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Poll: Majority of American Voters Support Federal Legalization of Cannabis

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A December 2022 survey from Data for Progress reports that American voters, regardless of political affiliation, support federal cannabis legalization. Specifically, 75% of Democrats, 67% of independents, and 52% of Republicans agreed that cannabis should be legalized at the federal level.

Data for Progress also asked about two equity policies enacted as part of New York’s Marihuana Regulations and Taxation Act (MRTA) that legalized recreational cannabis in the state.

One policy measure reserved 100-200 dispensary licenses for applicants disproportionately affected by cannabis prohibition. In general, voters surveyed supported this measure by a +23-point margin (57% in support, 34% opposed), with the party breakdown as follows: 69% of Democrats, 59% of independents, and 43% of Republicans.

The other policy stipulated that 40% of the taxes collected would go into a community grant fund for community reinvestment programs like job placement and skill services. This policy was supported by a majority of voters from all three parties: 76% of Democrats, 70% of independents, and 51% of Republicans.

The poll indicates that American voters, regardless of political affiliation, support federal cannabis legalization as well as thoughtful social equity policies.



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New York Cannabis Co. Investor Suit Survives Motion To Dismiss

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The District Court for the Western District of New York denied a motion on January 6, 2023, to dismiss claims alleging that a publicly traded company misled investors regarding an investigation by the U.S. Securities and Exchange Commission (SEC). The company, 22nd Century, engineers cannabis plants to regulate their levels of cannabinoids. The court’s denial of the motion to dismiss is an important reminder to companies, especially those in the cannabis space, about the importance of compliance and disclosure.

Noto v. 22nd Century Grp., Inc. is a class action alleging that the company and two former officers misled investors. Plaintiffs claim that the company issued a 10-K filing in 2016 noting that its internal controls regarding financial reporting had not been effective due to “material weaknesses” and, in later filings, that it was undertaking remediation efforts. According to a confidential witness cited in the complaint, the company had been cooperating with an SEC investigation since 2016, which was not terminated until at least 2019. In 2018, an online commentator allegedly posted a series of articles about this scheme, prompting the company’s share price to fall. In response, plaintiffs claim that the company issued statements saying it had no knowledge of any SEC enforcement proceedings and the commentator’s statements were untrue.

The court initially dismissed the claims of the putative class, reasoning that 22nd Century had no duty to disclose the SEC investigation and its officers could not, therefore, be held personally liable for its failure to disclose. But the United States Court of Appeals for the Second Circuit vacated and remanded, holding that 22nd Century’s alleged statements in SEC filings describing “material weaknesses” in its financial reporting created “a duty to tell the whole truth” and “defendants’ false public denial . . . amount[ed] to an admission of the materiality of its nondisclosure.” Noto et al. v. 22nd Century Grp., Inc. et al., 35 F.4th 95, 105-06 (2d Cir. 2022). On remand, the District Court allowed claims that the company had made material misrepresentations to survive, reasoning that the company’s alleged public statements satisfied the standard set by the Court of Appeals. See Noto et al., v. 22nd Century Grp., Inc. et al., 2023 WL 122305, at *5 (W.D.N.Y. Jan. 6, 2023).

Companies in highly regulated industries such as cannabis face complex regulatory landscapes, which can create challenges in compliance. Here, a federal court allowed claims of material misrepresentations to survive based on a company’s alleged repeated false public denials, highlighting the importance of timely and accurate disclosures.



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Cannabis: Goin’ to Carolina in My Mind

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We have long suspected that North Carolina may be the next great cannabis market. In describing North Carolina as “the sleeping giant of the South,” we wrote recently:

From Murphy to Manteo, North Carolina is a state that will have a lot to offer the medical marijuana industry at some point in the future. The state has a tremendous agricultural industry; major population centers; a large, dynamic, and growing population; and world-class medical facilities and research universities.

And we’re not alone. We get calls every week from clients asking how they can participate in the imminent cannabis market in North Carolina.

So, what’s the political lay of the land in North Carolina?

As reported by Marijuana Moment, in the 2022 legislative session, medical cannabis cleared the state Senate in a strongly bipartisan vote. But the legislation, titled the North Carolina Compassionate Care Act, stalled due to inaction in the state House.

