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Oregon Cannabis Proposals Could Dramatically Reshape Industry

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The Oregon legislative Task Force on Cannabis-Derived Intoxicants and Illegal Cannabis Production is exploring potential reforms to the state’s regulation of cannabinoid products and legislation for 2023 to combat what law enforcement believes is an increase in illicit marijuana production.

If adopted, these proposals would dramatically reshape Oregon’s hemp industry and implicate the entire national market, and create new classes of crimes and increased penal sanctions for illegal marijuana production in Oregon that may mark a larger national reversion to war-on-drugs policies and mentalities.

The task force was created in 2021 by Oregon H.B. 3000, which passed with the intent of regulating novel cannabinoids such as delta-8 THC and addressing a theory that bad actors were obtaining hemp licenses as a cover for illegal marijuana production.

Members of the task force include state legislators; representatives of the Oregon Liquor and Cannabis Commission and Oregon Department of Agriculture; state and local law enforcement personnel; and advocates representing Oregon’s hemp and marijuana industries.

The scope of the task force expanded this year with the passage of Oregon’s hemp moratorium legislation, S.B. 1564, which added five more members to the task force that include representatives from the Oregon Bureau of Labor and Industries and Water Resources Department to address issues of labor trafficking and water theft at illicit grows.

Before diving into the task force’s regulatory proposals regarding cannabinoids, it is important to frame the discussion by explaining that the key distinction between marijuana and hemp is simply that the latter is defined as cannabis plants and products with a delta-9 THC concentration of less than 0.3%.

The 2018 Farm Bill legalized hemp and opened the door for interstate trade of the commodity, while marijuana — i.e., cannabis that has above 0.3% delta-9 THC — remains federally illegal, and trade is relegated within independent, intrastate markets.

By distinguishing hemp and marijuana solely by delta-9 THC concentration, the 2018 Farm Bill led to two major, and likely unintended, consequences.

First, focusing only on delta-9 THC allowed for the interstate trade of artificially derived cannabinoids, most notably delta-8 THC.

The U.S. Court of Appeals for the Ninth Circuit’s May decision in AK Futures LLC v. Boyd St. Distro LLC affirmed the legality of these products.[1]

A lack of federal regulation allowed for largely unregulated sales of intoxicating, artificially derived cannabinoids online and even to minors.

In response, Oregon’s marijuana regulatory agency, the OLCC, promulgated administrative rules to ban the sale of most artificially-derived cannabinoids in Oregon. [2]

The second immediate implication is that cannabinoid products classified as hemp can contain enough delta-9 THC to be intoxicating.

Many state policymakers fail to understand this dynamic, which recently resulted in the Minnesota Legislature accidentally legalizing edibles containing up to 50 milligrams of delta-9 THC per package, as some state legislators failed to understand that legalizing hemp-derived cannabinoids included delta-9 THC that falls at or below the 0.3% concentration threshold.

Hemp products containing high amounts of total delta-9 THC and other intoxicating cannabinoids are a central concern of the Oregon task force, which is considering: (1) new packaging and licensing regulations, (2) tracking requirements, (3) solutions to curtail sales of intoxicating cannabinoid products to minors, and (4) regulations for the import and export of hemp.

Labeling requirements under consideration would require disclosure of total THC content by volume for hemp products, rather than simply listing the product as containing less than 0.3% delta-9 THC. Providing this information would ensure that Oregon consumers understand that consuming an entire hemp product can give them the same high as marijuana.

Current OLCC regulations allow hemp edibles to contain up to 20 milligrams of delta-9 THC per container.[3]

Regarding licensure, ODA regulations on hemp currently only require licenses for production and handling, i.e., processing. A proposal currently before the task force would treat hemp products more like marijuana by requiring licenses for secondary processing and wholesale, as well as requiring retail licenses for in-state sellers and out-of-state companies selling directly to Oregon consumers.

A possible ulterior motive for new retail licensing requirements may be an attempt to fix a potential regulatory loophole in Oregon’s ban on artificially derived cannabinoids.

The OLCC only has statutory authority to levy fines against businesses that do not hold a marijuana license in situations where those businesses are selling marijuana items.

