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Sessions Made His Move, Now What?

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The worst.

If your New Year’s resolution was to stop paying attention to the news you may have missed that last Thursday U.S. Attorney General Jeff Sessions formally rescinded the Cole Memo – which we covered here and here. By rescinding the Cole Memo, Sessions, whose outdated and prohibitionist stance on cannabis is well documented, has sown uncertainty in the states that have legalized cannabis use. This is especially true for the states that have legalized and are regulating adult-use cannabis businesses and individual rights.

To some extent, cannabis businesses are already feeling the effect of this new and uncertain landscape. But in following up on his antiquated stance on cannabis, did Sessions overplay his hand? Will this be a Pyrrhic victory for the prohibitionist crowd? With recent polls showing that 64% of Americans support legalizing cannabis (even 51% of Republicans support legalization) Sessions might have done cannabis proponents a favor by bringing the federal government’s stance into the national spotlight. So the next question everyone’s got to be asking themselves is “what do we do now?”

The most pressing thing that we can do is get Congress to extend the Rohrabacher-Blumenauer Amendment (“RBA”) and include adult-use cannabis into its provisions. We covered the RBA a couple of weeks ago but in case you missed it, here’s the Cliffs Notes version: the RBA is a federal budgetary provision that prohibits the Department of Justice from spending money to interfere with the implementation of a state’s medical cannabis laws. The RBA has proven to be a valuable protection for medical cannabis businesses as evidenced by the Ninth Circuit Court of Appeals ruling in U.S. v McIntosh. In McIntosh, the Ninth Circuit ruled that the DOJ could not use funds to go after medical cannabis businesses that were operating in compliance with their medical cannabis state laws.

The RBA provides medical cannabis businesses with some protective certainty (at least for those states under the Ninth Circuit’s jurisdiction), but moving forward there are two glaring concerns: 1) the RBA only applies to medical cannabis businesses; and 2) since the RBA is a budgetary provision it needs to be included in the federal budget and that budget is set to expire on January 19! The likelihood of a Republican led congress including adult-use cannabis into the RBA prior to January 19th is pretty slim, but if Republican Senators like Corey Gardner and Lisa Murkowski are serious about protecting their respective states’ residents, they will need to hold Trump and Sessions’ feet to the fire.

Legally compliant cannabis businesses have always had to deal with a level on uncertainty and risk when it comes to federal government but there’s been one industry that’s remained afraid to openly engage with cannabis businesses: the banking industry. Many observers feel that Sessions’ main goal is to slow the growth and investment in the cannabis industry by keeping cannabis businesses from obtaining bank accounts. If you want to know what a cannabis business owner has to do find proper banking, take a look at this recent piece in the New York Times Magazine where my colleague in our Seattle office, Robert McVay, was interviewed. Cannabis businesses had a difficult enough time finding banking options when the Cole Memo was in place and that won’t get easier any time soon.

To be sure, Sessions has taken an odd and extremely hypocritical stance. He fancies himself a states right guy (when convenient) and a law and order guy (always), but he would rather have cannabis businesses dealing in cash, placing everyone at greater risk. It’s time that our elected officials make access to banking for the billion dollar state-legal cannabis industry a priority. Making sure cannabis businesses have access to banking services will only increase compliance, since cannabis business that continued to operate in cash-only would immediately be flagged by regulators as suspicious. To that end, we all need to press our regulators to support the Secure and Fair Enforcement Banking Act (“SAFE Banking Act”). The SAFE Banking Act would prohibit a federal banking regulator from penalizing a banking instituting from providing services to a cannabis business. The SAFE Banking Act was introduced by Senator Jeff Merkley (D-OR) and currently has twelve co-sponsors (8 Democrats, 3 Republicans, and Bernie).

In the House of Representatives there’s the Respect State Marijuana Laws Act (“RSMA”) that was introduced by Dana Rohrabacher (R-CA) which would amend the Controlled Substances Act (“CSA”) so that its provisions would not apply to a person acting in compliance with a state’s cannabis laws. The RSMA is basically an attempt to codify the Cole Memo it had twenty-four sponsors prior to Sessions revocation of the Cole Memo -it now has thirty-seven!

It’s also time to gather support for the Marijuana Justice Act (“MJA”) that was introduced in the Senate by Senator Corey Booker (D-NJ) on August 01, 2017. The goal of Mr. Booker’s bill is to remove marijuana from the CSA and end the federal government’s criminalization of cannabis. As of this writing only one other Senator has co-sponsored the MJA, Senator Ron Wyden (D-OR). While the Cole Memo was still in place a number of senators probably didn’t fell the necessity to co-sponsor the MJA, so it will be interesting to see if that calculus will change under the new landscape.

