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.

 

 

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?

 

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.

 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.

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.

Attorney General Sessions rescinded, effective January 4, 2018, previous enforcement priorities of the DOJ related to marijuana – including the Cole Memo. The Sessions Memo dictates that federal prosecutors should follow the “Principles of Federal Prosecution” originally set forth in 1980 and subsequently refined over time in chapter 9-27.000 of the U.S. Attorney’s Manual. Sessions goes on to state in his memo that “These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” It is important to note that Sessions has not previously set any specific enforcement priorities with respect to marijuana, nor has this memo created any new enforcement priorities of the DOJ. Rather Sessions has removed the foundational guidance that states have relied on to regulate the production and distribution of marijuana pursuant to state law and the will of each states’ citizens. The Cole Memo actually set 8 enforcement priorities for the DOJ with respect to marijuana, which Sessions has now unilaterally rescinded.

Continue Reading The Sessions Memo

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, marijuanaAccording to a prominent cannabis advisory firm, the cannabis industry raised over a $1 Billion in investment dollars in 2016.  These investments included public companies on the TSXV (cultivation and extract company), NYSE (REIT) and NASDAQ (pharmaceutical company).

What does this mean?

Majority of large investments are going into real estate and pharmaceutical company – as these investments are not subject to the strict regulatory environment restricting ownership of companies that cultivate and sell cannabis.  Big money will continue to flow to “non-plant touching” business in 2017; however, I expect a fair amount of consolidation in the cultivation and retail sectors.