Yesterday, some big news dropped that the cannabis industry has anticipated since last summer. I take issue with some of the headlines, so here’s mine: “DEA Reportedly Agrees to Initiate Proposed Rulemaking to Reschedule Marijuana…”. Clearly, I’m a lawyer and not a reporter, but the “Reportedly” and “Initiate Proposed Rulemaking” are key considerations here at the Canna Law Blog.

How did we get here?

In October of 2022, President Biden requested that the Department of Health and Human Services (HHS) review marijuana’s placement on Schedule I of the Controlled Substances Act (CSA). HHS followed that directive, recommending on August 30, 2023, that marijuana be moved to Schedule III. My real-time analysis of what a Schedule III placement would mean can be found here. I’m not going to re-type much of that analysis today; but I stand by all of it, and I encourage you to click that link when you’re done.

What’s the next step?

I mentioned above that DEA “reportedly” has agreed to follow the HHS proposal. The very next step will be for DEA to confirm that reporting. We are likely to see a statement or press release, and a notice of proposed rulemaking should issue. Here’s an example of what that looks like, from a recent DEA rulemaking on prescribing controlled substances via telemedicine. I trot out that particular example because DEA received “a record 38,000 comments” on those proposed rules. In my estimation, the marijuana industry does more complaining than lobbying, but I’ll put the over/under on marijuana comments at 3x telemedicine.

How long will rulemaking take?

I don’t pretend to be an expert on the Administrative Procedure Act. I can safely say, though, that much of this depends on exactly what rule or rules DEA proposes, and when. Right now, it’s reported that DEA has a draft rule out to the Office of Management and Budget for review. That process can take up to 90 days.

Once the rule is published, please know that DEA may extend timelines as ostensibly needed. For example, in the telemedicine rubric above, DEA and a related agency extended a temporary set of rules for a six-month stretch while DEA waited to instate its proposed final rule (the one that drew so much interest). Finally, even if DEA attempts to move briskly, I’ve mentioned the possibility of litigation and challenges to rulemaking. Someone is likely to sue.

Are you saying rescheduling may not take effect before the Presidential election?

Yes I am. In fact I doubt cannabis will be on Schedule III by November. And by extension there is always a possibility, however remote, of DEA backtracking on this reported decision. A reversal along those lines would be legally problematic, for what it’s worth. The CSA is clear that while the DEA maintains final authority to reschedule marijuana, HHS’ recommendations “shall be binding … as to [] scientific and medical matters.” I do believe marijuana to Schedule III will happen.

What about the Office of Legal Counsel?

Don’t even ask.

What’s the biggest win for industry if/when marijuana moves to Schedule III?

It has got to be tax relief. Taxes all the way. I explained in my August 30 post why springing the vise of IRC § 280E won’t fully cure the tax headaches faced by cannabis businesses, and why cannabis businesses still won’t be taxed like other businesses on a Schedule III status. But, wow!, a lot of these companies are going to see better margins overnight. Many will also find relief from thinking so hard about dicey, new-fangled tax avoidance propositions.

What are some other cannabis law markers?

There are quite a few. A New York Times article from yesterday mentions, in passing, the possibility of “softening of other laws and regulations that account for the use or possession of cannabis, including sentencing guidelines, banking and access to public housing.” I agree with all of that. However, a move to Schedule III appears less helpful for other, businessy areas, e.g. bankruptcy, trademark.

What would this mean for state-legal cannabis markets?

I got this question from a client yesterday (Hey Tom!). The answer is, “not a lot.” This is because interstate commerce will still be verboten under Schedule III. Yes, the likelihood of federal enforcement against state-licensed marijuana businesses will decrease (from FDA, DEA, wherever); but enforcement probabilities are vanishingly low already– at least with respect to basic business activity. Again, I think the benefits of Schedule III will be more on the tax treatment side, which should lead to ancillary benefits, like lower costs of capital.

If marijuana goes to Schedule III, will it stick?

My guess is it would, as a purely administrative matter. By that I mean that HHS and DEA wouldn’t revisit the plant’s status anytime in the next decade or two. That said, Congress could always intercede. Congress has the power to remove marijuana from the CSA entirely, at any time and for whatever reason. Someday, when marijuana is finally descheduled entirely — and treated at least as respectfully as cigarettes, alcohol, sugar etc. — we will have Congress to thank, not the D.C. cops or scientists.

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Stay tuned to the Canna Law Blog — and stay off social media — for developments here as they ensue. For previous posts on this topic, check out the following:

First it was Ohio with a pro-choice, pro-weed ballot and vote this year that put recreational cannabis in the hands of voters over 21 years-old in Ohio. Cannabis advocates, sensing a pro-legalization win by drawing out female, liberal, progressive voters, are trying the same tactic to get over 60% of the votes needed for recreational cannabis in Florida.

Democratic strategists see an opportunity to win over voters in the state of Florida with the advent of constitutional amendment measures that would legalize marijuana for recreational use and increase access to abortion. After the Florida Supreme Court’s ruling on April 1, Amendments 3 and 4, which address adult-use cannabis legalization and abortion rights protection, respectively, have satisfied state standards and will be on the ballot for this fall’s presidential general election.