Those of us that live in California can expect that our state government will push back against this federal encroachment against the will of Californians – as California hasn’t been afraid to take the Trump administration head on. Other states have also sued the Trump administration and although states exerting their rights are a good thing, cannabis rights (personal and commercial) will ultimately be decided on the federal level. Sessions has made his position on cannabis clear, it’s now up to Congress to speak for the people.

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What You Need to Know Now: An Analysis of the Sessions Marijuana Memo

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Jeff Sessions wants U.S. Attorneys to “Just Say No” to Marijuana Legal Reform.

Yesterday proved to be a wild day, featuring Jeff Sessions single-handedly demolishing the federal government’s former cannabis enforcement framework. Now that 24 hours have passed since the news came out, we have had a chance to refine our analysis of the Department of Justice’s move.

Reactions in the media have ranged from treating the Sessions announcement as nothing more than an attempt to frighten the cannabis industry to claiming that it was the first step in an organized crackdown of the marijuana industry that could affect cannabis businesses and users. For now, we must treat both of those possibilities as plausible futures. Trump and Sessions may be gearing up for a wave of arrests, prosecutions, and asset forfeitures related to marijuana businesses —or Sessions may just be trying to put a fright into marijuana business owners and investors. Only time will tell.

The “Sessions Memo” was short on specifics. It didn’t contain an outright directive ordering U.S. Attorneys to go after marijuana businesses. Instead, it simply withdrew the earlier marijuana-specific guidance memoranda and directed U.S. attorneys to treat marijuana sales like any other federal crime. The withdrawn memos include, among others, the August 2013 Cole Memo that has underpinned federal marijuana policy for the past four and a half years; the February 2014 Cole Memo that extended low enforcement priority status to apply to banking activities; and the 2014 Wilkinson Memo that was a sort of Cole Memo for tribal lands.

So now, U.S. attorneys have full discretion to determine to what extent they can/should enforce federal law in the context of marijuana crimes in states with legalization and medicalization. Sessions referred to the principles of enforcement in the U.S. Attorneys’ Manual, but that document reinforces the level of discretion and authority that each U.S. attorney has already. The Cole Memo was useful in providing a consistent nationwide federal policy. Under the new Sessions Memo, we are back to the days of having potentially 93 different enforcement policies — one for each U.S. Attorney. Here’s what we know already about a selection of the U.S. Attorneys that will be making these decisions:

Robert Troyer, District of Colorado: Bob Troyer issued a statement yesterday saying that his office “has already been guided by [the U.S. Attorneys’ Manual’s] principles in marijuana prosecutions.” This statement implies that Troyer doesn’t see any difference in Colorado between prior policy and today’s policy.

Annette Hayes, Western District of Washington: Annette Hayes, who has served as either the Acting U.S. Attorney or an interim U.S. Attorney since October 1, 2014, also put out at statement, but it was significantly denser than Troyer’s statement. It wasn’t overtly negative, but it also wasn’t as direct as Troyer’s regarding enforcement policies remaining the same.

Joseph Harrington, Eastern District of Washington: Joseph Harrington is another Acting U.S. Attorney that is a holdover from the Obama administration. Harrington did not issue any specific statement in response to the Sessions Memo. When media outlets asked Harrington about his position, he responded by referring media requests to the Department of Justice in Washington D.C. Harrington, for now, is something of a black box on this.

Billy Williams, District of Oregon: Billy Williams was also appointed during the Obama administration, but Trump did nominate him to stay on as U.S. Attorney in December. Williams prosecuted two Oregonians for federal cannabis crimes in 2016, but there were Cole Memo priorities implicated, including sales to minors. More recently, Williams invited Sessions to visit Oregon to discuss Oregon’s cannabis market in September 2017. In response to the Sessions Memo, Williams issued a press release saying: “We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.” Again, this statement doesn’t read too poorly, but it is sufficiently vague enough to still be worrisome.

California: California is a bit of a mess in all of this. Oregon and Colorado only have one U.S. Attorney each. Washington has two, but they are neatly separated into eastern Washington and western Washington, which often feel like two different states anyway. California, on the other hand, has four U.S. Districts.  And none of those four has or will have a U.S. Attorney with more than two months on the job.

