June 2018, if the company is subject to this act; or
  • Requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as of June 2018, if HIPAA applies to the company;

and

(2) Implementing a security program that includes:

Administrative Safeguards, such as:

  • Frequently identifying reasonably foreseeable internal and external risks;
  • Frequently training and managing employees in security program practices and procedures; and
  • Selecting service providers that are capable of maintaining appropriate safeguards and adhering to procedures and protocols to which you and the service provider agree, but also requiring the service providers by contract to maintain the safeguards, procedures and protocols.

 Technical Safeguards, like:

  • Assessing risks and vulnerabilities in network and software design;
  • Taking reasonably timely action to address the risks and vulnerabilities; and
  • Applying security updates and a reasonable security patch management program to software that might reasonably be at risk of or vulnerable to a breach of security;

and

 Physical Safeguards, including but not limited to:

  • Monitoring, detecting, preventing, isolation and responding to intrusions timely and frequently; and
  • Disposing of personal information after you no longer use it for business purposes, pursuant to local, state and federal law.

So what does all of this mean? Simply put, business owners with 100 or fewer employees (which includes almost all Oregon cannabis businesses), will comply with these statutory requirements if their information security and disposal program contains administrative, technical and physical safeguards and disposal measures that are appropriate to: (1) the size and complexity of their business; (2) the nature and scope of their activities; and (3) the sensitivity of the personal information collected from or about a Consumer.

Cannabis business should take these safeguard standards seriously. Each violation if subject to a penalty of up to $1,000. Note that each day of a continuing violation is a separate violation, but the maximum penalty for any occurrence is $500,000. Civil penalties under ORS § 183.745 may also apply.

Complying with ORS § 646A.222 is not only required by law, it is also a very good idea for all cannabis business. Indeed, developing a vetted, comprehensive plan of action is the best way to effectively respond to an attack and to reduce the amount of damage to your company. Be safe out there!

oregon marijuana data breach cyberA few weeks ago, we mentioned that cannabis companies that fall victim to a data breach are required, under state law, to inform employees and customers whose data was compromised by the intrusion. However, not every stolen piece of information demands notification. This post further dives into these laws—all 50 states have now enacted breach notification laws—by addressing the notification requirements imposed by the State of Oregon.

Oregon Revised Statutes (“ORS”) 646A.602 defines “breach of security” as “an unauthorized acquisition of computerized data that materially compromises the security, confidentiality or integrity of personal information that a person maintains.” “Personal information” means an Oregon resident’s:

  • Social security number;
  • Driver license number or state identification card number;
  • Passport number or other identification number;
  • Financial account number, credit card number or debit card number, in combination with any required security code, access code or password that would permit access to a consumer’s financial account;
  • Physical characteristics, such as an image of a fingerprint, retina or iris, that are used to authenticate the consumer’s identity in the course of a financial transaction or other transaction;
  • Health insurance policy number or health insurance subscriber identification number in combination with any other unique identifier that a health insurer uses to identify the resident; or
  • Any information about their medical history or mental or physical condition or about a health care professional’s medical diagnosis or treatment information.

Personal information also includes any of the data elements listed above, without the resident’s name, if the data elements, alone or in combination with others, would enable a person to commit identify theft against the resident.

However, the breach of a resident’s personal information does not, in and of itself, prompt the notification requirement. In Oregon, notification is not mandated if, after an appropriate investigation or consultation with law enforcement agencies, the company reasonably determines that the resident has not and is not likely to be harmed from the breach. Such determination must be documented in writing and maintained by the company for a minimum of 5 years.

If the company determines that the stolen data will harm or is likely to harm the resident, then the company must notify the resident “in the most expeditious manner possible, without unreasonable delay,” but no later than 45 days after discovering or receiving notification of the breach. Notification may only be delayed if the notice were to impede on a criminal investigation.

The notification, which must be made in writing, by phone or electronically, must include, at a minimum:

  • A description of the breach in general terms;
  • The approximate date of the breach;
  • The type of personal information that was subject to the breach;
  • The company’s contact information;
  • The contact information for national consumer reporting agencies; and
  • Advice to the consumer to report suspected identity theft to law enforcement, including the state Attorney General and the Federal Trade Commission.

Moreover, if more than 250 residents are notified, the company will be required to submit, in writing or electronically, a copy of the notification to the Attorney General. If more than 1,000 residents are notified, then the company will also have to notify all nationwide Consumer Reporting Agencies.

Data breach notification laws are demanding on hacked companies, but they are not the only laws with which these business entities must comply following a cyber attack. State and federal laws, including employment, medical, and financial laws, usually apply. In addition, states like Oregon impose pre-data breach measures, also known as information security standards—we will further cover this issue in our next post—on any company doing business in the state to protect the security, confidentiality and integrity of personal information before a breach. (California just passed one such law, specifically targeted at marijuana businesses.)

