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Risk Allocation in Cannabis Contracts

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One of the main reasons why I am such a vocal supporter of written cannabis contracts is allocation of risk and liabilities. Parties to a cannabis contract have a number of ways that they can allocate risks and liabilities that they just won’t have in a “handshake” deal. Today I’ll explore six of the top ways to allocate risk in a cannabis contract.

#1 Disclaimers

If you’ve ever read through a cannabis contract, there’s a good chance you’ve seen disclaimers of representations, warranties, or guarantees. By making a disclaimer, a party is refusing to make an express or implied warranty (promise) about a certain condition. If a seller sells a piece of equipment on an as-is basis and disclaims all warranties about the product, then if the product does not perform as desired, the buyer may not have recourse (except for warranties that can’t be disclaimed by law). Without the disclaimer, there may be implied warranties that give the buyer recourse against the seller.

Disclaimers can be general, such as a disclaimer of any warranty not specifically made in the contract. Even more generally, “as-is” language can serve as a disclaimer of sorts (i.e., “buyer acquires the asset as-is, with all faults, and without any warranty from seller”). They can also be specific, such as a specific disclaimer of the implied warranty of merchantability. In many cases, you’ll see both the general disclaimer, followed by non-exclusive carveouts of warranties.

A savvy counterparty will often push back against one-sided disclaimers. In most cannabis contracts where cannabis products are transferred (intellectual property licenses, white label contracts, distribution agreements, manufacturing agreements, supply agreements, etc.), the buyer or transferee will insist that the manufacturer/supplier/seller makes certain representations explicitly, such as that the products will be fit for human consumption, comply with applicable laws, and so on. I see lots of negotiation around these provisions, as they can make or break a cannabis contract.

#2 Assumption of Risks

Cannabis contracts can also force certain parties to assume specific risks. Risk assumption comes up frequently in contracts with percentage splits. Imagine a cannabis distribution contract where a distributor agrees to sell a manufacturer’s products in exchange for 15% of the profits. Usually, when the distributor sells the goods and is paid, it pockets its cut and remits the rest to the manufacturer.

These kinds of arrangements involve some deal of trust by the manufacturer – trust that the distributor will sell the goods, will sell them at the desired purchase price, will promptly collect payment, and will promptly remit payment. Most of this can be dealt with in a contract. However, the first part – making promises about sales levels – obviously is a risk for many distributors.

I have seen plenty of cannabis contracts like this where one party assumes the risk that some of the above things will not happen right. For example, if the distributor has to buy the cannabis goods from the manufacturer, it will assume the risk that it won’t resell the goods. If the contract is a consignment arrangement, the manufacturer may take the financial hit if the manufacturer can’t sell the goods.

Often, risk assumption is not expressed affirmatively but happens by virtue of assignment of specific obligations to a specific party, or even through warranty disclaimers as noted above. To really do a good job here, the parties will need to think of every step in performance of the contract, what could go wrong at each step, and who should be on the hook if/when things do go south. I’ve been writing these kinds of cannabis contracts consistently for more than five years now and can tell you that there are tons of blind spots that can lead to massive financial hurt if parties don’t consider these impacts early on.

#3 Risk of Loss/Title

Related to the last point, in purchase and sale or commercial-type contracts where products are sold or transported from one party to another, the concepts of risk of loss and transfer of title are immensely important. Our firm does a lot of international work and has seen first-hand the massive adverse impacts of failure to address these provisions in international shipping. But because cannabis deals don’t involve international (or even interstate) shipment, cannabis companies overlook these basic concepts, often to their downfall. I’ll go over why they are important now.

First, let’s talk title. Title to a good means ownership of that good. One can hold title to a good without being in possession of that good. If you lend your friend your phone, your friend possesses the phone but doesn’t hold title to it (you do). In some distribution contexts, the manufacturer may hold title to the good, while the distributor transports it to a retailer. This is consignment. In the consignment cannabis contract, the manufacturer will sell the good directly to the retailer, at which point title will transfer from the manufacturer to the retailer. The distributor will never hold legal title, will only possess the good while performing services, and will generally be paid as a service provider. Keep in mind that the parties can negotiate a different transfer of title, i.e., upon pickup by the distributor.

