Six years after it was initially introduced, the House Financial Services Committee released the latest draft legislation that would create a “safe harbor” for banks to serve the rapidly expanding cannabis industry on February 7, 2019. Entitled the “Secure and Fair Enforcement Banking Act of 2019” (or, the “SAFE Banking Act of 2019”), the bill aims to prohibit federal regulators from penalizing banks and other financial institutions that provide banking services to marijuana businesses, marijuana-related businesses, and their owners and employees.
As a reminder, thirty-three states and the District of Columbia have legalized the sale and use of medical marijuana, while ten states and the District of Columbia have approved marijuana for adult or recreational use. With the fast-growing acceptance of cannabis evident as ever, the bill’s supporters claim that it would provide sorely needed legal clarity at a time when the cannabis industry faces serious financial and security risks. Accompanying the draft legislation was a memorandum prepared by the Financial Services Committee, which explains the reasoning behind this renewed push for legislation:
Generally, this iteration of the SAFE Banking Act pushes for even greater protections than those included in prior versions by including some new provisions, including:
1. Identifies (for the first time) and adds protections for ancillary businesses providing products or services to cannabis-related legitimate businesses (this is huge because even banks that would choose not to provide services to cannabis businesses may get caught under the present scheme);
2. Adds protections for marijuana-related “retirement plans or exchange traded funds” and “the sale or lease of real or any property [and] legal or other licensed services … relating to cannabis”;
3. Adds protections for the “distributing or deriving any proceeds, directly or indirectly, from cannabis or cannabis products”;
4. Specifies how businesses on tribal land could qualify; and
5. Requires that the Federal Financial Institution Examination Council develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses.
The general purpose and directive of the Safe Banking Act is arguably summarized by the following catch-all provision:
The bill is authored by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH), and Warren Davidson (R-OH), who have indicated that they plan to re-introduce the SAFE Banking Act by the end of the month. The House Subcommittee on Consumer Protection and Financial Institutions has already held hearings, which seem to have gone well. Looking ahead, it’s likely that the House Financial Services Committee will also hold a hearing and potentially mark up the bill. Based on the SAFE Banking Act’s reception, and with so many other cannabis-related issues on the table, we might be seeing a much more expansive bill to end federal cannabis prohibition for good in the near future.
The Marijuana Banking Bill is Back and Stronger Than Ever was initially published to Felicia Sullivan's Blog
Last summer, I wrote about Senate Bill 1459, a piece of California legislation that created a new scheme of provisional licenses for cannabis operators. This provisional licensing scheme was essentially intended to replace the temporary licensing scheme that only ran through January 1, 2019 per state law. SB-1459 was necessary because the three main state cannabis licensing agencies—the Bureau of Cannabis Control (“BCC”), California Department of Public Health (“CDPH”), and California Department of Food and Agriculture (“CDFA”)—and localities which issue permits to cannabis operators, were all backlogged with numerous applications and couldn’t process all of the applications in time for applicants to get operational in 2018. In some cases, applicants could not even obtain temporary licenses before the temporary license regime expired.
SB-1459 was thus supposed to be a lifeline for companies which had scored very short-lived temporary licenses so that they could get operational in 2019 while the state was processing their annual licenses. In this post, I look at what’s happened with the provisional licensing scheme since SB-1459 has passed, how each agency has treated them, and what applicants need to do to get them.
The steps—per SB-1459—to obtain a provisional license are fairly straightforward at first glance: (1) an applicant must hold or previously have held a temporary license for the same commercial cannabis activity for which it seeks a provisional, and (2) the applicant must submit a completed annual license application and proof that California Environmental Quality Act (“CEQA”) compliance is underway. Provisionals last for 12 months and can be issued through the end of 2019. Luckily for operators, this doesn’t add a layer of complication to the already complex process of applying for annual licenses and doesn’t really require applicants to do much that they wouldn’t have already needed to do in connection with annual applications.
The only agency which has published more comprehensive information on provisional licenses is the CDFA, which regulates cultivators. The CDFA does not have a separate application for provisional licenses. Per its instructions, once an applicant submits an annual license application (and assuming it held a temporary and paid its fees), CDFA staff will determine whether a provisional is warranted.
As noted above, and as most readers of this blog are probably aware, the temporary license scheme ended in late 2018. The impact of this is that temporary applications will expire in March or April unless an extension was provided. Each of the three agencies is likely to get a large influx of applications between now and when the temporary licenses expire, but we don’t yet know how they will process provisionals. If the BCC and CDPH follow the CDFA’s lead, then it seems like it may be a ministerial act after review of the completed submissions. But even that takes time to do, and businesses that are currently legally operational should probably not wait until their cutoff to apply for annuals, as a provisional application probably would not be processed by that time.
