Organic Certification of Industrial Hemp Production Allowed by USDA

The USDA retracted its previous policy today and has permitted the organic certification of industrial hemp by certified agents accredited by the NOP, if produced in accordance with USDA organic regulations.  For imported hemp, existing regulations and guidelines continue to govern whether products may be certified as organic.

What does this mean?

Industrial hemp cultivated under Section 7606 of the Agricultural Act of 2014 (Farm Bill) that authorizes institutions of higher education and state departments of agriculture to establish industrial hemp research pilot programs in states where the production of industrial hemp is legal can now be certified organic.  This is a positive step for the industry and it is further evidence that industrial hemp will hopefully be legalized in the near future.

Industrial Hemp – Statement of Principles from USDA

The US Department of Agriculture provided statements of principals on industrial hemp, in consultation with the DEA and the FDA, to inform the public how Federal law applies to activities associated with industrial hemp that is grown in accordance with the Agricultural Act of 2014.  Generally, the statement of principles are consistent with my previous posts about the inability to generally commercialize industrial hemp grown in the US in compliance with Federal law.  I have excerpted a few statements that industrial hemp businesses should pay close attention to, with a few comments from me in italics:

  • For purposes of marketing research by institutions of higher education or State departments of agriculture (including distribution of marketing materials), but not for the purpose of general commercial activity, industrial hemp products may be sold in a State with an agricultural pilot program or among States with agricultural pilot programs but may not be sold in States where such sale is prohibited. Industrial hemp plants and seeds may not be transported across State lines.While this provides some latitude to make certain sales of “industrial hemp products” for purposes of marketing research, it is explicitly clear that general commercialization in all 50 states is NOT permitted and the commercialization of industrial hemp products not in connection with market research is prohibited.  Further, it is also clear that the sale of plants or seeds across state lines if forbidden.
  • Section 7606 specifically authorized certain entities to “grow or cultivate” industrial hemp but did not eliminate the requirement under the Controlled Substances Import and Export Act that the importation of viable cannabis seeds must be carried out by persons registered with the DEA to do so. In addition, any USDA phytosanitary requirements that normally would apply to the importation of plant material will apply to the importation of industrial hemp seed.This should not be a surprise.  The CSA continues to control and germinated seeds are prohibited from being imported unless registered with the DEA to do so.
  • The Federal Government does not construe section 7606 to alter the requirements of the Controlled Substances Act (CSA) that apply to the manufacture, distribution, and dispensing of drug products containing controlled substances. Manufacturers, distributors, dispensers of drug products derived from cannabis plants, as well as those conducting research with such drug products, must continue to adhere to the CSA requirements.This appears to be directed at the extraction market for CBD and other cannabidiols.

Husch Blackwell Places 150 Lawyers in 2017 Best Lawyers in America

The Best Lawyers in America has listed 150 Husch Blackwell lawyers in its 2017 directory, breaking the firm’s old record of 109 set last year. The firm also has 13 attorneys listed as “Lawyers of the Year.”

The directory was first published in 1983 and is based on a national survey involving more than seven million detailed evaluations of lawyers by other lawyers.

The full list of Husch Blackwell’s 2017 Best Lawyers honorees are found here.  Included in this list is Cannabis attorney Steve Levine.

Ninth Circuit ruling upholds Congress de-funding of DOJ enforcment actions against state-legal medical marijuana businesses

A favorable ruling from the Ninth Circuit in United States v. McIntosh is a reassuring win for the medical marijuana industry.  This federal case concluded that § 542 of the Consolidated Appropriations Act prohibits DOJ from spending money on actions that prevent medical marijuana states giving practical effect to their state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

What does this mean?

It’s a nice reassurance for medical marijuana businesses, their employees and patients acting in compliance with state rules. It is also likely to dissuade the DOJ from taking similar actions in the near future and provides a valuable precedent to certain defendants so long as the current prohibition on DOJ enforcement spending remains in effect. However, Congress can change the spending prohibition at any time.

The footnote of the case reaffirms that marijuana is still federally illegal and does not provide immunity from prosecution for federal marijuana offenses.   The footnote is below:

[Footnote 5: The prior observation should also serve as a warning. To be clear, § 542 does not provide immunity from prosecution for federal marijuana offenses. The CSA prohibits the manufacture, distribution, and possession of marijuana. Anyone in any state who possesses, distributes, or manufactures marijuana for medical or recreational purposes (or attempts or conspires to do so) is committing a federal crime. The federal government can prosecute such offenses for up to five years after they occur.

Congress currently restricts the government from spending certain funds to prosecute certain individuals. But Congress could restore funding tomorrow, a year from now, or four years from now, and the government could then prosecute individuals who committed offenses while the government lacked funding. Moreover, a new president will be elected soon, and a new administration could shift enforcement priorities to place greater emphasis on prosecuting marijuana offenses.

