Cannabis Group Weekly Alert – November 2019 #3 | Dentons – JD Supra

In this week’s edition:

  • House Judiciary Committee expected to vote this week on Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which seeks to remove cannabis from the Controlled Substances Act (CSA) and is otherwise focused on equity issues like expungement
  • Another survey confirmed that two-thirds of Americans continue to support legalization of cannabis
  • Companies continue to report significant revenue growth over the prior year period but also net losses and significant layoffs
  • An FDA official expressed pessimism that an exception to allow CBD food products would be workable

Federal

The House Judiciary Committee is expected to vote this week on the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which seeks to: remove cannabis from the Controlled Substances Act (CSA); reinvest in persons adversely impacted by the War on Drugs; and provide for expungement of certain cannabis offenses. An identical bill, sponsored by Senator Kamala Harris (D-CA), is pending in the Senate. Dentons predicts that the bill will advance through the Judiciary Committee but further progress will be stalled.

Two-thirds of Americans support legalization of cannabis. A generational divide is apparent as 64 percent of those born between 1928 and 1945 oppose legalization while younger generations broadly favor it.

Supreme Court Justice Neil Gorsuch discussed federal cannabis enforcement policy during a hearing on the Deferred Action for Childhood Arrivals (DACA) program.  In discussing prosecutorial discretion decisions, Justice Gorsuch highlighted cannabis businesses that “have a lot of economic interests at stake” and would argue that they have “relied on the attorney general’s guidance memos[that we will not enforce cannabis laws].”

FDA Center for Tobacco Products Director, Mitch Zeller responded to questions posed by the Senate regarding the FDA’s jurisdiction over products with THC. He noted that “in theory,” the FDA could use authorities it has under the Food, Drug and Cosmetic Act to “go after the supply chain.” 

Senator John Tester (D-MT) sent a letter to the Federal Deposit Insurance Corporation (FDIC) to “cut red tape” and quickly issue guidance to financial institutions looking to provide bank services to the hemp industry.  The industry continues to face challenges in accessing capital despite the passage of the 2018 Farm Bill. Sen. Tester wrote, “Congress ended the era of uncertainty on our federal policy for banking hemp by fully removing hemp from the Controlled Substances list when it passed the 2018 Farm Bill.”

States

Alaska’s Governor appointed Glen Klinkhart as interim director of the Alcoholic Beverage Control Board and the Marijuana Control Board.

A second Florida ballot initiative, Make It Legal Florida, has reached the threshold for review by the state Supreme Court after collecting more than 77,000 verified signatures.  The group claims it has gathered almost 390,000 of the 766,200 signatures needed to get on the 2020 ballot. MedMen and Surterra, now known as Parallel, have each donated $500,000 to support the initiative. 

The Illinois  General Assembly passed a “clean-up” bill to ensure a smoother transition to adult use legalization. The bill prohibits public consumption in bars and restaurants, bans legislators and their family members from investing in cannabis businesses until two years after they have left office, and allows employers to maintain zero-tolerance policies.  The bill also provides that possession and use of cannabis related paraphernalia would no longer be illegal in Illinois.

The City of Chicago selected its cannabis license lottery winners to determine where existing medical cannabis dispensaries may open their second locations. Beginning on January 1, 2020, the city’s 31 existing medical cannabis dispensaries will be allowed to sell adult use cannabis products in their existing locations. The lottery winners had priority selection of permits by zone: North, Northwest, West, Central (closest to downtown and the Loop), Southeast, Southwest and Far South. The Central district was the first to sell out of permits, followed by the North district. Cresco Labs drew the first lottery pick and chose the Central district.

Maryland’s legislative workgroup will not recommend that the General Assembly pass a cannabis legalization bill in 2020. The delay will allow policymakers to learn from the state’s medical cannabis program and the experiences of other states.

Massachusetts’ Supreme Judicial Court upheld a decision challenging Governor Baker’s authority to ban vape sales unilaterally.  However, the ban effectively remains in place as the state’s Cannabis Control Commission quarantined all oil vapes until they could be tested for safety.

The Michigan Marijuana Regulatory Agency announced that medical cannabis operators with adult-use licenses will be able to sell up to half of their inventory to adult-use consumers starting December 1. Meanwhile, the City of Detroit passed an ordinance banning adult-use cannabis sales. City Council members stated they hope to lift the ban by the end of  January after they have created regulations to govern adult-use sales.  Almost 1,400 of Michigan’s 1,773 cities have chosen to ban adult-use cannabis sales.

