On May 31, Husch Blackwell Cannabis team members Steve Levine and Marshall Custer will present on Marijuana and Industrial Hemp Industries: The Impact on Colorado’s Economy at the Denver Metro Chamber of Commerce. They will provide industry and legal insight related to the burgeoning marijuana and industrial hemp industries in Colorado. The program will also explore how not only operators are capitalizing on opportunities but also how ancillary businesses are also thriving. The program will be held from 7 to 9 a.m. at the Chamber.

The Hemp Farming Act of 2018 (the “Bill”) introduced by Senate Majority Leader Mitch McConnell, would provide a much needed stimulus for the United States rural economy. Given the pending risk of a trade war looming over agricultural businesses, the continuing decline in agricultural commodity prices, and the ever-present institutional risks facing producers, one might wonder why anyone would continue, let alone enter, the farming profession. The Bill offers hope, however, for the men and women who make their living off the land.

Why?

Diversification of crop production and strategic crop rotation are fundamental to a successful farming business. And, the planting and cultivation of hemp could be implemented into any number of crop rotations because it: (i) thrives in almost all climates; (ii) enriches the soil; (iii) uses less water than most other crops; and (iv) grows quickly. The Bill makes hemp a viable rotation crop by legitimizing it as an U.S. agricultural commodity through (i) advancing opportunities for hemp research, (ii) including it as a coverable commodity under the Federal Crop Insurance Act, and (iii) removing it from the Controlled Substances Act.

The Bill has bipartisan support and, for the sake of the rural economy and all those many industries who stand to deservingly benefit from its passage, we hope it soon becomes law.

The bill, known as the Hemp Farming Act of 2018, would legalize hemp, removing it from the federal list of controlled substances and allowing it to be sold as an agricultural commodity.  “By legalizing hemp and empowering states to conduct their own oversight plans, we can give the hemp industry the tools necessary to create jobs and new opportunities for farmers and manufacturers around the country,” McConnell said in a statement last week introducing the bill. The bill has bipartisan support.

This bill also seeks to end the grey area surrounding hemp-derived CBD extracts: “The term ‘hemp’ means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

What does this mean?

As I have previously stated, my hope was that this bill would not only deschedule industrial hemp as a controlled substance but provide clarity regarding hemp-derived CBD. This bill has done exactly that and now what remains to be seen is can Sen. McConnell get this over the finish line in its current form?

 

Husch Blackwell is a lead sponsor of the Northern California Quarterly Cannabis Caucuses – next of which is to be held on Tuesday, April 10 in San Jose, CA. The 2nd quarter caucus will bring together executive level industry professionals, policymakers, regulators, and movement leaders to network, learn about emerging topics in the industry, and plug into NCIA’s efforts to advance the industry nationally. A registration link can be found here. Please use promo code HUSCH75 for 75% off tickets to this event.

 

Yesterday, Senator Mitch McConnell spoke to a group of hemp advocates in his home state of Kentucky that he will introduce legislation to legalize industrial hemp as an agricultural commodity.  If approved, Sen. McConnell’s legislation would allow states to control their own hemp regulations by removing federal restrictions.

What does this mean?

While industrial hemp has benefited from the 2014 Farm Bill and related state programs, there is still a considerable grey area surrounding the legality and commercialization of industrial hemp, including CBD, in the United States.  The Federal government has long taken the position that general commercialization of industrial hemp is NOT permitted in all 50 states and 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.” It should be noted that this definition of “Marihuana Extract” includes CBD isolate that is extracted from industrial hemp.  While Sen. MConnell’s legislation has not yet been released as of posting of this blog, the hope is that it will provide clarity on not only legalizing industrial hemp but also providing clear guidance on the legality of cannabinoids derived from industrial hemp.

On Thursday, March 29, the Cannabis team at Husch Blackwell and Navigant, will host a cannabis seminar on developing quality systems for the cannabis/hemp industry. We will discuss the process, validations and preparation for Good Manufacturing Practice (GMP) certification. For more details, please read more here.