Nor does does any state law “legalize” possession, distribution, or manufacture of marijuana. Under the Supremacy Clause of the Constitution, state laws cannot permit what federal law prohibits. Thus, while the CSA remains in effect, states cannot actually authorize the manufacture, distribution, or possession of marijuana. Such activity remains prohibited by federal law.]

Finally, this ruling also only covers “medical marijuana” and not “recreational marijuana.”  As I have stated before, this does not prevent the DOJ from using funds for enforcement actions against recreational marijuana businesses.

Marijuana will not be rescheduled in 2016

The U.S. Drug Enforcement Administration filed documents with the Federal Register on Thursday outlining its denial of petitions to reschedule marijuana.  The DEA stated that marijuana has no known medical use and that the decision was based heavily on the evaluations of the U.S. Food and Drug Administration and the Department of Health and Human Services.  This determination should not be interpreted as the DEA now going after state-legal marijuana business, rather DEA enforcement action will remain focused on heroin, fentanyl, meth, cocaine.  Ultimately, the DEA’s decision is a neutral to the marijuana industry.

 

Colorado General Assembly Makes it Easier for Out-of-State Investors to Provide Capital for Marijuana Businesses

On June 10, 2016, Governor Hickenlooper signed bill 16-040 which removes the Colorado two year residency requirement to obtain a marijuana business owner license, ultimately easing the burden for prospective out-of-state investors to become owners. The Colorado General Assembly’s intent in creating this bill was to provide marijuana businesses with the economic capabilities to grow their operations and remain competitive in the marijuana marketplace. Below is a quick review of Colorado’s history of licensing requirements for marijuana business owners, and a summary of the licensing requirements after the enactment of this new law.

Changes to the Requirements for Owners of a Licensed Marijuana Business

Colorado’s marijuana laws have been notoriously opposed to allowing out-of-state residents to own Colorado marijuana businesses. Until recently, Colorado required prospective marijuana business owners to be a two year resident of Colorado prior to their license application. Ultimately, prospective out-of-state investors, who did not meet this requirement and could not own a stake in the business, were deterred from investing. Over time, the Colorado General Assembly has become more tolerant of out-of-state investors, evidenced by the creation of a new class of ownership called Permitted Economic Interest (“PEI”). The PEI allowed out-of-state investors a formalized process for investing in cannabis businesses—— through convertible notes or options to purchase equity of a licensed marijuana business—— while still requiring Colorado residency for two years for marijuana business ownership.

However, prospective out-of-state investors are no longer required to be Colorado residents for two years before applying for a marijuana business owner license. The Colorado General Assembly, with the enactment of this new bill 16-040, has created a new distinction of ownership: Direct Beneficial Interest Owner.  A Direct Beneficial Interest Owner is an individual or closely held business entity that owns equity shares of stock in a marijuana business. The requirements for an individual are: Colorado residency for one year prior to the date of the license application; or United States citizenship prior to the date of the license application. Before applying for this new type of ownership, prospective out-of-state investors must first request a finding of suitability from the State Licensing Authority, . If the investor receives a suitability confirmation then he or she may apply to become a Direct Beneficial Interest Owner. For a closely held business entity, the new law requires that it must consist entirely of United States citizens prior to the date on the license application.

This new bill places certain restrictions on marijuana businesses in relation to Direct Beneficial Interest Owners. Marijuana businesses can be comprised of an unlimited number of Direct Beneficial Interest Owners who have been Colorado residents for at least one year prior to the license application. But, marijuana businesses comprised of one or more than one Direct Beneficial Interest Owner Direct Beneficial Interest Owners, who lack one year of Colorado residency prior to the date on the license application, must have at least one officer who meets the requirement of Colorado residency for one year. Further, bill 16-040 restricts marijuana businesses from being made up of more than fifteen Direct Beneficial Interest Owners, when the business consists of one or more Direct Beneficial Interest Owners who do not meet the requirement of Colorado residency for one year. These limits aren’t set in stone going forward as the MED may increase the number of allowable Direct Beneficial Interest Owners above fifteen if the increase is supported by: developments in state and federal financial regulations, market conditions, and the business’s ability to access legitimate sources of capital.

Marijuana businesses may also include Qualified Institutional Investors who own 30% or less of the business, Bill 16-040 defines an institutional investor as:

  • A Bank
  • An Insurance Company
  • An Investment Company
  • An Investment Adviser
  • Collective Trust Funds
  • An Employee Benefit Plan or Pension Fund
  • A State or Federal Government Pension Plan
  • Any other entity identified by the MED

However, the MED has the right to conduct an initial background check on any prospective investor.

What does this mean?

Colorado has clearly made the right step in permitting outside investment into the state regulated marijuana industry.  While the regulations implementing them are yet to be adopted (i.e. does an institutional investor or its owners/officers/directors need to be background checked, fingerprinted, etc.) there is a path for out of state investors as well as regulated funds or banks to be able to participate.  As always, the devil will be in the details and we will not know how this will be implemented until the regulations are finalized and adopted later this year.

Cultivation loses license in Denver – is this a trend?