Artificially derived cannabinoids, being derived from hemp, fall outside of the definition of marijuana items. Some Oregon gas stations and convenience stores are still carrying delta-8 products, and are likely relying on this regulatory gray area to do so. Requiring licenses for the sale of hemp items would foreclose this gap in regulatory enforcement.

Oregon H.B. 3000 tasked the OLCC with rulemaking authority to develop tracking requirements for hemp products, and the task force is leaning toward recommending that hemp be tracked just like marijuana, through seed-to-sale tracking software administered by a private company called Metrc LLC.

In a recent meeting, OLCC Executive Director Steve Marks discussed a possible overhaul of Metrc tracking requirements for marijuana, and the agency may move to a different company once the state’s current contract with Metrc ends in August 2025.

Whatever reforms are made for marijuana will likely become the regulations also applicable to hemp items to ensure uniformity across markets.

Oregon statute currently forbids the sale of adult-use cannabis items to minors,[4] and the task force is pushing to give the OLCC authority to create a minor decoy program to test whether retailers are complying with the statute.

Another potential undercover agency tool retailers should remain apprised of is a proposed secret shopper program, in which Oregon administrative agency personnel would enter retail stores and purchase products off store shelves for retesting. This retesting would ensure that products are correctly labeled and that labs are properly testing the products they receive.

The final major consideration related to hemp is new administrative requirements for interstate trade. The task force is discussing requirements that hemp items entering Oregon undergo additional testing or processing upon import, and shipments leaving Oregon may need to include handoff documents to provide receiving states with information regarding the content and testing standards applicable to the product.

These activities would also require special import and export licenses, as well as potential tracking requirements.

Beyond the pertinent business implications, lawyers working in this industry should remain apprised of potential preemption issues, as the 2018 Farm Bill disallows states from prohibiting the interstate commercial trade of hemp.[5]

Undue burdens on interstate commerce could likewise generate dormant commerce clause issues if Oregon fails to demonstrate that there is a substantial local need for their new regulations and that no other less restrictive means can accomplish their regulatory goals.

An interesting note regarding interstate trade of hemp is that while the OLCC banned the sale and import of artificially derived cannabinoids in Oregon, an agency bulletin provides that Oregon hemp licensees remain free to produce artificially derived cannabinoids and export them for sale out of state.[6]

The juxtaposition of banning artificially derived cannabinoids in-state while allowing export has mystified industry advocates. Task force member and state Rep. Lily Morgan appeared equally flummoxed in a recent task force meeting upon learning of this dynamic.

The OLCC argued that H.B. 3000 granted it such rulemaking authority, to which representative Morgan, a chief sponsor of the legislation, stated her belief that the legislative intent of the bill was to create regulations, and not institute a prohibition.

This questioning of legislative intent may push industry advocates to introduce legislation in 2023 that would allow for the sale of some artificially derived cannabinoids in-state, particularly CBN — which, notwithstanding its popularity as a nighttime gummy and potential alternative to prescription sleeping aids, is currently scheduled for a ban beginning next year per an OLCC rule.

Turning now to potential law enforcement reforms, it is important for readers to understand how Oregon’s hemp industry became a central target of efforts to combat illegal marijuana production.

Following implementation of Oregon’s hemp program, a narrative quickly emerged that illicit marijuana producers were obtaining hemp licenses as a cover for illegal activity.

The Legislature responded by giving the OLCC rulemaking authority under H.B. 3000 to promulgate presumptive testing rules that would create a methodology for testing hemp crops in the field and determining whether the crops were presumptively marijuana, and thus subject to detainment.

With these rules in hand, the OLCC and ODA worked with law enforcement to execute Operation Table Rock in the summer of 2021 and tested almost all licensed hemp growers in southern Oregon.

The major headline coming from Operation Table Rock was that around 58% of crops tested above the 0.3% delta-9 THC threshold. The reliability of these results is questionable however, due to issues with the LightLab portable testing machines used in the operation, as well as procedural missteps by field agents and leading OLCC agency staff.[7]

Nevertheless, the task force is strongly supporting a statutory extension of the presumptive testing rules that are set to expire on Jan. 1, 2024, which would allow for similar enforcement operations in the future.

ODA representative Sunny Summers stated in a task force meeting that a new presumptive testing operation is currently underway, so Oregon hemp producers should prepare for an inspection visit very soon.