 Yesterday, details of the Fiscal Year 2018 Budget were released.  Congress has once again elected to prohibit the Department of Justice (“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.  Congress also continued existing provisions shielding state industrial hemp research programs from federal interference.  Adult-use was left off.

What does this mean?

It’s a nice reassurance for industrial hemp/medical marijuana businesses, their employees and patients acting in compliance with state rules.  Note, this does not prevent the DOJ from using funds to prevent adult-use marijuana programs.  However, just last week, a bipartisan group of 59 lawmakers wrote a letter that the DOJ should be blocked from enforcing federal marijuana prohibition in states that have enacted legalization, medical AND adult-use.  It is still unclear when there will be enough appetite in Congress to get adult-use marijuana shielded from the DOJ, but I remain hopeful.

Cannabis businesses may be surprised to learn that Proposition 65, the California law that seeks to warn consumers of chemicals in the products they buy, may apply to many marijuana products.  This law requires all parties in the supply chain, from manufacturers to distributors (but not retailers except in certain circumstances) to place warning labels on products sold in California if those products contain certain levels of one of hundreds of listed chemicals determined to cause cancer or reproductive toxicity.  Thousands of 60-day Prop 65 notices have been sent to cannabis companies, primarily growers and processors, already.  With a theoretical price tag of $2,500 per violation in penalties and five and six-figure settlements, Prop 65 can be a huge headache for cannabis businesses who are not up to speed on the very real implications of this law.

Marijuana smoke has been listed as a Prop 65 chemical known to cause cancer since 2009, and so a Prop 65 warning is likely necessary for all raw cannabis.  Edible items, as well as raw cannabis, may contain Prop-65 listed pesticides, fungicides, and insecticides such as myclobutanil, carbaryl, and malathion.  In May 2017, a single plaintiff sent approximately 700 60-day notices to dispensaries, alleging Prop 65 violations due to the presence of Prop-65 listed fungicides and insecticides in edible products.  The warning obligations for cannabis extract products depend on what chemicals are present, but various reports suggest that vaporizer devices may produce the Prop 65-listed chemicals of formaldehyde, lead, cadmium, and toluene, which are known to cause cancer and/or reproductive toxicity.

There are steps you can take to ensure compliance with this tricky law and avoid costly liability.  Safe harbor levels for certain Prop 65 chemicals may be available.  A Prop 65 “audit” involving laboratory testing of your products is one way to prevent liability.  Or you can label offending products with warning labels that comply with the law – such as “This product can expose you to chemicals including [chemical name], which is known to the State of California to cause birth defects or other reproductive harm.  For more information go to www.p65warnings.ca.gov.”  There are alternatives for the wording of the warning, and there are options for how the warning may be communicated.  Contact us if you need assistance navigating these issues, or if you need legal counsel to address a Prop 65 60-day notice you’ve received.

Canada’s attempt to finalize its marijuana legislation making it the second country to legalize adult use marijuana (after Uruguay) hit a snag when Health Minister Ginette Petitpas Taylor conceded yesterday it won’t be done in July 2018.  New timetables based on legislative necessity target August or September of 2018.  As a result, many of the publicly traded Canadian cannabis companies stock price took a multi-point dip today.  As the various states in the United States that have legalized adult-use marijuana can contest, implementing regulations for a brand new industry is full of complexity and challenges.  Canada’s marijuana market will continue to be frothy in the near term but they are well on their way to being a dominate player in the marijuana industry because of the full support of its government (unlike the United States).

The state’s marijuana shops raked in $1.51 billion sales of medical and recreational flower, edibles and concentrate products during 2017, according to Colorado Department of Revenue data released last Friday. Adult-use sales topped $1.09 billion in 2017, with the remaining $416.52 million coming from medical marijuana. Cannabis sales in the state were up 15.3 percent in 2017 compared to sales growth of 31 percent in 2016.

What does this mean?

Colorado continues to have solid growth in state-legal marijuana sales but have slowed down considerably compared to 2016.  Clearly the market is moving towards a plateau or possibly even a regression in 2018 due to new adult-use markets like California and Nevada recently coming online. Operators in Colorado need to be prepared for market consolidation, tighter margins and increased competition.