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The Top Four Risks for Cannabis Businesses and Investors in 2024

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2024 is going to be a crazy year for cannabis businesses and investors. Among many other things, there will be a general election, possible rescheduling to Schedule III of the Controlled Substances Act (CSA), an upcoming Farm Bill that could re-tool how hemp and hemp products are regulated, and maybe even some federal cannabis legislation. Okay, that last one is probably a longshot given how incompetent Congress has been on cannabis, but we’ll see.

Changes in law lead to a lot of predatory conduct. Even the mere possibility of changes leads to predatory conduct. This means that both existing cannabis businesses, as well as investors, have a huge amount of risk going into the new year.

Our cannabis business attorneys have been representing clients in the cannabis industry since 2010. During that time, we’ve seen the industry face a whole host of problems. Today I want to talk about some of the biggest potential risks that I think cannabis businesses and investors will face in 2024.

1. The unrelenting illegal market will get worse

I’ve been writing about the illegal market problem forever. Just look at what I’ve written about for California. The illegal market is not going away. It has gotten bigger over the years and there is no apparent end in sight. No amount of enforcement will change that. The only way to change it is to wrap illegal operators into the legal market, and the only way to do that is to make it very easy to get into the legal market. But there is no momentum for that.

There are a lot of vested interests in keeping the industry small, especially in states or jurisdictions with hyper-restrictive caps. That’s going to just make things harder. So expect the legal market to grow – and to grow big. And expect its growth to come at a major cost to the success of licensed cannabis businesses who pay taxes, get licenses, and do things right.

Why will 2024 be different? Well, all of the changes in law that we anticipate mean big changes for how state-regulated cannabis businesses operate. But they have essentially no impact on the illegal delivery service or illegal grow operating in the dark. Changes in law may make things easier for state-licensed businesses in the future, but they will come with initial costs, making it even harder to compete.

Additionally, as people realize that in some states (looking at California) there is virtually no penalty for illegal operations, expect the illegal market to grow and grow and grow.

2. Intoxicating hemp laws will change

In 2018, President Donald Trump signed what’s commonly referred to as the 2018 Farm Bill. That law, among other things, removed hemp from the Controlled Substances Act. It did not explicitly legalize any hemp-derived consumable product, instead dealing with hemp cultivation and reserving authority over many consumable products in the FDA.

Following the 2018 Farm Bill, CBD exploded in popularity. Then something else happened – people started selling a host of natural, and then synthetic, intoxicating hemp cannabinoids – everything from delta-8 THC to THCA flower. These intoxicating hemp products are one of the most existential threats to the state-regulated cannabis industry. They are produced and sold across state lines with often little to no oversight or regulation, and virtually no enforcement.

Proponents of intoxicating hemp products cite purported loopholes in the 2018 Farm Bill to claim that these products are 100% legal. However, as I’ve explained before, many of these claims are either wrong or are a big stretch. And to make matters more complicated, the answer is susceptible to change on a cannabinoid-by-cannabinoid basis and subject to wildly different state law approaches.

Here are some of the things I expect could happen in 2024:

  1. States will continue to ban intoxicating hemp, and stakeholders will continue to sue those states
  2. Congress could restrict intoxicating hemp in the next Farm Bill iteration
  3. Cannabis businesses will be forced to compete with intoxicating hemp products, and there may be lawsuits between the two – or many cannabis companies will start offering intoxicating hemp products on the side

Why is all of this in an article about risks? Investors contemplating an investment into an intoxicating hemp business, as well as cannabis businesses looking to pivot into the space, have no idea what the future will hold. What could be a promising business model or investment today could turn into mush in five months if federal law changes. Nobody really knows what the future holds.

3. What’s going to happen with federal law?

For a while now, everyone’s been predicting that federal laws will soon change and that cannabis will be on schedule III of the CSA. But a lot of the reporting is based on an extremely limited public data set – virtually all of the publicly available documentation has been redacted beyond belief. And there is ample opposition to rescheduling within the federal government.

All of this means that rescheduling is by no means guaranteed – let alone on any fixed timeline. I tend to think that rescheduling will happen in 2024 and before the election – it’s clear that Biden is trying to appeal to voters on the cannabis issue with his recent pardons – which do not go even remotely far enough – and a limited rescheduling will give him a push with voters. However, schedule II rescheduling is also possible, which would not help resolve many federal tax issues.

It’s important to point out that even if cannabis is placed onto schedule III, nobody really knows exactly what would happen. Go ahead and look online – you’ll see opinions ranging from “rescheduling will be the end of the industry” to “rescheduling equals full legalization” and anything in between.

