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.

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

Husch Blackwell is pleased to announce the opening of a new law office in Sacramento, California, on January 2, 2018.

The office, located about two blocks from the state Capitol. The new location will allow us to better serve the emerging cannabis industry in California and be a base to serve other firm clients with California needs.

Join Us at the Cannabis Caucus Husch Blackwell is a lead sponsor of the Northern California Quarterly Cannabis Caucuses. The four caucuses in 2018 will bring together industry professionals, policymakers, regulators and movement leaders to network and discuss the advance of the cannabis industry nationally.

The first-quarter caucus will be held January 9 from 6:30 – 9 p.m. at Dashe Cellars in Oakland. The caucus is free for NCIA members and $50 for non-members. If you would like to attend the caucus and are not a NCIA member, use our promo code HUSCH75 at registration to receive a 75 percent discount.

As you probably heard, Denver Police, along with several agencies including the Aurora Police Department, the Marijuana Enforcement Division and Denver Department of Excise and Licenses, closed 8 Denver-area marijuana centers and stores on December 14, 2017. The Department of Excise and Licenses suspended 26 licenses including retail stores, medical centers, cultivations and manufacturing (all under related ownership). 13 people were also arrested on criminal allegations related to the sale of marijuana in excess of allowable amounts.

PLEASE be aware that enforcement actions are occurring. This was a concerted effort among multiple agencies over a year-long investigation period.

Poor training and lack of supervision of staff can result in the immediate closing of facilities, suspension of licenses, and criminal charges. Now is a great time to review your internal policies and procedures and ensure each staff member is aware of and adhering to company policy and following all laws and regulations.

As always if you have any questions, about compliance with rules and regulations, please feel free to reach out to the Husch Blackwell Cannabis team: Steve Levine, Marshall Custer or Meghan Brennan.

 

Sen. Cory Gardner of Colorado wants to attach an amendment to the GOP-led tax reform bill that would allow state-legal marijuana growers, processors and sellers to deduct normal businesses expenses from their taxes.”  Section 280E of the tax code, forbids businesses from deducting otherwise ordinary business expenses (advertising expenses, insurance, employee wages, etc.) from gross income associated with the “trafficking” of Schedule I or II substances. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance under the Controlled Substances Act.  Gardner’s amendment will include a 280E fix so that the provision no longer applies to marijuana businesses that operate in accordance with state or local laws.

What does this mean?

A 280E fix would be monumental for the cannabis industry.  The inability for state-legal cannabis businesses to take deductions for normal business expenses has the potential to cripple the industry if not addressed in the near future.  While I believe that getting this amendment in on the tax bill is a moon shot, I hold out hope that it is still a possibility.  At a minimum, the GOP is finally listening to the plights of our industry and is attempting to be part of the solution.