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What Is Going On With Germany’s Cannabis Bid?

By Marguerite Arnold
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Germany is proceeding down the path to officially grow its own medical cannabis crops. Medical use became legal this year, along with a federal mandate for cheap access. That means that public health insurance companies, which cover 90% of Germans, are now firmly on the hook if not front line of the cannabis efficacy issue. As such, Germany’s medical market is potentially one of the most lucrative cannabis markets in the world, with a total dollar amount to at least challenge, if not rival, even California’s recreational market. Some say Canada’s too.

However, before “home grow” enthusiasts get too excited, this legislative move was an attempt to stymie everything but commercial, albeit medical production. Not to mention shut off the recreational discussion for at least another four years.

How successful that foray into legalization will be – especially given the chronic shortages now facing patients – are an open question. Not to mention other infrastructural issues – like doctor unfamiliarity with or resistance to prescribing cannabinoids. Or the public insurers’ so-far reluctance to cover it even though now federally mandated to do so.

Regardless, Germany decided to legalize medical use in 2017 and further to begin a sanctioned domestic cultivation for this market. The decision in the Bundestag to legalize the drug was unanimous. And the idea to follow UN regulations to establish this vertical is cautiously conservative but defendable. Very predictably German in other words.

Since then, however, the path has been far from smooth. Much less efficient.

Trouble in Germany’s Medical Cannabis Paradise

In April the government released its tender bid. And no matter how exciting it was to be in the middle of an industry who finally saw a crack of light, there were also clouds to this silver lining that promised early and frequent thunderstorms on the horizon.

By the time the tender bid application was due in June, it was already clear who the top firms were likely to beIn fact, by the end of the ICBC conference, which held its first annual gathering in Berlin at the same time the bid tender was announced, the controversy was already bubbling. The requirements of the bid, for a laughably small amount of cannabis (2,000 kg), mandated experience producing high qualities of medical marijuana in a federally legitimate market. By definition that excluded all German hopefuls, and set up Canada and Holland as the only countries who could provide such experience, capital and backlog of crop as the growing gets started.

The grumbling from Germans started then.

However, so did an amazingly public race to gain access to the German market directly – by acquisition or capital expenditures that are not refundable easily (like real estate or even buyouts). The common theme? They were large amounts of money being spent, and made by major Canadian Licensed Producers who had the right qualifications to meet the standards of the bid. In fact, by the time the tender bid application was due in June, it was already clear who the top firms were likely to be. They were the only ones who qualified under the judging qualifications.

And while nobody would commit publicly, news of the final decision was expected by August. Several Canadian LPs even issued press releases stating that they were finalists in the bid. But still no news was forthcoming about the official list.

Delay, Delay and More Delay

A month later, as of September, and there was still no official pronouncement. Nor was anybody talking. BfArM, the regulatory agency that is supervising this rollout as well as the regulation of all narcotic drugs (sort of like a German version of the FDA) has been issuing non-statement statements since the late summer. Aurora, however, one of the top contenders for cultivation here, was quietly issued an ex-im license by both Canadian and German authorities. Publicly, this has been described as an effort to help stem the now chronic cannabis shortage facing patients who attempt to go through legitimate, prescribed channels. On the German side, intriguingly, this appears to be a provisional license. Privately, some wondered if this was the beginning of a backdoor approval process for the top scoring bid applicants for cultivation. Although why that might be remains unclear.

Whispered rumours by industry sources that wish to remain anonymous, have suggested that the entire bid is still hanging in jeopardy. Late in the month, rumours began to fly that there were now lawsuits against the bid process. Nobody had much detail. Not to mention specifics. But CannabisIndustryJournal can now confirm in fact that there have been two lawsuits (so far).

The summary of the complaints? It appears that two parties, filing with the “Bundeskartellamt” (or regulatory office focusing on monopolies and unfair business practices) did not think the bid process or scoring system was fair. And both parties also lost.

But as of mid-October, there is still no public decision on the bids. What gives?

Whispered rumours by industry sources that wish to remain anonymous, have suggested that the entire bid is still hanging in jeopardy. Even though the plaintiffs failed, some have suggested that the German government might force a complete redo. Others hint that it will likely be slightly revised to be more inclusive but the regulatory standards must remain. If a redo is in the cards, will the German government decide to increase the total amount of yearly cannabis to be delivered? At this point, it is only calling for 2,000 kg per year by 2019. And that, as everyone knows, is far too little for a market that is exploding no matter the many other obstacles, like insurance companies refusing to compensate patients.

What Is Behind The Continued Delays?

There are several theories circulating the higher levels of the cannabis industry internationally right now even if no one is willing to be quoted. The first is that the total number of successful applicants, including the recent litigants, will be slightly expanded, but stay more or less the same. There is a high standard here for the import of medical cannabis that the Germans intend on duplicating domestically.

The Comprehensive Economic Trade Agreement (CETA – the often controversial free trade alliance between Europe and Canada) is still in the final stages of approval.The second is that the German government will take its time on announcing the final winners and just open the doors to more imported product. This will not be popular with German insurers, who are on the hook to pay the difference. However with Tilray now on track to open a processing facility in Portugal and Canopy now aligned with Alcaliber in Spain, cross-continent import might be one option the government is also weighing as a stop-gap provision. Tilray, who publicly denied in the German press that they were participating in the cultivation license during the summer, just issued a press release in October announcing a national distribution deal to pharmacies with a German partner – for cannabis oil.

But then there is another possibility behind the delay. The government might also be waiting for another issue to resolve – one that has nothing to do with cannabis specifically, but in fact is now right in the middle of the discussion.

The Comprehensive Economic Trade Agreement (CETA – the often controversial free trade alliance between Europe and Canada) is still in the final stages of approval. In fact, on September 19, a prominent German politician, Sigmar Gabriel of the Social Democrats (SPD) made a major statement about his party’s willingness to support Germany’s backing of the deal. It might be in fact, that the German government, which is supportive of CETA, got spooked about the cannabis lawsuits as test trials against not cannabis legalization, but a threat to the treaty itself.

Quality control, namely pesticides when it comes to plant matter, and the right of companies to sue governments are two of the most controversial aspects of this trade deal. And both appear to have risen, like old bong smoke, right at the final leg of closing the cannabis cultivation bid.

Will cannabis be seen as a flagship test for the seaworthiness of CETA? On a very interesting level, that answer may be yes. And will CETA in turn create a different discussion about regulatory compliance in an industry that has been, from the beginning of this year, decidedly Canadian-Deutsch? That is also on the table. And of great concern to those who follow the regulatory issues inherent in all. Not to mention, of course, the industry itself.

Conclusions?

Right now, there are none to be had.

However at present, the German bid process is several months behind schedule as Canadian producers themselves face a new wrinkle at home – the regulation of the recreational crop in the provinces.