The City of Denver licensing director, Stacie Loucks, agreed with a hearing’s officer’s findings that a cultivation’s odors and other effects conflict with the neighborhood plan for Elyria-Swansea and denied the renewal of a cultivation license.  This is an unprecedented action taken and surely the owner of the cultivation will appeal this decision to the district courts.

What does this mean?

It should be noted that one of the neighborhood advocates supporting a rejection of the license was affiliated with the nearby National Western Stock Show.  The National Western Stock Show generates substantial revenue to the City and is an active participant in local government.   Further, this particular cultivation is within neighborhood boundaries (unlike the numerous other cultivations on industrial-zoned land where cultivation is automatically allowed) and subject to this type of scrutiny upon renewals.

The City of Denver is looking to tighten the reins on the local industry with respect to managing the number of licensees and when appropriate, using its power to reduce the number of licensees through similar actions.  However, it is my view that this will not be trend as there were very specific circumstances that resulted in this particular license denial.

The take-a-way for other licensees is to make sure you are respectful of your neighbors and actively work with them to ensure they have your back to avoid a similar situation. Winning the support of neighborhood organizations, business districts and the individuals in and around your premises is key for the continued growth of our industry and especially important if you operate in a saturated neighborhood.

SOTU – Obama’s new war on drugs. Hint, it’s not cannabis…

Young cannabis plants, marijuanaLast night during the State of the Union, President Obama cited areas where Democrats and Republicans may be able to work together, including criminal justice reform and prescription drug abuse.  Prescription drug overdoses, which now kill 44 people each day, have turned into an epidemic on a national scale.

Obama’s speech to a Republican-controlled Congress to work out a bi-partisan approach to prescription drug abuse demonstrates a sense of urgency that our politicians at the federal level need to do more to address this issue.

Cannabis on the other-hand, widely considered much safer than opioids, is still a Class I substance under the Controlled Substance Act (CSA) and federally illegal.  However, there is scientific evidence that cannabis has benefits for treating certain instances of:

  • Neuropathic pain
  • Glaucoma
  • MS spasticity and central pain
  • Chemotherapy induced nausea and vomiting

In many cases cannabis, or yet-to-be-developed cannabinoid-based pharmaceuticals, could potentially be a safer alternative than opioids.

While I applaud President Obama’s stance on prescription drug abuse, I think it is time that this administration also take a stance on the benefits of cannabis by supporting the declassification of cannabis from the CSA and allowing individuals States to implement there own state-legal cannabis laws without concern of federal law conflict.  Such a step would not only provide some much needed clarity for non-medical cannabis businesses (such as industrial hemp), but would also accelerate the progress of cannabis medical studies and the development of treatments – treatments that could prove to be be safer alternatives to current opioid applications.

2016 Federal Budget Approved – State MMJ Programs and Industrial Hemp Provided Protection

President Obama approved the 2016 federal budget and it contained a prohibition that none of the funds made available to the Department of Justice may be used, with respect to any of the States that have state-legal medical marijuana programs, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

In addition, the 2016 federal budget also prohibits the use of any funds made available to any agency that might be used in contravention of the Agricultural Act of 2014 or prohibit the transportation, processing, sale, or use of industrial hemp that is grown or cultivated in accordance with the Agricultural Act of 2014, within or outside the state in which industrial hemp is grown or cultivated.

What does this mean to you?

Medical Marijuana – Similar to the 2015 Federal Budget, this prohibition only covers “medical marijuana” and not “recreational marijuana.”  As I have stated before, this does not prevent the Department of Justice from using funds to prevent recreational marijuana programs from implementing laws.  While this is a continued step in the right direction, the prohibition does not extend to state-legal recreational marijuana.

Industrial Hemp – This is also a positive step for the industrial hemp industry for those operating under the Agricultural Act of 2014.  This will allow the continued cultivation of industrial hemp for purposes of research conducted under an agricultural pilot program or other agricultural or academic research.  However, this does not allow industrial hemp to be sold for commercial purposes.  For a State like Colorado, that allows the commercialization of industrial hemp.  You should contact your legal counsel to discuss the implications prior to selling any products.

US Government Files Brief For SCOTUS to Refuse Colorado Marijuana Lawsuit

The US Government has urged SCOTUS to pass on hearing the dispute among Nebraska, Oklahoma and Colorado over Colorado’s law legalizing the recreational use of marijuana.  In a brief filed late Wednesday night, U.S. Solicitor General Donald Verrilli Jr., stated that Nebraska and Oklahoma have not sufficiently alleged that Colorado has inflicted direct injury to the citizens of those respective states to warrant the exercise of original jurisdiction over the case.

This is a win for the cannabis industry.  At the direction of the Obama administration, U.S. Solicitor General Donald Verrilli Jr. clearly states that SCOTUS should not weigh-in on this issue.  While I believe that the arguments from Nebraska and Oklahoma are weak, this is a positive step to dissuade SCOTUS from acting as the final law maker on this issue.  This is a job for the legislature.

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