  • Northern District: The U.S. Attorney for the Northern District of California, Brian Stretch, resigned yesterday to join a private firm. No replacement has been named.
  • Central District: The Central District is a populous jurisdiction that includes Los Angeles, Riverside, San Bernadino, Ventura, Santa Barbara, and San Luis Obispo. Two days ago, Sessions appointed a new U.S. Attorney for the Central District, Nicola Hanna. Hanna doesn’t seem to have much written history regarding his views on marijuana, but the fact that Sessions picked him and specifically called him out for “taking on drug traffickers” isn’t the most positive sign.
  • Eastern District: McGregor Scott, also a recently-named U.S. Attorney, has actually been a U.S. Attorney in the past, having prior experience in the Northern District of California. He did not earn positive marks from the cannabis community, as he did pursue aggressive marijuana prosecutions in the mid-2000s.
  • Southern District: Finally, Adam Braverman was named U.S. Attorney for the Southern District of California a couple of months ago in November. He is most well-known for international cartel work as well as other types of organized crime. Braverman made a statement in support of the Sessions Memo, saying: “The Attorney General’s memorandum today returns trust and local control to federal prosecutors in each district when it comes to enforcing the Controlled Substances Act.”

If we are reading the tea leaves to see what is going to happen next (and they are indeed tea leaves), Colorado appears to be in the safest position, but California could turn into a real mess with different enforcement standards in different counties depending on which judicial district a business is in. Banking will be a major unknown for some time as well. FinCEN’s 2014 Guidance heavily referenced the Cole Memo, which is now rescinded. If FinCEN withdraws that guidance, what kind of ripple effect will it have on other bank regulators?

It also remains unclear how all of this policy will work out. Cory Gardner, a republican senator from Colorado, appeared furious when he responded to the initial announcement of the Sessions Memo (video below). He went so far as to threaten to hold up DOJ nominations, which would include those newly appointed California U.S. Attorneys. Sessions’s actions, as well as those of the U.S. Attorneys, are not yet set in stone. Ultimately, political pressure from Congress may still have an effect on the final outcome.

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BREAKING NEWS: Bye, Bye Cole Memo, Hello Uncertainty for Marijuana

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Jeff Sessions Hates Cannabis

It’s finally happening — Attorney General Jeff Sessions will, today, rescind the 2013 Cole Memo regarding federal enforcement in states that legalized cannabis. The Cole Memo, which came on the heels of marijuana legalization in Colorado and Washington back in 2012, set forth the Obama administration’s enforcement policies regarding state-legal marijuana. It set out eight main enforcement directives that essentially allowed states to move forward with legalization so long as they had “robust” regulations to control undesirable side effects. In turn, cannabis operators who consistently complied with hardcore state marijuana regulations basically saw themselves as off-limits to the Feds because of the Cole Memo. Nonetheless, the Cole Memo did not legalize or decriminalize marijuana and marijuana remains federally illegal today.

With this imminent shift in enforcement policies from the Department of Justice (DOJ), the question now becomes what will future DOJ enforcement look like?

Where the Cole Memo basically relinquished marijuana enforcement to the states under certain conditions, rescission of the Cole Memo likely will mean that federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. This means that a U.S. Attorney’s views on cannabis in a state where cannabis is legal will be critically important. It, therefore, behooves you — now more than ever — to familiarize yourself with the stances your particular U.S. Attorney has regarding cannabis. Though we do not foresee a return to high-level and consistent federal enforcement against cannabis — the DOJ lacks money and manpower to prosecute everyone — individual prosecutors will likely soon have sufficient means to target certain operators that get on their radar. Most U.S. Attorneys though (especially in the leading cannabis legal states) will see going after cannabis as political suicide and view themselves as having bigger fish to fry.

There will, however, likely be a ripple effect from this news. Namely, current access to banking, any tax reform progress, and investment are going to feel the chill of uncertainty and the threat of federal enforcement. Banks are only banking the cannabis industry because of a set of FinCEN guidelines from 2014 (and another DOJ memo on marijuana banking) that hinged on the Cole Memo. Banks are incredibly conservative and taking down the Cole Memo will almost certainly lead some banks to stop providing banking services to cannabis businesses. Institutional investors do not like this kind of uncertainty and we fear this will lead to a slowdown in cannabis investments, at least until we see how U.S. prosecutors handle the new enforcement protocol.

And what about the Rohrabacher-Blumenauer amendment (“Amendment”)? It’s still in play as valid federal law until January 19th, when it comes up for renewal. Be mindful though that the Amendment applies only to states with medical cannabis; it does not provide any protection to adult use marijuana operators. Plus, that Amendment has only served to protect medical cannabis operators in the 9th circuit based only on the McIntosh case.

Sessions’ move will increase confusion for both U.S. Attorneys and states, but I have been representing cannabis businesses in California and Washington for eight years now and I am confident that Western States like California, Colorado, Oregon, and Washington are not going to back down in the face of Jeff Sessions’ overzealous pursuit of his personal war on marijuana. Indeed, these (and other) states’ positions may ultimately speed up bonafide legal challenges that finally call into question in a real way the constitutionality of marijuana’s current scheduling and states’ rights to legalize and be left alone.

