Federal law and policy

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.

U.S. border policy on Canadians and marijuana is tough.
On the eve of the Canada’s cannabis legalization, the U.S. Customs and Border Protection (“CBP”) held a teleconference to explain the agency’s enforcement policy and field questions from journalists.

The on-the-record teleconference featured the head of the CBP’s Office of Field Operations, which has a staff of 28,000+ employees and an operating budget of $5.2 billion to oversee the agency’s operations at 328 ports of entry and air preclearance locations worldwide.

CBP officials confirmed that U.S. government policy remains unchanged in the face of cannabis legalization in Canada: past use of, and any affiliation with, cannabis is grounds for getting a lifetime ban from entering the U.S. without a waiver, as explained in a previous post.

The key takeaways from the teleconference are as follows:

  • Possession: Individuals attempting to cross the Canadian-U.S. border while possessing marijuana are subject to arrest and prosecution. If prosecution is deferred, the individual is potentially subject to a fine of $5,000.
  • Amnesty or Pardon for Past Use: U.S. law will not recognize any amnesty or pardon by Canadian authorities for cannabis-related convictions. Admitting to a CBP officer that you used marijuana any time before legalization is the equivalent of a formal court conviction for that crime and you will likely be denied entry into the United States.
  • Cannabis Industry Workers: Those who legally work in the Canadian cannabis industry must provide details about their role and convince U.S. border officers that their trip to the U.S. is purely personal. Cannabis workers will likely need to prove that while in the U.S., they will not engage in any networking or strategic meetings, presentations, marketing efforts, or any manufacturing or distribution activities with customers or cannabis industry colleagues.
  • Cannabis Investors: Investors who knowingly financed and furthered the growth of the cannabis industry will almost certainly be denied U.S. entry and they risk a lifetime ban. Exceptions to this rule may be made for individuals whose mutual fund investment portfolio happens to have, without their knowledge, some stock in cannabis companies.

There appears to be some latitude at the border for occasional users of marijuana who start using marijuana post-legalization, and can demonstrate to the CBP officer’s satisfaction that they will not consume marijuana while in the U.S., even in states that have legalized it. Testing this theory, however, is for the brave who will put their hand in the crocodile’s mouth after being told that the crocodile does not bite.

u.s. border customs marijuana cannabisCanada’s cannabis legalization creates yet another wrinkle in the relations between the U.S. and its northern neighbor.

U.S. Attorney General Jeffrey Sessions harbors a well known hatred towards anything cannabis and he clearly has no love for Canada’s Cannabis Act either. What will this mean though for Canadians who are 100% legally involved in Canada’s cannabis industry when coming to the United States?

The answer came last week, when U.S. Customs and Border Protection (“CBP”) issued its Statement on Canada’s Legalization of Marijuana and Crossing the Border:

[a] Canadian citizen working in or facilitating the proliferation of the legal marijuana industry in Canada, coming to the U.S. for reasons unrelated to the marijuana industry will generally be admissible to the U.S. [H]owever, if a traveler is found to be coming to the U.S. for reason related to the marijuana industry, they may be deemed inadmissible. (Emphasis supplied).

Though this statement is a welcome surprise, it still provokes skepticism from U.S. immigration lawyers who have seen countless foreign nationals banned for life from entering the U.S. because they once used marijuana or were once associated with the cannabis industry.

Under the U.S. Controlled Substances Act (“CSA”), passed by U.S. Congress in May 1971, cannabis is classified as a Schedule I drug, which is reserved for substances like heroin and LSD, among others, that: (i) have a high potential for abuse; (ii) have no currently accepted medical use in treatment in the U.S.; and (iii) lack accepted safety for use under medical supervision.

U.S. federal law – more specifically the Immigration and Nationality Act (“INA”) — governs entry into the United States and under the INA, a “conviction” for controlled substances renders a foreign national inadmissible into the U.S. INA’s definition of “conviction” expands beyond a formal finding of guilt by a court of law to include instances where a foreign national admits to the essential elements of the crime under oath to a U.S. consular or CBP officer. For example, by answering “yes” to the question, “Have you ever smoked pot?”

Even a foreign national who has never consumed marijuana could be declared inadmissible under the INA based on his or her involvement in a legal cannabis business, either as “a knowing aider, abettor, assister, conspirator, or colluder with others” or “an illicit trafficker” of a controlled substance. Earlier in the year, we saw two examples of this when Canadian businesspersons Sam Znaimer and Jay Evans were banned for life from entering the U.S. because of their intended affiliations with U.S. cannabis industry.

