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.
According to an article on Reuters, Uruguay’s pharmacies opened for recreational cannabis sales on Wednesday for those over the age of 18. Uruguay beginning recreational sales marks an important milestone as the first country to fully legalize cultivation, sales and recreational use of cannabis.
The country legalized cannabis more than three years ago, but it has taken a while for the government to work out and implement their regulatory framework. Only two companies, Symbiosis and Iccorp, received government licenses for growing, packaging and distribution, according to Reuters.
Consumers are required to register with the government and are only allowed to purchase up to 40 grams of cannabis per month. 5-gram packages are the only products for sale currently at $6.50 a piece. As of now there are only two types of cannabis that consumers can purchase: “Alfa 1”, and indica, and “Beta 1”, a sativa. According to Reuters, neither has a particularly high concentration of THC.
The government says they will carefully monitor production and registrations to prevent diversion and cannabis leaving the country. Only citizens of Uruguay over 18 are permitted to register to buy cannabis. With over 3.4 million people residing in Uruguay, less than 5,000 have registered by Wednesday. All sales must go through a pharmacy, according to the Reuters article.
“The PA Medicinal Cannabis Education Tour seeks to rectify the current lack of education on medicinal cannabis by providing current, reliable information on medicinal marijuana and its uses,” reads the press release. The events come at an opportune time: Pennsylvania recently announced qualifying permit applications for growers and dispensaries. As the state moves forward with their plan to fully implement a medical cannabis program by 2018, those looking to learn more about the regulations can attend these talks throughout the state.
The PA Medicinal Cannabis Education Tour will make stops in six cities, one for each of the regions set by the Department of Health: Tuesday, July 25th in Philadelphia; Wednesday, July 26th in Allentown; Tuesday, August 1st in Pittsburgh; Wednesday, August 2nd in Erie; Tuesday, September 26th in Harrisburg and Wednesday, September 27th in State College. The educational content is developed by the Lambert Center at Thomas Jefferson, the only such program dedicated to cannabinoid therapy. “These programs will educate healthcare professionals on the basic science underlying the pharmacologic and therapeutic options associated with medical cannabis in patient care, clinical insights on the use of medicinal cannabis, and provide information on legislative measures of Pennsylvania state law on the use, recommendation and dispensing of medical marijuana for medical conditions,” reads the press release.
Last year, The Lambert Center hosted an accredited CME course as part of Greenhouse Ventures’ industry conference, Innovation in the Cannabis Industry: Future Outlook. “The Lambert Center for the Study of Medicinal Cannabis and Hemp at Thomas Jefferson University is proud to support and participate in the PA Medicinal Cannabis Education Tour,” says Charles V. Pollack, Jr., MD, director of the Lambert Center. “The Lambert Center is the only comprehensive academic resource for education, research, and practice for the therapeutic use of cannabinoids to be based in a US health sciences university. We view the PA Tour as an essential education piece to prepare Pennsylvania doctors and assist in a smooth rollout of Pennsylvania’s Medical Cannabis industry.”
Sara Jane Ward, PhD, is an assistant professor at the Center for Substance Abuse and Research at the Lewis Katz School of Medicine at Temple University and one of the course instructors on the education tour. She says a large part of the event series is to settle old misconceptions about cannabis. “There are a lot of misconceptions and misunderstandings on cannabis as a medicine in the medical community, because historically medical students are not taught about cannabis and the endocannabinoid system,” says Ward. “I’m looking forward to working with Greenhouse Ventures and The Lambert Center for the Study of Medicinal Cannabis and Hemp, to educate healthcare professionals across Pennsylvania on the health benefits of cannabis.”
“A common setback for states that are implementing medical cannabis regulations is the lack of interest and sign ups from doctors and patients,” says Kevin Provost, executive officer of Greenhouse Ventures. “With reputable medical institutions like Thomas Jefferson University providing entry level education on medicinal cannabis and the endocannabinoid system, hopefully healthcare professionals across the state will realize this is real medicine, that can bring significant medical benefits to thousands of patients, and that now is the time for them to learn, before the industry is open in Pennsylvania.”
The first event in the educational series will be in Center City, Philadelphia on Tuesday, July 25th in the Bluemle Life Sciences Building at Thomas Jefferson University.
Obstacles to American cannabis reform are creating a quirky if valuable market. Cannabis is still a “Schedule I” drug. From a practical perspective, this has created a multi-billion dollar industry that as of yet, cannot get reliable banking services. It also means that patients cannot get the drug covered under health insurance. There are no national safety requirements for growing, packaging, labelling or consumption.