The bottom line for provisional license applicants is that even though they don’t have many filing prerequisites, they are going to be difficult to obtain because applicants must have first applied for annuals. Qualifying applicants—those who hold or have held temporary licenses—should take a hard look at the temporary license expiration dates and consult with their cannabis counsel on finishing up annuals with time for the agencies to review annual applications, and hopefully process and issue provisionals. Stay tuned to the Canna Law Blog for any other developments with provisionals.
California Cannabis Provisional Licensing Update is republished from www.feliciasullivan.com
The recent wave of crackdowns on cannabidiol (“CBD”)-infused alcohol beverages has further exacerbated public confusion regarding the legal status of the cannabis plant’s non-psychoactive compound.
This post provides an overview of the regulatory framework of alcoholic beverages, including pre-manufactured industrial hemp-infused drinks and “homemade” alcoholic drinks infused with CBD oil or extracts.
Pre-Manufactured Alcohol Beverages Infused with Hemp
As we previously explained, alcoholic beverages are regulated by federal and state laws. Cannabis is heavily regulated at the state level but unlike alcohol, it is—for the most part—strictly prohibited under federal law. However, one variety of cannabis, hemp, was recently legalized under the Agriculture Improvement Act of 2018 (“2018 Farm Bill”), which removed that particular crop from the definition of “Marihuana” under the Controlled Substance Act (“CSA”). Consequently, hemp is allowed in the formulation of alcohol beverages so long as the product meets specific criteria imposed by federal and state alcohol regulatory bodies.
The formulation of hemp-infused alcoholic drinks is regulated by the U.S. Alcohol and Tobacco and Trade Bureau (“TTB”) as well as by state liquor control agencies in states where the production and sale of hemp-infused drinks is allowed. Indeed, in its latest FAQ’s (which pre-dates the enactment of the 2018 Farm Bill), the TTB declared it understood the 2014 Farm Bill to only authorize the use of hemp in the production of alcoholic beverage products for sale within limited state-sanctioned pilot programs.
However, in the same FAQ’s, the TTB explained that before it approves a formulation, it consults with the Food and Drug Administration (“FDA”) to determine whether a hemp ingredient is safe for consumption and whether its use is lawful under the Food, Drug & Cosmetic Act (“FD&CA”). As we previously explained, the FDA currently deems the use of hemp-CBD-infused foods and drinks as unlawful because CBD has been approved in the treatment of epilepsy (Epidiolex); and therefore, can only be used as a drug. As such, the FDA has refused to recognize hemp-CBD as a safe food additive, which means it would treat hemp-CBD infused alcoholic beverages as unlawful under the FD&CA.
Consequently, alcoholic beverages derived from parts of the hemp plant that do not contain CBD, such as hulled hemp seeds, hemp seed protein and hemp seed oil, grown pursuant to a state pilot program that allows the commercial sale of these products, seem to be the only hemp-infused beverages eligible for TTB approval at the moment.
Drinks Infused with CBD Oil or Extracts
The alcoholic beverages recently banned from state bars and restaurants consisted of pre-manufactured alcohol beverages to which CBD oil or extract was later added. Unlike manufactured alcohol beverages, alcoholic drinks sold in bars and restaurants are directly regulated by state liquor control boards and state departments of health, which are free to defer to and adopt FDA regulations.
Although the FDA has limited its enforcement actions against CBD-infused products by sending warning letters, state agencies have begun confiscating those products, pursuant to FDA guidelines that categorize CBD as unsafe food additives. As I previously explained, food additives must receive FDA pre-market approval to be deemed safe for human consumption. However, given the FDA’s current position on CBD-infused products, such approval has yet to be granted.
Because these “homemade” CBD-infused alcoholic drinks are devoid of TTB and FDA market approval, it is understandable that they be banned from local restaurants and bars as they pose a potential threat to health and safety.
So as of now, only TTB-approved hemp-infused alcohol beverages seem to be legal and officially “safe” for human consumption. And to be honest, we don’t know of any that have been approved. That said, this is an incredibly fast-evolving area of law and policy, and we have seen a dramatic escalation of interest in this space ever the past year.
For more information on this issue, feel free to contact our team of hemp and CBD experts.
The following blog post Are CBD-Infused Alcohol Beverages Legal? is available on FeliciaSullivan.com
MarketWatch ran an article last week on how this year’s Academy Award swag bags “are packed” with “legal” cannabis. I’m always happy to see an article like this because it means California legalization is working. And yet, these glam-o, cannabis friendly goodie bags are a good reminder to cannabis businesses (and the ancillary businesses that support them) that even if an A-list celebrity is consuming your cannabis or CBD products on or after the red carpet, California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“) (and federal law) still apply.
According to MarketWatch, this year’s “treasure trove of over-the-top gifts for the acting and directing nominees is packed with cannabis chocolates, CBD beauty products and a year-long VIP membership to L.A.’s first cannabis-friendly social club. Marketing company Distinctive Assets has been gifting the Oscar’s swag for the past 17 years and company founder, Lash Fary, told MarketWatch their 2019 gifts are “directly tied to the broad legalization of cannabis in California last year.”
As much as I hate being a party-pooper – especially for a party as big as the Oscars — as a Los Angeles based cannabis business lawyer, I cannot resist mentioning my own legal concerns about these swag bags. Under MACURSA and Prop. 64, individual adults 21 and up can gift up to an ounce of cannabis (or its infused equivalent) without fear of state or local prosecution so long as there’s no financial compensation. But this gifting rule is far more complicated for cannabis business licensees. MAUCRSA is clear that cannabis licensees “shall not give away any amount of cannabis or cannabis products, or any cannabis accessories, as part of a business promotion or other commercial activity” and cannabis retailers “cannot provide free cannabis goods to any person” other than a medical cannabis patient as defined by Section 11362.71 of the Health & Safety Code.
This means that if the cannabis in the swag bags is given by cannabis businesses as part of “a business promotion or other commercial activity,” those businesses probably will violate MAUCRSA. I say this because this cannabis swag is probably being given to the Academy Award attendees and Hollywood A-listers as a “business promotion,” especially since a marketing company is involved in the gifting, and I assume the entire point is to elevate the profile of the companies involved amongst powerful circles of potential future consumers.
A lot of cannabis “brand” power is also contained in these Oscar bags, which is pretty interesting given the legal challenges posed by Section 5032 of the Bureau of Cannabis Control (“BCC”) regulations. If any of the cannabis products in the bags utilize a third party’s intellectual property (“IP”)–and luxury branding (or really any branding) in cannabis remains huge– there may end up being issues under Section 5032. Still, the BCC will not say whether this rule requires cannabis IP licensors to have their own commercial cannabis license in California. The BCC’s own comments to this rule indicate that it does not apply to manufacturers, but the rule itself clearly encompasses manufacturing activity and manufactured products (as well as flower). Since many (most?) California cannabis companies hold their IP in separate companies and/or license their IP from well-known operators in other states, section 5032 may or may not cause serious legal headaches here.
These swag bas also contain CBD products, which could get people in trouble with the California Department of Public Health Food and Drug Branch. MarketWatch mentions that some of the CBD products are topicals and beauty products, which the infamous California FDB FAQs (see also here) do not address and which the Federal Food and Drug Administration may also deem unlawful because it generally considers hemp derived CBD to be unlawful under the Food, Drug & Cosmetic Act. And if there are foods or beverages in those bags that contain CBD, they also violate both state and federal laws according to the FDB and the FDA.
Finally, seeing as how the City of Los Angeles does not yet allow onsite consumption at MAUCRSA-licensed retail or microbusiness facilities within the City, I also wonder to what the MarketWatch article was referring when it mentioned “L.A.’s first cannabis-friendly social club” offering VIP memberships in the goodie bags.
Though I have my doubts about the legality of this cannabis swag under California state law, and even though the gifting and receipt of the bags is undoubtedly federally illegal drug trafficking, I cannot help but applaud everyone behind these cannabis gifts: it’s brave and it’s bold. When a nationally significant and hugely watched event like the Oscars is willing to take the risk of openly gifting cannabis and CBD on one of the world’s biggest stages, you know there has been a major, positive societal shift regarding cannabis.
And Best Democratic Experiment Goes to . . . (Legal?) Weed at the Oscars See more on: Felicia Sullivan
As the cannabis revolution continues to sweep the world, the wonders of CBD are becoming common knowledge. The second most abundant cannabinoid in the a cannabis plant, CBD has a long and growing list of potential medical applications. To such an extent that millions have already swapped their traditional pharmaceuticals for this high-power, low-risk organic […]
The article Five Golden Rules When Buying CBD Oil was originally seen on Felicia's Smokin' Blog
The United States Supreme Court issued a unanimous ruling on Wednesday in the case of Timbs v. Indiana, incorporating the Eighth Amendment’s Excessive Fines Clause against the states through the Due Process Clause of the Fourteenth Amendment. As we have written about, the case involves the forfeiture of petitioner’s Land Rover as punishment for selling heroin. The Indiana Court of Appeal held that the forfeiture of the Land Rover was grossly disproportionate to the gravity of the offense, and the Supreme Court of Indiana reversed and concluded that because states are not subject to the Excessive Fines Clause, the forfeiture was not unconstitutional. In a sweeping decision authored by Ruth Bader Ginsburg, the United States Supreme Court flatly rejected that contention.
The decision is an expansion of the federal Constitution to apply against state and local governments, and it means that all state and local asset forfeiture regimes could be subject to challenge insofar as they allow for forfeitures that are “excessive” under the Eighth Amendment. That includes forfeitures related to cannabis activity. According to the decision,
The decision is being hailed as a victory for criminal justice reform. It strengthens property rights and could limit controversial police seizures such as those done through civil forfeiture nationwide. The decision will have nationwide impacts for those accused of drug crimes and other offenses, and will be an important check on the government’s power to interfere with private property. This is great news for the cannabis industry, and will provide additional legal support for our clients who have had their property seized or threatened to be seized by state and local governments.
For more background on this issue, check out the following:
The following blog post U.S. Supreme Court Extends Constitutional Prohibition Against Excessive Fines to States is available on Felicia Sullivan
Earlier this week, I wrote about how hemp businesses should not yet rely on the 2018 Farm Bill to protect them from their products being seized. This is because although Section 10114 of the 2018 Farm Bill prohibits states from interfering with the interstate transport of hemp and hemp products, that protection is limited to hemp that was cultivated in accordance with Section 10113 of the 2018 Farm Bill. At this time, full compliance with Section 10113 is not possible because the US Department of Agriculture (“USDA”) has yet to approve of any state or tribal plans covering the cultivation of hemp or issue its own plan allowing for the cultivation of hemp in states that do not have an approved plan.
As such, the cultivation of hemp is still governed by the 2014 Farm Bill, which allows state departments of agriculture to license the cultivation of industrial hemp. States have taken a widely different approach to regulating industrial hemp and not all states recognize any difference between industrial hemp and marijuana, regardless of the amount of THC present.
Back in September 2018, I wrote about how varying state laws made it challenging to ship hemp products, including hemp-derived CBD (“Hemp-CBD”) across the country. I used the following example to illustrate the risks:
Unfortunately, this hypothetical now appears to be playing out in real life as the Idaho State Police recently seized a shipment of industrial hemp traveling from Oregon to Aurora, Colorado.
Big Sky is a Colorado company that processes hemp into CBD powder which it then sells to manufacturers who add CBD to a number of different consumer products. Big Sky purchased 13,000 pounds of hemp from a permitted hemp cultivator in Oregon. Big Sky contracted with a third party logistics company to have the hemp shipped from Oregon to Aurora, Colorado.
On January 24, 2019, a truck carrying the hemp was stopped in Ada County, Idaho. The driver did not conceal the fact that he was shipping hemp and a bill of lading that accompanied the shipment indicated that the cargo was hemp. The Driver was arrested and charged with marijuana trafficking in Idaho state court. The Idaho State Police seized the contents of the truck: 7,000 pounds of industrial hemp.
Big Sky’s attorneys filed suit in US District Court in Idaho. Big Sky is seeking a declaratory judgment stating that Idaho Police improperly seized Big Sky’s properly and are improperly holding the property in light of the 2018 Farm Bill’s prohibition on the interstate shipment of hemp and general principles under the Commerce Clause which prohibit states from interfering with the interstate shipment of lawful goods. Big Sky also filed a motion for a temporary restraining order (TRO) and preliminary injunction to force the Idaho State Police to immediately return the seized hemp.
In order to get emergency relief in the form of an injunction or TRO, a party must show that they are likely to succeed on the merits of the underlying case. The Court determined that Big Sky had not met this burden because it is unclear whether Section 10144 of the 2018 Farm Bill covers the seized hemp at issue. The Order denying Big Sky’s claims states the following;
To clarify, the Court is not ruling on the question of whether Big Sky was afforded protection under Section 10114 of the 2018 Farm Bill. Instead, it is saying that Big Sky has not yet shown a high likelihood that it prevail on the merits and therefore it is not entitled to have the seized hemp returned now. The Court has, however, identified that it is not clear that the 2018 Farm Bill prevents states from interfering with the interstate transport of hemp grown under the 2014 Farm Bill.
Big Sky will no doubt argue that the 2018 Farm Bill does prevent Idaho from interfering with this shipment. Though it is true that the Section 10114 does not explicitly cover hemp grown under the 2014 Farm Bill, it seems fair to say that the intent of Congress is to have hemp treated like an agricultural commodity, not a controlled substance. Additionally, Big Sky’s attorneys can expand their arguments that Idaho is interfering with interstate commerce, an area that is traditionally only to be regulated by Congress under the Commerce Clause of the US Constitution.
We’ll continue to monitor Big Sky’s case against the Idaho State Police. In the meantime, be very careful about how you ship hemp products.
The article Idaho State Police Are Not Required to Return Seized Hemp (Yet) Read more on: Felicia's Smokin' Blog
Last week, I covered the Oregon Secretary of State’s audit report of Oregon marijuana regulation. On January 31, the same day the audit was released, the Oregon Liquor Control Commission (OLCC) submitted its 2019 Recreational Marijuana Supply and Demand Legislative Report (“Report”). The Report’s key finding is nothing new: supply exceeds demand within Oregon’s recreational market. The impressive part, however, is by how much. The Report specifies that “the recreational market has 6.5 years’ worth of theoretical supply in licensees’ inventory accounted for and contained within Oregon’s Cannabis Tracking System.” That’s a lot of weed.
The Report explores the whys and wherefores of this situation, presenting some interesting data and analysis. One fact glossed over in the Report, however, is that no one expected so many applicants for the OLCC system, and no one expected that Oregonians would consume more marijuana per capita than any other state. Looking back at the Estimate of Financial Impact for Measure 91, for example, tax revenues were forecast at “$17 to $40 million annually.” Tax revenues for FY 2018 more than doubled that estimate’s high end, surpassing $82 million. Data like these make the current level of oversupply even more astonishing.
Ultimately, the Report gives four potential policy choices for legislative consideration:
Each of these options, or any combination of them, would have a significant impact on the Oregon industry. That impact will not be felt only by consumers and potential market entrants, but by current licensees and ancillary businesses. The Report acknowledges as much, noting that:
This means that everyone has some skin in the game, and everyone ought to be paying attention.
On the executive side, Governor Brown already has expressed her view on the issue, requesting a pre-session filing of Senate Bill 218. That bill would allow the OLCC to refuse to issue marijuana production licenses “based on market demand and other relevant factors.” Senate Bill 218 still has not had a public hearing, but it’s very possible that this bill gains traction and OLCC is given a wide berth on production licenses and other market-limiting issues. In our opinion, legislative deference to OLCC would make sense there.
I’ll cover SB 218 in a bit more detail next week, along with the myriad of other draft Oregon legislative bills on cannabis (both marijuana and hemp). We will also continue to track both legislative and administrative actions that deal with oversupply. In the meantime, check out the following blog posts for more on the issue:
The blog article Is Six Years of Oregon Cannabis Supply Enough Already? OLCC Weighs In. is courtesy of https://www.feliciasullivan.com
Puffco CEO Roger Volodarsky joins the show to talk about how technology like the Peak e-rig is helping cannabis concentrates enter the mainstream.
The post What Are You Smoking Episode 70: Puff, Puff, Pass the Mic to Puffco appeared first on Leafly.
What Are You Smoking Episode 70: Puff, Puff, Pass the Mic to Puffco See more on: Felicia's Smokin' Blog
Congress passed the Agricultural Improvement Act of 2018 (better known as the “Farm Bill”) in December 2018 which removed hemp from the federal Controlled Substances Act. This further resulted in hemp-based cannabidiol or “hemp-CBD” legalization. Despite their federally legal status, hemp-CBD products are now more in question than ever, different state and federal agencies have proposed drastically different regulations throughout every facet of the hemp-CBD industry.
If you are a hemp-CBD business, have interest in the industry or are interested in the state and future of hemp-CBD legality, please join us tomorrow, February 21, 2019 at noon (PST) for the latest installment in our lunchtime webinar series. This session is entitled “West Coast Hemp-CBD After the Farm Bill.”
In this hour-long session, Harris Bricken lawyers Daniel Shortt (Seattle, Washington), Nathalie Bougenies (Portland, Oregon), and Griffen Thorne (Los Angeles, California) will provide an in-depth look at changes in federal law and policy post Farm bill, as well as its impact on each of the three west coast states (Washington, Oregon, and California). Throughout the presentation our team will also discuss the status of laws and regulations in each state. Some of the topics we will cover include:
With an industry that is projected to be worth $20 billion by 2022, interest in hemp is at in an all-time high. Make sure you don’t miss out on this valuable information! The webinar will be moderated by Hilary Bricken, with our panel of attorneys addressing audience questions throughtout the presentations. Please register for the event here! Should you have any further questions, please feel free to reach us at email@example.com.
Free Lunch-Time Webinar TOMORROW: West Coast Hemp-CBD After the Farm Bill Read more on: Felicia Sullivan's Blog