United States: Cannabis Group Weekly Alert - Week Of September 4, 2019

Last Updated: September 6 2019
Article by Kathryn Ashton and Eric P. Berlin

In this week's edition:

  • Trump reiterates his administration's plan to respect state laws on cannabis
  • DEA makes announcements on cannabis research applications and hemp legality
  • Illinois approves its first adult-use dispensaries
  • Several agencies comment on hemp and CBD
  • Chocolate appears to botch cannabis potency testing
  • And more...

Federal

President Trump expressed support for a states' rights approach to cannabis policy.  "We're going to see what's going on.  It's a very big subject and right now we are allowing states to make that decision," the President said.  "A lot of states are making that decision, but we're allowing states to make that decision."  The comments are consistent with the federal approach of non-enforcement that began in the Obama administration.

The Drug Enforcement Administration (DEA) announced it will process 33 long-delayed applications to grow cannabis to be used in research.  However, before accepting any pending applications, the DEA intends to propose new regulations, and the agency said that it would not license any entities that are currently growing cannabis under state law.  Additionally, the notice affirmed that, thanks to the 2018 Farm Bill, one form of cannabis—hemp—no longer requires DEA registration to grow or manufacture.

The Food and Drug Administration (FDA) opened a new public comment period to solicit input on pending proposals to reschedule cannabis under international treaties.  The previous comment period had been shorter than usual to accommodate an expected UN vote, which was later delayed.  The reopening is consistent with FDA statements earlier that the ability to comment would reopen if such a delay occurred.  Parties now have until September 30, 2019, to submit a comment.

Surgeon General Jerome Adams issued an advisory about the harms of cannabis use, particularly by young people and pregnant and nursing women.  The warning's publication, which was funded by a $100,000 donation from President Trump's salary, was lauded by the American Medical Association, which commended the Surgeon General while also supporting further research on cannabis.

Customs and Border Protection warned people to "leave marijuana at home" in a Labor Day weekend travel advisory.

US House Majority Leader Steny Hoyer (D-MD), the number two Democrat in that chamber, wrote in a constituent letter obtained by Marijuana Moment that he believes cannabis is a gateway drug that "leads to the use of harder, very harmful drugs."

Prohibitionists' last gasp of the week:  The US Attorney for the Southern District of West Virginia tweeted, "From the National Institute on Drug Abuse, marijuana problems include daily cough & phlegm, more frequent lung illness, higher risk of lung infections, & increased heart rate for up to 3 hours after smoking.  Marijuana is a serious and powerful drug today."  In the face of an opioid crisis, human trafficking, election fraud, this public official is focused on phlegm and elevated heart rates (also caused by walking)!

States

The California State Assembly approved a bill to let school boards decide whether parents or guardians can administer medical cannabis to their child or ward while on school grounds.  A similar bill passed last year but was vetoed by former Governor Jerry Brown.

Colorado regulators announced a new requirement for state licensees to test cannabis for mycotoxin contamination starting September 15, 2019.  Mycotoxins, a toxic metabolite produced by fungi, colonize crops and can be found in various forms of mold.  Denver Westword reports that recalls of commercial cannabis over mold concerns have dramatically increased since 2017, going from virtually nonexistent to the leading cause for cannabis recalls, surpassing even banned pesticide use.

Denver regulators announced that they are streamlining the application and inspection processes for cannabis license transfers of ownership.  A complete process overview, required fees and forms, and more information about the inspection process for license transfers of ownership can be found on the city's Department of Excise and Licenses website.

Adult use is coming to Illinois.  This week, the state's Department of Financial and Professional Regulation (IDFPR) announced that it has approved its first five "early approval" licenses for dual recreational and medical use dispensaries—all to Green Thumb Industries (GTI) for dispensaries in Effingham, Mundelein, Canton, Naperville and Joliet, according to the report.

At the same time, the IDFPR is receiving criticism for not allowing existing medical dispensaries to reopen in different locations (to accommodate an expected higher customer base).

Code for America, the group that helped San Francisco expunge nearly 10,000 cannabis convictions, will help Cook County, IL (county seat, Chicago) clear tens of thousands of cannabis possession-related convictions.

In Michigan, the state's Marijuana Regulatory Agency issued its largest recall to date, warning patients on Friday that four products are being recalled due to their testing positive for unsafe levels of pesticide and heavy metals.

