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Biros' Blog

Washington Changes Course, Selects MJ Freeway as New ASV

By Aaron G. Biros
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Two weeks ago, we reported on the State of Washington choosing Franwell as their apparent successful vendor (ASV) for their seed-to-sale traceability system contract. Late last week, the Washington State Liquor and Cannabis Board (WSLCB) sent out an email explaining that they are no longer going with Franwell and the new ASV is MJ Freeway.

The email (left) consisted of a letter sent by Peter Antolin, Deputy Director of the WSLCB, to licensees “who had written to the Board and staff regarding the marijuana traceability Apparent Successful Vendor and RFID tags.” Apparently, the reason behind switching the ASV to MJ Freeway is because Franwell’s system requires only one method for tagging plants- RFID tags. According to the letter, Deputy Director Antolin says the initial request for proposal (RFP) stated that the traceability system needs to support a variety of tagging methods, including bar codes and RFID. “The RFP requirements did not allow a vendor to make any assumptions regarding use of a single tagging methodology or allow vendors to include any such costs affecting the state or our licensees in their proposal,” says Antolin. As they made clear in the previous press release, the ASV is not the official contract winner until they complete negotiations and sign the contract.

On June 7th, Franwell withdrew their proposal for the state’s traceability system, thus Washington went with the second highest scoring vendor, MJ Freeway. Deputy Director Antolin says they submitted a strong bid, but there are still many questions left unanswered. How could such a glaring mistake be overlooked when the state named Franwell the highest scoring bidder? Is MJ Freeway’s system robust enough and capable of handling the state’s cannabis licensees’ traceability requirements even though they were not the highest scoring bidder? The deadline for the new system to be in place is October 31, 2017, which is quickly approaching for such a massive systems overhaul.

The WSLCB’s oversight highlights a few inadequacies with the state’s regulatory agency, particularly their indecision and lack of foresight. So much of the concept behind seed-to-sale traceability rests on Cole Memo compliance. A big reason why some states seek to implement a robust tracking system is to remain compliant with the Cole Memo; preventing diversion to crime organizations with regulatory oversight is a key tool that states use to tell the federal government they are complying with their directive and intend to protect their state’s legal cannabis operations from federal prosecution. Without a proper system in place, the state runs the risk of exposing their entire cannabis market to threats of federal enforcement, a scenario that seems unlikely but could be disastrous to cannabis businesses and the local economy.

The WSLCB needs to get their act together fast.

Hoban Law Group Files Lawsuit Against DEA

By Aaron G. Biros
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The Hoban Law Group filed a petition on behalf of three clients against the DEA in the U.S. Court of Appeals for the Ninth District on January 13th, according to a press release. The clients represented by Hoban Law Group in the suit are Hemp Industries Association, RMH Holdings, LLC and Centuria Natural Foods, Inc. The companies are based in California, Colorado and Nevada respectively and are all active in the legal hemp trade. The press release says RMH Holdings “sources its products from industrial hemp lawfully cultivated pursuant to the Agricultural Act of 2014 (also known as the Farm Bill).”

San Francisco's United States Court of Appeals for the Ninth Circuit Photo: Ken Lund, Flickr
San Francisco’s United States Court of Appeals for the Ninth Circuit
Photo: Ken Lund, Flickr

In December, the DEA published a ‘Final Rule’ that classifies cannabis-derived extracts, such as CBD oil, in their own category with a code number to “better track these materials and comply with treaty provisions.” The announcement by the DEA ultimately serves to make any cannabis extract a Schedule 1 narcotic. “Extracts of marihuana will continue to be treated as Schedule I controlled substances,” says the document.

BobHobanAttorney
Bob Hoban, managing partner

Bob Hoban, managing partner of Hoban Law Group says the action is clearly beyond the DEA’s authority. “This Final Rule serves to threaten hundreds, if not thousands, of growing businesses, with massive economic and industry expansion opportunities, all of which conduct lawful business compliant with existing policy as it is understood and in reliance upon the Federal Government,” says Hoban.