Cannabis companies affected by a data breach should always consult with experienced cyber security attorneys to avoid any civil penalty, but also to retain public confidence and maintain their competitive edge in this high-risk cyber environment.

marijuana north dakota missouri utahLast week, we discussed New Jersey, Oklahoma, Michigan, and Virginia’s recent legislative and/or referendum developments in ending marijuana prohibition.

Today, we look at the three other states that will decide the fate of recreational and medical marijuana locally during the November election.

North Dakota

Last month, North Dakota’s recreational pot measure, Measure 3, was approved for bringing the matter to a public vote. Legalize ND, the committee that introduced this measure, managed to submit more than the 13,452 valid petition signatures which are required to get a measure on the November ballot.

Measure 3 aims to legalize marijuana use by people 21 and older and seeks to seal the records of anyone convicted of a marijuana-related crime.

In May, the North Dakota Sheriff’s and Deputies Association introduced a measure opposing Measure 3 as it believes legalizing recreational marijuana would create more problems for law enforcement, such as more impaired drivers and fatalities. Another anti-legalization organization, Smart Approaches, is also working to oppose the ballot measure.

In response, Legalize ND is planning to bring in members of Law Enforcement Against Prohibition, better known as LEAP, a pro-legalization organization composed of former and current police officers, federal agents, judges and prosecutors, that are critical of existing drug policies.

Utah

Although Utah is a rather conservative state, state voters are ready to decide the fate of medical marijuana ballot measures.

Proponents of Utah Proposition 2 collected about 200,000 signatures, which is roughly 80,000 more signatures than is required for ballot inclusion.

If the measure were approved, patients suffering from qualifying medical conditions with medical cards would be able to buy up to 2 ounces of unprocessed marijuana with no more than 10 grams of tetrahydrocannabinol (THC) or cannabidiol (CBD) every two weeks. The measure would continue to ban smoking marijuana, driving under the influence of marijuana, or using marijuana in public view except in a medical emergency.

Missouri

Missouri voters will get to choose from three medical marijuana measures in the November ballot. Two of the ballot measures are constitutional amendments; the third one is a statutory change. Although the details of the three measures vary, all would provide legal protection to patients and would regulate the production, processing and retail sales of cannabis.

New Approach Missouri championed one of the proposed constitutional amendments, which would allow doctors to recommend medical cannabis for any medical condition they see fit. Registered patients would be allowed to grow up six marijuana plants and purchase up to four ounces from dispensaries each month. A four percent tax would be imposed on the sales of medical cannabis.

The other proposed constitutional amendment, backed by Find the Cures, would let doctors recommend medical marijuana to patients who suffer from one or more of the listed qualifying conditions. The retail sales tax, which would be set at 15 percent, would be used to support research to develop cures and treatments for cancer and other diseases.

Lastly, the proposed statutory change, sponsored by Missourians for Patient Care, would also afford access to medical marijuana to qualifying patients who suffer from specific conditions. Under this measure, sales would be taxed at 2 percent.

Undoubtedly, it will to be a busy election season for the legal marijuana industry. We will keep you posted on any other legislative or referendum developments between now and the November 6 election.

marijuana cannabis state legal
Great progress so far in 2018.

The path to marijuana public reforms is inevitable. According to recent surveys, 64 percent of Americans favor the legalization of marijuana and roughly 90 percent support its legal use for medical purposes. This growing popularity of cannabis has been reflected in recent legislative and referendum actions across the country at the state level.

Earlier this year, shortly after Vermont legalized, we looked at four states–New Jersey, Oklahoma, Michigan, and Virginia–most likely to follow the footsteps of the existing 9 states that had already passed laws to regulate marijuana and the 28 with medical cannabis programs. Today, on the eve of the November 6 elections, we take another look at the legislative and/or referendum developments in these jurisdictions and see whether these four states have in fact come closer to ending marijuana prohibition.

New Jersey

New Jersey’s governor, Phil Murphy, has made legalizing, regulating, and taxing marijuana a goal of his administration. Unfortunately, Gov. Murphy has yet to convince lawmakers to pass a combined bill that aims to (1) expand medical marijuana and (2) fully legalize recreational marijuana for adults. Because New Jersey does not allow its citizens to bring direct initiatives, the fate of marijuana will have to be decided by legislators, a process that will most certainly take time. But the state seems close.

Oklahoma

On June 26th, Oklahoma voters approved State Question 788, an initiative that legalized the use of medical cannabis. Specifically, the initiative allowed for the use, cultivation, and distribution of medical cannabis to qualified patients. The Oklahoma Medical Marijuana Authority (“OMMA”), which oversees the program, has been accepting online applications since August 24th. As of early this week, OMMA had already issued more than 1,000 patient licenses and 100 business licenses.