Second, let’s talk risk of loss. This just refers to who bears responsibility if a good is stolen, damaged, destroyed, lost, etc. In the foregoing example, let’s assume that the manufacturer and retailer sign a sales agreement before the distributor picks up the good for transport. The manufacturer may want risk of loss to transfer to the retailer upon the distributor’s pickup, whereas the retailer will want risk of loss to transfer upon delivery. The reason for this should be clear – neither party will want to bear the risk that the distributor loses the good. But, somebody will have to. One way to address this is to pick a time to allocate risk of loss between manufacturer and retailer, and separately have distributor bear responsibility in the distribution contract.

Third, let’s talk about acceptance and rejection. These concepts are not the same as risk of loss and transfer of title, but often are mixed in and/or in the same part of the contract. In the example I’ve used, when the retailer receives the goods, it will have some fixed period of time (say 48 hours) to inspect the goods, and will be able to reject the goods for a specific set of reasons within that period. Title and risk of loss likely would already have transferred to the retailer, but upon rejection, the goods will be returned to the manufacturer.

As you can imagine, there are endless possibilities of ways to allocate risks and liabilities in the context of risk of loss and title. Inspection and rejection adds far more criteria. Cannabis contracts that are silent on these provisions are just begging to wind up in litigation.

#4 Indemnification

I explained indemnification in an earlier post, which I’ll quote here:

If you’re not familiar with indemnification, let’s go back to the purchase example. Say a retailer purchases edibles from a manufacturer, and customers get sick when they eat the edibles. And say those customers sue the retailer. The retailer didn’t make the edibles, so it would want the manufacturer to foot the bill for its defense and any damages that are awarded. This is called “indemnification.”

Here’s another example: Party A licenses its trademarks to Party B, a manufacturer and distributor, to make and sell branded goods. Party C decides that it is the real owner of these trademarks and sues Party B. Party B is going to be upset because it did not intend to infringe Party C’s trademarks and was probably promised in the cannabis contract that Party A actually owned the goods. With a good IP indemnification clause, Party B can force Party A to engage defense counsel and pay any costs associated with Party B’s defense.

Nobody wants to get hauled into court because the other party to a cannabis contract did something wrong. Indemnification is the gold standard for dealing with risks caused by a contracting party.

#5 Limitations of Liability

I also explained these clauses in my earlier post:

If you’ve ever looked at a written contract, you’ve probably seen a provision about halfway through in all caps with a heading that reads, “LIMITATION OF LIABILITY.” As the name suggests, these provisions are intended to narrow or eliminate liabilities of one or both parties. They generally include provisions that carve out things like consequential and incidental damages (i.e., damages that are not a direct result of a breach) and punitive damages (i.e., damages that are intended to punish a wrongdoer). But limitations of liability may also place caps on one or both parties’ damages, which can be a big advantage in a dispute.

Generally speaking, contract disputes do not lead to punitive damages, which are damages that are intended to punish a wrongdoer. These are usually reserved for certain “torts” like battery, interference with a third-party contract, etc. Some cases may involve both contract and tort claims where punitive damages may be on the table. A carefully crafted limitation of liability clause in a cannabis contract may be able to touch on both (depending on applicable state law).

That said, even if punitive damages are not available in contract disputes, incidental and consequential damages may be on the table, though they are often hard to get. Imagine that a cannabis company has a water leak and hires a plumber to fix it. The plumber does not perform work in accordance with the contract and the business floods overnight. The business is forced to shut down for a week and loses tens of thousands of revenues. The direct damages in the dispute will be fixing the negligent repair and maybe even some of the damage to the premises. The incidental and consequential damages may be the loss of revenue. While again, this can be hard to prove, it is very easy to disclaim those types of damages in a written contract so as to never need to worry about complex battles over damages.

#6 Caps

Caps are also a great way to shift risks. Caps can be used in all sorts of contexts. Limitation of liability clauses may have caps on damages in addition to damage carve outs. For example, a distribution contract may provide that except for certain cases of willful misconduct, the distributor’s maximum liability to the manufacturer may be the amounts paid by the manufacturer to the distributor in X period of time.