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 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 eight dispensing licenses.

The Act also had the following features:

  • The majority owner of each licensee must be a North Carolina resident for at least two years.
  • Each applicant must submit a non-refundable license fee of $50,000, plus $5,000 for each production facility and medical cannabis center the applicant proposes to operate.
  • Patients suffering from a list of qualifying conditions could access cannabis by obtaining a physician-issued certification stating that the potential health benefits of medical cannabis would likely outweigh the risks for the patient, then applying for a registration card through the North Carolina Department of Health and Human Services.
  • Qualifying conditions are cancer, epilepsy, HIV/AIDS, ALS, Crohn’s disease, sickle cell anemia, Parkinson’s disease, PTSD (subject to evidence that an applicant experienced one or more traumatic events), multiple sclerosis, cachexia or wasting syndrome, severe or persistent nausea in a person who is not pregnant that is related to end of life or hospice care, or who is bedridden or homebound because of a condition, terminal illness when the patient’s remaining life expectancy is less than six months, and a condition resulting in the individual receiving hospice care.
  • Doctors would need to prescribe a specific method of delivery and dosages for patients. Options include smoking and vaping, as well as “cannabis-infused” products, which include “a tablet, a capsule, a concentrated liquid or viscous oil, a liquid suspension, a topical preparation, a transdermal preparation, a sublingual preparation, a gelatinous cube, gelatinous rectangular cuboid, lozenge in a cube or rectangular cuboid shape, a resin or wax.”
  • Patients could possess up to one and a half ounces of marijuana, but home cultivation would not be permitted.
  • A Compassionate Use Advisory Board would be established, and it could add new qualifying conditions.
  • A Medical Cannabis Production Commission would be created to ensure that there’s an adequate supply of cannabis for patients, oversee licensing, and generate enough revenue to regulate the program.
  • A North Carolina Cannabis Research Program would “undertake objective, scientific research regarding the administration of cannabis or cannabis-infused products as part of medical treatment.”
  • Limitations on where marijuana can be smoked or vaped, including restrictions on the locations and hours of operation for medical cannabis businesses.

How would the Act impact operators and patients?

The Act’s limited license regime would favor well-funded, experienced operators that can stomach the cost of preparing an application that attempts to stand out from the rest, with the understanding that many applicants wouldn’t receive one of the 10 limited licenses. With only 10 licensees allowed to serve the qualified patients among North Carolina’s large population (ninth largest in the country), each license would be extremely valuable. And that means the application process would be extremely competitive.

However, the Act’s qualifying conditions are more restrictive than many other states with medical cannabis programs, which would lessen the potential demand at the program’s outset. But the scope of qualifying conditions could broaden over time, as the Act authorizes the Compassionate Use Advisory Board to add specific qualifying conditions by majority vote of the Board’s members. In any event, the Act’s passage would provide numerous North Carolina citizens suffering from the qualifying conditions listed in the Act with the opportunity to benefit from medical cannabis.

What are the chances medical cannabis legislation passes in 2023?

As in most states, North Carolinians overwhelmingly support medical cannabis. A recent poll found that 82% of North Carolina voters favor legalizing medical cannabis — including 75% of Republicans, 87% of unaffiliated voters, and 86% of Democrats. Considering that it’s virtually impossible to get 82% of people to agree on anything, these are strong bipartisan support numbers.

The North Carolina State Legislature’s 2023 session started on January 11 and will end on July 28, 2023. We expect the Senate will file another bill that looks much like the Act that passed during the 2022 session. While such a bill is likely to pass in the Senate, its fate is less certain in the House, where Republicans are just one seat shy of a supermajority.

Governor Roy Cooper is optimistic, recently saying he thinks a medical marijuana legalization bill “has an opportunity to pass” in the upcoming legislative session, and reiterating his support for broader decriminalization of cannabis possession, noting racial disparities in enforcement. Cooper’s public support for decriminalization is a relatively recent development. He first openly backed the policy change in October, saying that it’s time to “end the stigma,” while separately announcing steps he’s taken to explore his options for independently granting relief to people with existing convictions.