Of course, lying about the use of or affiliation with marijuana would also render a foreign national inadmissible and you should avoid this at all costs. CBP has the legal authority to search electronic devices, and if it finds conflicting and/or incriminatory evidence about a foreign national’s actual or intended activities, that foreign national may be refused entry into the U.S. or even given a lifetime ban.

Once declared inadmissible, a foreign national needs a waiver of inadmissibility from the CBP to enter the U.S. These waivers are discretionary, costly, time-consuming, and limited in validity to between one and five years. Even with a waiver, a foreign national will typically face secondary questioning and delays each time he or she attempts to enter the U.S., even when the purpose of the visit is purely personal.

Foreign nationals have also been historically denied entry for profiting from the drug trade. Because of this, cannabis lawyers were concerned that virtually all foreign nationals lawfully engaged in Canada’s cannabis industry would be deemed inadmissible even if coming to the U.S. for purely personal reasons.

The recent statement from the CBP appears to exempt individuals who seek to enter the U.S. for reasons unrelated to cannabis. However, the process of admitting foreign nationals into the U.S. remains discretionary and subjective and only time will tell just how exactly the new policy will be applied at U.S. ports of entry.

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.

cannabis litigation trade secrets
Protect them at all costs!

Over the course of the next few weeks and months, we intend to write a number of blog posts about various forms of civil litigation that could arise in future in the cannabis industry. This is the first, and is focused on trade secret litigation.

For those of you who haven’t read some of our earlier posts on trade secret law, here’s a short recap of what trade secrets even are. A trade secret is virtually any form of information, formula, device, method, etc. that is kept secret, and that derives an independent economic value from being kept secret. For example, a cannabis cultivator invents a new process to cultivate cannabis more quickly. That process is valuable not only intrinsically (i.e., because the cultivator can now work faster), but also because it’s secret (because competitors will still be producing cannabis more slowly without the new process). Trade secrets are not limited to technical inventions—they can also include run-of-the-mill confidential information such as customer lists, preferred vendor pricing lists, and so on. The key is secrecy.

Trade secret protection can often be more valuable than patent protection, as trade secrets are kept secret for so long as their owners choose to keep them secret (or until they get released to the public through other means). Patented inventions, on the other hand, are immediately disclosed to the government and anyone with a computer. To boot, a patent owner loses protections after a fixed period of time.

In short, trade secret protection is a great system—if you can keep your secrets secret. But as you can imagine, that can be difficult and expensive to do—and in some cases third parties take your secrets. Thus, litigation is sometimes necessary.

There are a number of ways in which trade secret cases play out, but there are essentially two common fact patterns in the cannabis industry and elsewhere. First, an employee or group of employees leave one company for a competitor and are alleged to take its trade secrets.  Second, a company who comes out with a similar product/device/set of information, and is alleged to have stolen the idea from its competitor.

In the legal world, the theft of a trade secret by any source is referred to as “misappropriation”, and the party from whom the secret was taken can assert civil claims for misappropriation (we won’t address any criminal issues in this post). Until relatively recently, parties were forced to litigate disputes pursuant to various state laws, which are mostly relatively similar. In 2016, the federal Defend Trade Secrets Act (“DTSA”) was passed, which opened up the doors to the federal court system for many plaintiffs who otherwise would have been stuck in state court.

The remedies available under the various trade secret laws vary, but generally include, among other things, damages, injunctions (orders by a court to do or stop doing something), and in some cases, a requirement that the losing party pay the attorneys’ fees of the winning party. The DTSA also allows, in certain circumstances, a plaintiff to obtain an order to seize property that would assist with continued misappropriation of trade secrets.

Why is trade secret law important or applicable to the state-legal cannabis industry? The answer is that the industry is in its infancy, which necessarily means that it will experience great innovation and invention in the coming years—anyone with experience in the industry can attest to that. Unfortunately, and like in any other growth-phase industry, this also means that there may be an abundance of misconduct and theft. Even companies that take steps to prevent misappropriation could be the victims of it in the near future.

Navigating the trade secret landscape may be tough—especially for new cannabis businesses. Spending time and resources up-front to develop safeguards to protect from misappropriation and train employees is critical, even though it may be costly. But by that same token, litigating trade secret disputes can be even more difficult and costly. Consulting with trade secret counsel, both during the normal course of business and after any potential dispute arises, is always a good approach.

Our firm’s main practice areas include cannabis, China, trade and immigration. As such, it may not surprise you to learn that we get a lot of questions about the developing international cannabis trade. This is in large part due to the fact that Canada is on the verge of legalizing marijuana nationwide.

Importing or exporting cannabis in the United States at this point is extremely limited. Marijuana is listed as a Schedule I substance in the Controlled Substances Act (CSA) and it is illegal under federal law to possess or sell marijuana. The Controlled Substances Import and Export Act incorporates the schedules of the CSA. That means that the U.S. Customs and Border Protection is likely to seize any shipments of marijuana, even if shipments are going to or coming from a nation that has legalized marijuana in some form. There has even been some noise about barring travel by foreign marijuana company investors themselves as of late.

All of that said, not all parts of the cannabis plant are considered marijuana. The CSA defines “marihuana” as “all parts of the plant Cannabis sativa L., 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 second classification under the CSA is “Exempt Cannabis Plant Material” which includes the following four categories:

  1. Mature stalks
  2. Fiber produced from mature stalks
  3. Oil or cake made from seeds
  4. Seeds incapable  of germination

Exempt Cannabis Plant Material also includes “any other compound, manufacture, salt, derivative, mixture, or preparation” of the items listed above. The term does not include resin derived from mature stalks as that is considered marijuana, not Exempt Plant Material.

Back in May 2018, the Drug Enforcement Administration (DEA) issued an internal directive acknowledging that Exempt Plant Material is not “marijuana.” The directive touched on how the distinction impacted internationally traded cannabis

[A]ny product that the U.S. Customs and Border Protection determines to be made from the cannabis plant but which falls outside the CSA definition of marijuana may be imported into the United States without restriction under the Controlled Substances Import and Export Act. The same considerations apply to exports of such products from the United States, provided further that it is lawful to import such products under the laws of the country of destination.”

There you have it straight from the horse’s mouth: Importing or exporting Exempt Cannabis Plant Material is lawful under the Controlled Substance Import Export Act. What is not clearly indicated is whether or not the DEA considers exporting industrial hemp, grown pursuant to the 2014 Farm Bill, as outside of the scope of the CSA.

By nature of the 2014 Farm Bill, industrial hemp cannot be imported. This is because the cultivation of industrial hemp is only permitted if grown pursuant to a state’s agricultural pilot program under the guidance of a state department of agriculture.

But before you go and order a metric ton of mature cannabis stalks, keep in mind that any shipment of any cannabis-related good can come with additional scrutiny. Even if a product is solely derived from Exempt Cannabis Plant Material, that doesn’t mean that Customs will thoroughly investigate its shipment. Importers and exporters should be prepared to prove that the product was solely derived from Exempt Cannabis Plant Material and not marijuana. This can be difficult to do as there is no way to truly test from what portion of the plant a product was derived. You may be thinking, “well can’t a lab confirm that a product contains no THC?” The answer, of course, is “yes”, but even though verifying THC content is important (THC is listed separately from marijuana as a controlled substance in the CSA) it is not dispositive in determining whether a product is derived from Exempt Cannabis Plant Material.

Intrepid importers and exporters should prepare to detail the chain of title for Exempt Cannabis Plant Material. This can include an affidavit from the original supplier of the plant that only Exempt Cannabis Plan Material was used, lab certifications, purchase orders, shipping documentation, and any other documentary evidence showing the source of the plant material. There is no single item guaranteed to satisfy the authorities, so it’s best to prepare multiple documents in case they are needed.

marijuana cannabis employment discrimination
Nice job by the court.

As a general rule of thumb, employers are not allowed to discriminate against employees with disabilities. Both federal and state laws provide this protection. This means that an employer cannot take an adverse employment action against an employee because of the employee’s disability. Again, this is a “general” rule of thumb: In the cannabis context, things are always a bit different.

Some states have passed legislation protecting medical marijuana users off work marijuana use. Employers in those states cannot terminate an employee or refuse to hire an applicant because of their off-work medical marijuana use. Historically, however, the big problem with these laws is that state and federal courts have readily determined the Controlled Substance Act (CSA) preempts state law, and that employers may terminate medical marijuana patients for off-work use. Recently, for the first time, a federal court sided with an employee who brought a claim against her employer for termination for off-work use of marijuana.

According to the lawsuit filed in Connecticut, Katelin Noffsinger is a registered medical marijuana user. In 2016, Noffsinger applied for a job with Bride Brook Nursing & Rehabilitation (“Bride Brook”). Bride Brook offered her the job contingent on passing a pre-employment drug test. Noffsinger informed her potential employer that she was a medical marijuana patient and likely would not pass the drug test. Noffsinger took the drug test which confirmed the presence of THC. Bride Brook rescinded its job-offer. Noffsinger brought a claim against Bride Brook alleging Bridge Brook had violated the anti-discrimination provision of the Connecticut Palliative use of Marijuana Act (PUMA). Bride Brook attempted to dismiss the case, asserting the claim was preempted by the CSA, the Americans with Disabilities Act (ADA) and the Food, Drug and Cosmetic Act (FDCA).

The federal court first addressed the CSA preemption claim. The Court held that the CSA did not prohibit employers from employing marijuana users. Meaning, if state law prohibited employers from discriminating against medical marijuana users, it would control.

The Court next determined that the ADA did not preempt PUMA because the ADA explicitly allows employers to prohibit illegal drug use at the workplace but does not authorize employers to take adverse employment action based on drug use outside of the workplace. Finally, the Court determined the FDCA does not regulate employment and therefore was inapplicable in the current case.

The Court did not rule on the substance of Noffsinger’s claim–meaning it has not determined if Noffsinger was discriminated under PUMA. That decision is still pending a jury trial.

The Noffsinger case is important. It’s the first case of its kind to determine that marijuana’s illegality under federal law does not bar an employment claim based on state law. State courts, such as the Oregon Supreme Court, have expressly held that the CSA preempts state medical marijuana laws—meaning employers in the State of Oregon, for example, may still terminate an employee for off-work marijuana use.

The decision in the Noffsinger case is not binding in other jurisdictions, but it could indicate a significant shift in federal courts’ view on medical marijuana. Perhaps this court’s sound reasoning will influence other federal judges to provide equal protections to medical marijuana patients until marijuana is de- or rescheduled under the CSA.

RICO cannabis landlord
RICO suits are not just busting up gangs these days.

The Racketeer Influenced and Corrupt Organizations Act (RICO) is a federal Nixon-era law originally intended to combat drug cartels and organized crime. Among other features, it allows average citizens claiming a loss in property value to bring suit for triple damages plus attorney’s fees against any “person” or “enterprise” that has a part in any neighboring “racketeering activity” which includes—you guessed it—“dealing in a controlled substance.” Currently, federal law continues to classify cannabis as a Schedule I controlled substance—meaning it has no medicinal value, and is supposedly more dangerous than methamphetamine, methadone, hydromorphone, and oxycodone, among other things.

RICO has been read broadly enough by its patrons to include operators, as well as landlords, lenders, and even government licensing agencies and customers, as co-conspirators in licensed cannabis operations, meaning angry neighbors have found their deliverance when it comes to trying to shut down state-legal cannabis businesses. The painful irony of all this is that anyone with an aversion to cannabis in a state where voters democratically decided to legalize it has unique power to be an American Gangbuster because of an almost-half-century-old relic of the federal War on Drugs; yet, meanwhile, companies that would be investing in local communities are looking north to do five-billion-dollar Canadian Blockbusters. The bottom line is that as long as federal law remains unchanged, it does not matter how state voters decide to govern themselves, or even how sensibly the federal government decides to enforce federal laws prohibiting cannabis. RICO provides a private right of action for any would-be provocateurs that can plausibly claim they have been damaged by a neighboring cannabis business.

So how can landlords and tenants approach this issue when designing a cannabis tenancy? The short answer is that RICO will continue to be a real issue for as long as federal law allows it to be, but the parties can take some proactive measures in drafting the lease to mitigate that threat:

Build in an early termination option for third-party lawsuits. Just as the lease can include early termination options for a variety of cannabis-specific occurrences, it can provide an opportunity for one or both parties to address an undismissed third-party lawsuit by terminating the tenancy. This can include RICO actions as well as standard nuisance actions, which often have longer legs than RICO lawsuits. It can also include indemnification obligations if, e.g., the tenant causes the problem by failing to comply with the lease terms, or if the landlord misrepresents neighborhood sentiment (more on that below).