Stay tuned.

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Is the Supreme Court Gambling on State Cannabis Laws? Christie v. NCAA

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We are hoping for a good roll from the Christie case

Christie v. NCAA is a U.S. Supreme Court (SCOTUS) challenge to the federal law that bans states from allowing sports gambling. Though nothing in Christie addresses cannabis directly, SCOTUS’s decision, due out next year, could give Congress a tool to ban states from allowing legal marijuana.

In 1992, Congress passed the Professional and Amateur Sports Protection Act (PASPA), which prohibits states (save for some that were grandfathered) to “authorize” gambling on sports. The state of New Jersey, which was not grandfathered, passed laws in 2012 to authorize sports betting. In a federal case, the state admitted that these laws violated PASPA, but argued that PASPA unconstitutionally allowed the federal government to “commandeer” the state to enforce federal law. The Court of Appeals found that the Constitution’s anti-commandeering doctrine (derived from the 10th Amendment) didn’t apply here because PASPA didn’t affirmatively require New Jersey to do anything, but simply prohibited it from enacting laws that allowed betting on sports. The Supreme Court declined to review the Court of Appeals’ decision.

In 2014, New Jersey passed a new law that merely repealed existing its laws prohibiting sports betting. The Court of Appeals was unconvinced that the new law was any different than the 2012 law. According to the Court of Appeals, the difference between “authorizing” sports gambling and “repealing” laws that prohibited sports gambling was insignificant. The result in either case was that New Jersey allowed gamblers in New Jersey to bet on sports, which was banned by PASPA.

This time SCOTUS took notice and agreed to hear the case. New Jersey’s brief before SCOTUS argues that under the anti-commandeering doctrine, it makes no difference whether the federal law prevents a state from repealing a law or affirmatively forces it to pass a new law. Either way, the federal government is forcing New Jersey to regulate conduct that its voters would rather leave unregulated. At least one amicus curiae brief argued that upholding the lower court’s decision would allow Congress to require states to affirmatively ban medicinal or recreational cannabis, denying the states their traditional role as experimenters in parallel legal regimes.

On December 4, 2017, SCOTUS heard oral argument in Christie v. NCAA. While it is difficult to predict the final decision simply from oral arguments, at least one noted commentator opined that “Justices seem to side with the state on sports betting.”

But what will happen to state-legalized cannabis if SCOTUS goes the other way and upholds the lower court’s decision? Nothing at first. Christie will only decide the question of whether the lower court properly found that PASPA applies to the New Jersey law. Although Justice Sotomajor mentioned marijuana in passing at oral argument, the issue of state marijuana regulations is not before SCOTUS in Christie. In the future, however, it is at least conceivable that Congress could take its lead from such a ruling and pass a law that requires states to repeal their legal cannabis regulations.

 

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What Does the FDA Really Think About Medical Marijuana?

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Everybody knows that because marijuana is a Schedule 1 drug under the Controlled Substances Act, it is illegal to sell under federal law. Last year, the FDA again reviewed the published scientific literature on medical cannabis and recommended that marijuana stay in Schedule 1. The DEA relied upon this finding in its August 2016 ruling upholding the cannabis ban.

What everybody doesn’t know is that the FDA’s website says that it “actively supports the development of drugs from marijuana.”

Some statements are even more emphatic: “FDA needs to do all it can to support the needed scientific research with marijuana to characterize its therapeutic promise.”  What? Is the FDA suffering from cannabis cognitive dissonance? Not at all. Under the Food, Drug & Cosmetic Act (FDCA), the FDA has the power to approve drugs, based on scientific evidence.

The reason cannabis hasn’t been rescheduled is because, according to the FDA, there is not sufficient evidence to show a currently accepted medical use.

Where does the FDA get off saying there is no medical use? A look at the FDA’s history is instructive. Modern drug regulation started in the beginning of the last century, when the market was filled with unregulated patent medicines claiming to cure everything from constipation to cancer. Many of these medicines, e.g., Johnson’s Mild Combination Treatment for Cancer, were merely worthless.

But some were poison. Elixir Sulfanimide was marketed in the 1930s as a raspberry antibiotic syrup. Unfortunately, this elixir contained diethylene glycol, a known toxin, and killed over 100 people, mostly children. The manufacturer performed no safety testing–because none was required. This and other tragedies in the 1930s led Congress to pass the Food, Drug & Cosmetic Act, the first comprehensive law requiring that medicines be proven safe and effective. This history shows the importance that the FDA places on its core mission of making sure that drugs are safe and effective, relying on scientific evidence including human and animal trials.