Amendment 3 would legalize marijuana for use by people 21 years of age and older. This would allow Florida’s currently operating registered medical marijuana shops to provide services to all adult consumers, meanwhile, Amendment 4 states that, with some exceptions made for legislation requiring parental notice for minors seeking abortions, abortion should not be banned, punished, delayed, or limited before viability or when determined essential for the patient’s health by their healthcare professional. If Amendment 4 is approved, it will essentially overturn a recent Supreme Court decision that upheld the state’s 15-week abortion restriction and open the door for a six-week limit to be approved.

Given the importance of Florida’s 30 electoral votes to both Republican and Democratic presidential campaigns, Democratic strategists see Amendments 3 and 4’s placement on the November ballot as a chance to connect with young voters, who are well-known for their support of marijuana legalization and abortion rights.

The executive director of the grassroots progressive organization Our Revolution, Joseph Geevarghese, noted that young people are a critical constituency that presidential candidates need to engage in the run-up to the election. He highlighted the appeal of both legalizing marijuana and supporting abortion rights to this generation.

The Biden Campaign Sets Sights on Florida

In a move signalling strategic focus, the Biden campaign unveiled a memo on Monday outlining plans for substantial investment in Florida, a state considered the stronghold of former President Trump and the Republican Party. Characterizing the policies of the previous administration and the GOP as detrimental to the lives of Floridians, the memo aims to counter Trump’s 51% victory in the state four years ago, where Biden secured 48% of the vote.  Republican Governor DeSantis has been against cannabis legalization over the past 2 years.

Julie Chávez Rodríguez, Biden’s campaign manager, emphasized targeted efforts in Florida, particularly through advertising aimed at young voters and key demographic groups such as Black and Hispanic voters.

Rodríguez stated firmly, “Florida presents challenges, but it also presents opportunities for President Biden, particularly given the weakened state of Trump’s campaign and vulnerabilities within his support base.”

In particular, Black voters and young adults are historically Democratic constituencies that the Biden team will primarily depend on for support if it hopes to win in Florida. The leader of the Florida Democratic Party, Nikki Fried, said that young voters had become more enthusiastic in the wake of recent court decisions.

“Observing social media activity over the past 24 hours, it’s clear that young voters are energized by the prospect of voting on cannabis and abortion in November,” said Fried.

Michael Starr Hopkins, a seasoned Democratic strategist with experience in Florida campaigns, emphasized the disconnect between Republican positions and the views of younger voters.

“The inclusion of abortion and marijuana on the ballot could fundamentally shift the electoral landscape for young voters in Florida. The GOP’s stance against reproductive rights and cannabis reform not only feels antiquated but is also alienating to a significant portion of the electorate,” Starr Hopkins remarked. “These pivotal issues are poised to ignite youth voter turnout, which historically disadvantages Republicans.”

Democrats Find Victory in Ohio and Alabama

Drawing parallels between the unfolding political landscape in Florida this year and the 2023 race in Ohio, Democrats note significant victories in both states. The Ohio election featured a ballot initiative to legalize recreational marijuana and an amendment aimed at enshrining the “fundamental right to reproductive freedom” with “reasonable limits” in the state constitution. Bolstered by robust turnout among young voters, both measures passed, dealing dual blows to Republican leadership.

In Alabama, Democrat Marilyn Lands secured a special election victory for a state House seat by championing abortion rights and protecting in vitro fertilization (IVF) as central campaign issues. Just weeks earlier, the Alabama Supreme Court’s ruling regarding frozen human embryos as legal individuals had halted IVF services in the state, albeit temporarily.

Highlighting the significance of ballot initiatives in shaping electoral outcomes, Democratic strategist Andrea Riccio, co-founder of Velocity Partners, underscored the recent Democratic win in Alabama focused on IVF.

“With recreational marijuana legalization and abortion access on the ballot, the Biden campaign stands to mobilize young voters and potentially turn Florida blue,” Riccio emphasized.

Despite Trump holding a narrow 0.8 percentage point lead over Biden in overall polling aggregates from The Hill and Decision Desk HQ, Democrats remain optimistic about their prospects in Florida with marijuana and abortion rights in play.

“If the GOP continues to underestimate the power of motivated young voters, they may face an unexpected reckoning at the polls. Florida could slip from their grasp as financially strapped Republicans struggle to counter the surge of energized youth,” remarked Starr Hopkins. “It’s a convergence of factors that could spell trouble for the GOP’s prospects in the Sunshine State.”

Challenges and Opportunities Ahead: Navigating the Political Landscape

The political terrain in Florida presents both hurdles and openings for Democratic strategists as ballot initiatives on marijuana legalization and abortion rights dominate discussions. Amidst the fervor surrounding these contentious issues, tactful navigation becomes imperative. Democratic campaigns must delicately balance addressing the concerns of diverse voter demographics while leveraging the potential of these initiatives to galvanize support among key constituencies.

