The Department of Cannabis Regulation (DCR) has just confirmed that it is now processing requests for ownership changes to existing Phase 2 (non-retail) cannabis licenses in Los Angeles. This long-awaited news is a game-changer for savvy investors and license holders alike, as it opens opportunities to buy or sell shares of the 139 cultivation, manufacturing, and distribution businesses that are licensed under Phase 2 in Los Angeles.
On September 12th, M&L partner Raza Lawrence participated in a roundtable discussion with a group of attorneys in Downtown LA regarding alternative dispute resolution in cannabis law. This is a growing field becoming more and more important for people operating or starting a cannabis business. Starting a new cannabis business can be complicated, lengthy, and expensive, often including multiple investors, loans, licenses, employees, asset purchases, and phases of construction. As people adapt to the new licensed and regulated system, they are forming new companies and making large investments, and want to have ways to make sure their investment is protected and any disputes are resolved efficiently and fairly.
Now, commercial cannabis operators in California need both local and state licenses, and to comply with detailed local and state regulations. In Los Angeles, the structure and procedure of licensing is complicated further by the social equity program requiring many dispensary licenses to be majority-owned by social equity candidates who meet certain qualifications based on their history of living in certain parts of the city, being arrested for cannabis crimes, and being low income. In addition, cultivation, manufacturing, and distribution licenses in Los Angeles remain tied to “priority” applicants who can show a history of operating in the City, further complicating the business structures.
Disputes and problems inevitably arise when starting any business, even with the most careful plans. This is especially true with California’s complicated and changing cannabis laws, and the continued conflict with federal law. Until recently, California did not regulate or license commercial cannabis businesses. Instead, there was an affirmative defense to the criminal laws to people who operated as nonprofit medical marijuana collectives, jointly owned by all members. Collectives and medical marijuana operators were frequently arrested and prosecuted even when they tried to do things the right way, and laws were vague and unpredictably enforced. People tended to keep few if any records, because they did not want to keep evidence of criminal activity. Many cannabis businesses today are continuations or offshoots of these earlier, unregulated businesses, and have some disputes and growing pains when trying to adapt to the new laws.
People in the cannabis industry have traditionally shied away from courts , preferring to resolve disputes through informal means. That is because what happens in court becomes public record, and testimony and evidence presented in court could incriminate people for violating state or federal criminal laws, or even lead to asset forfeiture. For licensed operators, testifying in court continues to incriminate them under federal law. Distributing cannabis remains illegal under federal law, a felony with potential long jail sentences and asset forfeiture. While there are legal protections against prosecutions for state-licensed medical cannabis operators, the federal law complicates the legal landscape, making court results unpredictable. It can be difficult to even enforce a cannabis-related contract in court, given the federal illegality. Under the US constitution, federal law controls over state law when there is any conflict in the laws, including in the area of cannabis. In addition, many judges and courts start out biased against cannabis, having prosecuted and convicted cannabis defendants with felony charges for years.
Today, as people try to get their companies off the ground and adapt to the new legal regime, they need efficient and effective ways to resolve their inevitable problems and challenges. Court cases are expensive and take a long time. Arbitration and mediation can be much faster and cheaper, and a way to avoid potentially biased and uninformed judges. For all these reasons, we recommend that parties include alternative dispute resolutions in their contracts, requiring the parties to submit any disputes to mediation or arbitration and bypass the traditional court system. This way, parties can select someone they trust to resolve their dispute, using a transparent process agreed to by everyone.
Our law firm has helped numerous people and businesses resolve disputes relating to commercial cannabis. If you have a dispute involving your business, or are looking for ways to avoid them, you can contact our firm for help you find a solution.
Cannabidiol (CBD for short) is a naturally-occurring element of the cannabis plant that has recently exploded in popularity and availability. Like tetrahydrocannabinol (THC), CBD is believed to have therapeutic and medical benefits, but unlike THC, CBD has no intoxicating effects. Across the country, people can now find CBD products everywhere. But are they safe and legal?
Many products advertised as CBD are imported from other countries or produced in unregulated, unlicensed operations, with no verification that they are free from toxic compounds or that they even contain CBD. Even if the products contain “pure” CBD, knowledgeable experts contend that CBDs have little or no benefits when they are stripped from THC and other cannabinoids and compounds naturally occurring in the marijuana plant. CBDs appear to exhibit their medical and healing properties only when they are left combined with the other cannabinoids like THC, as they are found in nature.
CBD Production and Sales Remain a Federal Crime Without FDA Approval and a Doctor's Prescription
The law on CBD products is confusing, due to conflicts among local, state, federal, and international laws. Under the Supremacy Clause to the US Constitution, federal law controls to the extent it conflicts with state or local law. State law also controls to the extent it conflicts with city or county laws. Federal law in this area is moving, but it is not clear in what direction. Some predict the federal government will relinquish all regulation of CBDs and cannabis generally to the states, and keep a hands-off approach. Others expect the federal government to strictly regulate CBDs and cannabis as they do with prescription drugs through the FDA, leaving the states with little control. This approach was foreshadowed by the DEA’s recent memo announcing that drugs including CBD with THC content below 0.1% will be taken off of Schedule 1 of the controlled substances schedules, and moved to Schedule 5, which allows CBD products to be sold through traditional pharmacies with a doctor’s prescription so long as the particular product is first approved by the FDA. The order also disallows any importing or exporting of CBD products without a permit.