This is certainly not the case elsewhere. Other countries are rapidly outpacing the U.S. in such regards even if their commercial markets are not (yet) of the same size. Outside of Canada right now, Europe is the place where most of these things are happening.
Just as in the U.S., however, there is no one single path to reform.
Who Is Interesting In Europe?
This is an evolving question, but here, for the moment are the market leaders and what is going on locally:
Germany. Cannareform auf Deutsch currently underway makes this the most exciting country in Europe right now. The country is basically the “California of the EU” as it were, with about 20 million more people.
As of January 19, the lower house of the German parliament voted unanimously to legalize cannabis for medical use. Further, they voted to cover it under public health insurance which covers 90% of Germans. Yes, this is a system in process. Yes, there are problems. Health insurance companies appear to have launched a tepid attempt to slow this down, but just as in Canada, they are already facing court challenges. It is a losing battle here. Both legal and legislative mandate are very clear.
This is an industry that will also begin to grow, per government estimates, at between 5-10,000 patients per year for the next couple of years. It could grow faster than that. With over 1 million potential patients already, and a high interest in plant-based and natural medicine, this is a market more than ready for cannabis products. There are now up to ten growing bids up for grabs here and those who have applied are waiting anxiously as the government is set to announce the winners this summer. The big push right now on the ground is doctor and patient education as well as getting patients signed up for trials.
Recreational reform is also far from dead here. The medical question, in fact, has only inspired activists to redouble their efforts to get recreational reform finalized sooner than later. Especially given developments elsewhere, including locally.
Switzerland. The Swiss are approaching the question of legalization in another unique way not seen anywhere else. That said, they are clearly inspired by events in other places. Since 2011, low-THC cannabis has been for sale in regular shops. However in the last quarter of 2016 and into the first of this year, the market all of a sudden seems to have woken up. There are now over 160 shops either selling the drug or applying to sell it. This is all product that is taxable.
Thanks to this, reformers are now pushing a bill federally that would legalize and tax the sales of all THC products – no matter their concentration. In effect, in other words, the Swiss are looking at tax revenue first. If they succeed, they will be the first country to enter the market this way. It will also push other countries, starting with their closest neighbours, to examine the question of legalization just on this front. The economic justification alone is compelling. Expect Austria to also look at the problem this way.
Spain. The country is widely billed as the “next Holland.” Why? Cannabis reform has been very similar procedurally. Due to loopholes in the current law, the Spanish have been able to establish a thriving “cannabis club” market. These clubs are member-driven and non-profit. However locals who are over the age of 21 can sign up and smoke in “semi-private.” Legislation now pending in the Spanish legislature would focus on better regulation of both the clubs and the existing grows that support them. The way the Spanish seem to be approaching the issue is to give larger cities and regions direct control over regulation of the industry. However for now, this is a market that is steadfastly resistant to commercial development on the scale seen in other places. Investors – especially from overseas, are avoiding the market because of this uncertainty.
Holland. Generation X reformers are used to the idea of the grey market created by the unique nature of Dutch culture and the plant. For the better part of 40 years, the entire industry here has been based on a unique market of seed producers and growers. That, in turn, supports the coffee shop culture. There are many proposals to change the law here, and the industry will probably begin to better regulate – starting with cultivation, as the rest of Europe turns its attention to this issue. It was Holland after all, that started this. What is next for Holland 2.0? It is likely that regional developments will also shape this market too. It is still part of the EU.
Italy. While a bit of an outlier, the Italians are also in the game now. How further reform will proceed here, however is anyone’s guess. The Italian military began growing and distributing cannabis to pharmacies last year. The first medically focused canna café has now opened in Rome.
The Eastern Bloc
Eastern European countries are all over the map on legalization – although most are approaching this as a medical issue. In Czech Republic, legalization has moved forward here steadily in large part because of existing national drug policy. Croatia began importing from Canada last year in the form of cannabis concentrates. Both of those countries have digital prescription systems to integrate with medical cannabis, as part of the legislation legalizing medical use in 2015. This digital dispensation system is also unique so far in Europe, although other countries will be entering this area quickly. Even Turkey has begun to implement reform, allowing producers to begin to grow the plant domestically for local medical use.
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
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 theirown 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.
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
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.
According to the Marijuana Policy Group, the U.S. cannabis industry is expected to reach more than $13 billion in sales by 2020 and create more jobs than the U.S. manufacturing industry. According to Viridian Capital’s Cannabis Deal Tracker, there were close to 100 M&A transactions in the U.S. cannabis industry in 2016 and approximately $1.2 billion was raised in equity and debt. As the cannabis industry has grown more mature and businesses begin to have more capital available, the M&A activity within the industry is poised to grow significantly over the next years to assist businesses gain necessary scale and take advantage of synergies and diversification.
The Obvious Wrinkle
U.S federal law has prohibited the manufacture and distribution of cannabis since 1935. The U.S. regulates drugs through the Controlled Substances Act, which classifies cannabis as a Schedule I drug (i.e., drugs determined to have a high potential for abuse with no currently accepted medical use and a lack of accepted safety regarding their use). Yet, more than 25 states have by now legalized cannabis for medical and/or recreational purposes and, as a result, there is a clear conflict between such state laws and existing federal law. To possibly help bridge that conflict, the U.S. Attorney General’s office in 2013 issued guidance directing the federal government not to intervene with state cannabis laws except in specific, limited circumstances, but, contrarily, the DEA has shown no desire to re-classify cannabis. To add to the confusion, President Trump and the new U.S. Attorney General have provided mixed statements and signals about their positions.
All of this means that it continues to be risky to acquire cannabis businesses. The requirements to legally grow, distribute, prescribe, and use cannabis for either medical or recreational purposes vary widely by country, state, and local jurisdiction, making it tricky to determine whether such businesses can be legally combined, in particular, across state lines.
Pick the Right Team of Advisors
When preparing to sell or buy a cannabis business, it is important to pick the right team of advisors. Your regular legal counsel, accounting firm or CPA may not be the right advisors for a cannabis M&A transaction. Choose a legal counsel that not only has experience with cannabis laws and regulations, but also has cannabis M&A experience and can offer expert advice on areas like IP, employment, tax matters, etc. Similarly, verify that your accounting firm or CPA has real experience with financial and quality of earnings analysis and due diligence.
Conduct Gating Due Diligence Up Front
In any contemplated M&A transaction, it is wise to prioritize your due diligence investigations. There will always be some more prominent risks and business objectives in a particular industry or with respect to a specific target business. It will be more cost and time effective if those specific risks and business objectives are prioritized early in the due diligence process. These can dictate whether you even want to pursue the target further before you dig into a deeper and broader due diligence investigation. Conducting gating due diligence up front is even more important in an industry like cannabis that contain complex and thorny regulatory hurdles.
So, before you spend money and time on a broader legal, business and financial due diligence investigation, have your legal counsel analyze and confirm that the potential transaction is feasible from a regulatory perspective. This will include whether it is possible to obtain or transfer necessary local and/or state licenses and whether a combination or sale can occur across state lines if necessary. Early on in the process, It is also advisable to request that the target business complete a legal compliance questionnaire or discuss with the target its regulatory compliance program, policies and training. Such up front due diligence will either clear a path to negotiations and broader confirmatory due diligence or flush out “red flags” that may kill a possible deal or require the buyer to investigate further before proceeding.
Important Terms and Pitfalls in the M&A Agreement
Generally, a sale or purchase agreement for a cannabis business does not appear to vary much from a similar agreement in any other industry. However, the complex environment and the premature nature of the industry impacts certain deal terms and processes in different ways from most other developed industries.
Here are few examples to keep in mind when preparing and negotiating a sale or purchase agreement:
Third Party and Governmental Consents: Buyer’s legal due diligence must focus on the consents that may be required from seller’s suppliers, customers, landlords, licensors or other third parties under relevant contracts. Additionally, the due diligence should focus on consents and approvals required by local and state regulators as a result of the sale. The M&A agreement should contain solid seller representations and warranties about all such consents and approvals and any such material consents and approvals should, from a buyer’s perspective, be a condition precedent to closing of the transaction.
Legal Compliance: A buyer should not agree to a boilerplate seller representation about the target’s compliance with laws. Be specific and tailor seller’s legal compliance representation to relevant state and local cannabis laws, regulations and ordinances. From a seller perspective, be careful and thoughtful about any appropriate exceptions (including the federal prohibition) to be disclosed to buyer in the disclosure schedules underlying the sale or purchase agreement.
Financial statements: The cannabis industry is very fragmented and consists of many small businesses. Many of these small businesses do not have financial statements prepared in accordance with GAAP and may consist of only management prepared financials. In that scenario, a buyer should have its financial advisor do an analysis of the financials available and ask seller to provide a representation and warranty about the accuracy and good faith preparation of the provided financials.
Escrow: Typically, a buyer will request some part of the purchase price be placed with an independent financial institution for a period of time post-closing as a source of recovery for losses as a result of breaches by seller of any of the representations and warranties in the definitive sale or purchase agreement. Due to the federal cannabis and banking regulations, many of the larger commercial banks will not provide financial services to cannabis businesses, in particular if the business touches the plant. The parties must therefore consider alternatives, including local financial institutions with more relaxed compliance requirements or perhaps place the escrow in a trust account of a law firm or other independent party.
Working Capital Dispute Procedures: Similar to the escrow, larger accounting firms generally do not provide services to cannabis businesses. Due to the rapid evolution of cannabis related regulations, if the terms of the transaction include provisions for a post-closing working capital/purchase price adjustment and related dispute procedures, it is advisable to not name an arbiter in the agreement. Instead, parties should agree to mutually select the arbiter if and when a dispute should arise.
Indemnification: Because of the tricky legal environment of the cannabis industry, it may be prudent for a buyer to request, at the very least, that certain parts of seller’s legal compliance representation and warranty not be subject to the “regular” caps, deductibles and other indemnification limitations. Also, if a buyer has unearthed a significant issue in its due diligence investigation, it should consider asking seller for a special indemnity for such issue that would be indemnifiable regardless of buyer’s knowledge of the issue and not be subject to the general indemnification limitations.
R&W Insurance: If there’s a lot of competition for the purchase of a target, particularly in a bidding process, it is now common for buyer to offer to purchase a representation and warranty insurance policy (“R&W Insurance”) to possibly gain an advantage by limiting the seller’s post-closing indemnification exposure. The good news is that many of the R&W Insurance carriers do offer such insurance in connection with the sale and purchase of cannabis businesses. However, typically, R&W Insurance cannot be obtained for insured amounts of less than $5 million. Experienced M&A counsel can advise of the advantages and disadvantages of R&W Insurance and assist in the negotiation of the related terms.
The above are just some examples of what to expect in a cannabis M&A transaction. Every M&A transaction will have its unique issues that will need to be appropriately reflected in the sale or purchase agreements and good M&A practices will continue to evolve with the industry. If you are an owner of a successful cannabis business, buckle your seat belt and be prepared for an exciting ride as the industry gets closer to significant consolidation.
With the 2017 Cannabis Business Summit just around the corner, we sat down with Taylor West, deputy director of the National Cannabis Industry Association (NCIA), to hear about their lobbying efforts and what they’ll discuss in the keynote panel discussion on Taxes, 280E and the Path to Federal Reform. Henry Wykowski, Esq., attorney, Steve DeAngelo, founder of Harborside Health Center and Michael Correia, director of Government Relations for NCIA will join her on that panel discussion.
According to West, the 280E tax code issue has an enormous impact on the industry. This tax code essentially means that businesses cannot make deductions for normal business operations from the sale of schedule I narcotics. Because cannabis is still listed as schedule I, businesses touching the plant often pay a majority of their profits to federal taxes. “When they are handing over 80% of their profit to the federal government, which is a lot of money that isn’t being pumped into the local economy, that is a big problem,” says West. “We want to highlight how 280E isn’t just harmful to businesses, but also harmful to the local economies and states that have businesses dealing with cannabis in them.” As the primary organization lobbying on behalf of the cannabis industry in Washington D.C., they have three full-time staff as well as a contracted lobbying firm working there. “We are the voice on Capitol Hill for the businesses of the cannabis industry,” says West. “We primarily focus on a couple of core issues, and one of them is 280E tax reform since that is such a significant issue for our members touching the plant.”
Another important issue they have been lobbying on is banking access. According to West, banks and credit unions are regulated on the federal level, and as a result, are largely still reluctant to serve cannabis businesses. “The inconsistency between federal and state law means they are concerned their federal regulators will flag them for working with cannabis businesses,” says West. “It is very difficult to operate without a bank account- this creates a lot of transparency, logistical and safety issues. We are working with lawmakers to try and make a change in the law that would make it safe for banks to serve state-legal cannabis businesses.” NCIA’s lobbying efforts have long engaged a few core allies on Capitol Hill, including the representatives that formed the Congressional Cannabis Caucus. “They have been champions of broader reform issues around cannabis,” says West. “But we are also starting to see new faces, new members of congress getting interested in these issues, beyond the traditional champions.” A lot of NCIA’s recent lobbying efforts have focused on recruiting members of Congress for those issues.
One example of their success came by teaming up with Rep. Carlos Curbelo, a Republican Congressman from Florida serving on the House committee overseeing tax issues. “He hasn’t previously been involved with cannabis legislation, but because Florida moved forward with the medical program, he got more interested in the issue and we helped educate him about the problem with 280E,” says West. “Having a republican that sits on the committee dealing with these issues is a huge step forward as we build the case for reform in D.C.” A lot of these efforts will be discussed in greater detail at the upcoming Cannabis Business Summit June 12-14. “We want to talk about the work we are doing just now in Washington D.C.; we have been doing a significant amount of work helping to draft legislation that would fix the 280E issue,” says West. “We will talk about those efforts as well as what businesses are currently doing to deal with the issue of 280E.” For readers interested in getting tickets, seeing the agenda and learning more about NCIA’s lobbying efforts, click here.
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!
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.
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.
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
Budtenders represent the front line of any cannabis dispensary, and as such they are responsible for fostering a valuable customer service experience that will have clients returning in the future. However, the role of budtender goes much deeper than simply providing customer service. If you want to develop a profitable business with deeply embedded customer loyalty, you can do no better than to hire an exceptional team of budtenders to provide your patrons with useful information and a memorable customer service experience that will keep them coming back for repeat sales.
Offering Education for All Customers
Perhaps the most important role the budtender plays in any dispensary is providing the customer with useful knowledge that will help them make an informed purchase. For many people, legal cannabis is still a very new concept, and there are a good deal of customers who have never tried cannabis products during prohibition. For these customers, it will be essential that an experienced budtender walk them through everything they need to know and help them choose a strain that will be best suited to their needs. In addition to dosing and strain advice, budtenders can help explain how various paraphernalia works, as pipes and bongs will likely be foreign to them.
For less seasoned smokers, information on dosing can be the difference between a positive and negative experience. This is primarily a concern with edibles due to the long lasting nature of their effects, but can benefit other methods of delivery as well. The effects and potency of different strains can vary widely, so it can be difficult to judge how much to ingest. Though it is impossible to overdose on cannabis, using too much can have a negative impact on the experience. By offering experienced insight into the product they are selling, budtenders can ensure that the customer will have a more positive experience with cannabis, leading to lasting relationships with your company.
Budtenders can provide plenty of value for more experienced consumers as well. The fact of the matter is, there is an endless sea of different types of cannabis products on the market, and learning all of them requires more research than many cannabis consumers are willing to invest. Whether a customer uses cannabis for medicinal or recreational purposes, they will likely have developed preferences when it comes to what they like to smoke. It is important that budtenders be knowledgeable enough to direct the customer to a product that will live up to their expectations.
A client suffering from anxiety shouldn’t be recommended towards an energetic sativa, for example, as this will likely give them a bad case of paranoia, resulting in a negative experience that could send their business elsewhere. Likewise, a daytime smoker probably won’t be happy with a relaxing Indica that will put them to sleep. Budtenders need to keep up with the various strains that are in stock at all times and be able to direct their customers to the right product.
Budtender Presentation and Service
Of course, being knowledgeable about cannabis is a necessity, but a good budtender must also be able to convey this information in a manner that educates the customer. The best budtenders will be approachable and prepared to answer any question thrown their way. They should be able to present the information like a teacher, a quality that will put customers at ease and leave them confident they are in good hands.
Dispensaries can set themselves apart from the competition by choosing their budtenders wisely. It is important to hire budtenders who present themselves in a highly professional manner including down to their manners and clothing. When a customer buys cannabis from a store, they may have preconceived notions about the budtenders working there. By hiring knowledgeable, personable and professional budtenders, businesses can tackle negative stereotypes surrounding the newly emerging cannabis industry and improve customer satisfaction.
If you’ve been to a lot of cannabis dispensaries, you’ll know that some of them might feel like a drug dealer just leased a building and set up shop, business as usual. With legalization comes the opportunity to legitimize cannabis consumption to a degree not possible before, and many dispensaries are helping to change the perception of the industry by catering to more refined crowds with attractive shops and a professional atmosphere. A good team of budtenders can go a long way towards establishing a dispensary as an upscale business.
Overall, A great budtender is an invaluable asset to any dispensary, and staffing your business with them is your best bet at building lasting relationships with your customers. Budtenders with expansive knowledge of cannabis strains, effects, and dosage, as well as a professional and personable demeanor are essential to the success of a dispensary, and without them a business might suffer.
This three-part series will provide an in-depth look at intellectual property (IP) protection that is available for innovative and new varieties of cannabis. In this first installment, we will examine the reasons why cannabis breeders should adopt a strong IP strategy and look briefly at the types of IP that they should be considering. In the second and third pieces, we will look at the types of IP protection that can be used to protect innovative cannabis varieties and the unique IP issues the cannabis industry faces right now. Taken together, these articles will provide insight into IP strategies that cannabis breeders and growers can employ today to help prepare for the day that cannabis becomes legal nationally.
Why should I use IP to protect my cannabis varieties?
First and foremost, as the cannabis industry continues to move from a small, tight-knit community of breeders and growers into a ‘big-business’ industry, IP is the only way for breeders to protect the investment of time, energy and money that they put into developing new and innovative strains of cannabis. At a recent cannabis growing conference, one sentiment felt among numerous breeders was a feeling of frustration– stemming from the fact that they had spent many years developing new varieties of cannabis and, now that the industry is exploding, they are not getting recognition for all that effort. The way to avoid this issue is to protect novel varieties with IP to ensure that you are given proper credit for all of your hard work.
Moreover, an examination of industries that have strong similarities to the cannabis industry, such as other plant-based industries and ‘vice’ industries, provides compelling evidence that IP will become a main driving force in the cannabis industry as it continues to mature. For example, the fruit and hops industries have been relying upon strong plant patent and trademark protection for many years. The extremely popular Honeycrisp apple is a patented variety and the Amarillo hops variety (officially called ‘VGXP01’) is protected by both a U.S. Plant Patent and a federally registered trademark. Similarly, the alcohol and tobacco industries rely upon strong trademark and branding strategies, with many consumers being extremely brand-particular.
Additionally, there is strong evidence that the cannabis industry is primed for intellectual property protection. Since long before cannabis was legalized, consumers who were buying cannabis on the black market often sought out a particular variety from their dealer, something that becomes more prevalent as the industry continues to mature.
Why is now the time to think about IP?
First, the relevant governmental bodies have now provided some clarity as to the types of IP protection that can, and cannot be obtained for cannabis. For example, it is now clear that the U.S. Patent and Trademark Office (USPTO) will issue patents that cover new cannabis plant varieties and related innovations, such as novel growing methods. In fact, the first U.S. Plant Patent that covers a novel cannabis strain, called ‘Ecuadorian Sativa’, issued in late 2016.
Similarly, though federal trademark registration is not currently available if the product being protected is a cannabis product that is illegal under federal law. Federal trademark registration may be available to protect products related to the cannabis industry that are not themselves federally illegal (e.g., grow lights, fertilizer, etc.). Many states with legalized cannabis will grant state trademark registrations for cannabis products regardless of whether the products are viewed as illegal under current federal law. With this increased clarity, companies can now begin to formulate a comprehensive IP strategy that ties together the various types of IP protection.
Additionally, cannabis breeders and growers should look to adopt an IP strategy now because there are certain time bars that exist that may result in loss of rights if they wait. For example, as we will discuss in Part 2 of the series, patent protection can only be sought if the variety to be patented was not sold, offered for sale, or otherwise made publicly available more than one year before the patent application is filed. So if a breeder chooses to wait to seek patent protection for a new variety, the ability to ever get that protection may be lost.
The bottom line is that, to solidify their place in the market, cannabis breeders and growers should be formulating an IP strategy sooner rather than later. Those forward-thinking growers and breeders that adopt a comprehensive IP strategy up front will gain a distinct competitive advantage over competing growers and breeders down the road – an advantage that will become even more important if and when large corporations begin to move into the cannabis space. Those companies that have strong brands in place will be better equipped to survive and thrive in the face of pressure from legal teams at larger companies.
The next two installments of this series will examine the specifics of the types of IP protection that can be sought and the unique issues that the cannabis industry faces with each of them.
Legal disclaimer: The material provided in this article is for informational purposes only and not for the purpose of providing legal advice. The opinions expressed herein are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. The provision of this information and your receipt and/or use of it (1) is not provided in the course of and does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel on your specific matter.