To bring it back to where we started, we are convinced medical cannabis is coming to North Carolina, and we’re pretty sure it’ll be sooner rather than later. We stand ready to assist when you’re ready, and to paraphrase the great James Taylor:

The signs, it might be omens

Say I’m goin’, goin’

[Cannabis is] gone to Carolina in my mind.



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This Week At The Ninth: Cannabis Law

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This week, the Court addresses whether plaintiffs may bring civil RICO claims that allege injury to a business that violates federal law.

FRANCINE SHULMAN ET AL. V. TODD KAPLAN ET AL.

The Court holds that plaintiffs do not have statutory standing under the Racketeer Influenced and Corrupt Organizations Act (RICO) to bring claims that allege injury to cannabis-related business or property.

The panel: Judges M. Smith, Nelson, and Drain (E.D. Mich.), with Judge M. Smith writing the opinion.

Key highlight: “This [case] presents us with the following question: do either the statutory purpose of RICO or the congressional intent animating its passage conflict with the California laws recognizing a business and property interest in cannabis? We conclude that they do.”

Background: Plaintiff Francine Shulman grows, markets, and sells cannabis in California. She formed an LLC and a corporation, both of which are also plaintiffs, to operate her business. Defendant Todd Kaplan was Shulman’s former business partner. The relationship went south, and Shulman sued Kaplan and other defendants, alleging that they engaged in fraudulent conduct that injured her business and property. Shulman sought damages under the civil RICO statute, which provides that it is “unlawful for any person through a pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.” 18 U.S.C. § 1962(b), (d). The district court dismissed plaintiffs’ RICO claims for lack of standing.

Result: The Ninth Circuit affirmed. Because the district court had not specified whether it had dismissed plaintiffs’ RICO claims for lack of Article III standing-which goes to a court’s jurisdiction to hear a case-or for lack of statutory standing-which goes to the merits of a claim-the panel addressed both issues.

To establish Article III standing, a plaintiff must show that it “suffered an injury in fact that is concrete, particularized, and actual or imminent;” “that the injury was likely caused by the defendants;” and “that the injury would likely be redressed by judicial relief.” TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203 (2021). The Court held that plaintiffs satisfied this standard. First, plaintiffs alleged injury to their property, which qualifies as an invasion of a legally protected interest and therefore as an injury in fact. Second, plaintiffs clearly pleaded that their injuries were caused by defendants’ conduct. And third, plaintiffs showed their injury was redressable. Defendants challenged redressability on the ground that plaintiffs’ cannabis business was illegal under federal law-meaning that any remedy would constitute an illegal mandate. The Court rejected this argument, explaining that redressability is a separation-of-powers inquiry that assumes the legal merit of a plaintiff’s claim and asks whether a “court has the power to right or to prevent the claimed injury.” Gonzales v. Gorsuch, 688 F.2d 1263, 1267 (9th Cir. 1982). Because money damages is a quintessential remedy for a RICO violation, plaintiffs had shown redressability. That plaintiffs sought “damages for economic harms related to cannabis is not relevant to whether a court could, theoretically, fashion a remedy to redress their injuries.”

The federal illegality of cannabis businesses did, however, mean that plaintiffs could not establish statutory standing. A RICO plaintiff must show, among other things, that “his alleged harm qualifies as injury to his business or property.” Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 972 (9th Cir. 2008). The Court held that the term “business or property” does not encompass cannabis businesses. Although courts “usually look to state law to determine whether a particular interest amounts to property . . . state law does not control where RICO’s statutory purpose or congressional intent in enacting the statute conflicts with the relevant state law.” The Court determined that such a conflict was present here. RICO’s definition of “racketeering activity” encompasses cannabis dealing, suggesting that allowing businesses engaged in that same activity to recover under RICO would be “inconsistent” with the statute’s purpose. Moreover, the Controlled Substances Act-passed the same year as RICO-provides that no property right shall exist in controlled substances or money received in exchange for them. This evidence of statutory and congressional purpose precluded recognizing a business or property interest in cannabis. Otherwise, the Court reasoned, “RICO would serve to protect the same variety of conduct it was intended to combat.”

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved



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