Minnesota Gov. Tim Walz (D) directed state agencies to start preparing for the legalization of cannabis:  "My agencies have been tasked to put all of the building blocks in place, from Revenue to the Department of Public Safety to the Department of Health.  We will have everything ready to go, and we will be able to implement it in Minnesota the minute the Legislature moves this."  Efforts to legalize cannabis passed in the state House of Representatives this year, but died in the Senate.

A Nevada judge cleared some new dispensaries to open amid a dispute about the state's licensing process.  The judge found that the agency acted unconstitutionally by diverging from the 2016 voter initiative that legalized recreational cannabis sales, including by not requiring background checks for owners with less than a 5 percent share.

New Jersey Gov. Phil Murphy conditionally vetoed a cannabis expungement bill, recommending that lawmakers make several changes to achieve the same goal.  The Governor urged state lawmakers to model their efforts on Pennsylvania's recently enacted "Clean Slate Law," which automatically removes qualifying criminal cases at least 10 years old from public view, except for law enforcement.

A New Mexico judge made permanent a previous ruling that regulators must issue medical cannabis cards to out-of-state patients.  The decision came despite strong opposition from the Democratic Governor Michelle Lujan Grisham's office, which argued the interpretation conflicts with the legislative intent and also puts the whole program in federal jeopardy (due to its tacit allowance of cannabis crossing state laws).

New York began expunging cannabis convictions this week.  Under a new law, those having records with possession of fewer than two ounces of cannabis will be automatically expunged.

Ohio is suing a dispensary based on whether or not a management agreement entered into in March constitutes a change of ownership.  The Board of Pharmacy is arguing that the management agreement was an effective change of ownership, which is not allowed under the Ohio program for at least one year and requires prior approval.

In Oklahoma, an extensive regulatory framework known as the "Unity Bill" and accompanying bills are in effect, creating new requirements for patients and business owners.  Employers in Oklahoma should review the bill for more information on employee rights.

Oregon regulators approved temporary rules setting timelines for processing cannabis producer applications, and can be found here.

A Rhode Island judge blocked Acreage Holdings from buying a medical cannabis dispensary amid accusations of violating a no-compete contract provision.  CanWell alleges that Acreage could potentially end up having financial interests in two of Rhode Island's three medical cannabis dispensaries; state law bars investors from having a financial interest in more than one.

West Virginia regulators selected Element Federal Credit Union to handle banking for the state's medical cannabis program.  Other vendors have until September 3, 2019, to file a protest.

Hemp/CBD

FDA Co-Chair of the FDA CBD Policy Working Group Amy Abernethy said in response to a letter from Kentucky's agriculture commissioner that the agency is "committed to evaluating potential pathways for various types of CBD products to be lawfully marketed for non-drug uses, including products marketed as foods and dietary supplements".

The US Department of Agriculture announced that some hemp farmers are now eligible for crop insurance, with a broader pool coming online as 2018 Farm Bill regulations are developed.  The insurance will be available for farmers who are part of state or university research pilot programs, as authorized by the 2014 Farm Bill.

The Environmental Protection Agency is accepting public comments on hemp pesticides through September 23.  In the notice, the EPA stated that it was doing so because "of the potential significant interest from the public in these initial applications and in furtherance of being completely transparent about these applications."

The US Court of Appeals for the Ninth Circuit held oral arguments in a case challenging the Idaho State Police's seizure of a hemp shipment.  The circuit panel repeatedly pressed CBD wholesaler Big Sky Scientific, to explain why the court shouldn't bump the matter back to Idaho in keeping with the so-called abstention doctrine, which bars federal courts from interfering in matters a state court can handle.

National Credit Union Administration Chairman Rodney Hood tweeted, "Earlier this month, @TheNCUA issued interim guidance making it clear that federally insured credit unions can provide customary financial services, including loans, to hemp growers.  This is a positive step that will help bridge the gap until full regulatory framework is in place."

Confusion reigns in Nebraska, where the Attorney General continues to avoid answering questions about CBD's legality in the state.  Meanwhile, the Omaha division of the Drug Enforcement Administration says it is not prosecuting CBD, hemp sellers or dealers.

South Dakota Gov. Kristi Noem (R) authored an op-ed detailing her concerns about legalizing hemp.  She argues that legalizing hemp is a backdoor legalization of cannabis:  "Legalizing industrial hemp weakens drug laws," she said.  "It hurts law enforcement.  It's a step backward.  South Dakota already faces a drug problem.  Families continue to be ripped apart by substance abuse.  I realize this position might not be popular, but that's not why I'm taking it.  As a governor who has said I will make every decision with the next generation in mind, I cannot sit by."

International

England's National Institute for Health and Care Excellence, advisor to the National Health Service on costs and care quality, has issued draft guidance recommending against routine access to GW Pharmaceuticals' "Epidyolex."  Conceding that the drug does appear to dampen the frequency of seizures, the agency appeared to indicate that costs were the reason for its recommendation.

Luxembourg has decided to legalize the production, distribution, consumption and possession of cannabis.  However, such sales will only be permitted for residents to avoid the country becoming a cannabis tourism destination.  The aim is for this legalization to be put in place in two years' time.

The Netherlands has announced a four-year cannabis cultivation pilot program.  From 2021, cafes in 10 cities will get a legal supply of cannabis grown by local licensed cultivators.  The goal of the program is to see the effect of legal cultivation on the black market.

Business

Cannabusiness is booming despite many players still reporting huge losses.  Curaleaf Holdings, Inc. reported year-over-year quarterly revenue growth of 231 percent but a net loss of $24.4 million; iAnthus Capital Holdings, Inc. announced 100 percent quarterly revenue growth since last quarter and a net loss of $9.3 million; Green Thumb Industries Inc. reported 228 percent year-over-year quarterly revenue growth with a net loss of $22.2 million; TILT Holdings Inc. announced revenue is up 13 percent from last quarter, with a net loss of $48.9 million; and Vireo Health International, Inc. reported 70 percent quarterly revenue growth from a year ago and a net loss of $1.9 million.

TILT Holdings Inc. and subsidiary Baker Technologies are being sued for allegedly violating federal law by sending unsolicited text message spam.  The lawsuit, filed in US District Court in San Francisco, alleges that the defendants violated the federal Telephone Consumer Protection Act, or TCPA, a 1991 law that prohibits companies from making unsolicited calls or sending uninvited text messages to possible clients.

United Food and Commercial Workers announced that in the past month it unionized employees at five California dispensaries, including two Medmen locations.

Hound Labs Inc. closed a $30 million funding round to support manufacturing and commercial availability of its dual cannabis-and-alcohol breathalyzer.  This announcement arrives on the heels of peer-reviewed research from the University of California, San Francisco, that claims to validate breath as a viable medium for measuring cannabis use within three hours of smoking.

Monroe Capital LLC provided a $50 million senior secured credit facility to KushCo Holdings Inc.  This is an emerging trend in the industry, due in part to traditional banks' reticence to lend to the industry due to regulatory concerns and conflicts between state and federal law.

Medical/Health

Highly respected scientific journal Nature published a special issue on cannabis.  The issue focuses on what it calls the "cannabis knowledge gap" caused by increasingly broad legalization without sufficient scientific research to confirm the believed therapeutic benefits.

A study of rats found that "there are changes present in the sperm epigenome of cannabis users at a gene involved in [autism spectrum disorder]."  Published online on August 27 in the journal Epigenetics, the researchers said the findings do not establish a definitive link between cannabis use and autism, but the possible connection warrants further, urgent study.

A review found that "cannabis and synthetic cannabinoids, both acting on the endocannabinoids system, may have a potential therapeutic use for improving PTSD symptoms, e.g., reducing anxiety, modulating memory-related processes, and improving sleep" but that "there is currently limited evidence regarding their safety and efficacy."

A study found that "CBD can potentiate the effect of bacitracin against Gram-positive bacteria."  While the mechanism is still unknown, researchers believe CBD is affecting the membrane of resistant bacteria, allowing the bacitracin to work better.

A survey study of cannabis's impact on sex found that "eighty-two participants (38.7%) said sex was better, 34 (16.0%) said it was better in some ways and worse in others, 52 (24.5%) said it was sometimes better, and only 10 (4.7%) said it was worse" and that "119 (58.9%) said cannabis increased their desire for sex, 149 of the 202 participants (73.8%) reported increased sexual satisfaction, 144 of 199 participants (74.3%) reported an increased sensitivity to touch, and 132 of 201 participants (65.7%) reported an increased intensity of orgasms."

Researchers discovered that chocolate appears to botch cannabis-potency testing.  While the reason for this is still unclear, researchers guessed that the fat content of the ingredient is likely a main factor, especially considering that THC is fat-soluble.  This research will likely have implications for edibles that aren't chocolate-based, and possibly even non-edible products, such as topical lotions.

A study found that opening cannabis dispensaries reduces local crime rates by 19 percent.  "The results also show no evidence supporting theories that marijuana dispensaries increase local cannabis crimes . . . or that dispensaries increase crimes through increased intoxication."

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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