As previous readers of this blog might recall, the FDA will usually treat any substance that is “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease,” or that will “affect the structure or any function of the body of man or other animals,” as a drug. The FDA’s key decision in approving new drugs is whether the drug is safe and effective for its proposed uses.

So how do you perform scientific research on an illegal Schedule 1 drug to prove safety and effectiveness?

On its website, the FDA tells you how: “The FDA believes that scientifically valid research conducted under an [Investigational New Drug] application [INDA] is the best way to determine what patients could benefit from the use of drugs derived from marijuana.” The INDA is the method that most proposed new drugs begin the approval process. Once the proposed new drug has undergone the (extensive) testing required by the INDA, the test data can be used to file a New Drug Application (NDA). Virtually all prescription drugs sold in the U.S. are approved under an NDA.

The FDA has already approved three products based on cannabis compounds.

Marinol was approved in 1985 to treat nausea caused by cancer chemotherapy, and Sydros, a liquid form of dronabinol, the active ingredient in Marinol, was approved earlier this year. Cesamet (nabilone) was approved in 1985 and 2006 for nausea and neuropathic pain. The active ingredients in all of these drugs are synthetic forms of THC. So we know that cannabis can be approved as medicine.

Why there aren’t more FDA-approved cannabis drugs?

To find out, be sure to read our next installment, in which we will examine what you need to get an INDA and an NDA. Bring lots of paper or its equivalent; you will need to take notes.

For more on the FDA and cannabis, check out the following:

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Co-Packing Cannabis: The 101

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(Your cannabis here)

Recently, we covered the basics of cannabis supply contracts here on this blog. Supply contracts are used when Party A is selling pot to Party B in a responsible way. Today’s post looks at another form of cannabis contract: the contract packager (“co-packer”) agreement. Co-packer agreements are used when Party A is working with Party B to produce a saleable cannabis product (also responsibly). Like supply contracts, we have seen a marked increase in co-packer agreements over the past year or so, and we expect that trend to continue.

Co-packers offer packaging equipment and expertise for hire, and may also provide services related to design, labeling, purchasing, and shipping logistics. Large numbers of companies exist solely to co-pack all around the world. In state-legal cannabis, co-packers tend to pack for themselves, as well: this probably stems from the value associated with holding a state marijuana license. In addition, most marijuana co-packer agreements are limited to packaging, labeling, and sometimes, sourcing of product. These services will likely expand as states refine their program rules and the industry continues to scale.

Co-packer agreements conform with the rules of most state cannabis programs when both parties have a marijuana license. When the non-packer party does not, however, the legitimacy of a co-packer agreement may be a much closer call– depending on the way the contract is written. In any case, when the non-packer lacks a license, that party will not be allowed to handle cannabis. At that point, the question becomes whether the state will allow the non-packer to delegate all cannabis purchasing, labeling, shipping and even sales of pot to the co-packer. If this is allowed, the non-packer can legitimately profit in a state-legal cannabis program, by virtue of its relationship with the licensed co-packer.

When the non-packer is allowed to profit without a license, a co-packer agreement can be a great fit. The model is attractive for start-ups that lack the interest or wherewithal to lock down their own premises and cannabis license. The model also works nicely for large, established cannabis companies looking to leverage a brand from one state to the next, without having to wade through a foreign licensure process. We have seen co-packer agreements deployed successfully in both scenarios.

Cannabis co-packer agreements tend to be accompanied by, or heavily weighted with, nondisclosure agreements and provisions. In the case of cannabis processing, the non-packer will provide its co-packer with recipes and formulas related to the final product. In the case of a grower or producer, the non-packer may not have these concerns but may bring other trade secrets to the table. In almost every arrangement, the non-packer will have a brand to protect, which means the agreement will carefully lay out control and licensing issues.

In most other respects, co-packer agreements cover many of the same topics as cannabis supply agreements, including terms like scope, title and tracking, invoicing, indemnity, representations and product recall. Co-packer agreements can be built off standard forms, but final documents will be unique to the parties at issue, and highly negotiable. If it is unclear whether a co-packer agreement or its terms will jibe with state program rules; our practice as cannabis business lawyers is to bring the issue to program administrators for review and consideration. Ultimately, if the parties are able to strike a deal, the co-packer agreement is a uniquely attractive option.

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California Cannabis: What’s In Your Water?

California cannabis water requirements This past week the California Bureau of Cannabis Control (“BCC”), along with a number of other state regulatory agencies, held three cannabis business licensing workshops – the last one in Sacramento. These licensing workshops received a lot of attention but they weren’t as informative or as consequential to the California cannabis industry as the staff report and Cannabis Cultivation Policy (“Policy”) released by the State Water Resources Control Board (“Board”) on October 17, 2017 — the same day as the Sacramento workshop. For many, this might be the first you’re hearing of the Board’s report or perhaps of the Board’s involvement in cannabis regulation at all. If you need a little refresher, you’ve come to the right place.