Vet the neighbors. Just as a tenant would analyze the zoning laws applicable to a proposed use, a cannabis tenant should take some time to see what the neighborhood is all about. Does the community support the use? How are the neighboring areas zoned? Is there any kind of history of bad actors in this space that’s left a bad taste? The tenant will have to make sure the site isn’t within any prohibited buffer zones of schools or youth centers as part of its state license application anyway, and what better opportunity to get to know your potential neighbors? Even some casual exploring is better than nothing, and can save loads of trouble down the road. Depending on how the parties negotiate the lease, it can include, e.g., landlord warranties of no known neighbor objections after diligent inquiries, or a term that puts the responsibility on the tenant to figure out how the use would go over in the community.

Tighten up those compliance obligations. Compliance with state and local law is the key to avoiding enforcement actions, and is equally important when it comes to neighbor relations. State regulations contain strict requirements about security protocols, waste management, hours of operation, and product transportation. Local rules will typically dictate things like parking requirements, odor management, and noise. The stronger and more specific the lease is with regard to complying with these various rules, the better chance you will have that the tenant (i) knows them, and (ii) follows them. Simply indemnifying yourself in the lease makes little difference if you end up losing an otherwise good tenant because they were uninformed.

Research the local politics and get to know local law enforcement. California’s cannabis regulatory regime is unique in that local jurisdictions are still king when it comes to who gets to operate and where. And we’ve already seen a repeat of what’s happened in other states that have legalized: jurisdictions sometimes change their minds and declare previously allowed cannabis operations to be non-conforming uses. Having your finger on the community pulse and knowing the level of support for your local cannabis ordinance when it passed is going to put you in a better position to know whether your cannabis tenant or your cannabis operation is more likely to be a welcome neighborhood feature or a walking lawsuit.

For more on California cannabis leasing, check out the following:

california marijuana cannabis enforcement
Home of fewer illegal grows.

Federal enforcement of the Controlled Substances Act in states that have legalized cannabis has been a huge question mark for years, but especially so in California since the 2016 passage of Prop 64, which legalized medicinal and adult-use cannabis and laid the framework for a new regulatory regime. Almost two years later, that question remains, but certain trends have emerged, were reinforced, and now seem to be forging full speed ahead. Those trends suggest that (1) the Department of Justice is not engaging in a crackdown against cannabis businesses that are in compliance with state and local law, and (2) the state and the federal government have agreed to coordinate on enforcement actions where it furthers the priorities of both entities. So far, those priorities have been organized crime and illegal cultivation on public lands, and this week the latter priority got a big boost from both sides of the equation.

On the state side of things, a proposed state law extending the statute of limitations from one to three years for state enforcement actions against unlawful “conversion of timberland to nonforestry-related agricultural uses”—a move that targets illegal cannabis cultivation on public lands—has passed the state legislature and is now before Governor Brown for signature. The bill also clarifies that the limitations period does not begin to run until the state discovers the violation.

On the federal side of things, the Department of Justice issued a formal statement about the results of its summer-long collaborative project with the state and local governments to target and eradicate illegal cultivation operations on public lands, aka Operation Forest Watch, which we now know has been underway since at least October 2017 and also included the California National Guard. One important reason behind this effort was an unprecedented level of illegal toxic pesticides being used in unlicensed cannabis cultivation, some so powerful that a “quarter-teaspoon can kill a 300-pound bear.” Because cannabis grown using these dangerous pesticides cannot pass California’s stringent quality standards, it has been mostly shipped illegally to the Midwest and the East Coast, undermining both California and federal laws prohibiting diversion out of state.

The big-picture takeaway from this joint operation is that “federal authorities are concentrating their efforts on hazardous illegal grows on public land instead of targeting California’s new recreational marijuana industry, although marijuana remains illegal under federal law.” Another take on it is that federal and state cooperation on cannabis enforcement as it has been structured to date benefits both entities when priorities are aligned: The federal government furthers its goals of protecting public lands and public safety and targeting organized crime; while the state furthers those same goals in its own interests, and at the same time reinforces the state’s regulatory regime by incentivizing licensing and compliance and cracking down on the state’s illegal markets.

It remains to be seen what effect these joint enforcement actions, as well as California’s continued crackdown on unlicensed operators, will have on the state’s cannabis market writ large, but to date they have unquestionably proven beneficial to both parties, as well as all Californians who enjoy and want to preserve our forests.