Government and Policy Trends

Vermont may become the 9th state to allow recreational marijuana and the 1st state to do so via legislation. Last Wednesday, the Vermont house approved a bill 79-66 which would create a regulatory structure for the cultivation, processing, sale and use of recreational marijuana by July, 2018. The Vermont Senate previously passed the bill with a 20-9 vote. The bill will now be sent to the Governor for a veto, signature, or no decision, only a veto would prevent it from becoming law. The other 8 states that allow recreational marijuana have done so through voter referendums.

July 2018 is not a random date, the bill references two neighboring states, Maine and Massachusetts, which will allow retail stores to sell marijuana in July 2018. Another border neighbor-Canada is looking at Summer 2018 for when licensed retail stores will begin selling marijuana as well.

We will update this blog either when the Governor acts on this bill or Ben & Jerry’s commemorates the passage with a new ice cream flavor. We are anxiously awaiting both.

Last week, the DOJ sent a letter to trustees who handle consumer bankruptcy reminding them that marijuana is a federally illegal drug and warned them not to handle any money from the sale of marijuana-related property.  The letter goes on to state “Our goal is to ensure that trustees are not placed in the untenable position of violating federal law by liquidating, receiving proceeds from, or in any way administering marijuana assets.”

What does this mean?

Colorado courts have already dismissed numerous cases where the company was engaged in state-legal marijuana cultivation and sales, so this is nothing new.  However, this letter might be illustrative of Attorney General Sessions’ previous statements that the DOJ will increase legal scrutiny on marijuana.

While it is clear that marijuana business likely do not have federal bankruptcy protection based on the current law, there are state laws regarding the receivership and assignment for the benefit of creditors that can be utilized to assist a failing marijuana company deal with its debts.

Young cannabis plants, marijuanaThe Colorado adult-use marijuana industry is off to a record-setting start in 2017, with sales increasing by more than 30% over figures from 2016.  This is on the heels of a record setting $1.3 Billion in sales last year and threats over a federal crackdown on adult-use marijuana.

What does this mean?

If the trends hold, 2017 will be the third-year in a row for Colorado seeing dramatic growth.  While there are numerous factors driving the increase, the linked article points to “hoarding” by regular users if their access is denied by the DOJ.  I would also point to wider acceptance from the community in general, less fear mongering of the dangerous of adult-use marijuana by the anti-legalization movement and more diverse product offerings from the industry.  Subject to federal intervention by the DOJ, I expect the adult-use marijuana industry to continue to grow and expand for several years to come.

Cannabis oil cartridgeToday, on 4/20, I was invited by the Academy of Hospitality Industry Attorneys (AHIA) to present on Colorado marijuana issues at the Spring 2017 meeting in Colorado Springs, CO.  This presentation will take a look at the current marijuana market in Colorado as well as discuss national marijuana trends. For more details, please read here.

Senator Ron Wyden and Congressman Earl Blumenauer introduced “The Path to Marijuana Reform” this week.  As provided for in the executive summary linked in the previous sentence:

The Path to Marijuana Reform includes three bills that pave the way for responsible federal regulation of the legal marijuana industry, including:

  • Small Business Tax Equity Act
    This legislation would repeal the tax penalty that singles out state-legal marijuana businesses and bars them from claiming deductions and tax credits.
  • Responsibly Addressing the Marijuana Policy Gap Act
    This legislation would reduce the gap between Federal and State law by removing federal criminal penalties and civil asset forfeiture for individuals and businesses acting in compliance with state law. It would also reduce barriers for state-legal marijuana businesses by ensuring access to banking, bankruptcy protection, marijuana research, and advertising. It would protect individual marijuana consumers in states that have legalized marijuana, by providing an expungement process for certain marijuana violations, ensuring access to public housing and federal financial aid for higher education, and ensuring that a person cannot be deported or denied entry to the U.S. solely for consuming marijuana in compliance with state law. Finally, it would remove unfair burdens by ensuring veterans have access to state-legal medical marijuana, and protecting Native American tribes from punishment under federal marijuana laws.
  • Marijuana Revenue and Regulation Act
    This legislation would responsibly deschedule, tax, and regulate marijuana. It would impose an excise tax on marijuana products similar to current federal excise taxes on alcohol and tobacco, escalating annually to a top rate equal to 25 percent of the sales price. Marijuana producers, importers, and wholesalers would be required to obtain a permit from the Department of Treasury, and the marijuana industry would be regulated in a manner similar to alcohol. Strict rules would prohibit sale or distribution of marijuana in states where it is illegal under state law.

What does this mean?

Of particular note is the Small Business Tax Equity Act.  This bill is notable because it is a potential fix to the massive problem of 280E but is also co-sponsored by Sen. Rand Paul (R-KY) and Rep. Carlos Curbelo (R-FL) is sponsoring companion legislation in the House.  Curbelo is a member of the House Ways and Means Committee, which oversee all tax-related legislation.  This is a great step forward for the cannabis industry in garnering bi-partisan support.

Yesterday, Sean Spicer attempted to call out a difference between medical and recreational marijuana at the federal level.  He clearly does not understand that ALL marijuana is federally illegal.  Further, he made a poor and factually incorrect analogy by comparing the current opioid abuse crisis to marijuana use.  Spicer ended his comments on recreational marijuana by stating that the DOJ will step up enforcement actions.

What does this mean?

As we all know, Trump is a wild card, and Spicer’s comments do little to clarify the administration’s position.  Previous statements on the issue indicate some degree of support for the cannabis industry, or at a minimum, support for states to determine their own regulations.  “In terms of marijuana and legalization, I think that should be a state issue, state-by-state,” Trump told The Washington Post. “… Marijuana is such a big thing. I think medical should happen — right? Don’t we agree? I think so. And then I really believe we should leave it up to the states.”

Further, the recent FY2016 omnibus appropriations bill contains the Rohrabacher-Farr Amendment which prohibits the Department of Justice from interfering with state medical cannabis laws was also widely supported by a GOP controlled Congress (passed in the House by a vote of 242-186, and the Senate Appropriations Committee approved it 21-9).  A recent Gallup Poll found nationwide support for legalization at 60%, the highest it likely has ever been.  Florida also passed its medical-cannabis initiative with 71% approval – Florida also voted for President Trump.  It is clear from Trump’s statements and Spicer’s comments that medical marijuana should remain a non-enforcement priority.

So based on Spicer’s comments regarding recreational marijuana – does Attorney General Sessions unwind years of hands-off federal policy towards state-legal recreational marijuana?  We’ll just have to wait and see.  I am hopeful that Spicer’s comments are just that, off-the-cuff comments with little substance or thought.  However, the recreational marijuana industry is now on notice.  I think we are in for a bumpy 2017.

 

Cannabis snippetMy esteemed colleague and frequent medical marijuana commentator, Fred Miles, was quoted in the NY Times article “When Retirement Comes With a Daily Dose of Cannabis“.  Check this article out for a great read about the increasing number of older Americans living in assisted living communities and nursing homes using cannabis for relief from aches and pains as an alternative to prescription pain medicine.

Cannabis oil cartridgeMyself, Winn Halverhout and Fred Miles were interviewed by Advisory Board about the main challenges facing providers related to medical marijuana, how the new administration might change the legal landscape, and more.

Check out the article here.  Advisory Board is a best practices firm that uses a combination of research, technology, and consulting to improve the performance of health care organizations around the world.

 

 

Young cannabis plants, marijuanaYesterday the DEA published a final rule providing for a new drug code for “Marihuana Extract” .  The DEA states that this will allow them to track quantities of “Marihuana Extract” separately from marijuana to aid in the compliance with relevant drug treaties.  This new rule is set to become effective on January 13, 2017.  The DEA’s new definition for “Marihuana Extract” includes: “an extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.”

What does this mean?

Fundamentally this does not represent a change in federal law, as cannabinoids extracted from “marihuana” (as defined in the CSA) are federally illegal.  However, the plain language of the new definition does appear to expand the CSA’s reach to cover cannabinoids extracted from the genus Cannabis not just “marihuana”.  This means that cannabis businesses that have imported permissible parts of the plant Cannabis sativa L., are now also likely prohibited from extracting cannabinoids from such plant material.

NOTE:  Given the varied implications, my firm is further analyzing the implications to the cannabis and pharmaceutical industries.  We will provide an update when appropriate.