It is also clear that there are a lot of questions and not a whole lot of answers. Not to mention a timeline when the smoke will clear.

What’s Happening on Capitol Hill? Part 3: The Medical Bills

By Brian Blumenfeld, J.D., M.A.
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This article continues the bill-by-bill review begun in the August 1st article on cannabis reform legislation proposed in the 115th Congress. In the next article and final piece in this series, we will examine the banking and tax reform bills related to cannabis.

Medical Cannabis Reform Bills 

S. 1008 – Therapeutic Hemp Medical Act of 2017

HR. 2273 – Charlotte’s Web Medical Access Act of 2017

Policy: These bills would amend the CSA to end federal prohibition over all CBD products and all hemp plants with THC content levels of below 0.3%. In other words, people and businesses would be free to grow hemp and/or manufacture CBD products without any fear of federal prosecution. These products would most likely then fall under the regulation of other federal and/or state agencies, but the bills do not specify what agencies they might be or what controls might be put in place.

Impact: The impacts from these bills nationwide have the potential to be massive. Hemp is a plant that can be put to highly effective use in many different industries, from textiles and construction to foodstuffs and seafaring. The efficiency of its growth and the breadth of its utility will make it a highly valuable commodity and a competitor with many other raw materials. For state-legal cannabis businesses, the legalization of CBD and hemp at the federal level could fundamentally change the market for those products. States that legalized cannabis already have provisions in place dealing with hemp and CBD—sometimes alongside their cannabis laws, sometimes handled by a separate state agency—and they could either leave those as they are or open up those markets to interstate activity. In states that have not legalized, CBD and hemp are typically included in the state’s definition of cannabis, and therefore they will remain illegal under state law unless further action is taken. Most likely, if federal prohibition ends on hemp and CBD, state prohibition will follow suit. Because legalization at the federal level will allow for interstate commerce in hemp and CBD, expect the emergence of a nationwide market, driven by online sales and interstate marketing, and developing independently from a cannabis industry still constrained to in-state activities.

Procedural Status:

Senator Cory Gardner (R-CO) Photo: Gage Skidmore, Flickr

S. 1008

  • Introduced: May 2, 2017 by Senator Cory Gardner (R-CO)
  • Cosponsors: 7 Republican, 4 Democrat
  • Referred to Senate Committee on:
    • Judiciary

 HR. 2273

  • Introduced: May 1, 2017 by Representative Scott Perry (R-PA)
  • Cosponsors: 10 Republicans, 10 Democrats
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Financial Services

S. 1276 – Cannabidiol Research Expansion Act

Policy: This bill would accomplish two objectives: First, it would open channels for researchers to access and experiment with cannabis and cannabis extracts. Second, it would initiate the process at the end of which the Attorney General must make a determination as to which Schedule of the CSA is most appropriate for cannabidiol (CBD).

Impact: The impact on this legislation to state-legal cannabis businesses is rather remote—in both time and practice. The research access provisions will certainly create an uptick in medical and psychological research activity, the outcomes of which will add to our knowledge of how consuming cannabis in different forms and amounts effects the brain and body. This type of government-regulated research takes many years to process and complete, as both bureaucratic and scientific standards must be met. As for initiating the re/de-scheduling review process for CBD, this is a direct response to the 2016 denial by the DEA to re/de-schedule cannabis. That determination, published in the Federal Registrar on August 12, 2016, was made following a comprehensive study of the medical benefits and harms of cannabis conducted by the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA). Although such an in-depth study and its resulting negative determination pronounced so recently would normally rule out the chances of success for another re/de-scheduling attempt so soon after, the DEA did leave the door open with its statement that it “did not focus its evaluation on particular strains of marijuana or components or derivatives of marijuana.” It is just this door that S. 1276 seeks to exploit. By focusing the re/de-scheduling process on CBD specifically, the presumption is that the outcome of the scientific CBD studies would have a far better chance at satisfying the re/de-scheduling criteria set forth in the CSA. If such a determination was made, then the impact would come in two potential varieties. One, CBD would be rescheduled and become available for medical use according to FDA rules applicable to other prescription drugs. Two, CBD would be descheduled and would fall under the prerogative of the states, in which case the above analysis for S. 1008 and HR. 2273 would pertain.

Senator Dianne Feinstein (D-CA)
Photo: Daniel Torok

Procedural Status:

S. 1276

  • Introduced: May 25, 2017 by Senator Dianne Feinstein (D-CA)
  • Cosponsors: 3 Republican, 2 Democrat
  • Referred to Senate Committee on:
    • Judiciary

S. 1374 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 2920 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 715 – Compassionate Access Act of 2017

HR. 714 – Legitimate Use of Medical Marijuana Act (LUMMA) of 2017

Policy: All four of these bills would make an exception to the CSA for state medical cannabis laws. Federal prohibition, in other words, would end for medical cannabis in those states that have legalized, and it would be left to those states to devise how it would be regulated. In states that have not legalized, both state and federal prohibition would remain. The companion CARERS Acts in the House and Senate, along with HR. 714, would also amend FDA rules to widen access to cannabis for research purposes.

Impact: The impact of these bills on the rules for state-legal medical cannabis businesses would be relatively minor in terms of functionality. This is so because they leave not only the determination to legalize up to the states, but they leave the design of the regulatory system up to the states as well. In other areas, however, big changes will be seen that benefit the industry: banking will open up for state medical businesses, and so will the opportunity to write-off ordinary business expenses. Investment risks over legality will end, making for easier access to capital. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. Enactment of any of these bills would be a big win for medical cannabis.

Senator Cory Booker (D-NJ) Photo: David Shinbone, Flickr

Procedural Status:

S. 1374

  • Introduced: June 15, 2017 by Senator Cory Booker (D-NJ)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Judiciary

HR. 2920

  • Introduced: June 15, 2017 by Representative Steve Cohen (D-TN)
  • Cosponsors: 1 Republicans
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Veterans’ Affairs
      • Subcommittee on Health

HR. 715

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith (R-VA)
  • Cosponsors: 2 Republicans, 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations

HR. 714

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith
  • Cosponsors: 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health

HR. 2020 – To Provide for the Rescheduling of Marijuana into Schedule III of the CSA

Policy: As its wordy title indicates, this bill would bypass the schedule review process and by legislative fiat move cannabis from Schedule I to Schedule III of the CSA.

Representative Matt Gaetz (R-FL)

Impact: Businesses handling drugs in Schedule III must register with the DEA and comply with DEA record keeping and security requirements. Doctors would be permitted to prescribe cannabis products. Importing/exporting will become available by permit, which would bring state businesses into competition with foreign cannabis firms. The biggest impact will be that cannabis sold pursuant to federal law will have to undergo the FDA’s New Drug Application process conducted by the Center for Drug Evaluation and Research, the largest of the FDA’s five centers. This includes clinical testing and a comprehensive chemical/pharmacological review. The drug would then be subject to FDA regulation for marketing and labelling. For states that wanted to maintain their legal medical cannabis systems, a conflict would remain because cannabis cultivators and dispensaries could operate in compliance with state law while simultaneously failing to meet new FDA and DEA requirements. States will then have a choice: bring state laws into line with federal laws, creating all of the advantages of federal legality discussed above, yet causing major disruptions to the industry; or retain the status quo, allowing the industry to grow as is with all of the in-state advantages but without the advantages of federal legalization. This all would of course leave behind recreational cannabis which would remain in the legal gray zone.

  • Introduced: April 4, 2017 by Representative Matt Gaetz (R-FL)
  • Cosponsors:
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary

HR. 331 – States’ Medical Marijuana Property Right Protection Act

Policy: Section 881(a)(7) of the CSA subjects to federal forfeiture all property involved with cannabis activities. This bill would make an exception to that provision for all property in compliance with state medical cannabis laws.

Impact: Although not legalizing medical cannabis, this bill would be a strong step in the direction of legitimizing state-legal medical cannabis businesses. As a result of the property forfeiture clause of the CSA, two impediments faced by the medical cannabis industry is that investors are hesitant to invest and land lords are hesitant to lease or otherwise engage the medical cannabis market. By eliminating the risk of such property loss due to the federal-state conflict, this bill would have the very welcomed impact of easing access to capital and expanding opportunities for land use.

  • Introduced: January31, 2017 by Representative Barbara Lee (D-CA)
  • Cosponsors:
  • Referred to the House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
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The Problem With Puerto Rico’s Medical Cannabis

By Dr. Ginette M. Collazo
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Recently Puerto Rico approved the law that regulates the production, manufacturing, dispensing and consumption of medical cannabis. Although medical cannabis was already “legal” through an executive order and was “supervised” by local regulation, there was no law to back up the industry and protect investors.

The creation and approval of laws resides in the hands of elected individuals. Expecting absolute knowledge is unrealistic, especially when we refer to cannabis as a medicine. Sadly, the lack of knowledge is affecting the patients, and an emerging industry that can be the solution to the Island’s current economic crisis.

I am in no way insinuating that Puerto Rico is the only example. I have seen this type of faulty thinking in many places, but cannabis is the perfect manifestation of this human defect. Check some of your laws, and you will find a few that nearly qualify for the same characterization.

As we can see, lack of knowledge can be dangerous. Objective, factual information needs to be shared, and our leaders need a formal education program. Patients need them to have a formal education program to better understand and regulate the drug.

The approval of this law is a significant step for the Island. Still, many Puerto Ricans are not happy with the result. The lack of legitimate information coupled with conservative views made the process an excruciating one. It took many hearings, lots of discussions and created tensions between the government and population, not because of the law, but for the reasons behind the proposed controls. Yes, it was finally approved, but with onerous restrictions that only serve as a detriment to the patient’s health, proving the need for an education program designed specifically to provide data as well as an in-depth scientific analysis of the information, then, you address the issue at hand.

Let’s take a look at some of the controls implemented and the justification for each one as stated by some members of the government.

  1. Patients are not allowed to smoke the flower in its natural state unless it is a terminal patient, or a state-designated committee approves it. Why? Because the flower is not intended for medical use (just for recreational) and the risks associated with lung cancer are too high. Vaporize it.
  2. It was proposed to ban edibles because the packaging makes it attractive for children. Edibles made it, but with the condition that the packaging is monochromatic (the use of one color), yes, insert rolling eyes here.
  3. It only allows licensed pharmacists to dispense medical cannabis at the dispensary (bud tending). The rationale? Academic Background.
  4. The new law requires a bona fide relationship between the doctor and the patient to be able to recommend medical cannabis, even if the doctor is qualified by the state and is a legitimate physician. This is contrary to their policy with other controlled substances, where a record is not required.

When there are different beliefs on a particular topic like it is with medical cannabis, you are not only dealing with the technical details of the subject; there is an emotional side to it too. Paradigms, stigma, stereotypes, beliefs and feelings affect the way we think. We let our judgment get in the way of common sense. When emotions, morals and previous knowledge are hurting objectivity, then we have to rely on scientific data and facts to issue resolution. However, when the conflict comes from opinions, we rely on common sense, and this one is scarce.

Now education: what can education do with beliefs, morals and emotional responses?

David Burns in his book Feeling Good: The New Mood Therapy discusses ten thinking errors that could explain, to those like me that want to believe this is a legitimate mistake, that there are cognitive distortions that affect the result of ours thoughts.

Now let’s analyze …

  1. There are many things wrong with this prohibition. First, the flower is natural and organic. It is the easiest to produce and the cheapest alternative for patients; there are more than 500 compounds all interdependent to make sick people feel better. There are seas of data, anecdotal information, serious studies collecting information for decades and opinions of highly educated individuals that support the consumption of flower in its natural state for medical purposes. The benefits are discarded, and personal opinions take the lead. Based on Burns’s work this is a textbook case of Disqualifying the Positive: dismissing or ignoring any positive facts. Moreover, let’s not forget the benefit for illegal growers and distributors.
  2. Keep out of reach of children, does it ring a bell? For years and years, we have consumed controlled substances, have manipulated detergent pods, bleach and so many other products that can be fatal. The warning is enough, just like is done with other hazardous Here we can notice how we can fall into the Fortune Teller Error, which believes that they know what will happen, without evidence.
  3. Not even the largest drug stores in the USA have this requirement. There is one pharmacist per shift, and a licensed pharmacist supervises pharmacy technicians. Medical cannabis is not even mentioned in current Pharmacy’s BA curricula. Most pharmacists take external courses in training institutes. On the other hand, bud tenders go through a very comprehensive certification process that covers from customer service to cash management and safety and of course all technical knowledge. If anything, a botanist (plant scientist) makes more sense. What a splendid example of magnification (make small things much larger than they deserve). This is an unnecessary requirement.
  4. The relationship between a certified doctor and patient has to be bona fide (real, honest). In practical terms, the doctor has to treat the patient for some time (sometimes six months) and have a history of the patient. Even though this sounds logical, not all doctors are certified to recommend cannabis, but all can diagnose. Are we penalizing the doctor or the patient? The only thing that you need to qualify as a patient is the condition. Besides, I had prescriptions filled for controlled medications at the drug store with no history. Why are we overgeneralizing Do we think that all doctors are frauds?

Is There a Medical Cannabis Crisis Brewing in Germany?

By Marguerite Arnold
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There is a great deal to be happy about with medical cannabis legalization in Germany. This is the first country that has mandated insurance coverage of the drug – at least at the federal legislative level.

However, as the government evaluates the finalists in the first tender bid for domestically grown and regulated cannabis, a real crisis is brewing for patients on the ground. And further one that the industry not only sees but is trying to respond to.