Indemnification provisions also often have caps. This comes up a lot when buying and selling businesses or business assets – and it’s usually the seller that pushes for them. Imagine selling a business for $750,000. If indemnification clauses are unlimited, and a dispute arises that requires seller-side indemnification, the seller may end up paying the buyer more than it was paid for the business. So as you can imagine, sellers will often push to cap indemnification at some percentage of the purchase price. In my experience in non-cannabis deals, the percentage is often relatively low. In cannabis deals, I often see a much higher percentage. That tends to be due to the fact that there are often (not always) many more potential issues for buying a cannabis business than most other kinds of businesses.

As an aside, M&A transactions sometimes also include deductibles as well. In those cases, a party seeking indemnification won’t be entitled to indemnification unless it has some minimum threshold of losses. If that number is $50,000, and the buyer seeking indemnification only had $40,000 in damages, it won’t be indemnified. Once it hits that $50,000 mark, it can either (depending on the cannabis contract’s terms) be indemnified for the entire basket of damages, or only for what’s over the $50,000 mark.


Parties to cannabis contracts have myriad tools at their disposal when it comes to shifting risks and liabilities. Of course, this can really only be done well in a written contract.



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How Did Hidden Leaf Cannabis Become the Leader of the Ontario Marijuana Market?

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Hidden Leaf cannabis store

Cannabis.net sat down with Ontario’s hottest cannabis store to find out some of their “secret sauce” that made them the best dispensary in Ontario, Canada.

Q: How did you come up with the name Hidden Leaf for Ontario’s premier cannabis dispensaries?

A: Growing up, I was always a big fan of the anime show Naruto, where the main character grew up in a village called “Hidden Leaf Village.” Naruto’s backstory really resonated with me, inspiring me to name the company Hidden Leaf. As Ontario’s premier Burlington and Scarborough Dispensary, we strive to embody the spirit of community and resilience found in Naruto’s tale.

Q: What makes Hidden Leaf the best dispensary in Scarborough or Burlington?

A: At Hidden Leaf, customer service sets us apart. Unlike many other dispensaries that curate their menu based on profitability, our customers drive our selection. We actively encourage our patrons from both our cannabis store Scarborough and cannabis store Burlington to send in their product recommendations, which we try our best to stock. Plus, we offer the most competitive pricing, making cannabis affordable for everyone. Our commitment to these principles makes us stand out in the Scarborough dispensary and Burlington dispensary markets.

Q: How did you first get into the Canadian cannabis market? What made you take the leap of faith?

A: From a young age, I’ve always wanted to own a business and had a passion for the cannabis industry, learning to grow plants and understanding the different types of concentrates. Taking the risk to enter the business felt right as it was a great way to expand my knowledge and participate actively in the burgeoning cannabis market in cities like Scarborough and Burlington.

Q: Canada was the first G7 country to legalize weed, what advice would you look back and give your past self? What do you wish you knew then that you know now?

A: Looking back, I wish I had learned more about the cannabis business earlier and entered the industry as soon as it was legalized. Now, understanding the different avenues to enter the cannabis industry, I would definitely consider owning my own grow facility among other ventures. This knowledge would have been invaluable from the start, especially in dynamic markets like those of our Cannabis Store Burlington and other locations.

Q: What are Hidden Leaf’s best strains, or what do customers come back for over and over?

A: Hidden Leaf carries a wide variety of brands and strains to cater to every customer’s needs. From budget-friendly options for those looking to save a few bucks to premium quality strains for the real cannabis connoisseurs, our selection is vast. Customers frequently return for our consistent quality and the breadth of our offerings, including popular cannabis flowers at both our Scarborough and Burlington locations.

Q: What has been the biggest challenges in setting up a cannabis business in Canada?

A: The biggest challenge has been finding the right location. Despite legalization, there’s still a stigma around cannabis with many landlords, making it hard to lease properties for cannabis businesses. Additionally, the market is quite saturated with many retailers opening up, so it’s crucial to choose strategic locations for our dispensaries to avoid excessive competition, particularly in areas served by our Scarborough dispensary and cannabis store Burlington.

Q: What do you think about the future of cannabis beverages?

A: The future of cannabis beverages and edibles is very promising. Many people who are new to cannabis are not fans of smoking, so THC beverages and edibles offer a fantastic alternative. These products are expected to attract a new wave of consumers looking to explore cannabis in a more familiar and accessible form.

Q: What is the best way for people to find out more about us or visit us? Website? Social media?

A: The best way for customers to find out more about Hidden Leaf is through our website. It’s the go-to place to find the closest location, whether that’s our Scarborough dispensary or cannabis store Burlington, and to explore our menu and pricing. Our website is a comprehensive resource for anyone interested in our products and services.

Q: If someone is trying to decide which dispensary to go to in Ontario, why should they go to Hidden Leaf?

A: At Hidden Leaf, it’s all about customer service and pricing. We don’t believe in upselling; instead, our goal is to find the best product within your budget. Our customers help shape our menus with their recommendations, which we order in every week. With very competitive pricing, we believe cannabis should be affordable for everyone, making our Burlington and Scarborough Dispensary the go-to choice for quality cannabis products and genuine customer care.



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Are You Bored So You Smoke Weed or Do You Smoke Marijuana and Get Bored?

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cannabis and boredom

Cannabis and Boredom

 

Boredom is a universal human experience characterized by a lack of interest, motivation, or engagement in one’s current activities. It is a state of mind that can leave individuals feeling restless, apathetic, and dissatisfied.

But why do people get bored?

Research suggests that boredom serves a vital function within the life of the individual, acting as a signal that one’s current situation is unfulfilling and that change is needed.

Boredom can be a catalyst for personal growth and development. When faced with monotony, the mind yearns for stimulation and seeks out new experiences.

This innate drive pushes individuals to explore new hobbies, learn new skills, and challenge themselves in ways that promote self-improvement. In this sense, boredom can be seen as a motivational force that encourages people to break free from stagnation and pursue meaningful goals.

However, in today’s fast-paced, instant-gratification society, many individuals struggle with the discomfort of boredom and seek quick fixes to alleviate its symptoms.

A recent Reddit post posed the question, “Do you use cannabis to escape boredom, or does cannabis make you content with being bored?” This query highlights a common trend among cannabis users who turn to the substance as a means of coping with idle moments.

In this article, we will explore the concept of “escaping boredom” through cannabis use and examine the potential pitfalls of relying on the substance as a sole means of entertainment.

We will also delve into the function of boredom within the life of the individual and discuss how cannabis, when used mindfully, can be a tool for enhancing focus and productivity rather than a mere distraction from tedium.

 

Boredom, often perceived as a negative emotional state, has been the subject of numerous studies that highlight its potential benefits for personal growth. A study conducted by Mann and Cadman (2014) found that engaging in boring tasks can stimulate creativity and problem-solving abilities. The researchers suggest that when the mind is not occupied with external stimuli, it tends to wander and generate novel ideas.

Similarly, Gasper and Middlewood (2014) discovered that boredom can lead to increased motivation and goal-directed behavior, as individuals seek to alleviate the unpleasant state by pursuing meaningful activities.

However, boredom can become toxic when it is chronic or excessive. Prolonged periods of boredom have been linked to negative outcomes such as depression, anxiety, and substance abuse (Eastwood et al., 2012).

When individuals lack the skills or resources to cope with boredom in a constructive manner, they may turn to maladaptive behaviors as a means of escape. This can create a vicious cycle where the temporary relief provided by these behaviors reinforces their continued use, leading to further disengagement from life’s challenges and opportunities.

So, what’s the secret to never being bored? The answer lies in cultivating a curious and engaged mindset. Individuals who approach life with a sense of wonder and a desire to learn are less likely to experience boredom, as they find joy and meaning in even the most mundane tasks.

By setting goals, pursuing hobbies, and seeking out new experiences, one can maintain a sense of purpose and fulfillment that keeps boredom at bay.

As a regular cannabis smoker myself, I can attest to the fact that it is possible to lead a stimulating and engaging life while still enjoying the benefits of the plant. In the next segment, I will share my personal secret for using cannabis as a tool for enhancing focus and creativity rather than as a means of escaping boredom.

By mindfully integrating cannabis into a balanced and purposeful lifestyle, individuals can harness its potential for personal growth and avoid falling into the trap of chronic boredom.

As a seasoned cannabis enthusiast, I’ve come to understand that the key to overcoming boredom lies not in escaping it, but in embracing it.

The first step is to recognize that the anxiety associated with boredom is not inherently negative. Instead, it is an opportunity for self-reflection and growth. By becoming comfortable with boredom, you open yourself up to new possibilities and experiences.