The lawsuit states that they want a judicial review of the DEA’s actions “on the grounds that the Final Rule is (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, e.g. the CSA, the Farm Bill, and the DEA’s regulations; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations; and, (4) without observance of procedure required by law.” The suit also claims that the ‘Final Rule’ conflicts with other federal laws like the Data Quality Act, Regulatory Flexibility Act and Congressional Review Act.

According to Garrett Graff, associate attorney at Hoban Law Group, the entire Cannabis genus is not unlawful and the DEA is overstepping its authority. “As the Ninth Circuit found in 2003 and 2004 there are certain parts of the plant like the stalk and seed that are congressionally exempted from the Controlled Substances Act and thus the DEA’s rulemaking authority,” says Graff. “By creating a drug code for ‘marihuana extract’, the DEA is saying that they are a controlled substance, but that goes against a number of existing laws.”

Garrett Graff, associate partner at Hoban Law Group
Garrett Graff, associate partner at Hoban Law Group

The definition of ‘marihuana extract’ under the ‘Final Rule’ also references extracts containing one or more cannabinoids, which goes beyond the realm of cannabis altogether, according to Graff. “The DEA and many other sources have acknowledged and confirmed that cannabinoids can be derived from other varieties of flowers, cacao and other sources, making it virtually impossible to distinguish which cannabinoids would be subject to this drug code,” says Graff. “The DEA’s rule effectively makes the presence of cannabinoids a determinative factor of a controlled substance, which is inconsistent with what Congress has said.”

The petition filed is essentially the initiation or commencing of a lawsuit. Graff says their case is rooted in statute. “We hope to accomplish a striking of the rule, permanent injunction of the rule and for the DEA to engage in the appropriate processes and procedures when making rules in the future,” says Graff. “Alternatively, an amendment to the rule to make the definition of ‘marihuana extract’ consistent with existing law and reflect those portions and varieties of the plant which are in fact lawful could be considered.” It may still be roughly 30 days before the DEA responds with briefing and possibly an oral argument to follow on the various issues surrounding the petition, says Graff. The Ninth Circuit petition, including briefings and hearings, is likely to take at least several months.

Jeff Sessions’ Stance on Cannabis: Uphold Federal Law

By Aaron G. Biros
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President-elect Donald Trump nominated Sen. Jeff Sessions (R-AL) for Attorney General back in November. For Sessions to become a member of the cabinet and head of the Department of Justice, the Senate must approve the nomination during a confirmation hearing, taking place today in Washington D.C.

Sen. Jeff Sessions (R-AL) Photo: Gage Skidmore, Flickr
Sen. Jeff Sessions (R-AL)
Photo: Gage Skidmore, Flickr

According to CNN’s coverage of the events, Sen. Mike Lee (R-Utah) mentioned the Obama Administration’s tolerance of states with legal cannabis. “There are federal laws prohibiting the use of marijuana, the sale of marijuana, the production of marijuana, that apply regardless of whether a state has independently criminalized the drug,” says Senator Lee. He then asks if Obama’s actions were indicative of a breach of “the understanding that we [Congress] are the lawmaking body.”

Sessions replied to that by saying that as federal law stands, cannabis is illegal. He says if keeping cannabis illegal is “not desired any longer, Congress should pass a law to change the rule.” He adds that it’s not the AG’s job to enforce or not enforce certain laws. “We should do our job and enforce laws as effectively as we’re able,” says Sessions.

In April of 2016 according to USA Today, Sen. Jeff Sessions was quoted saying “Good people don’t smoke marijuana.” Sessions has a history of making inflammatory remarks, including racist statements. He has also previously mentioned his proud support for the War on Drugs.

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Aaron Smith, executive director of NCIA

Sessions’ comments during the exchange today shed some much-needed light on his stance toward legal cannabis. National Cannabis Industry Association (NCIA) executive director Aaron Smith issued a statement on Sessions’ comments made today. In the statement, Smith sounds optimistic regarding Sessions’ comments. “In today’s hearing, Sen. Sessions indicated that the Justice Department’s current guidelines for marijuana policy enforcement are ‘truly valuable’ in setting departmental priorities,” says Smith. “That belief, along with the support for state sovereignty on cannabis policy expressed by President-elect Trump and his team, should lead Sen. Sessions to maintain the current federal policy of respect for state-legal, regulated cannabis programs if he is confirmed as Attorney General.”