Under federal law, CBD with THC content above 0.1% remains classified as a Schedule 1 controlled substance, subject to severe criminal sanctions. The Rohrbacher-Farr amendment creates a limited exception, preventing the DOJ from prosecuting anyone in strict compliance with state medical marijuana laws (adult-use or recreational uses of CBD products may still be prosecuted).
Without Commercial Cannabis License, CBDs Are Banned in California Food Products
In California, the Department of Public Health recently issued a memo confirming that CBD products are not allowed in any food products in the state (unless the products are regulated as commercial cannabis edibles, which by definition contain THC levels of at least 0.3%). Thus, under state law, CBDs are allowed to be sold and ingested as long as they include THC, and are banned in food if they come from industrial hemp with little or no THC. The reason CBD products with no THC are banned by state law is that California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food. Currently, the United States Food and Drug Administration (FDA) has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.
This is regardless of the source of the CBD – i.e., whether the CBD is derived from cannabis or industrial hemp. CBD used as a topical or smokeable product could arguably be allowed under either federal or state law as it may not be considered to be a food that is ingested.
Los Angeles Allows CBD Businesses Without a Cannabis License to Register for Business Tax Certificate to Engage in Commercial Activities
The City of Los Angeles recently issued a form for businesses seeking a Business Tax Registration Certificate to engage in commercial activities related to industrial hemp and/or CBD derived from industrial hemp in the City of Los Angeles. This form allows your business to pay local taxes, but it does not protect you from criminal prosecution under state or federal law. It likely also signals that enforcement of state CBD laws is not a high priority of the Los Angeles Police Department.
International Treaties Ban All Cannabis Extracts Including CBDs
In addition to local, state, and federal law, international treaties place obstacles to the sale of CBD products. The United Nations has had a series of International Drug Control Conventions (treaties of which the US and Canada are part), and while CBD is not specifically listed in the schedules of the Conventions, "extracts" of cannabis are apparently included within Schedule 1, meaning they are prohibited.
Given the controls required by the UN Conventions, the US would be unable to keep its obligations under the treaties if CBD products were de-controlled under federal law. The Federal Controlled Substances Act, moreover, indicates that scheduling decisions will be made in accordance with treaty obligations. For example, under section201(d)(I) of the CSA, if control of a substance is required under an international treaty or convention in effect on October 27, 1970, the Attorney General is required to impose controls on the substance by placing it under the schedule he deems most appropriate to carry out such obligations.
The World Health Organization Expert Committee on Drug Dependence is scheduled to review the UN’s classification of CBD, THC, and cannabis in general at its November 2018 meeting, which could lead to a change in the international treaty.
The result of all these different layers of law leave many confused. We expect that the laws will adapt over time to allow for open sales of CBD products, whether or not they also contain THC. For now, however, the law is full of problems for CBD products and cannabis in general, and we applaud those working to reform the laws for these products that are all around us.
With a recent study, the state of New York signaled receptiveness to the possibility of legalizing cannabis for recreational use. Specifically, the report, commissioned by Governor Cuomo, recommends that adults be allowed to legally consume marijuana. While the study has yet to be finalized by the New York State Department of Health, its announcement indicates that New York is planning to embrace the marijuana industry to the same extent that states like California and Colorado have, switching from a relatively restrictive medical-only marijuana program to a system which legalizes the recreational use of cannabis. Given the size and influence of New York State’s population and economy, this shift would have major implications for the status of cannabis in the nation at large.
Currently, New York State’s regulations only allow marijuana to be legally used for medical purposes. Additionally, only 10 companies are licensed to operate as medical marijuana suppliers, a restriction with the potential to greatly limit patients’ access to marijuana and drive prices up. Further, patients aren’t even allowed to smoke marijuana – as of December 2017, the drug can only be legally taken in the form of cannabis extracts like oils, tinctures, and chewable tablets. According to the New York Times, these restrictions were initially put in place by Cuomo, out of concern that marijuana would become a “gateway” drug leading to use of other illicit substances. Therefore, this study, with its conclusion that marijuana (even when smoked) is not harmful for adult recreational use, indicates a major pivot on the governor’s part when it comes to legalization.
This shift may be due to the upcoming election for the governorship, where Cuomo’s most prominent challenger, Cynthia Nixon, has made marijuana legalization a central campaign issue. Nixon has positioned herself as even more pro-legalization than Cuomo, calling for a fully regulated and taxed recreational marijuana industry in New York as well as a statewide program to expunge past marijuana convictions. Therefore, whichever candidate wins the governorship, it seems likely that New York State will continue to liberalize its cannabis regulations. Together with New York City moving to limit marijuana arrests, this indicates that, while New York may not have a full recreational cannabis industry for some time, the region’s political climate has shifted significantly against the restrictive laws which are currently in place.
Cannabis, via a wide variety of consumption methods and in a myriad of forms, has a long history of use as a pain reliever. In this post, our los angeles cannabis lawyers tackle the topicals and Type 6 non-volatile cannabis manufacturing licenses.