Beyond regulating the hemp industry, the law enforcement subcommittee of the task force is strongly in support of expanding Oregon’s Illegal Marijuana Market Enforcement grant program.

The program was established in 2019 with an initial ongoing allocation of $3 million per grant cycle, which was increased to $6 million via passage of H.B. 3000.

A one-time infusion of an additional $20 million was allocated by the Legislature in December 2021,[8] and an additional $6 million was allocated during the 2022 legislative session specifically for community-based organizations to address human rights issues arising from labor and human trafficking at illicit grows.

Despite $20 million being allocated for law enforcement this past grant cycle, a status update provided by Oregon Criminal Justice Commission Executive Director Ken Sanchagrin revealed that applications from law enforcement asked for more than $32 million. Sanchagrin attributed the over-ask, and subsequent delay in rolling out grant dollars until July 2022, to the one-time nature of the increased funding.

This resulted in a resounding call to increase ongoing funding for the law enforcement portion of the grant program to maintain the level of funding available for the 2022 grant cycle.

A proposed source for ongoing funding is Oregon’s cannabis tax revenue. Tapping into the cannabis tax account would create a major legislative showdown as Oregon Measure 110, passed by voters into 2020, allocates all growing cannabis tax revenue into drug treatment programs, and for the past two legislative sessions advocates for community investment into minority communities impacted most by the war on drugs have also sought preallocation tax dollars from the marijuana tax account.

On the criminal procedure front, there is a proposal to amend Oregon Revised Statutes 133.575(1) by removing the “with all practicable safety” requirement for when police can invite those who are not law enforcement personnel in executing a search warrant.

Deleting this language would make it easier for the ODA and OLCC agents to accompany law enforcement in searching illicit marijuana grows and allow law enforcement to employ the OLCC LightLab testing machines during investigations.

Given the inaccuracies of testing results produced by Lightlab machines in Operation Table Rock, we may see many hemp growers wrongly arrested or convicted for illegal marijuana production.

The law enforcement subcommittee of the task force is also pushing for a statutory change that would restore law enforcement’s ability to use car trackers, body wires and phone pings in investigating suspected illicit marijuana activity. These tools were blocked for marijuana investigations in 2017 when Oregon S.B. 302 removed marijuana from Oregon’s Uniform Controlled Substances Act.

Increasing criminal sanctions is another consideration that is a high priority for the law enforcement subcommittee of the task force. This includes creating a list of aggravating factors for crimes related to illicit marijuana production and water rights theft.

There is also discussion of creating new criminal liability for landowners renting property to illegal growers. This new crime would essentially be an aiding and abetting offense limited to situations where landowners “should have known” their tenants were illegal operators.

While the knowledge requirement may protect some innocent landowners from conviction, it may not protect them from being wrongly arrested and incurring possibly tens of thousands of dollars in attorney costs and legal fees.

Hemp industry advocate Courtney Moran argued before the law enforcement subcommittee that levying civil fines against illicit operators may prove a better deterrent than increasing penal sanctions, but this proposal was quickly shut down by law enforcement personnel sitting on the subcommittee.

A troublesome aspect of the discussions coming from law enforcement is their freewheeling use of the term “ethnic-based drug trafficking organizations” to describe who they believe are the main culprits of illegal marijuana production, without providing any evidence that most illicit producers are nonwhite.

Maligning minority communities as responsible for illegal drug activity was used in the 1930s to make marijuana illegal, and was a rallying cry during the war on drugs that resulted in a dramatic rise in incarceration rates that disproportionately affected minority communities.

History may be repeating itself in Oregon, and increases in law enforcement resources may prove futile in addressing illegal marijuana production as the lack of interstate trade and continued federal prohibition creates the national underground market that Oregon producers have sold to for generations.

Oregon’s recently enacted moratorium on new marijuana licenses forces these legacy growers to remain underground. Increased law enforcement funding and resources would thereby probably do little to address illicit production, and only result in increasing disparate arrest and incarceration rates for minority communities, and the deterioration of civil liberties for all Oregonians.

[1] AK Futures LLC v. Boyd Street Distro, LLC, 35 F.4th 682 (May 19, 2022).