“Sen. Sessions also highlighted the conflict created by a Congress that has failed to reflect the will of the voters on cannabis policy,” says Smith. “Voters in 28 states, representing approximately 60% of the nation’s population, have now chosen some form of legal, regulated cannabis program. National polling shows that 60% of Americans believe cannabis should be legalized. It’s time for federal lawmakers to represent the clear choices of their constituents.” Given the Republican support for state sovereignty and Sessions’ comments on Congressional lawmaking, Smith is hopeful that if Sessions becomes the new Attorney General, he will respect states with legal cannabis programs.

Biros' Blog

2016 Year in Review: Why the Cannabis Industry Needs Resiliency

By Aaron G. Biros
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2016 was a tumultuous, but productive year for the cannabis industry. Larger companies began to take interest in the fledgling market, like Microsoft and Scotts Miracle-Gro. This year brought major innovations in technology like market data tools, advances in LED tech, efficient cultivation tech and patient education tools. The Supreme Court set an important precedent by shutting down a challenge to Colorado’s cannabis market.

Voters legalized cannabis in 8 states last month Photo: Nicole Klauss, Flickr
Voters legalized cannabis in 8 states on Election Day.
Photo: Nicole Klauss, Flickr

Election Day brought a renewed sense of vigor to the market with voters in eight states legalizing forms of cannabis. California, Nevada, Maine and Massachusetts passed recreational cannabis measures, making legalization’s momentum seem exponential.

But November 8th also gave Donald Trump the presidency, and his cabinet appointments, namely Sen. Jeff Sessions as Attorney General, gave many a feeling of uncertainty for the future of federal legalization. Adding insult to injury, the DEA repeatedly stood by their antiquated and ludicrous judgment for cannabis to remain a Schedule 1 narcotic.

Gage Skidmore, Flickr
Trump nominated Sen. Jeff Sessions (R) for Attorney General Photo: Gage Skidmore, Flickr

A lot of the fervor surrounding public safety could be described as overdramatic or somewhat unwarranted. 2016 was the year of misinformation. Fake news spread like wildfire with people sharing stories like this or this that turned out to be very misleading or just downright false.

States with legal cannabis came under heavy public scrutiny and addressed problems like consumer education, public safety and lab testing. Pesticides became a highly publicized and persistent issue in a number of areas, with some states regulating it heavily and addressing public health concerns. Plenty of new rules were formed surrounding labeling and testing, with Oregon, Colorado and Washington experiencing some regulatory growing pains.

Those growing pains shed light on the need for regulators to craft rules that allow for changes, adding rules where necessary and getting rid of cumbersome rules that might thwart market growth. Rules need to be able to adapt as the industry grows, much like businesses need to adapt to a changing market climate to stay afloat. This is all the more reason why cannabis businesses need to make their voices heard and work with regulators to move things forward.

Pesticide Use was a major issue of 2016 Photo: Michelle Tribe, Flickr
Pesticide use was a major issue in 2016
Photo: Michelle Tribe, Flickr

With so much uncertainty surrounding the future of legal cannabis in America, the word of the year for 2017 should be resiliency. In a social-ecological context, resiliency is “the capacity of a system to absorb or withstand perturbations and other stressors such that the system remains within the same regime, essentially maintaining its structure and functions. It describes the degree to which the system is capable of self-organization, learning and adaptation.”

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A warning label for cannabis in Oregon after the October 1st compliance deadline

Self-organization, learning and adaptation are three very important attributes of a resilient system. Without knowing what will happen when Trump’s cabinet takes the reigns of federal agencies, it is important to prepare for the unexpected. Adhering to standards like FOCUS allows cannabis businesses to prepare for unexpected events like recalls or product safety failures.

Those standards could also become the law down the road, as government officials often look to an industry’s voluntary consensus-based standards when deciding how to regulate it. In 2017, a number of state governments will embark on the heavy undertaking of writing the regulatory framework for legal cannabis.

2017 will bring opportunities and challenges to the cannabis industry. The industry’s rapid growth juxtaposed with political, economic and regulatory uncertainties create a climate that requires resilience to be built into the system at all levels. It is critical, now more than ever, that cannabis businesses build strong relationships with industry groups, advocacy groups and regulators to craft the institutional capacity and mutual trust needed to weather the uncertainty ahead.

U.S. Senators to Treasury: Protect Banking for Cannabis

By Aaron G. Biros
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On Wednesday, ten U.S. Senators from both sides of the aisle signed a letter pleading with the U.S. Treasury Department to help with banking for cannabis businesses, according to Lisa Lambert of Reuters. The letter seeks some form of protection for cannabis-friendly banks and credit unions, even those doing business with ancillary companies.

Notable signatories include Senators Elizabeth Warren (D-Massachusetts), Bernie Sanders (D-Vermont) and Jeff Merkley (D-Oregon). “Most banks and credit unions have either closed accounts or simply refused to offer services to indirect and ancillary businesses that service the marijuana industry,” states the letter. “A large number of professionals have been unable to access the financial system because they are doing business with marijuana [sic] growers and dispensaries.”

U.S. Capitol in early December Photo: US Capitol, Flickr
U.S. Capitol in early December
Photo: US Capitol, Flickr

According to a spokesman, the Treasury Department’s Financial Crimes Enforcement Network will be addressing it. It is unclear exactly how Sen. Jeff Sessions, Trump’s attorney general nomination, would deal with cannabis-friendly states, let alone banking for them.

Many think Sessions would restrict access, ramp up federal crackdowns and make it difficult for cannabis businesses to grow. Once again however Jeff Sessions has not shared any plans on enforcing the Controlled Substances Act or cracking down on legal cannabis.

Supreme Court Denies Challenge to Colorado’s Cannabis Laws: Industry Outlooks

By Aaron G. Biros
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The Supreme Court shut down a lawsuit on Monday brought by two states against Colorado for its recreational cannabis laws. Nebraska and Oklahoma brought the case to the Supreme Court, claiming that the recreational cannabis industry in Colorado is responsible for the illegal exportation of cannabis outside of Colorado. “Colorado has facilitated purchase of marijuana by residents of neighboring states by issuing licenses to an unusually high number of marijuana retailers perched on Colorado’s borders,” the two states told the court in a supplemental brief.

In that brief, the two states argue that Colorado’s cannabis industry led to more cannabis illegally crossing state lines. They argue because of that influx of cannabis, they spend more on law enforcement and state resources, which is a detriment to their citizens. The Supreme Court did not provide an explanation for why they refused to hear the case.

Many view this as a big win for the legal cannabis industry. “The Supreme Court has protected the will of the people today and I believe the court has demonstrated that it understands legal cannabis is a fundamental right,” says Andy Williams, president of Medicine Man, the largest cannabis dispensary in Denver.

Still others see this simply as business as usual. “While I’m pleased to see the Court reject the challenge to Colorado’s cannabis law, this decision isn’t really a win for cannabis advocates- it only maintains the status quo,” says Aaron Herzberg, partner and general counsel at CalCann Holdings, a medical cannabis holding company specializing in real estate and licensing. “We are struggling with diversion in California, so hopefully states will continue to be on track to create a more regulated and taxed environment where cannabis can be manufactured and sold through channels where it is safe and tested,” continues Herzberg.

Adam Koh, chief cultivation officer at Comprehensive Cannabis Consulting (3C), warns that the Court’s denial to hear the case is not necessarily an affirmation of state’s cannabis programs. “It is evident that some diversion is taking place, which of course is against the provisions of the Cole Memorandum,” says Koh. “In order to avoid being implicated in such activities, legally licensed cannabis businesses in Colorado should not take the SCOTUS decision as a signal to relax, but should instead work to make sure that inventory control and record-keeping protocols are in place and even exceed the standards required in state regulations.”