One of the most common mistakes that stoners make is relying solely on cannabis for entertainment. While cannabis can certainly enhance many activities, it is essential to find something to pursue that isn’t related to smoking.

This requires honest introspection and a willingness to explore your interests and passions. Take the time to reflect on what truly excites and motivates you, and don’t be afraid to step outside your comfort zone.

When pursuing new activities, it’s crucial to focus on the process rather than the outcome. In our fast-paced, instant-gratification society, we often fixate on the end result and lose sight of the joy found in the journey itself.

By falling in love with the process of doing, you can find fulfillment and satisfaction in the present moment, regardless of the ultimate outcome. The goal should serve as a guiding light, but the real magic happens in the day-to-day efforts you put forth.

Once you discover an activity that genuinely captivates you, cannabis can become a tool for enhancing the experience rather than a means of escaping boredom. When you’re engaged in something you love, smoking cannabis can heighten your focus, creativity, and enjoyment without hindering your productivity.

If you find yourself frequently bored and turning to cannabis as a crutch, take a step back and ask yourself, “What would I really like to be doing right now?” Allow your mind to explore various possibilities and jot down any ideas that come to mind.

From this list, identify an activity that isn’t passive or cannabis-related, and make a conscious effort to dedicate your “bored” moments to pursuing this interest.

As you begin to focus on this newfound passion, you’ll notice that cannabis no longer serves as an escape from boredom but rather as a complement to your engaging pursuits. You’ll find yourself sparking a joint and diving into your work with renewed enthusiasm and focus.

Remember, the key to beating boredom as a stoner lies in embracing it as an opportunity for self-discovery and personal growth. By finding something you truly love and immersing yourself in the process, you can transform those once-dreaded moments of boredom into a catalyst for a more fulfilling and satisfying life.

As we conclude this exploration of cannabis and boredom, it’s essential to acknowledge that the temptation to use cannabis as an escape from boredom is understandable, particularly for young people who are still discovering their identity and purpose in life.

In a world that moves at breakneck speed, it’s easy to fall into the trap of seeking instant gratification and quick fixes for even the most mundane tasks.

However, it’s crucial to recognize that the fast-paced nature of our society has transformed our minds into dopamine-addicted entities, constantly craving the next hit of excitement or stimulation. This mindset can lead to a vicious cycle of unfulfillment and dissatisfaction, as we become increasingly reliant on external sources of pleasure to combat boredom.

The key to breaking free from this cycle lies in embracing difficulty and challenging ourselves to grow. By engaging in activities that push us beyond our comfort zones and require us to learn new skills, we can cultivate a sense of achievement and fulfillment that goes beyond fleeting moments of pleasure.

This process of overcoming obstacles and mastering new abilities reinforces our motivation to continue pursuing personal growth and development.

Ultimately, boredom is a weapon that can be wielded for good or ill, depending on how we choose to frame it. Rather than allowing boredom to dominate our lives or turning to cannabis as a means of escape, we must learn to harness its power and mold it into a tool for positive change. By embracing boredom as an opportunity for self-reflection, exploration, and growth, we can transform those moments of restlessness into catalysts for personal transformation.

So, to all the cannabis enthusiasts out there, I encourage you to view boredom not as an enemy to be vanquished but as an ally in your quest for a more fulfilling and purposeful life. Don’t let cannabis become a crutch that holds you back from reaching your full potential. Instead, use it as a tool to enhance your experiences and complement your passions.

Armed with this newfound perspective, go forth into the world with confidence and determination. Embrace the challenges that come your way, and use them as stepping stones to greatness.

 Let boredom be your guide, leading you towards a life filled with meaning, purpose, and endless possibilities. And when you do choose to indulge in cannabis, do so not as an escape from reality but as a celebration of the incredible journey you’re on.

In the end, the sticky bottom line is this: Life is too short to be bored. So light up that joint, kick some ass, and take some names along the way. The world is yours for the taking, and with the right mindset, there’s nothing you can’t achieve.

 

STONED AND BORED, READ ON…

WOULD YOU RATHER STONED GAME

WOULD YOU RATHER… THE GAME TO PLAY WHEN YOU ARE STONED AND BORED!



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BREAKING NEWS: DEA Issues Notice of Proposed Rulemaking to Move Marijuana to Schedule III

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Today is another historic day in the history of cannabis control and regulation. In a much anticipated announcement, the Drug Enforcement Administration (DEA) issued a notice of proposed rulemaking to reschedule marijuana, from Controlled Substances Act (CSA) schedule I to schedule III (the “Proposed Rule”).

We have covered the implications of a Schedule III placement in various posts on this blog, beginning with the Health and Human Services (HHS) recommendation that DEA undertake this rescheduling last August. See:

For now, here are a couple of high-level observations on today’s Proposed Rule.

First, DEA is not proposing an interim final rule. We expected as much, but it would have been nice! Under an interim final rule, an agency finds that it has good cause to issue a final rule without first publishing a proposed rule (as DEA did here). An interim final rule would have gone effect immediately upon publication, and marijuana would have been moved to schedule III today. Instead we’ll have to wait.

Second, the Proposed Rule gives a standard 60-day comment period, from the date the Proposed Rule is published in the Federal Register. That’s a pretty standard window; although, as I’ve explained before, this can always be extended.

Third, the Proposed Rule is clear that “any drugs containing a substance within the CSA’s definition of ‘marijuana’ would also remain subject to the applicable prohibitions in the Federal Food, Drug, and Cosmetic Act (“FDCA”).” No, this does not mean FDA enforcement is going to begin; and no, this does not mean Big Pharma is coming to squash state licensed operators. Stop saying that.

Fourth, the Proposed Rule gives very specific protocols for submitting electronic and other types of comments. These protocols are not hard to follow! But if you fail to do so, your comment will not make it into the record, and it will not be considered by DEA.

Fifth, I really like this paragraph:

HHS recommended in August 2023 that marijuana be rescheduled to schedule III. See Letter for Anne Milgram, Administrator, DEA, from Rachel L. Levine, M.D., Assistant Secretary for Health, HHS (Aug. 29, 2023) (“August 2023 Letter”). The Attorney General then sought the legal advice of the Office of Legal Counsel (“OLC”) at DOJ on questions relevant to this rulemaking proceeding. Among other conclusions, OLC concluded that “HHS’s scientific and medical determinations must be binding until issuance of a notice of proposed rulemaking [(‘NPRM’)].” Questions Related to the Potential Rescheduling of Marijuana, 45 Op. O.L.C. __, at *25 (Apr. 11, 2024) (“OLC Op.”).1 After the issuance of a notice of rulemaking proceedings, HHS’s scientific and medical determinations are accorded “significant deference” through the rest of the rulemaking process.2 OLC Op. at *26.

I’ve always argued that HHS’s scientific and medical determinations are binding under the plain language of the CSA itself. But it’s awfully nice to hear confirmation that OLC agreed– especially because there was some consternation among the cognoscenti about what OLC was doing here. It seems that OLC has essentially confirmed to DEA: “you are stuck with Schedule III.”

Sixth, it’s interesting to see the Proposed Rule delve into problematic international law constraints. The Proposed Rule gives a rather cursory analysis here, but OLC seems to have justified marijuana’s placement on Schedule III in the context of public international law obligations, including the 1961 U.N. Singled Convention on Narcotic Drugs (to which the United States is a party). DEA states, however, at Proposed Rule page 86 that:

“[c]oncurrent with this rulemaking, DEA will consider the marijuana-specific controls that would be necessary to meet U.S. obligations under the Single Convention and the Convention on Psychotropic Substances in the event that marijuana is rescheduled to schedule III, and, to the extent they are needed if marijuana is rescheduled, will seek to finalize any such regulations as soon as possible.”

This could get pretty interesting! Expect a lot of fretting here by industry and the general public.

Seventh, it was also interesting to see DEA and HHS justify why it arrived at a Schedule III conclusion, after concluding in 2016 that marijuana should stay in schedule I. I have wondered aloud about the intellectual gymnastics that might be required for this. Take a read at the rationale on the Proposed Rule at pages 11 – 13 and see if you’re convinced.

_____

OK, that’s it for now. The Proposed Rule is 92 pages and I had less than 30 minutes to read it and write this today. We will follow up as soon as next week with further thoughts on this very significant development.



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