After enactment of the Medical Cannabis Regulation and Safety Act (“MCRSA”), Governor Jerry Brown signed Senate Bill 837 (“SB 837”) into law. SB 837 added a number of environmental protection provisions to the MCRSA and tasked the Board with coming up with guidelines to protect the environment. When the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”) was enacted this past June, the Board’s role in regulating the cannabis industry was solidified. MAUCRSA specifically states that the California Department of Food and Agriculture shall include in any license for cultivation all of the following:

“Conditions requested by the Department of Fish and Wildlife and the State Water Resources Control Board to (A) ensure that individual and cumulative effects of water diversion and discharge associated with cultivation do not affect the instream flows needed for fish spawning, migration, and rearing, and the flows needed to maintain natural flow variability; (B) ensure that cultivation does not negatively impact springs, riparian habitat, wetlands, or aquatic habitat; and (C) otherwise protect fish, wildlife, fish and wildlife habitat, and water quality. The conditions shall include, but not be limited to, the principles, guidelines, and requirements established pursuant to Section 13149 of the Water Code (emphasis added).”

In its report, the Board divided California’s 163,696 square miles into fourteen regions — nine of which are identified as priority regions because they support salmon. The nine priority regions are: Klamath, Upper Sacramento, North Coast, Middle Sacramento, Southern Sacramento, North Central Coast, South Central Coast, San Joaquin, and South Coast. The Board is particularly concerned with the discharge of pesticides, fertilizers, fuels, and trash into California’s waters. The unfortunate truth is that not all cannabis cultivators are good stewards of our precious environment. Furthermore, when combined with years of drought, the practice of water diversion threatens water quality and aquatic habitat. The Board then listed the following twelve items of concern when addressing waste discharges:

  1. Site development and maintenance, erosion control, and drainage features;
  2. Stream crossing installation and maintenance;
  3. Riparian and wetland protection and management;
  4. Soil disposal;
  5. Water storage and use;
  6. Irrigation runoff;
  7. Fertilizers and soil;
  8. Pesticides and herbicides;
  9. Petroleum products and other chemicals;
  10. Cannabis cultivation waste;
  11. Refuse and human waste; and
  12. Cleanup, restoration, and mitigation

The Board’s Policy provides for a statewide-tiered approach for permitting waste discharges from cannabis cultivation, depending on whether the cultivation is for personal use, indoor commercial cultivation, or outdoor commercial cultivation. The criteria for outdoor commercial cannabis cultivators will vary depending on the size of the disturbed area, but they’ll mainly focus on the slope of the disturbed area and the proximity to a surface water body. The Policy also details the different ways for cultivators to register and establish their water rights.

The Policy comes in at a hefty eighty-nine pages and contains too many regulations for one blog post to cover it all. What’s clear is that the Board takes its role as an environmental steward very seriously. We’ll have to wait and see whether cannabis cultivators in California will be able to satisfy the Board’s proposed regulations. A cultivator’s state license will depend on it.

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California Cannabis Contracts and the Attorney-Client Privilege: A Legislative Update

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We previously explored enforceability problems presented by commercial cannabis contracts in California, as well as some examples of how courts have strained to reconcile state-legal conduct with federal illegality. On October 6, California Governor Brown signed into law AB 1159, a short bill with important implications for commercial cannabis operators, service providers, and investors relating to the enforcement of commercial cannabis contracts in California.

Section 1 of the bill states that “commercial activity relating to medicinal cannabis or adult-use cannabis conducted in compliance with California law and any applicable local standards, requirements, and regulations shall be deemed to be: (1) A lawful object of a contract; (2) Not contrary to, an express provision of law, any policy of express law, or good morals; and (3) Not against public policy.”

California statutory law requires contracts have a lawful object, but until now it was not clear whether this legality requirement encompassed federal as well as state law. And since cannabis is illegal under federal law, both state and federal courts wrestled with how and whether to enforce contracts that involved cannabis. Even though California law allows for commercial cannabis activity, the law pertaining to interpretation and enforcement of contracts in California remained ambiguous, and as noted in the Senate Floor Analysis of the bill, many California cannabis companies have been reluctant to litigate meritorious claims for fear the courts would not enforce their contracts. AB 1159 changes that by making clear that parties to contracts involving commercial cannabis activity can now rely on statutory law in making sure those contracts are enforceable—provided that the underlying activity complies with California state and local laws and provided the contract is interpreted under California law.