The fact alone that Nebraska and Oklahoma even brought the case to the Supreme Court means that diversion is a major issue facing the cannabis industry. “Only by going above and beyond in terms of compliance will this controversial industry make itself credible in the eyes of its detractors,” says Koh. Some cannabis industry leaders take it upon themselves to help guide rule makers in crafting standards.

Lezli Engelking, founder of the Foundation of Cannabis Unified Standards (FOCUS), believes the Cole Memo is currently the best guidance for states and business owners to follow by the federal government in regards to cannabis. “Gaping holes in cannabis regulations are glaringly identified via the pesticide issues and recalls recently,” says Engelking. “These issues showcase each state being in violation of the Cole Memo’s expectation that they will implement strong and effective regulatory and enforcement systems that address the threat to public safety, public health, and other law enforcement interests.”

The Supreme Court’s denial of the two states’ challenge to Colorado’s cannabis legislation suggests the federal government’s intentional avoidance of involvement in current state cannabis issues. The government’s inaction does not, however, indicate their support.

Steve Goldner

Federal Marijuana Policy: A Q&A with Stephen Goldner

By Aaron G. Biros
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Steve Goldner

Ahead of the launch of our newest publication, CannabisIndustryJournal.com, I interviewed Stephen Goldner, President of Regulatory Affairs Associates, regarding the possibility of federal oversight in the cannabis industry, namely direct FDA involvement via regulations.

With experience as a forensic toxicologist and attorney, Stephen Goldner has worked over 35 years as a regulatory professional in the healthcare space. He has contributed to the approval of 230 drugs and medical devices serving as an FDA advisor. Steve is credited with the development of the liquid dose form of methadone and various screening tests for drug abuse.

We discussed the current regulatory frameworks in place for legal marijuana in the United States and found that there are some gaps in understanding when it comes to regulating the plant. Here is a snapshot of our conversation discussing federal involvement in the cannabis industry:


 

Food Safety Tech: Are state governments and marijuana businesses working jointly to handle the regulatory framework succeeding? Can you see, in the handful of states that have already legalized marijuana, a need for FDA regulatory guidance?

Steve Goldner: To many people’s surprise, the states that have legalized marijuana are doing very well setting up a regulatory framework. Plus, the legitimate operations really want to succeed in business and provide safe and effective recreational and drug products. I’m surprised to hear myself say it, but FDA might be best served if it stayed out of this issue for a while.

FST: What are some reasons why the FDA might want to get involved in the cannabis industry?

Steve: Certainly if there were reports of injuries, but so far the marijuana products seem to be much less hazardous than other common recreational substances like beer and wine. But FDA also gets involved when there are outrageous claims that products cure diseases like cancer. I expect FDA will act against cannabis distributors who make those claims, even if they only distribute their marijuana within one state.

FST: What are some reasons why the FDA might want to let this social experiment run a little longer?

Steve: Thousands of people have gone to jail or otherwise had their life ruined because of small amounts of this product being used or being sold. If it turns out, as the data appears to show, that marijuana is not a ‘gateway drug’ to other drugs, and it’s use is fairly harmless, then FDA stepping in will probably just send most of the users and growers into the black market and then nothing will have been gained.

FST: What actions might you suggest the FDA take in the near future as more states continue to legalize marijuana?

Steve: Great question! FDA is excellent at monitoring data, along with the CDC. If FDA sees a real health hazard problem, it can convene a panel of experts to offer solutions. And then monitor the situation to see if growers and producers of marijuana edibles can adopt those solutions into their business practices.


 

Ahead of a number of state reforms and initiatives to legalize the recreational use and sale of the plant in 2016, The New York Times published an op-ed by The Editorial Board in favor of removing marijuana from the Controlled Substances Act. While Goldner, along with many others, believe that states are making great strides with regulatory measures, The New York Times believes “State legalization efforts are not uniformly well thought out, which is another reason for Congress and the president to act.”

With the 2016 elections fast approaching, we hope to see major changes coming soon in the federal government’s position on marijuana.

We want to hear your thoughts! Do you think the federal government should step up their involvement? What actions or inactions would you like to see the federal government take? Do you think the FDA should chime in? Post your questions or thoughts in the comments section below.