[2] Oregon Administrative Rule (“OAR”) 845-025-1310.

[3] OAR 845-026-0400, Table 3.

[4] ORS 475C.213.

[5] See 2018 Farm Bill, Pub. L. 115-314, § 10114, 132 Stat. 4914 (2018).

[6] OLCC Recreational Marijuana Program, Compliance Education Bulletin CE2021-04, December 28, 2021, https://www.oregon.gov/olcc/ma….

[7] Kevin Jacoby, Operation Table Rock Part I, Green Light Law Group Blog, September 30, 2021, https://greenlightlawgroup.com…; Kevin Jacoby, Operation Table Rock Part II, Green Light Law Group Blog, November 18, 2021, https://greenlightlawgroup.com….

[8] Senate Bill 5561 (2021).

https://greenlightlawgroup.com/blog/oregon-cannabis-proposals-could-dramatically-reshape-industry



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One-Hit Wonders

Does Involvement in the Cannabis Industry Preclude Your Business From Bankruptcy Protection?

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Despite the growing public acceptance of marijuana and the fact that a majority of states have legalized marijuana for medicinal purposes (37 states and the District of Columbia have enacted medical marijuana legislation), federal law still treats marijuana cultivation and sale as a criminal offense. See 21 U.S.C. § 801, et seq. As bankruptcy is only available under federal law, this dichotomy between state and federal law can result in actions that potentially preclude businesses and individuals from accessing the protections afforded under the U.S. Bankruptcy Code (the “Code”).

James Atchison
Thomas Carlotto

Under the Bankruptcy Code, both businesses and individuals can seek to obtain a discharge of indebtedness through either a liquidation or reorganization proceeding. Businesses can utilize Chapter 11 to complete a reorganization or a liquidation. Individuals can use Chapter 11 and, subject to income limitations, Chapter 13 to reorganize their financial situation through confirmation of a plan. Both businesses and individuals can also seek a discharge through a liquidation under Chapter 7 of the Code. These federal provisions are recognized as paramount in providing individuals and businesses relief from indebtedness that, in most cases, is an insurmountable obstacle to obtaining a fresh start financially.

Access to the bankruptcy courts and the relief provided under the Code is not an absolute right, as the courts are empowered to dismiss a case for cause. Bankruptcy courts have held that violations of federal law constitute cause for dismissal of a case, which in the context of the marijuana industry has created a segment of many states’ economies that are unable to access bankruptcy relief.

Federal Law and Marijuana Assets or Income.

Currently, marijuana is illegal under the Controlled Substances Act, 21 U.S.C. § 801, et seq. The statute provides that the manufacture, distribution, and use of marijuana is illegal. See 21 U.S.C. § 812. The statute specifically provides that it is unlawful “for any person knowingly or unintentionally to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance.” 21 U.S.C. § 841(a)(1).

In the bankruptcy arena, the United States Trustee Program (“USTP”) is the gatekeeper that oversees access to bankruptcy and the relief available under the Bankruptcy Code. The USTP has “taken the position that debtors with assets or income derived from marijuana may not proceed through the bankruptcy system.” See https://www.justice.gov/ust/consumer-information#:~:text=For%20Individuals%20or%20Businesses%20with,proceed%20through%20the%20bankruptcy%20system. The USTP’s position as to marijuana-related bankruptcies is guided by two objectives. First, bankruptcy is not available as a means to foster ongoing criminal activity and reorganization plans that permit or require continued illegal activity cannot be confirmed. Second, bankruptcy trustees should not be required to administer assets in violation of federal criminal law. See https://www.justice.gov/ust/file/abi_201712.pdf/download.

Courts have consistently barred companies or individuals that directly derive ongoing income from the cultivation or dispensing of marijuana from the protections of the Bankruptcy Code. See Arenas v. United States Trustee (In re Arenas), 535 B.R. 845 (10th Cir. B.A.P. 2015). However, the USTP has not limited its strict policy to marijuana cultivators and retailers alone. Rather, it has taken the position that there is no distinction under the Controlled Substances Act between cultivators and retailers and those businesses or individuals that provide goods, services, or other accommodations to marijuana businesses.  As such, the USTP is willing to apply its rationale to related parties that provide goods, services, or other accommodations to cultivators and retailers.

