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Attorney General Sessions rescinded, effective January 4, 2018, previous enforcement priorities of the DOJ related to marijuana – including the Cole Memo.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.

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.

There has been a lot of speculation about what a Trump administration, and particularly a DOJ lead by Jeff Sessions, will mean for our burgeoning Marijuana industry. The short answer is nobody knows, and given the fact that the Trump team seems intent on using obfuscation as a strategy, I don’t think we will have any clarity on this issue any time in the near future.

The better question then becomes, what does the industry need to be prepared for? I’m working from the assumption that state-regulated marijuana is not coming to an abrupt end, but that we should expect greater attention from the DOJ in the coming years. Sloppy and apathetic operators will be most at risk. Though larger brands will also want to be wary of becoming a political trophy. Leases and other agreements need to better contemplate enforcement actions. Inventory tracking, pro-active employee and sales policies, and strict compliance with your state regulatory regime will be of paramount importance.

Our industry has seen an incredible increase in sophistication and maturity over the last 6 years. As of now, it looks like that pace will need to quicken if we want to continue to thrive.

Young cannabis plants, marijuanaCalifornia, Massachusetts, Nevada and Maine approved adult-use marijuana initiatives last night. Florida, North Dakota and Arkansas also approved medical marijuana initiatives. Unfortunately, Arizona failed to garner enough support to pass adult-use. Clearly, these votes are a watershed moment for cannabis reform in the United States. As I have stated before, California passing adult-use marijuana will likely signal the true beginning to the end of federal prohibition of marijuana. However, Donald Trump also pulled off a monumental victory for the GOP and won the White House which has created uncertainty for the industry.

What does this mean?

With the approval of adult-use marijuana in the states, the percentage of Americans living in states where marijuana use is legal for adults rose above 20 percent, from 5 percent. A recent Gallup Poll found nationwide support for legalization at 60%, the highest it likely has ever been. Florida passed its’ initiative by a 71% – Florida also voted for Trump.

As we all know, Trump is a wild card but he has not publicly taken any prohibitionist stance on cannabis. Trump recently was quoted as: “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.” Continue Reading Marijuana Wins! But so does Trump…

Cannabis snippetAccording to a report from the Marijuana Policy Project, the state-legal medical and adult use marijuana industry in Colorado had a $2.4bn economic impact on the Colorado economy in 2015.  Most importantly, the marijuana industry is credited with funding approximately 18,000 direct and ancillary full-time jobs in 2015.  While this only represents a small percentage of Colorado’s overall GDP (approx. $300 billion), the size of this industry is substantial and the world is taking notice.

What does this mean?

The obvious answer is new jobs are being created and operating businesses are generating substantial revenue.  However, this news is not all positive.  As the size of the marijuana industry in Colorado continues to expand, so will the problems that the industry will face.  While business owners in the space are not billionaires or even millionaires as everyone thinks, that fact will not stop aggressive plaintiffs attorneys from identifying potential claims against industry participants.  Expect an increase of product liability claims, customer slip and fall claims, Americans with Disabilities Act (ADA) claims, shareholder lawsuits, etc.  Owners need to be prepared to ensure they are in a position to defend these lawsuit by making sure they are adequately insured and hire professionals to provide adequate advice on how to best mitigate these issues now.  Waiting for the lawsuit to come will be too late.