A New Jersey man is suing Amazon for firing him after he failed a random drug test and provided documentation of his medical cannabis treatment. The plaintiff was told he was being fired for not letting Amazon know in advance about his medical cannabis treatment.  A New Jersey appeals court has previously ruled that medical cannabis patients may not be fired for failing a drug test.

New Mexico’s medical cannabis program has over 78,000 enrolled patients, including 130 out-of-state residents.

The Saint Regis Mohawk Tribe in New York will hold a referendum on December 14 to decide whether to legalize medical and adult-use cannabis.

An Ohio court struck down a state practice that set aside 15 percent of licenses for owners from economically disadvantaged groups. Pure Ohio Wellness sued the state’s Ohio Board of Pharmacy after it was denied a license despite high application scores.

The Ohio Medical Marijuana Control Program banned vitamin E acetate from vapes. Currently, no licensed manufacturer uses vitamin E acetate in their vape products.

The Oregon’s Court of Appeals, the state’s intermediate appellate court, stayed a ban on flavored cannabis vaping products. The court was persuaded that the ban was likely to result in irreparable harm to petitioner Herban Industries, which sells vape oil products under the brand “Winberry,”  as more than 80 percent of the company’s revenue is from flavored vape cartridges.

Pennsylvania’s Office of Medical Marijuana reports that the state’s medical cannabis program has generated more than $500 million in revenue from sales since the first dispensaries opened in early 2018. Pennsylvania’s first-year revenue totals of over $130 million surpassed those of Maryland ($95.4 million), Illinois ($36.3 million), Massachusetts ($25-$35 million) and New York ($5-$15 million).  

Washington’s State Liquor and Cannabis Board issued proposed rules regarding vaping products, packaging and labeling and license applications. The proposed rules establish a revised penalty structure designed to support licensee success, including significantly reducing the number of violations that could result in license cancellation and reducing fines by 50 percent.

Hemp/CBD

The US Department of Agriculture (USDA) has received more than 500 comments on its proposed hemp regulations.  Comments include concerns about proposed THC testing requirements and options to remediate “hot” plants.

FDA Principal Associate Commissioner for Policy, Lowell Schiller, voiced the agency’s concern regarding whether CBD is safe for people to consume in food and supplements and that an exception permitting the sale of CBD food products and dietary supplements could send the wrong message that the FDA endorses the safety of such CBD products.  Schiller also noted that “egregiously irresponsible behavior, like marketing CBD products for use by infants or promoting them to treat serious conditions like cancer or opioid use disorder” is a significant enforcement priority at the FDA. Schiller questioned the ability of the FDA to address basic compliance requirements like good manufacturing practices and truthful labeling, noting that “the excitement is outpacing capability.”

Washington State released Hemp/CBD FAQs, explaining that a licensed cannabis producer can also grow hemp if they meet certain requirements and that licensed dispensaries may sell hemp derived CBD products.

Wisconsin’s Assembly unanimously approved legislation to align its hemp regulations with the federal 2018 Farm Bill.

International

The Canadian Securities Administrators (CSA) published guidance to help cannabis securities issuers strengthen their governance disclosures in light of the industry’s “higher than usual crossover of financial interests” that could give rise to conflicts of interest.

Canada’s New Brunswick province will privatize the Crown cannabis corporation after sustained financial losses. The provision is seeking a single private operator to take over through an RFP process that will remain open until January 10, 2020.  Ernie Steeves, the province’s Finance and Treasury Board minister, blames Health Canada’s regulations for the failure, stating “I’m convinced Health Canada did not want it to succeed. Health Canada has come out with rules like you can’t smile in pictures on our website because that might encourage people to take part in this activity.”

China’s hemp industry continues to grow. Low production costs in China allow firms to profitably produce CBD oil as long as the price stays above the very low price of $300 per kilogram according to Tan Xin, founder and Chairman of Hanma Investment Group Co.

Estonia’s Social Affairs Committee Chairman said there are no plans to legalize or relax the rules around the use of cannabis because of concerns that legalization would increase health care costs.

General practitioners in Western Australia may now prescribe medicinal cannabis without a specialist approval unless the prescription is intended for children under the age of 16.

The Netherlands Senate passed a “weed experiment” bill that would allow Dutch cultivation of cannabis to supply adult-use coffee shops in ten selected municipalities over a four-year period.  According to Dentons associate partner Bram Braat, ten cultivators will be awarded permits to participate in the experiment. The rules and criteria for the license will be detailed in a ministerial order that is yet to be released.

Thailand is reviewing proposed regulations that would allow foreign investors to own up to 33 percent of the shares of cannabis companies that could obtain authorization to produce cannabis products for local consumption and exports.  International visitors would also be allowed to travel with their medical cannabis for personal use.  Thailand’s health minister said that the country is “in the process of changing laws to freely allow medical use of marijuana.”

Business

Cresco Labs and Origin House revised the terms of their merger and expected closing date. The deal is now expected to close in mid-January and has a revised valuation of $386 million. Origin House will also complete a non-brokered financing of up to 9.7 million of its common shares (valued at approximately $30 million) to strengthen the balance sheet of the combined company. Certain persons, including services providers, have agreed to be paid amounts owing to them by Origin House in common shares.

Earnings announcements highlight revenue growth compared to prior year periods but continuing net losses. Acreage reported a 307 percent increase in Q3 2019 revenue of $22.4 million compared to Q3 2018 but a reported net loss attributable to Acreage of $39.9 million;  Tilray reported a 409 percent increase in Q3 revenue of $51.1 million compared to the prior year period with a $35.7 million net loss but expanding international operations and brand portfolio; Cronos Group reported a 238 percent increase in Q3 2019 revenue of $12.7 million compared to prior year period with a negative $23.9 million adjusted EBITDA.

Cronos Group announced the nomination to its board of directors of Jody Begley, Senior Vice President, Tobacco Products for Altria, in connection with Altria’s investment in Cronos Group.  Cronos stated that it “intends to utilize Altria Group, Inc.’s sales and distribution network to access the U.S. convenience store retail channel in order to gain consumer insights” for its hemp-derived CBD products.

Apple has removed all vape-related apps from its App Store. Some sophisticated vaping devices have Bluetooth interfaces with apps that enable patients to measure and monitor usage, identify the medication in the device, and validate the authenticity of the medication and testing results.

7-Eleven has introduced CBD vending machines, developed by Greenbox Robotics, in two of its Colorado stores.

MedMen laid off more than 20 percent of its corporate workforce as part of a cost reduction program. The company also plans to sell its interests in various investments, including its licenses in “noncore markets.” The company will continue to focus its business efforts in Chicago, Las Vegas, Los Angeles, Miami and New York City.  Co-founder and CEO Adam Bierman explained that the dramatic cost-saving measures are necessary because, like other competitors, MedMen is not “fully funded because everybody’s been living in this high-growth phase.”

Similarly, Flow Kana announced that it is cutting 20 percent of its staff. Flow Kana’s CEO Mikey Steinmetz released a statement noting that “we too have had to make the difficult but necessary choice to better align our operations with the realities and size of the market.” In his statement, he urges California regulators to create a wider (and easier) path for illicit retail operators to become compliant businesses and to ease the heavy state tax burden, pointing to the craft beer industry’s tax structure as a model.

High Times is looking to identify capital for equity, debt or preferred instruments as it extends its IPO offering two more months. The publishing company has also laid off most of the staff of Dope magazine, which it acquired last year.

Edible Arrangements will sell CBD products in 25 of its locations in North Texas. The Dallas-Fort Worth franchisees were the first to express interest in carrying the products.

Medical/Health

CannaSafe analyzed the vapor produced by various vaping cartridges, including illicit and licensed products. This is believed to be the first findings analyzing the vapor, as opposed to the cannabis oils or the CDC’s analyses of patients’ lung fluids. The vapor from several tested illicit cartridges contained carbon monoxide, formaldehyde, lead and hydrogen cyanide.  The vapor from licensed products did not contain these dangerous chemicals.

Zynerba Pharmaceuticals received a US patent for treatment of Fragile X syndrome with transdermal CBD. The patent is part of an expanding intellectual property portfolio covering Zynerba’s transdermal CBD product candidate, Zygel.

A single-arm cohort study found that CBD could significantly reduce opioid use and improve chronic pain and sleep quality.  Over half of the chronic pain patients in an eight week study reduced or eliminated their opioids after adding CBD-rich hemp extract to their regimens.

An exploratory cross-sectional online survey of 367 medical cannabis users in Illinois suggests that cannabis users believe cannabis effectively treats co-occurring pain, anxiety, and depression.

Two preliminary studies find that non-smoking cannabis users are more than twice as likely to suffer a stroke compared to non-users and are more likely to be hospitalized for arrhythmia, a dangerously erratic heart rhythm. Both studies were observational and do not establish a direct cause-and-effect link between cannabis use and the conditions.

Source: https://www.jdsupra.com/legalnews/cannabis-group-weekly-alert-november-58755/

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