Under federal law, it is unlawful to “manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent lease profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance.” 21 U.S.C. § 856. As such, landlords leasing space to cultivators or retailers can be precluded from accessing the bankruptcy system to reorganize or potentially having all of their assets liquidated by a bankruptcy trustee. For example, a landlord that received approximately 25% of its income renting space to a cultivator faced the dismissal or conversion of its bankruptcy case. See In re Rent-Rite Super Kegs, 484 B.R. 799 (Bankr. D. Col. 2012). The Court reasoned that a reorganization was unavailable due to the receipt of illegal income by the landlord and a potential liquidation of assets (e.g., the building of the landlord debtor), which would not be a federal crime for a trustee to undertake, was a potential option for a Chapter 7 trustee.

Additionally, it is a federal crime to sell or offer for sale any “equipment, product, or material or any kind which is primarily intended or designed for use” in manufacturing a controlled substance. 21 U.S.C. § 863. The USTP’s position with respect to ancillary businesses violating this provision is highlighted in In re Mayer, 2:21-bk-06572-DPC (D. Ariz. 2022). In this case, the individual debtor derived income from a corporation of which he was a significant shareholder known as Rosinbomb. The company manufactures and sells extraction presses that can be used to generate rosin from cannabis resin. The process creates a concentrated form of marijuana, “commonly referred to as ‘dabs.’” Id. at note 20.

The Court determined that because Mr. Mayer derived his income from Rosinbomb, which was engaged in the manufacture and supply of equipment sold to the marijuana industry, Chapter 13 relief was unavailable. While Mayer argued his company’s presses could be used to extract oils from various materials other than cannabis, he could not evidence sales unrelated to the cannabis industry. Id.  Ultimately, the Court determined that the equipment constituted “drug paraphernalia” under federal law, and even if it did not, the fact that Rosinbomb knew its machines were used in the marijuana industry was also a violation of the Controlled Substances Act. Id. Despite the fact that Mr. Mayer was not personally selling the equipment, the fact that his sole source of income flowed directly from Rosinbomb’s illegal activities was sufficient to dismiss his bankruptcy petition.

Liquidation Alternatives.

In states where marijuana has been legalized, state law insolvency proceedings may be an alternative to bankruptcy to afford financial relief to a marijuana business denied access to the bankruptcy courts. One option would be to initiate a receivership where the entity’s assets would be placed in the custody and control of a court-appointed receiver for liquidation. Another alternative is an assignment for the benefit of creditors, where the assets of the entity or assignor are assigned to an assignee to be liquidated for the benefit of creditors.

Conclusion.

The point at which a debtor’s involvement in a business or sources of income that have a connection to the cannabis industry is sufficiently attenuated to avoid outright dismissal or a liquidation of assets in bankruptcy is unclear. For example, would the owner of a nursery that knowingly sells gardening supplies used by an individual for marijuana cultivation be precluded from bankruptcy? Would a landscape company working for a landlord that rents his entire building to a marijuana cultivator risk being barred from bankruptcy protection?  As the cannabis industry expands, individuals and businesses need to be cognizant that their economic relationships with industry participants that may put them at risk of being shut out of the only legal mechanism available to permit a business or individual to reorganize their financial interests.

[View source.]

 

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Could Recreational Marijuana Use Jeopardize a Nevada Employee’s Job?

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Recreational marijuana use is legal under Nevada state law. But could recreational marijuana use jeopardize an employee’s employment? Nevada voters voted to legalize recreational marijuana use effective January 1, 2017. The law decriminalized recreational marijuana when used in compliance with Nevada law.1The statute decriminalizing recreational marijuana use specifically indicated that it did not preclude an employer from maintaining, enacting, and enforcing a workplace policy prohibiting the conduct made legal by the statute. However, under a Nevada statute, employees cannot be terminated for lawful off-duty use of a product in this state, unless that use adversely affects the employee’s ability to perform their job or other employees’ safety.2Employers that terminate employees for engaging in lawful off duty use of a product may be required to pay damages to terminated employees. As a result, many employers operated under the assumption that employees who tested positive for recreational marijuana use could not be terminated because Nevada legalized recreational marijuana use.

