Florida Tries Again

Florida voters may have the opportunity to legalize adult-use cannabis during the next general elections. First, though, the Florida Supreme Court must okay the language on the ballot initiative, in the face of likely opposition from the other branches of the state government. As Floridians watch their elected officials argue against letting them vote on the issue of cannabis legalization, they will have a chance to ponder just how free Florida is.

Procedural requirements to legalize cannabis in Florida

Under the Florida Constitution, initiative sponsors must collect a certain number of signatures to get the initiative on the ballot. Prior to that, the initiative must be reviewed by the Florida Attorney General and the Financial Impact Estimating Conference (FIEC). For these reviews to take place, sponsors must have already collected 25 percent of the total number of signatures required. The sponsors of the current initiative have already reached that threshold.

By law, the Attorney General must request an advisory opinion from the Florida Supreme Court, “regarding the compliance of the text of the proposed amendment or revision with s. 3, Art. XI of the State Constitution, whether the proposed amendment is facially invalid under the United States Constitution, and the compliance of the proposed ballot title and substance with [Section] 101.161 [of the Florida Statutes].” The cited section of the Florida Constitution requires that proposed amendments “embrace but one subject and matter directly connected therewith.” This is sometimes referred to as the “single-subject requirement.” For its part, Section 101.161 stipulates that a summary of any proposed amendment be printed in “clear and unambiguous language” on the ballot.

How Florida cannabis legalization failed in 2022

The current push to get legalization on the ballot follows an earlier, failed effort in the leadup to the 2022 election. Back then, the Florida Supreme Court struck down the proposed ballot on the grounds that it failed to meet the requirements of Section 101.161. The court found that the use of the verb “permits” in the ballot summary would have misled voters “into believing that the recreational use of marijuana in Florida will be free of any repercussions, criminal or otherwise,” when in fact the underlying conduct would remain criminalized under federal law.

Opponents of the 2022 initiative (a group that included both chambers of the Florida Legislature and the Attorney General) argued that the proposed amendment was in fact facially invalid under the U.S. Constitution. The Florida Supreme Court, however, chose not to address the issue, instead basing its decision solely on its interpretation of Section 101.161. If the language of the current initiative is not open to attack on grounds that it violates the single-subject and/or ballot title and substance requirements, expect opponents to push the federal constitutional argument more vigorously.

The Florida Supreme Court’s decision on the 2022 ballot initiative suggests it might be amenable to such an argument. While ostensibly it rejected the proposed amendment due to a deficiency in the ballot language, the court’s application of the relevant statute was particularly strict. Dissenting from the court’s opinion, Justice Lawson noted that the court had “never required that a ballot summary inform voters as to the current state of federal law.” The court’s posture, Lawson argued, was “in direct violation of the deferential, nonpaternalistic rules and presumptions that have historically governed our decisions in this area.” Would the outcome have been different if the subject matter of the amendment had not been cannabis?

Florida should allow its voters to decide on cannabis legalization

While Florida state officials have every right to oppose cannabis legalization, it is strange to see some of them do so by seeking to curtail Florida’s exercise of its own sovereignty and denying Floridians the opportunity to express their views at the ballot box. If anything, Florida officials should be pushing back against the federal government’s questionable use of its authority under the U.S. Constitution’s Commerce Clause to regulate cannabis-related activities. After all, one would expect self-styled Free Florida to be at the forefront of the fight against federal overreach. And what better way to do this than by letting Floridians, not federal or state government officials, decide the kind of cannabis laws they want in the Sunshine State.

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Minnesota Supreme Court Reverses Vape Liquid Conviction

As Minnesota approaches the legalization of marijuana, the Minnesota Supreme Court has just ruled on a case we covered in September 2021.  The case involves the difference between hemp and marijuana and a state prosecutor’s burden to prove what side of the line a leafy or liquid cannabis substance falls. As we explained two years ago, the ruling impacted manufacturers, processors, sellers, distributors, and consumers of any liquid form of Hemp/CBD. Back then we predicted an appeal to the Minnesota Supreme Court by the Minnesota Public Defender’s Office on behalf of the defendant. Notably, the Minnesota Industrial Hemp Association and the Minnesota Cannabis Association both filed amicus briefs the in light of the terrible practical effects of the Court of Appeals’ ruling on the hemp industry.

Our summary of the case from our earlier coverage

State troopers executed an arrest warrant at a home in Brainerd, Minnesota. The officers found the defendant at the home and observed cannabis smoking paraphernalia (a pipe, rolling papers, a grinder, and a torch lighter) and a plastic tote box. The officers then obtained a search warrant and found three pounds of a “leafy plant material” and 89 vaporizer cartridges containing an “amber-colored liquid.”

The defendant was tried and convicted of possession of a controlled substance. But his trial occurred after enactment of the 2018 Farm Bill, which defined hemp as “[t]he plant species Cannabis sativa L. and any part of that plant . . .  with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” It also imposed a controversial “total” THC testing requirement.” The Farm Bill also removed hemp from the definition of marijuana. Not long after, Minnesota adopted an industrial hemp program in 2019.

The state’s expert at trial testified the plant material was “marijuana” based on her visual inspection. And she testified that the liquid in the vape cartridges contained THC. But the expert did not provide any testimony regarding the THC concentration of either the liquid mixture in the vaporizer cartridges or the plant material in the plastic bags.

The defendant appealed arguing, among other things, that the state failed to prove beyond a reasonable doubt that either the plant material or the vape liquid was (illegal) marijuana instead of (legal) hemp because there was no evidence as total THC concentration.

The Minnesota Court of Appeals agreed with defendant as to the plant material and reversed the conviction. Oddly, however, it affirmed his conviction for the vape liquid, concluding that Minnesota’s criminal code applied to liquids (but not plant material) without regard for the THC concentration.

Supreme Court reverses vape liquid conviction

Nearly two years later, the Minnesota Supreme Court has reversed that portion of the Court of Appeals’ decision. The court held:

Because Minn. Stat. § 152.01, subd. 9, explicitly excludes “hemp” from the definition of “marijuana” and these substances are distinguished based on their delta-9 tetrahydrocannabinol concentration, the State must prove beyond a reasonable doubt that the delta-9 tetrahydrocannabinol concentration of a substance exceeds 0.3 percent on a dry weight basis to obtain a conviction for a fifth-degree controlled substance crime under Minn. Stat. § 152.025, subds. 1(1) and 2(1) (2022).

So the Minnesota Supreme Court reversed the vape liquid conviction because the State offered insufficient evidence to establish “that the delta-9 tetrahydrocannabinol concentration of the plant material and liquid mixture in vaporizer cartridges found in the defendant’s possession exceeded 0.3 percent on a dry weight basis.”

Going forward, the decision may not mean much in Minnesota if enacts legislation permitting adult use marijuana. But this is certainly welcome news for this defendant and an important precedent for persons in other states where “hemp” is legal and “marijuana” is illegal. This case establishes that the government bears the burden of proving a substance is the latter, not the former. Feel free to email me if you’d like a copy of the decision, Minnesota v. Loveless, Case No. A20-1254 (Mar. 22, 2023).

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New York Cannabis: Potential Tax Changes

As New York move steadily closer to a fully rolled out adult-use cannabis industry, two New York state legislators recently proposed legislation that would significantly simplify the tax structure for adult-use cannabis. Under the Marijuana Regulation and Taxation Act (MRTA), New York would have charged a potency THC tax on all adult-use cannabis, plus an excise tax of 9%. The proposed legislation would change the tax structure to a flat 16% excise tax, with no potency tax.

The proposed legislation was announced by Assembly Majority Leader Crystal Peoples-Stokes and state Senator Jeremy Cooney. As a reminder, Assembly Majority Leader Peoples-Stokes was one of the sponsors and chief proponents of the MRTA and Senator Cooney has been integrally involved in legislating cannabis since the passage of the MRTA.

As part of announcing the proposed legislation, Assembly Majority Leader Peoples-Stokes stated:

“After careful consideration, it became clear that we need to simplify the tax structure of adult-use cannabis. As the state continues to build out licensed cannabis operations, a simpler tax structure will be better for businesses and consumers. It is imperative to establish the licensed cannabis marketplace as the best option for consumers and stamp out the illicit cannabis operations popping up all over the state. This new tax approach will ultimately lead to thriving cannabis businesses at all levels of the supply chain. We will see higher tax revenues, which will result in more funds being reinvested in communities and invested in education and other important programs.”

The bill’s justification similarly emphasizes that a flat tax “will better shift the costs away from businesses and consumers while facilitating a cannabis market in New York State that is flourishing and will provide real economic benefits for all.”

It is noteworthy that the justification also references the legislators’ review of “a large amount of data now available from other cannabis-legal states,” which highlights New York’s data-driven approach to forming the adult-use cannabis market. We’ll keep our eyes out for information on the proposed legislation as it moves towards passage. Stay tuned!

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FREE WEBINAR: IRS Enforcement of Cannabis Operators is Here – What Do We Do Now?

Register HERE to attend a free panel of experts directing cannabis operators on how to best combat the forces of recent movements from the IRS.

IRS enforcement is increasing and cannabis businesses should be on alert. Cannabis businesses are accounting for and reporting the results of their operations with gross receipts, cost of goods sold (COGS), and other deductions just like other for-profit businesses. However, as long as marijuana remains a schedule I controlled substance under federal law, these businesses must navigate the pitfalls of complex federal and state tax rules.

All gross income must be reported from whatever source it is derived. However, under Section 280E, cannabis businesses cannot deduct rent, wages, and other expenses unless it is for COGS, resulting in a substantially higher tax rate than other companies on their income. This dilemma has been the subject of recent tax court cases and appeals.

Listen as our panel discusses federal and select state tax rules impacting the cannabis industry, recent tax court cases, Section 280E, navigating an audit, and potential criminal exposure.

Key Talking Points

  • Understanding IRS examinations, in general, and how to prepare for it
  • Specific audit procedures/techniques the IRS is employing when auditing a cannabis operator
  • IRS interviews during examination
  • Criminal exposure
  • Hot issues & areas of concern during an IRS audit (ex issues. 280E, 471(c), ownership)

Panelist Speakers

Ani Galyan

Ani Galyan focuses part of her practice on tax matters for the cannabis industry in California. She is an attorney and certified tax specialist by the State Bar of California.  In addition, Ani is a certified public accountant admitted to practice in California.  She also holds a Masters in Tax Law (LL.M).  Ani focuses her practice in the area of tax law for federal, state and local tax compliance, tax disputes, and tax crimes.

Jonathan Kalinski

Jonathan Kalinski specializes in both civil and criminal tax controversies as well as sensitive tax matters including disclosures of previously undeclared interests in foreign financial accounts and assets and provides tax advice to taxpayers and their advisors throughout the world. He handles both Federal and state tax matters involving individuals, corporations, partnerships, limited liability companies, and trusts and estates. Jonathan Kalinski also previously served as an Attorney-Adviser to the Honorable Juan F. Vasquez of the United States Tax Court.

Hilary Bricken 

Hilary is one of the premier cannabis business and regulatory attorneys in the United States, and is licensed to practice law in California, Washington, and Florida. As chair of Harris Bricken’s Regulated Substances practice group, she helps cannabis companies of all sizes with their cannabis related business and regulatory needs. Hilary was in 2022 named by Chambers as one of only two “Band 1” California cannabis lawyers. Chambers described her as very prominent and at the cutting edge of cannabis. She also has been chosen for the fourth year in a row as a “top rated business and corporate attorney” by Thompson Reuters Superlawyers (2022).


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Are 504 Private Placement Security Offerings Allowed in Cannabis Businesses?

We’ve written regularly about the plight of cannabis businesses not being able to secure traditional lending (and other financial services) from major, federally regulated institutions. In this post, we dive deeper into a promising federally regulated equity offering as an alternative funding means: Rule 504 under Securities and Exchange Commission (“SEC”) Regulation D.

Why aren’t banks more involved?

Despite adoption by a growing number of states, marijuana is (still) federally illegal. Federal laws preventing money laundering and other financial crimes create regulatory hurdles so significant for most major banks to service cannabis businesses that it just isn’t worth the compliance burden.

While state-regulated credit unions have stepped up to fill some of the void, institutional lending remains largely unattainable. The remainder of the void is filled by private lenders from the private equity and venture capital crowd and individual investors that require often significant collateral and interest rates that reflect the ongoing marijuana industry risk.

Raising money through private placements

When a cannabis company wants to raise capital through a private placement (sale) of securities, it subjects itself to federal and potentially state securities laws, regardless of whether they are raising through debt, equity, convertible debt, or something more creative like a SAFE (simple agreement for future equity).

What is a security or investment contract? Howey tells us

All private capital raises implicate securities laws. The definition of a security, while complex and fact-specific, in the private capital raise context is most clearly captured by the infamous U.S. Supreme Court case SEC v. Howey Co.

In Howey, the Court held that the catch-all term “investment contract” as used in the Securities Act’s definition of a security includes any contract or scheme where there is: 1) an investment of money; 2) in a common enterprise; 3) with the expectation of profit; 4) to be derived primarily from the efforts of others. Thus, the passive investment of capital into a cannabis business with the expectation of a return based on the success of the cannabis business is a security.

Under the federal securities laws, a company (the “issuer”) may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration is available. If they can, issuers typically prefer to avoid registration of securities offerings because it’s a lot of work and highly expensive. So, how can a cannabis company offer exempt securities to raise capital?

How does a Rule 504 exempt offering work?

Offerings may be exempt from the SEC’s registration requirements pursuant to Securities Act Section 4(a)(2) or its safe harbor under Regulation D of the Securities Act. Reg D includes Rule 504 that offerors commonly use to use securities without registration. This exemption sits nicely between the traditional Reg A+ public offering and Reg CF crowdfunding offering.

At the risk of oversimplifying, Rule 504 allows for the sale of up to $10MM in securities to non-accredited investors, but the issuer cannot advertise the offering publicly (this is called “general solicitation”). Accredited investors can still be involved and generally do not count against any investor limitations. Accredited investors, generally, have at least $1 million in net worth or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years.

For most smaller cannabis companies trying to raise capital, their capital needs are often too small for accredited investors to be interested in or do not have access to accredited investors in the first place. Thus, Rule 504’s allowance for non-accredited investors and its relative simplicity becomes a possible solution. We note here that a Rule 504 offering does not preempt state securities registration requirements as other exemptions do, so state law compliance must be taken into account.

Avoiding bad actor disqualification

Like the other Reg D exemptions, Rule 504 contains a “bad actor” provision, which disallows certain people and issuers from being able to avail themselves of the exemption. So, what is a bad actor and do cannabis companies by virtue of trading in a federally illegal substance qualify as one? The short answer is no.

For the purposes of this post, the bad actor provision in Rule 504 disqualifies any issuer from taking advantage of the exception from having to register securities if its directors, general partners, managers, executive officers, or persons with more than 20% voting power of the offeror have certain criminal convictions.

Relevant criminal convictions

Fortunately, all of the convictions and other disqualifying events as stated by the SEC are focused almost exclusively on securities related offenses. While operating a cannabis business is technical unlawful under the Controlled Substances Act, none of the disqualifying events are characterized by violations of federal law not involving securities. So, while the term “bad actor” may seem like it could prohibit a marijuana company from offering unregistered securities under Rule 504, that is not the case.

Indeed, many cannabis companies raise capital by offering exempted securities under Rule 504 and applicable state exemptions. Its allowance for non-accredited investor participation also makes it uniquely suited to the situation many cannabis businesses find themselves in and their capital needs.

For more information, see:

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New York Cannabis Litigation – There’s More!

Here comes more New York cannabis program litigation.

After one lawsuit halted a significant portion of New York Conditional Adult Use Retail Dispensary (CAURD) program, a new lawsuit filed on March 16, 2023 by the Coalition for Access to Regulated & Safe Cannabis against the Cannabis Control Board (CCB), Office of Cannabis Management (OCM), CCB Chairwoman Tremaine Wright and OCM Executive Director Chris Alexander seeks to abolish the CAURD program in its entirety and open the retail dispensary application portal now.

As first reported by Brad Racino of NY Cannabis Insider, the coalition includes several New York registered organizations (i.e. medical cannabis providers), including Acreage Holdings, PharmaCann, Green Thumb Industries and Curaleaf, two potential retail dispensary applicants and a medical cannabis practitioner.

Here’s what the “petitioner” is requesting from a legal perspective:

  • a judicial declaration that the OCM’s creation of the CAURD program exceeded the OCM’s authority under New York’s constitution (i.e. abolishing the CAURD program completely);
  • a judicial order requiring the CCB and OCM to open the adult-use retail dispensary application window immediately (i.e. letting anyone apply now); and
  • a judicial order requiring the CCB and OCM to take action to stop illicit and unlicensed cannabis businesses.

Here’s the fulcrum of the policy argument (setting aside the technical constitution and procedural argument):

“Defendants-Respondents’ arbitrary and capricious foray into legislative policymaking has (i) harmed those individuals the MRTA was designed to benefit (e.g., veterans, women-owned businesses, distressed hemp farmers and those communities most affected by the War on Drugs to name just a few), and (ii) diverted Defendants-Respondents’ attention from the enforcement tasks with which the MRTA entrusts them. As a result, Defendants-Respondents have allowed New York’s illicit market to flourish, putting medical patients and adult-use consumers at risk and robbing communities impacted by the War on Drugs of critical tax revenue. Thus, as of this writing, only four licensed adult-use retail dispensaries are open in the entire State of New York.11 Meanwhile, thousands of illicit retailers are selling unregulated, untested, and untaxed cannabis products of questionable origin and dubious safety across the State. In fact, it is estimated that there are 1,400 stores retailing illicit cannabis in New York City alone.”

The petition also takes the OCM and CCB to task for their alleged practical failures to establish New York’s legal adult-use cannabis industry:

“In short, OCM and CCB have failed to fulfill their principal responsibility under the MRTA. Instead, Defendants-Respondents have (i) taken twenty months to propose a set of regulations for the adult-use marketplace and still have not finalized or promulgated them; (ii) routinely violated – and continue to violate – the State Administrative Procedure Act by governing through an ever-changing set of guidance documents to regulate cultivators and processors because final rules still do not exist; (iii) licensed only sixty-odd CAURD dispensaries – only four of which have opened; (iv) promised to provide CAURD licensees state-subsidized real estate and government loans but it has delivered neither; (v) induced New York’s conditional adult-use cannabis cultivators to grow 350,000 pounds of flower in 2022 without creating an adequate retail infrastructure to sell it; and (vi) waged a thinly veiled attack against the registered organizations that has harmed – and continues to harm – the existing medical market and threatens to impede their expansion into the adult-use market.”

There is obviously a lot to unpack here, but it’s not particularly surprising that New York cannabis industry stakeholders are taking action to try to move the licensing process forward. With the full application portal still closed and no clear indication on when it will open, this litigation was an obvious (and potentially the only option) to force the OCM and CCB to take action. Stay tuned!

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A Cannabis Gun Control Circuit Split is Coming

Federal law prohibits marijuana users from owning or possessing firearms– even in states with legal marijuana. Over the last few months, different federal courts issued critical orders in cannabis gun rights cases which could challenge this status quo. Both cases centered on the 2022 U.S. Supreme Court case New York State Rifle & Pistol Association, Inc. v. Bruen, and both reached wildly different outcomes on essentially the same legal and even factual issues.

Last month, I wrote a post entitled “Will Gun Control Laws Soften for Cannabis Users?“, where I addressed one of those decisions, United States v. Harrison, out of the Western District of Oklahoma (part of the federal Tenth Circuit). Today, I want to examine the other case, Fried v. Garland, out of the Northern District of Florida (part of the federal Eleventh Circuit). Below, I offer some thoughts on Fried and how it contrasts with Harrison. I also look look at the potential for a circuit split on cannabis gun rights or gun control issues.

Before talking about Fried, it’s important to understand two things. The first is what I said above – that federal law deems cannabis users to be “prohibited persons” who may not legally own or possess firearms. The law at hand is the Gun Control Act of 1968, and the provision as codified in federal law is 18 U.S.C. § 922(g)(3). The second thing is that there is a constitutional right to bear firearms, meaning that when the government passes laws to restrict that right, courts have to analyze those laws to determine whether they are constitutional. That is precisely what Bruen did, and as I wrote in my last post on the subject:

Under Bruen, courts evaluating Second Amendment cases must look to whether the Second Amendment’s plain text applies to a person’s conduct. If it does, the person is presumed to have Second Amendment protection unless the government can show that the restriction is “consistent with the Nation’s historical tradition of firearm regulation.”

As I’ll get into below, both of the Bruen questions were at issue in both cases, though the historical tradition prong is where the courts’ views really diverged.

Turning back to Fried, the case has a pretty interesting cast of characters. Unlike in Harrison, where a criminal defendant was challenging federal charges, the Fried plaintiffs sued before any penalty had been assessed. The plaintiffs were Florida Commissioner of Agriculture, Nicole Fried, two Florida residents who use medical marijuana under Florida law but want to own guns, and a third Florida resident who owned guns but wanted to access medical marijuana.

I won’t analyze all aspects of the Fried order, such as the standing arguments or Rohrabacher-Farr Amendment claims. Instead, I’ll dive straight into the meat of the Second Amendment argument. The government – as it did in the Harrison case – contended that marijuana users do not even have Second Amendment rights by virtue of violating federal law. While the Fried court disagreed with the government, it did so in a much more halfhearted way than the Harrison court. As I mentioned when analyzing Harrison, the fact that the federal government keeps on contending that marijuana users do not even have basic constitutional rights is not great.

The meat of the court’s analysis though turned on the historical regulation prong of Bruen. Unlike the Harrison order – which went through a painstakingly detailed historical analysis of U.S. gun control laws – the Fried court dedicated just a few pages of sparse analysis with very limited historical tradition. The court seems to acknowledge there is no historical tradition that impacts marijuana users directly, but instead cites Bruen for the proposition that the federal government need only show an historical analogue of regulation to engage in similar regulation today. This is indeed what Bruen says, but at the same time, the court does not give a meaningful example of even an historical analogue that would justify current prohibition. It simply says that today’s regulations are less burdensome than prior regulations because marijuana users can simply stop using marijuana and regain Second Amendment rights.

So on the central issue of whether there is a historical tradition of taking away gun rights from cannabis users, Harrison and Fried come to opposite conclusions. Keep in mind that Fried was actually decided several months before Harrison, and interestingly, Harrison did not cite Fried.

These cases, decided in different federal district courts in different federal appellate circuits, are both being appealed. On March 6, 2023, Marijuana Moment reported that the federal government filed a notice of appeal in the Harrison case (you can see the notice in that linked article). According to the article, Fried and her co-plaintiffs are also appealing the Fried order. What this means is that in the coming months (or years, let’s face it, federal appeals take forever), we’ll likely have federal appellate decisions that rule on the historical tradition prong. To the extent that the appellate courts come to different conclusions, there’d be a “circuit split,” which would be ripe for yet another U.S. Supreme Court gun rights case.

Meanwhile, Marijuana Moment also reported that congressional GOP representatives filed the “Second Amendment Protection Act” in January 2023. The bill hasn’t gone very far but, if passed, it would exempt state medical marijuana users from the gun owner prohibitions in section 922(d)(3) discussed above.

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Cocaine Trade Open in Canada? Not So Fast

In the U.S., cocaine is a Schedule II controlled substance and its use, possession, etc. is illegal except for certain, limited medical applications. The licensed sale of cocaine for recreational use is not even remotely a concept in the U.S., and the same goes for Canada. Why then did we see a Canadian cannabis company announce that it had the ability to make and sell cocaine to the consumer public? Essentially because of a mishap with or misunderstanding about a government license amendment it received from Health Canada. While not as “out there” as the premise of the popular movie Cocaine Bear, AdAstra’s announcement about being open for business in the commercialized cocaine market sent shockwaves through the cannabis and psychedelics industries.

Cocaine press release

On February 22, publicly traded (in Canada) AdAstra issued a press release in which it stated that its subsidiary, B.C. based AdAstra Labs, received approval from Health Canada “to include cocaine as a substance that the Company can legally possess, produce, sell and distribute”. The company claimed the same about psilocybin and psilocin. This alleged approval came in the form of an amendment to AdAstra Labs’ Controlled Drug and Substances Dealer’s License. After this announcement, the company’s stock also soared.

Government reaction to commercialized cocaine

Nonetheless, reactions from both the B.C. legislature and Health Canada soon cooled the excitement around AdAstra’s cocaine announcement. The provincial government essentially took the position that AdAstra overstated what could be done with the License amendment and the federal government clarified that the License amendment limits AdAstra to just undertaking research about the drug and nothing more (and it certainly cannot also commercial sell either psilocybin or psilocin). Why did this all happen in the first place? Because of B.C.’s new three-year decriminalization pilot program for the possession of small amounts of cocaine (and other drugs), which is meant to support harm reduction and combat addiction. However, that decrim program in no way legalizes the commercial production, distribution, or sale of cocaine or other drugs in B.C.

Cocaine retraction and clarification

Last week, AdAstra issued a retraction to and clarification of the initial cocaine announcement. Importantly, the most recent release states:

The Dealer’s Licence issued to Adastra Labs does not permit Adastra Labs to sell coca leaf, psilocybin or cocaine to the general public. For cocaine, and under the Dealer’s Licence, Adastra Labs is only permitted to sell to other licensed dealers who have cocaine listed on their licence including pharmacists, practitioners, hospitals, or the holder of a section 56(1) exemption for research purposes under the Controlled Drugs and Substances Act (CDSA). The Company is not currently undertaking any activities with cocaine under the Dealer’s Licence and before doing so, it will only undertake such activities legally permitted by the Dealer’s Licence and after consultation with applicable Provincial Governments.

Random takeaways

As is always the case, decriminalization and legalization are totally different animals. B.C. is merely experimenting with decrim to see what impact it has, if any, on the issues of addiction and harm reduction. No opportunity was ever created for anyone to have a commercial cocaine trade.

The other interesting legal tidbit here is that Canadian cannabis companies may be eligible under law to have operations around certain psychedelics and other controlled substances that we just may never see here in the states. In states with cannabis legalization, it is universally prohibited for licensees to conduct certain other trades on site, like alcohol production; and don’t even think about the right to make and sell other drugs under the same roof as cannabis.

Even with this cocaine debacle for AdAstra, the U.S. and Canada remain on different pages when it comes to cannabis and other drugs, with Canada still mostly leading the way on legal reform.

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New York’s Adult Use Cannabis Processor Licenses

Continuing our series on New York’s cannabis rules and regulations, we’re breaking down everything you need to know about New York’s cannabis processor licenses (check out our other posts in the series here, here, here, and here). Because there is so much information packed into the regs, we’re doing this FAQ style.

What are the processor license types?

There are several different processor license types, which can be combined with a cultivation and/or distribution license. The processor license types are:

  • Extraction
  • Blending and infusing
  • Packaging and labeling
  • Branding, including for the exclusive performance of white labeling agreements

What are processor licensees authorized to do?

All processor licensees are authorized to acquire, possess, and sell cannabis from a licensed cultivator to duly licensed processors and distributors. These are the allowable cannabis product types:

  • Topicals
  • Edibles (provided that the edible is not in a s shape considered attractive to individuals under 21 years old). Edibles include:
    • Gummies
    • Capsules
    • Beverages
    • Tablets
    • Tinctures
    • Baked goods
    • Chocolates
  • Vape cartridges or single-use pens
  • Concentrates, such as shatters, waxes and resin
  • Cannabis flower products, including whole flower, ground flower, shake and pre-rolls
  • Cannabis extracts for intermediary sale
  • Other products that are submitted to the OCM for approval

The regulations prohibit numerous product types:

  • Products that contain liquor, wine, beer, cider or any other alcoholic beverage
  • Products that contain tobacco or nicotine
  • Products that exceed the maximum THC per serving and per package limits
  • Products that are attractive to individuals under 21 years old
  • Products that contain synthetic cannabinoids
  • Products that contain artificially derived phytocannabinoids
  • Products that require manufacturing under sterile conditions
  • Products that are considered potentially hazardous foods
  • Products that contain any non-phytocannabinoid ingredient that increases potency, toxicity or addictive potential, or that would create an unsafe combination with other psychoactive substances (the regulations expressly carve out products that contain naturally occurring caffeine, such as coffee, tea or chocolate
  • Products that are manufactured by application of phytocannabinoid concentrate or extract to commercially available candy or snack food items without further processing the product
  • Products that are in the shape of, or imprinted with the shape of a human being, animal, insect or fruit, or is otherwise attractive to individuals under 21 years old
  • Products in the form of an injectable, inhaler, suppository, transdermal formulation, or any other form not permitted by the OCM, including a form allowed solely for medical cannabis use

So there are maximum THC levels (you were reading carefully!)?

Yes! If the products is in an orally ingestible form, the maximum potency is 10 mgs of total THC per serving and 100 mgs total THC per package. Tinctures must comply with the 10 mg THC per serving limit, but can have up to 1,000 mg total THC per package.

Can I apply for other licenses?

Yes, a processor license and one distributor license. A processor or its true parties in interest (TPIs) can also be TPIs of a cultivator, distributor, cooperative, microbusiness, or ROND license.

Non-ownership interests (i.e., landlords, financiers, or goods and services providers) are permitted for processor licensees, but no direct or direct interests are permitted for retail dispensaries, on-site consumption, delivery, ROD, ROS, or cannabis laboratory licensee or permittees.

What are the license fees?

It depends on the processor license type:

  • For extraction, infusing and blending, and packaging, labeling and branding, the license fee is $7,000 per processing premises.
  • For infusing and blending, and packaging, labeling and branding, the license fee is $4,000 per processing premises.
  • For packaging, labeling and branding, including for the exclusive performance of a white labeling agreement, the fee is $2,000 per processing premises, provided that if the application is part of an application for a Tier 1 or Tier 2 Cultivation license of any cultivation type, the license fee is $500.

Anything else I should know?

Processors are allowed to process cannabis grown by a licensed cultivator without taking ownership of the cannabis. Branding or white labeling agreements with a licensee’s TPIs or another licensee is allowed, as long as the licensee is not otherwise prohibited by the regulations.

Given the different types of processing licenses, it is important to note that a processor is only permitted to conduct the activities listed on its application (or any amendments) as approved by the OCM.

Conditional processors that remain are in “good standing” with OCM can apply and pay for a full processor license, and the OCM is required to give priority to such applications (including an application to add a distribution license).

In addition to these “general” application and operational rules, the regulations include a slew of manufacturing and real estate requirements, which we will dive into in later posts. As for all of our summaries of the adult-use rules and regulations, this is only a high-level summary. We, as always, strongly advise that anyone who intends to apply for a cannabis processor license consult with a knowledgeable, local cannabis attorney. Stay tuned for the next post in our series on New York’s adult-use cannabis rules and regulations!

The post New York’s Adult Use Cannabis Processor Licenses appeared first on Harris Bricken Sliwoski LLP.

Breaking Down the Safe Banking Act: Why It Matters for Cannabis Businesses, Financial Institutions and Consumers.

The Safe Banking Act, also known as the Secure and Fair Enforcement Banking Act (SAFE Banking Act), is sorely needed legislation to address the critical issue of financial services being denied to marijuana businesses that operate in the state-legalized industries. We’ve written extensively about the SAFE Banking Act over the past several years. See here, here, here, just to name a few. With another year of Congressional action (or inaction) before us, let’s review the SAFE Banking Act, its implications, and why it matters for marijuana businesses, financial institutions, and consumers.

What is the SAFE Banking Act?

The SAFE Banking Act has been in discussion since 2013. It seeks to provide a legal framework to permit financial institutions to provide banking services to cannabis-related businesses even though marijuana remains federally illegal. Despite the tidal wave of legalization at the state level, financial institutions remain wary of providing banking services to these businesses because of the state/federal conflict of law and these institutions innate risk-avoidant nature.

This has created a situation where cannabis-related businesses struggle to access banking services, leading to predatory arrangements where services are available, an inability to raise capital, and leaving many licensed business to operate entirely in cash. This latter consequence has led to significant security and safety issues for the line-level retail workers and customers of retail cannabis businesses.

The SAFE Banking Act would protect financial institutions that offer services to marijuana businesses from federal prosecution and regulatory backlash. It also ought to eliminate the risk of far-reaching civil RICO lawsuits where a plaintiff seeks to snare a deep-pocketed bank. The SAFE Banking Act would make it vastly easier for cannabis-related businesses to access banking services, reduce their reliance on cash, and create greater transparency for investors, taxing authorities, and regulators.

Implications for the cannabis industry

The SAFE Banking Act would be a significant boon for the cannabis industry. The cash-only nature makes these businesses targets for crime and more vulnerable to robberies and burglaries. It also creates accounting and tax issues and reduces transparency vital when seeking new capital investors or when selling (or buying) a marijuana business. This legislation is crucial for the United States to truly reduce the illegal cannabis market and form a healthy regulated market. But truly achieving these goals also requires reforming the tax code – i.e. the onerous effects of IRC 280e.

Implications for financial institutions

The SAFE Banking Act would do two significant things for financial institutions. One is allowing financial institutions to make money by providing services to marijuana businesses. And to do so without the fear of criminal or regulatory backlash. Unless financial institutions receive legal protections for servicing this industry — and no, the moldering FinCEN memo alone won’t cut it — it is unlikely that they will ever do so.

Implications for consumers

For consumers, the most apparent implication is increased safety. Because these businesses operate entirely in cash, both they and their customers are targets for criminals. Allowing customers to use credit and debit cards to make purchases would reduce the risk and increase safety. A second implication may be reduced prices because cannabis businesses may be eligible for traditional business financing to purchase equipment and so forth instead of relying solely on private lenders and financiers.

What’s next for the SAFE Banking Act?

The SAFE Banking Act has cleared the House with bipartisan support on six occasions but has gone nowhere in the Senate. Perhaps this is the year the legislation finally makes some headway. It is sorely needed.

The post Breaking Down the Safe Banking Act: Why It Matters for Cannabis Businesses, Financial Institutions and Consumers. appeared first on Harris Bricken Sliwoski LLP.