With the spotlight on Florida’s pivotal role in the presidential election and the potential impact of these initiatives on voter turnout, Democratic strategists face the dual task of capitalizing on opportunities while addressing the complexities of the political landscape. This entails engaging with issues that resonate with voters, particularly the youth, while also navigating the challenges posed by entrenched opposition and competing priorities.

Bottom Line

As Florida becomes a focal point for Democratic campaigns, the convergence of ballot initiatives on marijuana and abortion rights presents both challenges and opportunities. Navigating this complex political landscape requires a delicate balance of engaging diverse voter demographics and leveraging the potential of these initiatives to mobilize crucial support. With the state’s significance in the presidential election looming large, strategic manoeuvring will be essential for Democrats to capitalize on the momentum and secure electoral victories amidst stiff opposition.

PRO-CHOICE, PRO-WEED, THE NEW BALLOT DREAM? READ ON…

OHIO JUST MADE HISTORY BY VOTING ON WEED AND ABORTION RIGHTS!

Cannabis commercial lease agreements

Signing a commercial lease can be an exciting step toward realizing operational goals in your Washington cannabis business. However, if a lease is not analyzed and completed correctly, the agreement can leave either the landlord or the tenant, or both, with additional headaches and liability. Understanding the nuances of the cannabis commercial agreements is crucial for both parties alike.

Whether you are a small business owner looking to secure your first retail or business space, or a property investor seeking to maximize your returns, having a firm grasp of the legal framework surrounding cannabis commercial leases can make the difference between a successful business venture and a costly endeavor. It’s important to note that usually, both parties have the same goal and that is to use the property for the stated purpose in a way that benefits both landlord and tenant alike. If the agreements are negotiated correctly, you’ll be left with a situation where when one succeeds, the other will likely succeed as well.

For the most part, commercial landlord-tenant relationships are governed by statutes and basic fundamentals of contract law in Washington state. More often than not, courts will defer to the Commercial Lease Agreement and other applicable agreements between the parties before looking to any statutory default provisions. This stance makes lease agreement negotiations and drafting more important than other instances such as residential lease agreements.

Key points in Washington cannabis commercial leases

In order to ensure your Washington cannabis commercial lease is a mutually beneficial endeavor, here are some key points that both sides need to consider:

• Lease term and renewal options

  The lease term is the backbone of any commercial lease agreement. It outlines the duration of the lease and sets forth the rights and obligations of both parties during that period. In Washington state, lease terms are highly customizable and can range from short-term agreements to long-term leases spanning several years. Additionally, both parties should pay close attention to renewal options to ensure there is flexibility to extend their lease if desired and needed.

• Rent and additional costs

  Negotiating rent and additional costs is often a sticking point in commercial lease agreements. Landlords typically seek to maximize their rental income, while tenants aim to keep costs manageable. It’s crucial for both parties to clearly define the base rent, any annual increases, and the allocation of additional expenses such as property taxes, maintenance fees, and utilities.

• Use clause

  The use clause specifies how the leased premises can be utilized by the tenant. It’s essential for both parties to ensure that the intended use aligns with the zoning regulations and any restrictions outlined in the lease agreement. Additionally, landlords may include provisions to protect the integrity of the property and surrounding businesses.

• Cannabis friendly provisions

  The cannabis industry is well known for its regulatory oversight and compliance requirements. Both parties should be aware of applicable state and local regulations and compliance requirements. Many of these requirements can be specifically addressed in the lease agreement so there is no question as to the rights and obligations of each party.

• Repairs and maintenance

  Determining responsibility for repairs and maintenance can prevent disputes down the line. Commercial leases often allocate these duties between landlords and tenants, with landlords typically responsible for structural repairs and tenants responsible for interior maintenance. Clarity on these obligations can help avoid confusion and ensure that the property remains in good condition throughout the lease term.

• Assignment and subletting

  Businesses evolve, and sometimes tenants may need to assign their lease or sublet the premises to another party. Landlords usually retain the right to approve or reject assignments and subleases to maintain control over their property and ensure the new tenant is financially stable.

• Termination and default

  Despite best intentions by both parties, lease agreements can sometimes be terminated prematurely due to unforeseen circumstances or breaches of contract. It’s essential for both parties to understand the conditions under which the lease can be terminated and the remedies available to each party in case of default.

• Notaries and other compliance

  Even though most commercial lease disputes are determined by the contract, commercial lease agreements must still comply with state and local laws governing landlord-tenant relationships. In Washington, lease agreements must be notarized to have their full force and effect. Additionally, other use-specific statutes and regulations should be considered and incorporated into the drafting of commercial leases. As noted above, one example is for licensed cannabis businesses in Washington. These businesses must have additional protections and oversight to remain in compliance with state and local laws and regulations.

Ensuring a successful relationship

Navigating the complexities of commercial lease agreements in Washington requires attention to detail and a thorough understanding of not only the legal landscape, but also the goals, aspirations, rights, and obligations of both the landlord and the tenant.

Negotiating and drafting a well thought out commercial lease can make the difference between a thriving business and a beneficial relationship between the landlord and tenant or a costly nightmare.

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For more on cannabis commercial leases, check out the following posts: