United States: Cannabis Group Weekly Alert - Week Of July 30, 2019

In this week's edition

  • The US Senate held a long-awaited hearing on cannabis and banking reform;
  • Arizona's AG approved a digital payment club for cannabis businesses;
  • Florida regulators are challenging the court ruling deeming the state's medical cannabis rules unconstitutional;
  • Ohio regulators are investigating two dispensaries for potential ownership issues; and
  • CannTrust's board terminated the CEO and its chairman resigned amidst revelations that the company was growing cannabis in unlicensed rooms.
  • And more...

Federal

On July 23, 2019, the United States Senate Committee on Banking, Housing, and Urban Affairs held a public hearing on the cannabis industry titled "Challenges for Cannabis and Banking: Outside Perspectives." After the hearing, Committee Chairman Senator Mike Crapo (R-ID) told reporters there was a "strong case to be made [that] we need to deal with the banking side of this issue" but concerns as well. While it is exciting news that such a hearing occurred, it is not expected that Crapo will change his resistance to the bill.

At the same time, Sen. Bob Menendez (D-NJ) introduced bipartisan legislation designed to protect insurers that offer coverage to cannabis businesses that are now legal at the state level. The bill would provide legal protection to insurers that sell coverage to state-sanctioned and regulated cannabis businesses as well as associated businesses, including lawyers and landlords, according to a description of the legislation from the Senator's office.

The Food and Drug Agency (FDA) again rejected a citizen petition to add cannabis and THC to a list of restricted over-the-counter drugs. Such a classification, the petition argued, would communicate that FDA does not consider cannabis or THC as GRAS ("generally recognized as safe and effective,"), clarify that such products are illegal to market, and alert the public to their health risks. It is an attempt to get the FDA to take a firmer stand against active medical cannabis dispensaries. The agency rejected the petition after finding that granting it was not "in the public interest or in the interest of justice." Although a catchy headline, the decision is not some huge victory for cannabis; the FDA simply found that laws prohibiting the marketing of unapproved over-the-counter drugs are "unambiguous" and that further classifying cannabis and THC as negative monographs would not clarify their legal status.

Officers with US Customs and Border Patrol (CBP) at Peace Bridge on the US-Canadian border are reporting an increase in the volume of cannabis seized at that crossing. In the past week, they seized 27 lbs. of cannabis in one two-day period.

A poll of 1,346 adults suggests that Americans support cannabis legalization more than they do free college tuition, a $15 minimum wage, abolishing the death penalty, forced Medicare for all, and eliminating the electoral college.

States

Arizona's attorney general approved a plan for third-party Alta to provide a digital payment service for medical cannabis businesses to use digital tokens instead of cash to pay suppliers. Patients would still be expected to pay cash. The plan was approved through a "sandbox" state program, which allows the state Attorney General to authorize exemptions from various financial laws.

A high-ranking Republican Arizona state representative said lawmakers may have to pass a cannabis legalization bill to ward off a more far-reaching voter initiative backed by the industry. Something similar happened in Ohio, where the state legislature passed a medical cannabis law to head off an industry-backed voter initiative.

The California legislature still has several cannabis bills pending, any of which, if passed, would be impactful for the industry. AB 228, which would create a pathway for the sale of hemp-infused food and beverages, is considered likely to pass. Other bills that are being considered include laws setting up a state banking system, changing labeling requirements on vape cartridges, and restricting advertising of unlicensed cannabis businesses.

Additionally, California regulators have stated that the vast majority of the data from the state's cannabis track-and-trace system will be kept out of the public domain. However, the agency may release an aggregated year-end report.

Florida regulators asked for an en banc hearing to reconsider a ruling deeming the state's medical cannabis rules unconstitutional. Gov. Ron DeSantis (R) said he supports regulators' decision to appeal.

During a debate between Mississippi's three Republican gubernatorial hopefuls, the candidates agreed on opposing a medical cannabis ballot initiative. However, two of the three candidates said they would implement a medical cannabis program if such a ballot initiative were to pass.

New Jersey Gov. Phil Murphy announced that the state's medical cannabis program has triple the number of patients and nearly double the number of participating physicians since he took office.

A proposed North Dakota cannabis legalization ballot measure was approved for signature-gathering. The measure allows adults over 21 to possess up to 12 plants for personal use and directs the state to create a system for the regulation and taxation of cannabis. Proponents have said they're aiming to put the question to voters in the June 2020 election, which means they would need to collect 26,904 signatures by Feb. 10, 2020.

Ohio regulators are investigating two dispensary licensees after a wide-ranging state investigation into dispensary ownership. One dispensary is charged with lying about its ownership status to qualify as a social equity applicant; the other is accused of selling its license before it is allowed to. The inquiry is intended to ensure that dispensaries live up to the pledges in their applications, a pharmacy board spokesman said.

Hemp / CBD

Officials from the USDA and FDA reported to the Senate Agriculture Committee about efforts to implement the legalization of hemp. The FDA representative echoed many of the FDA's themes, including concerns about entities making therapeutic claims, false or misleading labeling, patient safety and disincentives for research, while remaining committed to some update in the fall. The USDA representative stated that hemp rules were undergoing interagency review and were still expected in the Fall of 2019.

A broad coalition of state agriculture officials, farmers and drug policy reform groups and industry are asking the US Department of Agriculture to narrowly interpret language imposing a lifetime ban on drug felons participating in the hemp industry to apply only to license holders and not to workers in the business. The group argues that their position is consistent with legislative intent that such bar only apply to "producers" of hemp.

Curaleaf Holdings, Inc. issued a press release regarding its response to the FDA warning letter that it received last week.

Tennis pro John Isner, the world's 14th-ranked player, signed an endorsement deal with CBD-infused beverage maker Defy. This deal, the first of its kind for the sport, signals further acceptance by professional sports of CBD products.

International

Thailand's new government listed medical cannabis as one of its priorities in a policy document. Medical cannabis has been legal in Thailand beginning last year, but this document evidences an appetite to develop the country's medical cannabis market. "The study and technological development of cannabis, hemp, and other medicinal herbs should be sped up for the medical industry to create economic opportunity and income for the people," the policy document said.

Confusion and frustration reign in Uganda, where over 50 cannabis hopefuls wait to be licensed. Health minister Jane Ruth Aceng has been accused of dragging her feet due to her own conflicting beliefs. While regulators are claiming that no licenses have been issued to anyone, at least one company was approved in 2016 to grow and export cannabis. Reports are conflicting as to whether its license has been suspended while new regulations are completed or whether it continue to be allowed to grow and export cannabis.

Business

Fire & Flower, a leading licensed retailer in Canada, announced a strategic investment of more than $380 million by Couche-Tard, a global convenience store retailer with over 16,000 stores in 25 countries.

CannTrust's board terminated the CEO, and its chairman resigned, amidst revelations that the company grew cannabis in unlicensed rooms. The move comes shortly after The Globe published a report alleging that the two were made aware in November that cannabis was being cultivated in unlicensed rooms—seven months before Health Canada uncovered the regulatory breach.

Tobacco company Imperial Brands PLC is investing approximately $123 million in Auxly Cannabis Group Inc. by way of a convertible bonds and will grant Auxly global licenses to Imperial Brands' vaping technology and access to its vapor innovation business.

UFC and Aurora Cannabis announced that they are partnering with each other on a study of CBD as a treatment for pain, inflammation, wound-healing and recovery.

California luxury cannabis brand Canndescent announced that it will invest $25.8 million to expand operations to Nevada, Michigan and Massachusetts.

Cresco Labs unveiled Sunnyside*, a new dispensary brand that aims to serve the daily cannabis user as well as the novice. "Many of today's dispensaries service the needs of traditional cannabis consumers," said Cresco Labs' CEO and co-founder Charlie Bachtell. "As the cultural landscape progresses, we're building a modern, yet familiar store environment built on wellness, education and customer service to rapidly bring in new users and welcome them to cannabis." The first Sunnyside location will open in Philadelphia in November with future locations planned for Florida, Illinois, Ohio, Arizona, Massachusetts and Michigan.

Startups and cannabis businesses are continuing to make bets on producing cannabinoids from yeast. THC, CBD, CBG and even "unnatural cannabinoids" can already be produced, though industry participants disagree whether such processes can be scaled and commercialized as effectively as plant cultivation.

Blum cannabis dispensaries reportedly accept credit card sales by categorizing purchases as "food truck sales." This activity could draw the attention of federal regulators as violations of federal anti-money laundering laws. So far, there have been no reported ill-consequences to Blum around this revelation.

The Arcview Investor Forum, held over four days last week in Chicago, offered attendees a chance to hear from industry leaders and peruse booths set up by entrepreneurs pitching their brands. Founders of the event commented on the increasing legitimization of the cannabis industry and the shift from cannabis pioneers to new cannabis professionals, many of whom will proudly tell you they do not use cannabis themselves.

Spuds Ventures LLC is using the Spuds MacKenzie brand to market CBD pet products following a lawsuit settlement with Belgium-based Anheuser-Busch InBev.

The New York Times examined the intersection of cannabis legalization and employment & labor laws. Although more employers are reportedly eliminating the testing of employees for cannabis, several individuals reported issues when interviewing for positions.

Medical / Health

University of Guelph researchers believe that they have isolated the genes in cannabis that make Cannflavins A and B, two flavonoids in cannabis that past research suggests have powerful anti-inflammatory and pain relieving properties. The research notes that these compounds could be 30 times more effective, gram-for-gram, than acetylsalicylic acid (aka aspirin), but that the compounds are currently extremely difficult and expensive to isolate and scale by other means.

A study published by OncoTarget "demonstrates the anti-cancer activity of various whole cannabis extracts on a set of human cancer cell lines." Researchers tested 12 cannabis extracts on 12 types of cancer cells, finding that differing cannabinoid content has unique effects on each cell type. Importantly, pure THC performed less well than certain whole plant extracts, suggesting there is some interplay of compounds that is important. The findings further indicate that the effect of a cannabis extract on a specific cancer cell line relies on the extract's composition as well as on certain characteristics of the targeted cells.

A scientific review suggests that CBD may reduce problems related to crack-cocaine and/or methamphetamine addiction, such as withdrawal symptoms, craving, impulsivity and paranoia. According to the paper, there are currently no approved pharmacotherapies for addiction to cocaine and other psychostimulant drugs.

A new Gallup poll found that young Americans are significantly more likely to smoke cannabis than cigarettes and that across age groups cannabis consumption is nearing parity with cigarette smoking.

A study published in the Journal of Diabetes found that reported cannabis use, even at low frequency of less than four uses per month, is associated with lower fasting insulin in obese adults.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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