Michigan

In April, the Michigan Board of Canvassers ruled (a 4-0 decision) that the Coalition to Regulate Marijuana Like Alcohol, the committee behind the initiative that would end marijuana prohibition in the state, had collected enough signatures to qualify for the November 6 ballot. According to a March survey conducted by the Michigan-based pollster EPIC-MRA, 61 percent of Michigan voters favor the legalization and regulation of marijuana. If this poll is accurate and if the initiative were to pass, it would:

  • Legalize the possession of up to 2.5 ounces of marijuana for personal use by individuals over the ages of 21;
  • Allow possession of up to 10 ounces of marijuana at home;
  • Impose testing and safe transportation guidelines within the state;
  • Impose a 10 percent excise tax on the sale of marijuana at the retail level and a 6 percent state tax;
  • The revenues generated from those taxes would be allocated as follows: 35 percent to K-12 education, 15 percent to roads, 15 percent to communities that allow marijuana businesses in their communities, and 15 percent to counties where marijuana businesses are located; and
  • Give communities the opportunity to decide whether to allow marijuana businesses in their towns.

Virginia

Like Gov. Murphy, Virginia Gov. Ralph Northam was unable to convince his colleagues to pass a bill decriminalizing marijuana before the end of his first legislative session. Although marijuana possession remains a criminal act in the state, Gov. Northam managed to enact on major piece of legislation this year by signing a bill that will allow doctors to recommend cannabidioil (CBD) or HC-A oil for any medical condition.

Next Up

Other states will decide the fate of recreational and medical marijuana during the November election. North Dakota voters will consider initiatives that would legalize and regulate marijuana for adults’ use, whereas voters in Utah and Missouri will decide the fate of medical marijuana ballot measures. I’ll cover those states in part two of this installment.

In addition, the legislature of the Commonwealth of the Northern Mariana Islands has recently approved a bill to legalize and regulate marijuana for adult and medical use. The bill is now sitting on Gov. Ralph Deleon Guerrero Torres’ desk. If enacted, the bill would make the Commonwealth of the Northern Mariana Islands the first U.S. territory to legalize and regulate marijuana for adult use.

cannabis cbd alcohol beerThis past year, the country has witnessed widespread interest in the use of cannabis in its nutraceutical (when added to food or drinks) form. Cannabidiol (“CBD”), the non-psychoactive chemical compound found in the cannabis plant, has gained great popularity among alcohol beverage companies. The growing popularity of CBD-infused products combined with their mainstream nature has given alcohol beverage companies the false impression that blending CBD into their products is an easy process. This post bursts the myth by highlighting the regulatory labyrinth into which alcohol beverage manufacturers must venture to enter this growing, popular market.

Alcoholic beverages are regulated by federal and state law. Consequently, beer, wine and spirits producers are generally accustomed to navigating rules, various forms of licensure, and modes of compliance related to their industry. Their familiarity with comprehensive regulations makes alcohol beverage companies well equipped to navigate the intersection between alcohol and cannabis, which is heavily regulated at the state level.

Unlike alcohol, though, many forms of cannabis are strictly federally prohibited. As such, “marijuana” and “tetrahydrocannabinols” (THC) are listed on Schedule I of the Controlled Substances Act (“CSA”). The CSA defines “marijuana” as:

“all parts of the Cannabis sativa L. plant whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.”

The CSA exempts certain parts of the cannabis plant from the definition of marijuana, including hemp-derived CBD products that are manufactured with hemp grown as part of a Farm Bill-authorized state pilot program. Accordingly, only CBD derived from industrial hemp (“Hemp” or “Hemp-CBD”) is allowed in the formulation of CBD-infused alcoholic beverages.

The U.S. Alcohol and Tobacco and Trade Bureau (“TTB”)’s 2000 Hemp Policy (the “Policy”) dictates how manufacturers may use Hemp-CBD in their alcohol products. The Policy sets forth the requirements for formulas and statements of process producers may use. Although the TTB permits the use of Hemp derivatives in alcohol products, the federal agency strictly prohibits producers from using “depictions, graphics, designs, devices, puffery, statements, slang, representations, etc. implying or referencing the presence of hemp, marijuana, and other controlled substance; or any psychoactive effects.” In other words, producers should refrain from using the term “CBD” in their formula or statement of process as the TTB seems to interpret the term as unlawful under federal law.

In addition to submitting the list of ingredients and the method of manufacture they intend to use, producers must provide the TTB with an analysis conducted by a U.S. lab of the hemp components that will be used in the product. A detailed description of the method employed by the U.S. lab must also be presented to the TTB.