This will make it crucial you think carefully about the jurisdiction and the choice of law provisions you put into in your cannabis contracts.

The second section of AB 1159 is essentially an amendment to the California Evidence Code that solidifies the attorney-client privilege for “legal services rendered in compliance with state and local laws on medicinal cannabis or adult-use cannabis, and confidential communications provided for the purpose of rendering those services … provided the lawyer also advises the client on conflicts with respect to federal law.” The general rule in California (as elsewhere) is that the attorney-client privilege does not apply to legal services sought or obtained to enable or aid a crime or fraud. Because cannabis activity is still a crime under federal law, some thought this jeopardized the confidentiality of the attorney-client relationship in the event of an indictment or litigation. AB 1159 changes that by securing the attorney-client privilege where it pertains to cannabis activity, but only if the legal services were rendered in compliance with California state and local law and only if the lawyer advises the client on conflicts regarding federal law.

Bottom Line: California is making serious and productive moves to normalize things for its cannabis businesses. But for California cannabis businesses to take advantage of these new opportunities, they must be sure to comply with California state and local laws.

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Cannabis Trademarks: How to Coexist with Large Hairy Primates

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Can they live together?

A recent post here looked at the “Gorilla Glue” trademark dispute between a cannabis business and a glue maker. As we’ve often seen, the cannabis business gave up its brand, rather than litigating. Sometimes a settlement is the best choice. When the cannabis business is the smaller, newer, less financially-sound company, facing an established brand holder with more resources for litigation, it may be smart for the cannabis business to spend its money on rebranding rather than on litigation. But settlement is not the only option when a cannabis business uses a mark similar to the mark used by a non-cannabis business.

Imagine a hypothetical business, “Naturewave Furniture, Inc.” (“NFurn”). NFurn has been selling furniture for 25 years throughout the United States to consumers who want environmentally-friendly products. In 1995, NFurn federally registered “Naturewave” in international trademark class 20, “furniture.” Though NFurn is a player in the enviro-friendly products market, it is not a household name. Now imagine Naturewave Cannabis, LLP (“NCanna”), an Oregon cannabis producer that also sells branded rolling papers. In June 2016, NCanna registered “Naturewave” with the Oregon Secretary of State under class 131, “agricultural products,” and class 134, “tobacco & smokers articles.”

NFurn sues NCanna in federal court, alleging 1) NCanna’s use of Naturewave infringes on its trademark because confusion with NFurn’s Naturewave® mark is likely, and 2) NCanna’s use of Naturewave® to sell cannabis and rolling papers is diluting or tarnishing its mark. But NCanna has invested heavily in marketing its cannabis products and accessories under the Naturewave name, and its Naturewave cannabis products are popular and profitable. Does NCanna have good defenses to either claim? You bet it does.

The basic question for trademark infringement is whether consumers would mistake the source of the goods. Here, the goods offered by each party—furniture and cannabis—are unrelated. No stores sell both furniture and cannabis and the marketing channels for these two products do not overlap. The customers for both goods are sophisticated, careful shoppers. People looking for enviro-furniture usually spend at least 10 hours before buying a particular item. Cannabis consumers are known for research that borders on the obsessive, as shown by the proliferation of sites like MassRoots, Leafly, and Fresh Toast. Neither company is going to move into the other’s product line. Though NCanna had heard of Naturewave Furniture, the words “nature” and “wave” have different connotations in the different industries. NCanna isn’t branding itself as environmentally friendly, and NFurn isn’t suggesting its furniture will let the buyer “ride a wave.” It is unlikely a customer would think NFurn is the source of the cannabis sold by NCanna, or that one of NCanna’s customers would walk into a natural furniture store looking to buy cannabis.

The claim for tarnishment requires a different analysis. Under trademark law, the owner of a famous trademark can sue for using its mark in a way that dilutes or tarnishes the mark. There is no need to show a likelihood of confusion in a tarnishment claim; you only need to show that your mark is famous and similar to the accused mark. Although it is easier to list famous trademarks—Coke®, Amazon®, Google®, Starbucks®, Xerox®—than it is to define “famous,” generally a highly distinctive mark that is very well-known throughout the market, and has been used extensively and continuously for a long time, can be found to be famous. NFurn argues that NCanna’s use of Naturewave® with a traditionally illegal product will tarnish or dilute its mark. But is Naturewave® “famous” under trademark law? Arguably not, at least on our hypothetical facts. In that case, NFurn would not have a claim for dilution.

The upshot of this imagined case is that NCanna could evaluate NFurn’s lawsuit and know it had solid arguments to defend the case. The strength of the litigation position is, however, only one factor. Ultimately, whether to litigate a trademark dispute or settle or seek a coexistence agreement is a business decision for the cannabis company.