Dora Lane
Steven Washington

InCeballos v. NP Palace, LLC, a recent Nevada Supreme Court decision,3the Court analyzed whether an employer could discharge an employee for recreational marijuana use. Palace Station employed Danny Ceballos as a table games dealer. According to Ceballos, he had no performance or disciplinary issues. On June 25, 2020, Ceballos slipped and fell in the employee breakroom. After his fall, Ceballos submitted to a drug test that tested positive for the presence of marijuana. Palace Station terminated Ceballos’ employment due to the positive test result; there was no allegation that Ceballos was intoxicated or otherwise impaired during his shift.

The Court held that “although Nevada has decriminalized adult recreational marijuana use, the drug continues to be illegal under federal law.4Because federal law criminalizes the possession of marijuana in Nevada, its use is not ‘lawful… in this state’ and does not support a private right of action under NRS 613.333.” The Court also held that because NRS 678D.510(1)(a) authorizes employers to prohibit or restrict recreational marijuana use by employees, employees discharged after testing positive for the presence of marijuana do not have a common-law discharge claim.

The Ceballos decision raises questions about the future of recreational marijuana use by employees, and the Nevada Legislature has not indicated whether it intends to provide employees with employment protection in light of the Ceballos decision. For the time being, employers are within their right to enforce drug policies that prohibit recreational marijuana use. According to Ceballos, an employee terminated for recreational use of cannabis can neither sue the employer under NRS 613.333 nor under a common law tortious discharge claim. Employers looking to discipline employees for recreational marijuana use should ensure their employment policies allow for such discipline.

*Note: Ceballos does not address medical marijuana use, so employers should remain mindful of the Nevada medical marijuana statute applicable to employees.

1NRS 678D.200
2NRS 613.333
3Danny Ceballos v. NP Palace, LLC, dba Palace Station Hotel & Casino, 138 Nev. Adv. OP. 58 (Aug 11, 2022)
4Marijuana is listed as a Schedule I drug along with heroin and cocaine under the federal Controlled Substances Act, which means marijuana is deemed to have a high potential for abuse and no medical value.



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Cannabis Laws & the Southern States

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The changes in the cannabis industry in Southeastern United States represent some of the most surprising and remarkable changes in the history of the industry.

J. Hunter Robinson
Whitt Steineker
Slates Veazey

The South is well positioned to be a leader in the cannabis industry, and in some ways, it should be expected. The region has been instrumental in highly regulated industries, such as alcohol and tobacco, and the only federally sanctioned cannabis grow program has operated at the University of Mississippi since the 1960s. Although several Southern states have enacted medical cannabis programs, no states have embraced recreational use of cannabis.

This article reviews cannabis laws in effect in Southern states, cannabis laws that will go into effect in the future, and examines states that haven’t passed legislation legalizing cannabis.

Existing Cannabis Regimes

Cannabis is not new to the South. By way of quick background, here are a few of the Southern states who have implemented cannabis legislation.

Florida

Florida was the bellwether for Southern cannabis. Its medical cannabis program is grounded in a 2017 voter-approved amendment to Florida’s Constitution, which was implemented through a 2018 statute. Fla. Stat. 381.986. The program is a “limited license” regime, under which a set number of vertically integrated “Medical Marijuana Treatment Centers” are licensed to cultivate, process, and dispense cannabis to qualified patients. There are currently 22 licensed medical marijuana treatment centers (17 are operational), which serve approximately 650,000 patients. In 2021, more than $1.2 billion in cannabis products were sold in Florida.

Arkansas

Arkansas also began its medical cannabis journey through a voter-approved amendment to the state constitution. The Arkansas Medical Marijuana Amendment of 2016 created the Medical Marijuana Commission to regulate Arkansas’s medical cannabis program. Like Florida, Arkansas is a limited license regime. Unlike Florida, Arkansas opted against vertical integration, instead authorizing separate dispensary licenses (up to 40) and cultivation facility licenses (up to eight). Arkansas dispensaries began serving qualified patients in 2019. Since then, patients have purchased more than $500 million in medical cannabis.

Louisiana

Louisiana’s medical cannabis program was enacted through the legislature and began in 2020. It is unique in many respects. The program only authorizes two state universities to cultivate medical cannabis: Louisiana State University and Southern University. As for dispensing, Louisiana divides the state into nine regions, and authorizes one “medical marijuana pharmacy” to operate in each. The law authorizes doctors to prescribe cannabis for a long list of specific qualifying conditions, as well as any condition the doctor “considers debilitating to an individual patient” that the doctor “is qualified through [their] medical education and training to treat.” La. Rev. Stat. § 1046. Despite the expansive qualifying conditions, the limited number of cultivation and dispensing licenses have led to high prices and a limited patient count. But Louisiana’s medical cannabis sales are still projected to exceed $90 million in 2022.

Upcoming State Cannabis Programs

Georgia

Georgia’s Hope Act, which was signed into law in April 2019, authorized qualified patients to obtain medical cannabis oil with up to 5% THC. Ga. Code § 16-12-191. The act created the Georgia Access to Medical Cannabis Commission to regulate the program, and the commission began accepting applications for medical cannabis “producers” in 2020. Six licensees were chosen through a competitive application process, but unsuccessful applicants have filed administrative appeals and litigation to challenge the application process. As a result, no production licenses have been issued, and the application process for dispensing licenses has not yet begun.

A note of caution: Attorneys in Georgia who are interested in starting a cannabis law practice should tread carefully. While the opportunities for lawyers in this space are plenty, the Georgia Supreme Court placed quite the speed bump in the road for aspiring Georgia cannabis lawyers.

In June 2021, the court denied a motion to amend Rule 1.2 of the Georgia Rules of Professional Conduct to allow Georgia lawyers to “counsel clients to engage in conduct that the lawyer knows is criminal or fraudulent, and to assist clients in such conduct, so long as the conduct is not a crime under Georgia law.” The court concluded that allowing Georgia lawyers to advise clients operating under a Georgia law “purporting to permit and regulate conduct that constitutes a federal crime” would be inconsistent with the court’s long-standing prohibition of Georgia lawyers counseling and assisting clients in the commission of criminal acts.

Georgia lawyers should, therefore, proceed at their own risk in this space—at least for the time being.

Mississippi

In November 2020, more than 70% of Mississippians voted to allow medical cannabis in a ballot initiative. This was a shocking development. While Mississippi polls, like many national polls, indicated that most Americans supported the liberalization of medical cannabis, few expected this wave of pro-cannabis support. Unfortunately for those supporters, the Mississippi Supreme Court later ruled that the ballot initiative process was unconstitutional and nullified the vote.

At the next opportunity, the Mississippi Legislature voted to adopt a medical cannabis program. Unlike the programs of most other states including those in the South, there is not a formal cap on the number of licenses available in Mississippi. While this lessens the competition for licenses themselves, it has nonetheless resulted in fierce competition for initial license approval, specifically with dispensary applicants.

Per the Mississippi State Department of Health’s and Mississippi Department of Revenue’s last official releases on August 26, 2022, the state has issued licenses to 14 cultivators, four micro-cultivators, five processing entities, three disposal entities, one testing facility, three transportation entities, and 104 dispensaries.

Unlike in Georgia, members of the Mississippi bar have received approval from the state’s bar association to assist businesses or individuals seeking to participate in the state’s medical cannabis program. Following the majority of other states on this issue, the bar association issued Ethics Opinion No. 265 on June 9, 2022, finding that Mississippi attorneys could ethically provide legal services assisting a client to comply with the Mississippi Medical Cannabis Act.

The opinion recognized the “need for clients to have assistance of Mississippi lawyers to assure compliance with complex state regulatory requirements in the medical cannabis industry” and that the program will “function more expeditiously and with closer adherence to state law if Mississippi lawyers can assist clients in complying with state law.” This opinion, however, noted that any attorney who provides such services must also advise the client about the relevant federal law, including the federal Controlled Substances Act.

Businesses seeking to participate in Mississippi’s medical cannabis program need a variety of legal assistance. In addition to helping them navigate the dense medical cannabis act, pertinent regulations, and a quite cumbersome application process, businesses need legal assistance forming entities and helping with capital raises, acquiring real estate, negotiating various agreements, handling local government and zoning matters, advising on intellectual property and trade secrets matters, and providing advice pertinent to the challenging interplay of banking and financial services and cannabis.

And, because Mississippi’s program is not designed to be a competitive and limited license program, lawyers in Mississippi have fewer concerns from a conflict-of-interest perspective than attorneys in competitive, limited license states.

Alabama

Mississippi’s ballot initiative was a key driver in influencing the Alabama Legislature to pass the Darren Wesley ‘Ato’ Hall Compassion Act in May 2021. The act created the Alabama Medical Cannabis Commission to oversee a statewide “seed-to-sale” tracking and licensing system that permits the medical use of smokeless cannabis products for patients with qualifying conditions. Ala. Code §§ 20-2A-1.

Alabama’s medical cannabis program will have a limited number of licenses. There will be no more than 12 cultivator licenses, four processing licenses, four dispensing licenses (each allowing three dispensaries), and five “integrated facility” licenses that allow the licensee to cultivate, process, and dispense cannabis. There will also be licenses for secure transporters and laboratory testing facilities.

The Alabama Medical Cannabis Commission intends to issue licenses on July 10, 2023.

Patients are expected to have access to product in late 2023 or early 2024.

Looging Ahead: Potential State Cannabis Programs

North Carolina

While North Carolina does not currently have a medical cannabis program, many expected that to change. But, after the North Carolina Senate voted 35-10 to pass North Carolina’s Compassionate Care Act on June 2, 2022, the bill did not even reach the floor of the North Carolina House of Representatives, as the House GOP leadership decided not to let the bill advance.

In its current form, the act would set up a limited license, vertical integration regime, under which 10 licenses would be issued to medical cannabis suppliers to cultivate and process cannabis. Those 10 medical cannabis suppliers could then obtain licenses for “medical cannabis centers”—the act’s term for dispensaries. Only licensed suppliers would be able to obtain these dispensary licenses, and no supplier could hold more than four such dispensing licenses. It remains to be seen whether future bills will retain this proposed licensing structure.

South Carolina

South Carolina’s formerly high and currently dashed expectations for medical cannabis match its sister state’s. While there was momentum behind passage of South Carolina’s Compassionate Care Act, it died on the South Carolina House of Representatives’ floor on May 4, 2022, following a procedural challenge from Rep. John McCravy (R). The act would have coupled an extremely narrow list of qualifying conditions with a licensing regime most akin to Alabama’s, with separate license types for each part of the cannabis supply chain. It would allow 15 “cultivation center” licenses, 30 “processing facility” licenses, and one “therapeutic cannabis pharmacy” (i.e., a dispensary) for every 20 traditional pharmacies in the state, in addition to four transportation and five testing lab licenses.

Tennessee

When it comes to Southern cannabis, Tennessee has taken a more leisurely pace. While no proposed medical cannabis legislation appears to be on the cusp of passage, there are reasons to be optimistic that this will change sooner rather than later.

Legislation passed in May 2021 created a Medical Cannabis Commission, whose purpose is to “serve as a resource for the study of federal and state laws regarding medical cannabis and the preparation of legislation to establish an effective, patient-focused medical cannabis program[.]” T.C.A. § 68-7-101(a).

The statute requires that the commission prepare recommendations for “how best to establish an effective, patient-focused medical cannabis program,” along with proposed legislation for the state legislature.

However, the statute does not yet “authorize a medical cannabis program to operate” in Tennessee, and “licenses for such a program shall not be issued … until marijuana is removed from Schedule I of the federal Controlled Substances Act.” How long the Tennessee Legislature will keep this restriction in place is unknown. But it is not difficult to imagine the tax revenue in neighboring states will incentivize the legislature to expedite the path towards state-level legalization if real cannabis reform remains stalled at the federal level.

Conclusion

Since Florida’s implementation of its medical cannabis program in 2018, the Southern cannabis industry has progressed at a rate rivaled only by the early years of the cannabis industry. Several Southern states have approved medical cannabis legislation with several more showing willingness to pass their own in the coming years.

Republished with permission. This article, “Cannabis Laws & the Southern States,” was originally published by Bloomberg Law.

Published at The JD Supra Platform

https://www.jdsupra.com/legalnews/cannabis-laws-the-southern-states-2921903/



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