The TTB will approve the formula or statement of process if the finished product does not contain a controlled substance. Once the hemp components have been tested for controlled substances, producers must ensure that detailed records are kept at the manufacturing premises for inspections, which we hear may occur as early as within the first month of production.

Once a producer receives TTB approval, which may take up to two years, the producer must then comply with state rules and regulations. In Oregon, for example, manufacturers must provide proof to the Oregon Liquor Control Commission (“OLCC”) that they have met the TTB formula requirement and meet the OLCC labeling requirements before they can manufacture and sell the infused beverage in the state. Oregon beverage producers who intend to sell their infused product outside of Oregon must also show the OLCC that they comply with the TTB labeling requirements.

As this post underlines, obtaining approval for the manufacture and sale of hemp-CBD infused alcoholic beverages is a complex process, due primarily to the uncertain nature of hemp-CBD laws. Therefore, it is crucial for any company intending to enter this market to consult with an experienced, well-versed law firm (like us!) prior to moving into this trending space.

oregon marijuana cannabis oversupply black market
We are not convinced by the HIDTA report.

Earlier this month, Billy J. Williams, U.S. Attorney for the District of Oregon, responded to a recent federal report on drug policy in Oregon by calling the state’s cannabis program “out of control.” The report in question was published by the Oregon-Idaho High Intensity Drug Trafficking Area (“HIDTA”), a federally-funded organization dedicated to combatting drug trafficking and to preventing the diversion of marijuana from states where it is legal to states where it is not, which examined Oregon’s cannabis production, distribution, and consumption since its legalization in 2014 (“HIDTA Report”).

By and large, the HIDTA Report reiterates the findings of last year’s controversial report published by the Oregon State Police Drug Enforcement Section (“2017 Report”)—which, interestingly, was drafted by the same author—and concludes that the Beaver State is the top source for black market pot in the country. Similarly to the 2017 Report, the HIDTA Report stresses the negative impact overproduction has had on fueling illegal trade from Oregon to other states where marijuana remains illegal.

The HIDTA Report associates overproduction with the unlimited number of cannabis licenses issued in Oregon. Yet, shrinking the pool of available licenses would not make the black market disappear. As we explained before, overproduction in the state is driven by substantial and relentless demand from other states, which have come to identify Oregon weed as a superior product. Therefore, even if the Oregon Legislature were to impose a cap on the number of licenses the OLCC is allowed to issue, black market activity would continue because the demand would not likely decrease.

In addition, the HIDTA Report highlights that Oregon produces more than 2 million pounds of marijuana each year, equating to more than 6 times Oregon’s annual consumption demands, which range from 186,100 to 372,600 pounds. This means that roughly 70 percent of the cannabis produced in Oregon is not state-approved and is instead exported to states where cannabis is currently illegal.

Unfortunately, like the 2017 Report, the findings in the HIDTA Report appear incomplete in that its author cannot point to a single source for direct, reliable information on total state production, which includes both legally and illegally grown marijuana. Although the issues of overproduction in Oregon and interstate leakage are very well present, it is important to stress that such surplus does not commonly emanate from the state-sanctioned cannabis production market (i.e., cannabis grown and produced by Oregon Liquor Control Commission (“OLCC”) licensees). Instead, overproduction tends to stem from illegal growth and from unsanctioned, poorly regulated, quasi-commercial systems like the Oregon Medical Marijuana Program.

Although we suspect that the findings of the 2017 Report and the HIDTA Report reflect the anti-legalization position of the federal government—if you recall, both reports were federally funded—the reports stress the need to tackle overproduction and interstate leakage in a responsive and comprehensive manner, a goal shared by prohibitionists and legalization proponents. For its part, the OLCC has taken recent steps to corral diversion, including its harvest notification rule alongside reduction in purchase limits for medical cardholders. The agency also seems to be taking a tougher stance on rules violations by licensees.

Regardless of OLCC actions, though, and whatever the Oregon legislature decides to do in early 2019, the state’s response must take into consideration the fact that federal illegality is encouraging unscrupulous and desperate cannabis businesses to cut their losses and sell their surplus in the black market. In addition, controlling supply by capping Oregon licenses as a fearful response to interstate leakage would in fact incentivize black markets, because a cap would increase the prices of cannabis. Illegal marijuana grows were prevalent in Oregon prior to 2015, after all.

The legal cannabis market is a nascent industry, making it difficult to determine how it will respond to outside forces. Consequently, we must accept that it will take time for the cannabis industry to adjust to these outside forces and find its equilibrium. This process promises to be rocky, and yes, possibly “out of control” to some.

For more on Oregon cannabis and the oversupply issue, please see the following: