“U.S.-listed shares of Canada-based Canopy Growth Corp. soared almost 30% Wednesday, after liquor seller Constellation Brands Inc. said it will invest another CAD $5 billion, or about $4 billion, in the diversified cannabis company.”

What does this mean?

Investment continues to be poured into Canadian marijuana companies listed on US stock exchanges (See Tilray listing on NASDAQ).  This most recent investment is likely do to the already $700 million return that Constellation has earned from its previous investment into Canopy of $100 million.  Obviously the alcohol industry views the marijuana industry as a threat and Constellation is taking big steps to ensure it is diversifying in an effort to create further shareholder value.  This investment further emphasizes the missed opportunities for many cannabis companies operating here in the US due to the fact that cannabis is still federally illegal.

Tilray became the first US IPO on Nasdaq on July 19th by a marijuana company.  The company priced 9 million shares at $17 apiece and by the end of the day, closing at $22.39, a jump of slightly more than 32 percent on day one. As the date of posting this blog and the second day of trading, the price has hit a high of over $31, another jump of approximately 38 percent.

What does this mean?

Clearly the national securities exchanges (i.e. NYSE and Nasdaq) in the United States are getting increasingly comfortable with the listing of plant-touching businesses operating in Canada.  What they are not comfortable with, are plant-touching businesses operating in the United States.  As a result, plant-touching businesses operating in the United States – except for Colorado – are only able to list on either a Canadian exchange (i.e. the CSE) or on the over-the-counter-bulletin (i.e. OTCQB or OTCQX).

Tilray’s total revenue in 2017 was only $20.5 million but its resulting valuation on the public market is a multi-billion dollar valuation.  Thus this company has taken advantage of the United States robust public markets that NO plant-touching operating business in the United States can even list with because of the fact that marijuana is still illegal at the federal level.

I wonder what the valuation of these Canadian companies would look like if our much stronger United States’ companies were afforded the same opportunities and there was a change in federal law in the United States?  There are companies in Colorado that have operated for almost 10 years and have annual revenues in excess of $100 million…I have a feeling there would be a substantial market adjustment for many of these public companies.

Husch Blackwell is a lead sponsor of the Northern California Quarterly Cannabis Caucuses – next of which is to be held on Tuesday, July 10 in San Francisco, CA at the Hilton Financial District. The 3rd Quarter Cannabis 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.

 

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 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, 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).