Spektrum Cannabis GmbH, formerly MedCann GmbH began trying to address this problem when they obtained the first import license for Canadian cannabis last year. They are also one of the apparent five finalists in the pending government bid to grow the plant domestically for medical purposes. According to Dr. Sebastian Schulz, head of communications for Spektrum, “Shortly after the new cannabis law was reformed we experienced a huge increase in demand from the side of patients. We had prepared for that. The German population is very curious about cannabis as a medicine and in general very open to natural remedies.”

People are curious here. But like other places, the law in Germany has evolved slowly. Much like Israel, the government has allowed a trickle of patients to have access to cannabis by jumping through multiple, time consuming hoops. The process of getting cannabis prescribed, much less getting a pharmacy to stock it, was difficult. Patients had to pay out of pocket – a monthly cost of about $1,700. While that is expensive by American standards, to Germans, this is unheard of. The vast majority of the population – 90% – is on public health insurance. That means that most Germans get medications for $12 a month, no matter what they are. Allegedly, German patients were supposed to get about 5oz a month for this price. At least that is what the law says.

People are curious here. But like other places, the law in Germany has evolved slowlyAs in other countries, no matter what Germans think about recreational reform, the clear majority of them at this point support medical use. And at this point, both legislatively and via the courts, the government has said and been required to provide the drug to Germans patients at low cost.

Unintended Effects & Consequences

Since the law went into effect in March of this year however, things have suddenly turned very dire for patients.

The handful of people who had the right to grow at home – established under lawsuits several years ago – were suddenly told they could no longer do so. They had to go to a doctor and regular pharmacy. Even regular patients in the system found that their insurance companies, allegedly now required to pay, are refusing to reimburse claims. Doctors who prescribed the drug were abruptly informed that they would be financially responsible for every patient’s drug cost for the next two years (about $50,000 per patient).

Photo: Ian McWilliams, Flickr

To add a final blow to an already dire situation, German pharmacies that carried the drug, then announced an additional fee. It is about $9 extra per gram, added at the pharmacy, pushing the price of legitimate cannabis north of $20 dollars per gram. This is justified as a “preparation fee.” Cannabis bud is technically marked as an “unprocessed drug.” This means the pharmacies can charge extra for “processing” the same. In reality this might be a little bud trimming. If that. The current distributors in the market already prep and pre-package the drug.

What this bodes for a future dominated by infused products, oils and concentrates is unclear. However the impact now is large, immediate and expensive in a country where patients also must still go to the pharmacy in person for all prescription drugs.

There is no mail order here, by federal law. Online pharmacies are a luxury for Auslanders.

At minimum, this could mean that without some relief, German patients will go right back into the black market and home grow.While nobody has challenged this situation yet en masse, it is already a sore point not only for patients but across the industry. It means that an already expensive drug has gotten even more expensive. It also means that the government regulations are not working as planned.

At least not yet. For the large Canadian companies now coming into the market with multimillion-dollar investments already sunk in hard costs, Germany will be a loss-leader until the system sorts itself out.

According to Schulz, whose company is now in the thick of it, the new law is very vague. “Currently, there are almost no cannabis flowers available in German pharmacies because companies like us are not allowed to sell them,” says Schulz. “Various different regulatory demands come up that seemed to change on a monthly basis. We are ready to deliver even large amounts of cannabis for a market that might well explode soon – but we first need to overcome the regulatory nightmare that leads to the suffering of so many patients here these days.”

At minimum, this could mean that without some relief, German patients will go right back into the black market and home grow. Black market costs for cannabis are about $10-15 a gram. In other words, exactly the situation the government was hoping to avoid.

What Is Causing The Situation?

The intended effect of the legislation was twofold, according to industry insiders: To legalize cannabis in such a way to meet a rising public demand and, in the face of a court decision, to limit the home grow movement. The latter of which, despite federal regulations, is thriving here. Germans like to grow things, and cannabis is a rewarding plant to nurture.

High attendance at the Mary Jane Grow Expo in Berlin in June is just one sign that the genie is out of this particular bottle. BfArM – the federal agency in charge of regulating narcotics and medical devices – cannot stuff it back.Patients are going back to the way things were

However home grow does not build a professional, high volume cannabis market, much less a highly regulated medical one make. The government also made clear that it is going to have strict inspections and quality controls, and will technically buy all the cannabis produced, per the terms of the bid application process.

However, it is not entirely clear when the government will start actually doing the buying. And why the buying has not started yet. If insurance companies are refusing to pay, this means the government is not reimbursing them. The same government, which has also agreed to do so, as of March 2017.

What Gives On Good Old German Efficiency?

On the streets, patients are going back to the way things were. Many are used to fighting for the only drug that makes them feel better. The euphoria in May, for example, has been replaced with weary acceptance that things might get a bit worse before they really improve.

That said, there is also a realization that more activism and lobbying are required on just about every front. If an extrapolation of data from say Colorado or California is applied to Germany, there are already at least a million eligible patients here, based on the qualifying conditions. The government is planning for an annual increase in medical patients of about 5-10,000 a year, including in the amount of cannabis they are planning on buying from the licensed producers they choose. The numbers, however, are already not matching.Even existing patients are literally being forced into the black market again.

Added to this wrinkle is the other reality that is also looming, particularly now.

With one exception, all of the firms now apparently in contention as finalists for the German government bid will also be supplying a domestic market in Canada that is going rec next summer. One year, in other words, before the German companies even begin producing.

What Is The Upshot For Patients?

Guenther Weiglein is one of the five patients who sued for home grow rights in 2014. He is now suing again for the right to extend home grow privileges until the government figures out its process. He is not the only one. Earlier this year he was told he had to stop his home grow and integrate into the “mainstream” system. So far, he, along with other patients who are suing, including for insurance coverage, have not been able to get cannabis easily through the system, although they are starting to make progress.

Weiglein’s situation is made even more frustrating by the fluidity of the situation. As of late July, he had finally gotten agreement from his insurance company to cover the drug. But now he cannot find a doctor willing to accept the financial risk of prescribing it to him. And in the meantime he has no access to medication.

Talk to any group of advocates right now, and there is one ongoing story. Even existing patients are literally being forced into the black market again.

And those that can’t afford it? They are out of luck. Some patients say a tragedy like someone dying will create the impetus to move this into public eye. A hunger strike here by a leading cannabis doctor earlier this summer has so far not had much impact on policy. There is a great deal of pessimism here, as promised change earlier this year has turned into a long and drawn out multiyear question mark.

If this sounds like a bubbling and untenable situation, especially before a national election, it is. The prospect of another four years of Angela Merkel does not bode well for fast cannabis reform.

That said, the German government is now in an interesting situation. The law has now clearly changed to say that sick Germans are allowed to use cannabis as a drug of choice for chronic diseases when all else fails. Further, the national government has bound the insurance industry to cover it. So far, every patient who has sued for coverage has won. That has not, however, moved the insurance industry altogether. Nor has it solved the problem with doctors prescribing the drug.