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Marijuana Retail Stock Administration

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Why so few hashish warehouses?

Amongst a number of modifications to marijuana legal guidelines that SB 5131 enacted in July, Washington’s license cap on retailers moved from three licenses to 5 licenses. The Washington State Liquor and Hashish Board at first needed to delay implementation of the brand new license allotment to 2018, however has now consented to start processing license acquisition purposes instantly. This isn’t for brand spanking new license issuance — that window continues to be closed. However present retailers that personal three licenses can now purchase two extra.

As market consolidation happens in Washington’s retail hashish area, our hashish enterprise legal professionals have been working with retailers on the issue of stock administration within the marijuana area. Stock points characterize a misunderstood however obtrusive headache for marijuana companies throughout the state.

Any time a retail operation has multiple location, that operation needs to run its stock processes as effectively as attainable. Many multi-location retail operations in different industries make the most of centralized warehousing as a key cog of their stock administration techniques. Having a single regional warehouse capable of immediately provide many retail shops has vital advantages. First, the per sq. foot worth of storage at a warehouse location is considerably cheaper than at a heavy-traffic retail space. Moreover, if a retailer controls the warehouse, it successfully separates itself from the friction level of dealing immediately with suppliers. All outdoors distributors can ship to the warehouse and the warehouse can distribute the products to the person retail shops at a time and technique handy for the retail shops — supply turns into much less of a problem and negotiation.

However, as all the time, that is considerably tougher within the hashish area. The state’s tied-house guidelines and tiered licensing severely restrict the motion of marijuana product and who can management it at any stage in that course of. A single retail license works for a single retail location   — a licensed retailer can’t keep a separate warehouse and a retail retailer with a license. Each retail location should negotiate and arrange shipments from licensed processors that, due to the tiered licensing guidelines, are third events. If I personal 5 retail places and I need to inventory all of them with a selected product, I need to arrange 5 totally different shipments of that product.

There are two totally different fixes to this predicament. One is to reap the benefits of WAC 314-55-079(eight), which states: “A marijuana retailer might transport product to different places operated by the licensee or to return product to a marijuana processor . . . .” So if I personal 4 retail places, I’ve a bit little bit of flexibility. I might keep a networked inner distribution mannequin, the place every location transports to one another location when needed. Or, I might use one location as my de facto warehouse. If I’ve three retail shops within the metropolis and one out within the county, I might broaden the county’s stock area, direct all deliveries there, and handle distribution from that central location.

There’s a catch, in fact. This rule solely applies if all of the retail shops are owned by a single entity — an actual legal responsibility concern. Most corporations with a number of retail hashish places that every carry their very own legal responsibility insurance coverage maintain the places in separate enterprise entities. This limitation of legal responsibility technique is a core element of U.S. company regulation. If there’s a large tort or contract declare towards a single retail location held in its personal entity, the plaintiffs have entry to each asset and insurance coverage coverage of that particular entity, however they don’t have any declare to the mum or dad firm or to different affiliated retail entities. Managing legal responsibility publicity by means of totally different enterprise entities can characterize the distinction between a disastrous prevalence killing your income for a yr and killing what you are promoting endlessly. Retailers in that context should undertake a price profit evaluation by determining whether or not the legal responsibility danger is well worth the achieve from elevated stock administration effectivity?

The opposite answer is to barter a type of symbiotic relationship with a licensed processor. As said, earlier than, tied-house guidelines restrict the power of shops and processors to interact in lots of enterprise preparations. Retailers can’t borrow cash from, get reductions from, or obtain presents from licensed processors. They can’t enter any binding settlement the place the acquisition of 1 product is contingent upon the acquisition of one other product.

Nevertheless, the principles don’t prohibit communication between hashish retailers and processors they usually don’t prohibit processors from making purchases based mostly on the wants of shops with which they do enterprise. In principle, then, a processor might know the demand schedule of a retail group with whom it does enterprise and act as an middleman purchaser for that retail group. The retail group would in all probability find yourself paying a better worth for the product, as it will be including a further middle-man to the transaction, however this mannequin pulls in a number of the advantages of centralized warehousing. This technique does current some danger to each events, although, as their capability to enter contingent contracts is severely restricted. A processor making a bulk buy it assumes the retailer goes to purchase might discover itself in deep monetary straits if the retailer chooses to purchase elsewhere.

There are a number of rule modifications that would make issues simpler for retailers right here in Washington State, however the WSLCB’s objective isn’t essentially to make issues straightforward for marijuana retailers. Outdoors of elevated lobbying, hashish enterprise house owners might want to proceed doing the perfect they will inside the system we’ve got.