Many now ask what will? It is clear, however, that it will change. The question is when, how fast, and in what situations.

The problem will undoubtedly ease by 2019, when the first German crops are finally ready, although it will be far from completely solved.

What’s Happening on Capitol Hill? Part 2: A Bill-By-Bill Review

By Brian Blumenfeld, J.D., M.A.
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Since the first session of the 115th Congress convened on January 3, 2017, twenty-four cannabis reform bills have been introduced, fifteen in the House and nine in the Senate. All of them address in varying ways the puzzles that have emerged as more and more states legalize cannabis in the face of federal prohibition. Some are narrow, some are broad, some are for medical cannabis only, some for recreational too, some have more bipartisan support than others, but all indicate in some manner the direction federal reform will eventually take.

H.R.1227 – Ending Federal Marijuana Prohibition Act of 2017

Understanding the content and status of these bills and what they would mean for the industry if/when they are enacted, will help stakeholders anticipate changes that we know are bound to drop, and therefore be better prepared to adapt to them when they do.

Generally lacking in the journalism on cannabis is coverage and analysis of federal proposals deep enough to provide a useable understanding of the policies they stand to codify. As CIJ is dedicated to providing just such useable information to industry-insiders, this bill-by-bill review fills the gap.

All twenty-four bills fit rather neatly into one of three categories: De-scheduling/State Control Reform, Medical Cannabis Reform and Banking/Tax Reform. This second article in the series will look at the first category, and the next article will wrap up the last two.

De-Scheduling/State Control Reform

HR 1227 – Ending Marijuana Federal Prohibition Act of 2017

Policy: The bill proposes two major changes to the CSA. The first is to strike cannabis from the statute, essentially leaving the regulation or prohibition of it up to each state. The second is to insert into the CSA a provision that makes it a federal offense to transport cannabis from one state to another in any way that violates state law. In other words, if a state wished to continue prohibiting cannabis, it would be both a federal and state crime for anyone to transport cannabis into that state. Likewise, if a state wished to legalize and regulate cannabis, but wanted to prevent out-of-state cannabis from entering, the transportation provision would permit that state to do so.

Impact: Industries in states that have already legalized cannabis will structurally remain the same. Banking will open up for these state businesses, and so will the opportunity to write-off ordinary business expenses. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. The big potential change will be seen if two or more contiguous states that have legalized cannabis decide to permit transport of the drug between their states. Markets will expand, opening access to new customers and challenges from new competitors. Licensees may also have the option to venue shop, and we could see states themselves competing with one another to attract cannabis business with the carrot of favorable regulations.

Representative Thomas Garett (R-VA)
Photo: C-SPAN

One possible pitfall to keep in mind is that this legislation could violate something in constitutional law known as the Dormant Commerce Clause—a topic CIJ will cover should it surface.

Procedural Status:

  • Introduced on February 27, 2017 by Representative Thomas Garett (R-VA)
  • Cosponsors: 4 Republican, 11 Democrat, 1 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 2528 – Respect States’ and Citizens’ Rights Act of 2017

Policy: This bill would add to the CSA a provision specifically declaring no congressional intent to preempt state cannabis laws.

Representative Diana DeGette (D-CO)
Photo: Center for American Progress Action Fund, Flickr

Impact: HR 2528 would rule out the potential for a judicial resolution to the federalism controversy. Most legal challenges to state legalization regimes have relied on a theory of Supremacy Clause preemption. Most notably was the 2014 case initiated by Oklahoma and Nebraska against Colorado, which you can find broken down here. Although the Supreme Court denied to hear that case, the issue is outstanding and remains an important factor, if not the central factor, in cannabis cases currently pending in federal court. Under this reform, state cannabis laws would be safe from invalidation, but it is less clear whether a mere anti-preemption clause would strip the federal government of its other powers under the CSA, or alter in any way the current status of cannabis as a Schedule I controlled substance. Questions arising under such uncertainty would likely have to go through long and hotly contested litigation before we have concrete answers. So although this proposal would resolve the ticklish issue of preemption, it leaves unaddressed the many other conundrums posed by federal-state divergence.

Procedural Status:

  • Introduced on May 18, 2017 by Representative Diana DeGette (D-CO)
  • Cosponsors: 1 Republican
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 1841 – Regulate Marihuana Like Alcohol Act

Policy: This bill sets to accomplish a number of different reforms: remove cannabis from CSA; allow for import and export except into states that wish to prohibit cannabis altogether and/or prohibit its importation into the state; decriminalize cannabis use on national forest land; require a permit from the Secretary of the Treasury to import cannabis and to engage in any cannabis business activity; mandate businesses that obtain a Treasury permit to also comply with all State laws (so if state wants to continue to prohibit, they may); share jurisdiction over the administration and enforcement of the new federal laws between the DEA and the Bureau of Alcohol, Tabaco, Firearms and Explosives which is to be renamed the Bureau of Alcohol, Tobacco, Marijuana, Firearms and Explosives.

Representative Jared Polis (D-CO)
Photo: Joshua Lawton, Flickr

Impact: If enacted, this bill will have many of the same impacts as the abovementioned HR 1227- Ending Marijuana Federal Prohibition Act of 2017. The IMPACT section for that bill will also pertain to this bill, with the following exception: by requiring a permit to operate a cannabis business from the Department of Treasury, the bill would add a layer of regulation on top of state law. Treasury Permits would be conditioned on permitees complying “with all other Federal laws relating to production, sale and consumption of marijuana.” Although §302 of the bill limits Treasury’s discretion in denying applications to only certain, enumerated disqualifying factors, the “other Federal laws” the bill refers to could embody any number of policy and jurisdictional preferences either enacted by the Congress or promulgated by the executive agencies charged with administration. At the current stage of speculation the best we can say is that descheduling cannabis under this bill would be a benefit to the industry, but out of all of the present proposals the provisions authorizing federal regulation present the greatest uncertainty for the shape the future of the industry might take.

Procedural Status:

  • Introduced on March 30, 2017 by Representative Jared Polis (D-CO)
  • Cosponsors: 1 Republican, 14 Democrat
  • Referred to House Committees on:
    • Judiciary
    • Energy and Commerce
    • Ways and Means
    • Agriculture
      • Subcommittee on Conservation and Forestry
    • Natural Resources
      • Subcommittee on Federal Lands

HR 975

Statute: Adds one sentence to the CSA that excludes its application to any person acting in compliance with State cannabis laws.

Representative Dana Rohrabacher (R-CA)
Photo: Gage Skidmore, Flickr

Impact: The bill would have the same impact as the above HR 1227 – Ending Marijuana Federal Prohibition Act of 2017, with the only exception that the transportation provision in HR 1227 makes it clear that states will be permitted to prohibit the importation of cannabis from other states if they want to. This bill, without speaking directly to the matter of interstate importation, could leave the question open-ended until resolved through judicial interpretation.

Procedural Status:

  • Introduced on February 7, 2017 by Representative Dana Rohrabacher (R-CA)
  • Cosponsors: 8 Republican, 12 Democrat, 2 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

Legislative Update

On Tuesday, August 1st, Senator Cory Booker (D-NJ) introduced the twenty-fourth cannabis reform bill. The bill has yet to be assigned a number or referred to committee, but it is called the Marijuana Justice Act of 2017, and makes some interesting contributions to the lineup of reform proposals.

Sen. Cory Booker (D-NJ)
Photo: Nick Fisher, Flickr

For legalization purposes, the bill both removes cannabis from the CSA and removes prohibitions on importing and exporting. The above analysis for descheduling and import/export would apply to Booker’s bill in the same way. The interesting twist thrown in is how criminal and racial justice objectives are linked to incentives for states to legalize. The ultimate decision to legalize or not in a given state will continue to be the prerogative of each state, but the catch is that if a state does not legalize cannabis and the number of arrests for cannabis offenses in that state disproportionately impacts minority or low-income citizens, then the federal government will pull funding it provides to that state for criminal justice-related programs. This could push more states who would otherwise not legalize onto the reform bandwagon. Such states will have to pit how much they value federal funds against how much they value criminalizing cannabis. If the former outweighs the latter, policy logic will dictate that they legalize. Updates on this bill, and movement on any others, will be tracked by CIJ.

For the next piece in this series, we will review the bills currently pending in Congress that cover medical cannabis reform and banking/tax reform. Stay tuned for the latest on what’s happening around Capitol Hill and in federal cannabis policy circles.

Senate Committee Votes to Keep Medical Cannabis Protections

By Aaron G. Biros
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The Senate Appropriations Committee approved the amendment to continue protecting state-legal medical cannabis markets from the Department of Justice. The amendment, previously known as the Rohrabacher-Farr Amendment, prevents the DOJ from using funds to target medical cannabis operations, patients and businesses in states where it is legal.

Every time Congress reviews the budget, this amendment needs to be included to keep protecting the medical cannabis community. While the rider still needs to make it through the final version of the appropriations bill, it is a big win for the status quo.

According to Aaron Smith, executive director and co-founder of the National Cannabis Industry Association (NCIA), this indicates that Congress is resisting Attorney General Jeff Sessions’ calls to end the protections. In a letter sent back in May, Sessions urged the Senate on both sides of the aisle to stop protecting medical cannabis.

Many see this morning’s vote as Congress standing up to Jeff Sessions, and standing up for medical cannabis patients. In a letter to NCIA members, Smith says that a lot of work still needs to be done, but this is an important first step. “This is not the end of the story. There are still many steps to go before a new budget is finalized,” says Smith. “But this is an important indicator that our allies in Congress are standing up for us, even in the face of DOJ opposition.” In an official NCIA statement, Smith acknowledges the hurdles that still face the amendment. “Now it’s time for the House to do the same,” says Smith. “Patients deserve access to care, states deserve respect, and members of the House deserve the opportunity to vote on amendments like this that have the strong support of their constituents.” Bipartisan support like this in Congress is needed to prevent the current administration and the DEA from meddling in states with legal medical cannabis.

 

What’s Happening on Capitol Hill? Cannabis Reform Proposals and the 115th Congress

By Brian Blumenfeld, J.D., M.A.
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As CIJ readers are probably aware, last month Congress passed the Consolidated Appropriations Act of 2017—the annual budget, in other words. Lying within this 1,665-page document is Section 537, which for one year restricts the Department of Justice from using any funds to prevent states from implementing their medical cannabis laws. Medical cannabis businesses and patients can take some solace in this restriction. Last summer, the influential U.S. Court of Appeals for the Ninth Circuit, sitting in San Francisco, confirmed that this appropriations rider prevents federal prosecutors from bringing suit against medical cannabis businesses and users operating in compliance with state law. Two problems remain glaring, however: one, the protection only applies to medical cannabis activity, not recreational; and two, it is only guaranteed to last for one fiscal year.

To be sure, for the 115th Congress to address the profusion of issues emerging from the nationwide legalization movement, they must do something more. Various reform proposals have in fact been introduced during the current congressional session, and in order to fully digest where they stand and what they have the potential to accomplish, it will help to make sure that we know how they fit within federal legislative procedure.

Catching Up to Speed with the Legislative Process 

How A Bill Becomes A Law
Photo: Mary-Frances Main

Whenever confronting a question about government and politics, it is never a bad idea to start at the source of authority. In America, that source is of course the Constitution, and in Article 1, Section 5, Clause 2, We The People have given to Congress the power to “determine the rules of its proceedings”.  When we remember back to the School House Rock cartoon for How A Bill Becomes A Law, the majority of political maneuvering behind the basic process taught in the cartoon actually happens according to these ‘rules’ or ‘resolutions’. In fact, at the beginning of each new Congress (every two years) each chamber, and each committee and subcommittee within each chamber, votes on the rules that will govern how they are to go about their legislative business. Traditionally, the rules from the previous Congress are carried over by this vote with only minor tweaks. On top of that, both parties in each chamber have their own internal rules and procedures for setting their policy agenda, directing political strategy, and determining which members will be nominated to certain leadership positions and committee posts. Playing the game of politics according to this layer cake of rules is a necessary part of the work of a legislator, and is often as important a factor in how our country is actually governed as is who wins election to office and what substantive provisions are formally enacted into law. So for the purposes of understanding federal cannabis reform, let’s take a quick look into the procedural status of the relevant legislation and who is in a position to influence what happens to it; then, when reviewing the policies they stand to codify, we will also understand the legislative landscape they must navigate.

Rep. Rohrabacher launches the Cannabis Caucus, Photo via Earl Blumenauer/YouTube

A good place to start is February 16, 2017 when Republican Congressmen Dana Rohrabacher (R-CA) and Don Young (R-AK) along with Democratic Congressmen Earl Blumenaur (D-OR) and Jared Polis (D-CO) launched the Congressional Cannabis Caucus. Under House and Senate rules, such a caucus must formally register with the House Committee on Administration as a Congressional Member Organization (CMO), disclosing its officers and members and declaring its purpose. These CMOs are sometimes referred to by different names: caucuses, conferences, coalitions, task forces, etc. The best known of these are the House and Senate Democratic Caucuses and the House and Senate Republican Conferences. By setting party policy, driving legislative strategy, promoting party cohesion and rewarding party loyalty, these largest of CMOs dominate partisan activity on Capitol Hill. Smaller CMOs, on the other hand, advance only specific interests and often cross the partisan divide. The Cannabis Caucus, for instance, was formed to catalyze a federal response to the nationwide legalization movement, and its “Path to Marijuana Reform” is a large part of the spate of bills that have been dropped into the congressional hopper over the past six months.

All in all there are twenty cannabis reform bills currently pending in Congress. In the House, all but two of the fourteen bills there have been referred to either the Energy & Commerce Committee or the Judiciary Committee, and all but one of the six in the Senate have been referred to either the Finance or Judiciary Committees.

A Note on Committees & Procedure

Rep. Earl Blumenauer (D-OR), is on the Ways and Means Committee
Photo: Michael Campbell

Under House and Senate rules, bills are referred to committees by matching the former’s subject matter to the latter’s jurisdiction. In the House, the Speaker may attach time limits for committee action, refer a bill or portions of a bill to multiple committees and determine the sequence in which they are to be considered. The Speaker may also convene an ad hoc committee to consider a bill, and “make such other provision as may be considered appropriate.” As can be gleaned, the Speakership holds substantial procedural powers, and is in fact the only congressional leadership position created by the Constitution. The Senate’s counterpart, the majority leader, has in comparison less discretion in moving along legislative business.

At the next step, both the House and Senate grant each committee the authority to make their own rules on how they are to consider bills. Once referred, committee chairs generally decide to further refer a bill to a subcommittee, hold hearings, subpoena evidence and witnesses, call ‘markup’ sessions to propose and debate amendments, and finally to schedule a vote to report bills back to the chamber floor. If a committee chair wishes to kill a bill, these procedural powers provide wide, though not absolute, authority to do so. Jockeying for a chairmanship is therefore big game in the life of a legislator. Ultimately, members are nominated and elected to their respective committees and chairs according to the rules of their parties’ caucus or conference, and upon a vote of approval on the floor. Seniority is only one factor in these votes, and so because nothing is predetermined, these intraparty contests can explain a great deal about member behavior.

With that background to help triangulate Capitol Hill politics, we should now be better equipped to look into the cannabis bills pending before the 115th Congress, the committees to which they have been referred, and their procedural status. Stay tuned for the next article in this series when we will begin our bill-by-bill review.

Former Mexican President Ridicules Justice Department’s Cannabis Policy

By Aaron G. Biros
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This week, the National Cannabis Industry Association (NCIA) hosted their annual Cannabis Business Summit in Oakland, California amid some alarming news in Washington. On Monday, a letter written by U.S. Attorney General Jeff Sessions back in early May made its way into the news, where he writes to Congress asking permission to prosecute medical cannabis businesses. The following day, U.S. Deputy Attorney General Rod Rosenstein spoke to the Congress Appropriations committee, saying that, “From a legal and scientific perspective, marijuana is an unlawful drug- it’s properly scheduled under Schedule 1.”

Those two statements identify the crystal-clear anti-cannabis stance of the two most senior-level officials at the Justice Department, a position that should alarm cannabis legalization advocates.

The former president of Mexico, Vicente Fox, a prominent legalization advocate, gave a press conference at the NCIA event, where he gave reporters his thoughts on cannabis and drug legalization, the Trump administration and Attorney General Jeff Sessions. To be blunt, he called Sessions crazy and Trump destructive and ignorant.

former Mexican President Vicente Fox speaking to a room of reporters

“I don’t know what happened to this administration,” Fox told a room of reporters. “A large majority of US states have already approved the use of medical cannabis, which I think is a great thing,” says Fox. “The state of California by itself produces more marijuana than what we do in Mexico. There is a conflict between the frameworks of law… there is no consistency in public policy.” To be clear, the former Mexican president advocates legalizing all drugs, attributing the violence in Mexico to the failed War on Drugs. “I don’t think prohibition has worked and we [Mexico] have paid a huge price for that.”

Former Mexican president Fox’s focus on international politics during that press conference sheds some much-needed light on the violence and other externalities linked to organized crime and the black market drug trade. “We are going to stand firm against what is going on- it is not only the fate of the United States, it is the fate of the whole world,” says Fox. “It is a real shame for this nation in front of the world- we are all pissed off out there hearing this crazy tweeting and crazy public policies that has nothing to do with the soul of this nation… No nation can isolate [themselves] behind a wall and still succeed.”

National Association of Cannabis Businesses Announces Launch

By Aaron G. Biros
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According to a press release, the National Association of Cannabis Businesses (NACB) launches today, becoming the first self-regulatory organization (SRO) for the cannabis industry. With their mission to help compliance, transparency and growth of cannabis companies, they will lead member businesses in establishing voluntary national standards, addressing issues like advertising and financial integrity.

A team of experienced legal regulatory professionals will lead member businesses through a process of developing those standards. Andrew Kline, president of the NACB, was a senior advisor to Vice President and then-Senator Joseph Biden, served as an Assistant United States Attorney in the District of Columbia and in the Enforcement Bureau of the FCC. Their chief executive officer, Joshua Laterman, began working on NACB three years ago, but before that he had two decades of experience as general counsel at global financial and investment institutions. Doug Fischer, their chief legal officer and director of standards, spent the past nine years in cannabis law and financial regulation and enforcement at the law firm Cadwalader Wickersham and Taft.

Andrew Kline, president of NACB

According to the press release, SROs have proven to be effective in other industries at limiting government interference and overregulation, while preserving public safety. FINRA (Financial Industry Regulatory Authority) is an example of an SRO that serves the financial industry. It is a non-governmental organization that helps regulate member brokerage firms and exchange markets, working to help their members stay compliant with regulations set by the Securities and Exchange Commission. Much like the rapid growth of the financial markets over the past 30 years, the cannabis industry is experiencing exponential growth while regulators try to keep up.

“The cannabis industry is on a historical growth trajectory that is expected to continue for years to come, but even the most established, well-run businesses recognize that the future favors the prepared,” says Josh Laterman, CEO of NACB. “As other industries have experienced with their SROs, establishing and committing to voluntary national standards will enable cannabis business owners to demonstrate impeccable business and compliance practices to consumers, regulators, banks and investors.”

According to Doug Fischer, chief legal officer and director of standards, they will focus on a variety of topics that align with the federal enforcement priorities. So these standards might not cover some of the product safety and quality aspects that ASTM International and FOCUS touch on, rather addressing issues like advertising, financial integrity, preventing diversion across state lines, prevention of youth use and corporate responsibility. Another important distinction to make is that an organization like ASTM International sets standards, but the NACB as an SRO is tasked with enforcing them as well.

Doug Fischer, director of standards and chief legal counsel

“From our perspective, businesses have been having a hard time navigating the complex state regulations, particularly those operating in multiple states,” says Fischer. “That is further complicated by the current administration not solidifying their stance on recreational cannabis.” The Cole Memo put out under the Obama Administration set clear federal enforcement priorities, allowing cannabis businesses and states to identify ways to avoid federal government interference or prosecution.

The current administration has done nothing but fuel regulatory uncertainty. This is particularly important given this week’s news regarding the leaders at the Justice Department making inflammatory and threatening statements regarding legal medical cannabis. “It causes these businesses, who should be focused on their own day-to-day operations, instead focusing on complying with what they think the federal government wants and regulatory compliance with state regulations,” says Fischer. “We can help solve that problem by making it easier for companies to become compliant, not only with state regulations but federal guidance as well. This has been proven by other SROs, that if we set our own standards and abide by them, federal regulators might be guided by the industry’s self-policing in determining how to regulate the cannabis industry.” According to Andrew Kline, it could also provide a window of opportunity for better banking access.

The founder and CEO, Joshua Laterman, used to work in the banking industry and recognized the need for a cannabis industry SRO. “He saw an incredible opportunity in a projected $50 billion market by 2026, and as a former banker he saw the opportunity for banks to do business in the industry, but they don’t know who to trust,” says Kline. “Starting a self regulatory organization can help fill that void, allowing companies to identify and put a stamp of approval on a segment of the population that is uber-compliant, therefore giving banks a view into who they should and shouldn’t do business with.” While it won’t immediately resolve the many issues associated with cannabis businesses’ accounting, the NACB could be a major help to smaller businesses looking to prove their worth. “The important point here is that based on the experience of our team, we know what is important to the federal government, and we understand that members will be shaping standards with us, so we will also guide them to federal priorities,” says Kline.

Fischer says a self-regulatory organization is always driven by the industry and needs of the members, but they have the added unique challenge of working in a web of competing governmental interests. “Self-regulatory organizations can shape the future of regulation; we don’t know if or when federal prohibition will end, but if it does, the government is going to look at a variety of areas for regulations,” says Fischer. “We might be able to help shed light on our self-regulating nature and if we can demonstrate the best practices for specific areas, states and even the federal government could look to that, giving our members an advantage.” According to their press release, licensed cannabis growers, dispensaries or any other ancillary business may apply to become members. Some of the founding members include Buds & Roses, Etain, Green Dot Labs, Local Product of Colorado, Matrix NV, Mesa Organics, among others.

What Does The Constitution Have To Say About Cannabis Legalization?

By Brian Blumenfeld, J.D., M.A.
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With the Trump Administration sending mixed signals on legal cannabis, and with Congress beginning to ramp up efforts for reform, in order for industry stakeholders to best understand where we are headed, it will be helpful to remember how we got here. As readers may be aware, the current status of federal cannabis law can be traced back to the legislative prong of Richard Nixon’s War on Drugs. His Controlled Substances Act of 1970 (CSA) made it a federal crime for anyone to use or possess any amount of marijuana anywhere in the U.S. Current federal cannabis policy, on the other hand, complicates the matter, and can be traced back to a memorandum issued in 2013 by then-Deputy Attorney General James M. Cole. The Cole Memo instructed U.S. attorneys general in states that have legalized marijuana to use their limited resources in prosecuting CSA offenses only if they violated specific federal enforcement priorities. The highest of these priorities include diverting legal marijuana business revenues to illegal drug operations, transporting marijuana over state lines, making marijuana accessible to minors, and growing marijuana on federal lands. The problem is that the Cole Memo is only a policy, it is not law; and so not only can the current administration unilaterally change it whenever it wants, but state-legal cannabis businesses, their employees and customers are breaking federal law every single day!

Former Deputy Attorney General James M. Cole
Photo: Shane T. McCoy

This is a very unusual situation to be in for both the states and the feds, and it raises two basic constitutional questions: What gives the feds the right to make cannabis illegal everywhere in the U.S.? And how can states simply defy the prohibition?

The first question was in fact answered by the U.S. Supreme Court in 2005 when two California women (Diane Monson and Angel Raich), both with very serious illnesses, sued the federal government for confiscating their state-legal medical cannabis. The feds defended their actions by claiming that the Constitution’s Commerce Clause gave them the authority to march into California, march into the homes of these women, and enforce the CSA. Diane and Angel argued that the Commerce Clause only gives the feds the authority over interstate commerce; and since their cannabis was grown by themselves, used by themselves, never bought or sold, or transported out of the state, it was therefore wholly intrastate cannabis and had nothing at all to do with interstate commerce. The Court sided with the feds, ruling that even though the cannabis was intrastate, when you take all intrastate cannabis activity like that and add it together, it will have a substantial impact on the interstate cannabis market. Because of that connection it was ‘necessary and proper’ for the feds to enact the CSA and enforce it anywhere in the country they wanted. Although there is still much debate over this ruling, it remains the law of the land to this day.

United States Constitution
Photo: National Archive

Fast forward to 2014. The states of Nebraska and Oklahoma sued Colorado claiming that by legalizing marijuana, Colorado was violating federal law under the CSA. Because federal law overrides state law when they conflict, then Colorado’s cannabis laws must be struck down, or so they argued. In response Colorado took a very interesting position that built on the hard realities of the cannabis market. It is best to explain it in four parts. First, they cited the fact that the federal government lacked the resources to enforce the CSA, a claim which the feds have admitted to themselves. Second, Colorado pointed to a constitutional doctrine called ‘anti-commandeering’, which says that they have no obligation to criminalize cannabis at all. If the feds want to make it a federal crime, that is one thing; but that does not mean CO must make it a state crime as well. Third, Colorado said that by regulating cannabis as extensively and strictly as they have done, they are reducing the amount of cannabis activity compared to not regulating it at all. Taken together, this means that because Colorado does not have to criminalize cannabis, and because the federal government cannot enforce their own criminalization, then Colorado is actually helping out the feds by regulating the drug instead of allowing for a free-for-all under state law.

The Congressional Cannabis Caucus Announced

In March of 2016 the Supreme Court declined to hear the case in full or issue an opinion, which had the effect of giving a default victory to Colorado. Among political and legal commentators the speculation is that enough justices on the Court either agreed with the logic of Colorado’s position or wanted to wait for this federal-state controversy to be worked out by Congress. Because it was only a default victory, the constitutional status of the legal cannabis industry remains on unprecedented and unstable ground. The Controlled Substances Act has not yet been found to preempt state law, so cannabis businesses are still able to operate legally in their state. But because the CSA still applies to everyone, they do so at the whim of the Trump Administration’s policy preferences. The confusion that this presents has put cannabis businesses in many difficult situations, and it serves as the legal backdrop for such familiar problems as access to banking and contract enforcement.

Currently, legislative and judicial fixes are in motion. Related cannabis litigation is pending in federal court at the 10th Circuit Court of Appeals in Denver. And a Cannabis Caucus has formed in the U.S. Congress to address the shortcomings of the CSA. In the coming articles we will explore both of these routes to reform, the likelihoods of various possible outcomes, and the impact they will have on the legal cannabis industry.


Editor’s Note: For readers interested in learning more about this topic click here for Brian’s research article published by the Virginia Journal of Social Policy & the Law