All of this is to say that we don’t know what the future holds. Basing a business model off of the potential that cannabis will (1) be rescheduled, (2) be rescheduled onto schedule III, and (3) that the post-rescheduling landscape will look any particular way is, well, foolhardy. Many cannabis businesses will do it anyway, and will face the consequences. So too will investors who fail to diligence their targets.

4. Unwary investors will lose big time

In 2024, we fully expect to see a level of fraud and mismanagement that we have not seen yet. A lot of smaller investors – and even institutional ones – are going to lose a lot of money investing in cannabis businesses in the coming year. We expect to see is that OTC market and Canadian public companies will use expected changes from the upcoming Farm Bill and rescheduling, as well as the opening up of new cannabis markets, to pump and dump stock. As we explained:

It almost seems that publicly traded stock companies are more focused on selling their stocks than on competing in the market. The herd mentality of investors seems to encourage this. Here’s how that basic logic works: Marijuana is booming. Therefore, marijuana businesses must be booming. In turn, all marijuana businesses must be booming. Therefore, I need to invest in a marijuana business. The only way I can easily invest in a marijuana business is to buy the stock in a publicly traded marijuana business. And so the stocks just keep booming.

This will be a problem with publicly traded cannabis businesses, but will be rampant for private companies that are subject to much less oversight from securities regulators. We expect to see investors being hoodwinked by overly aspirational, or outright fraudulent pitch decks from cannabis businesses. Again, a lot of this will be based on false promises about federal legalization and/or the effects of federal legalization on tax and banking issues. This has been a persistent problem for years and years, but with the potential for rescheduling actually on the horizon, we expect to see a lot more of it.

For years we’ve represented investors in evaluating potential investments into the industry, or in suing companies when things go south (and they do a lot!). There are telltale red flags when doing diligence of cannabis businesses, and a lot of them are much different from what you’d see investing into any other type of business. Investors who are not sufficiently prepared and who do not do their diligence will lose a lot of money in 2024.



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How Legal is CBD, Really?

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The legality of CBD remains a subject of considerable debate. Despite the fact that many CBD companies[1]  have now existed for more than a decade, the legal context surrounding this non-intoxicating cannabinoid remains muddy for the average shopper. In this guide, we’ll explore the legality of CBD in detail, examining the implications along the way.

History of CBD Laws

Extracts of Cannabis sativa have been widely prepared and sold for centuries beyond count. It’s unclear exactly when human beings and cannabis intersected, but it’s believed cannabis has been a part of daily life at least as long as apples and potatoes.

 

It’s only recently that laws have turned discriminatory toward cannabis. Starting in Europe in the 19th century, this anti-cannabis fervor eventually reached the United States, spurring the “Reefer Madness” craze that ultimately led to cannabis being illegalized with the 1937 Marihuana Tax Act.

 

In 1970, the Controlled Substances Act sealed the deal, and hemp was not grown in considerable acreage until academic pilot programs began resurfacing in the early 2000s. By the early 2010s, legal loopholes were identified at the federal level that allowed CBD commerce to emerge online.

 

In 2014 and 2018, the United States Congress gave CBD the nod with Farm Bills that facilitated hemp cultivation and commerce. Not much has changed in the ensuing years, however, leading to a hemp economy that has begun to stagnate in some sectors.

Recent Developments in CBD Legislation

Cannabis-related measures continue to be proposed at both the state and federal level. Few of them focus specifically on CBD, however, which remains in a gray area loosely delineated by the 2018 Farm Bill and subsequent clarifications from the FDA, DEA, and USDA.

 

It appears the situation with CBD will remain unclear federally for the foreseeable future. There seems to be an “unwritten rule” that upstanding CBD companies will not run afoul of federal agencies as long as their conduct meets a certain unofficial threshold.

 

The FDA continues to issue warning letters to CBD companies that violate the dictates of the 2018 Farm Bill, but enforcement is rare and usually amounts to relatively small fines. At the state level, legislators continue to evolve their stances on CBD and related products, mainly in an effort to siphon tax revenue.

Potential Future CBD Regulations

Over time, the slew of largely unrelated hemp and cannabis laws continuously being produced by Congress may begin to amount to a comprehensive federal stance on cannabinoids. At this current juncture, however, cannabinoid regulations ever more commonly have less to do with the shopper’s interests and more to do with securing government revenue.

 

The ideal solution that hemp proponents have expounded for years, namely that CBD be judged an over-the-counter substance, appears further and further away as time goes by. At present, it seems the de facto approach is to not address the underlying legality of cannabinoids but to instead determine how best they should be taxed.

 

It might not be an ideal situation, but for the average CBD producer, this is still good news. There was a time in the not-so-distant past when it seemed the federal government was on the verge of attempting to ban CBD products outright. Though the current circumstances may remain muddy, at least there’s no longer any indication that the federal government is antithetical to hemp and CBD overall.

CBD Legality: The Bottom Line

As we finish up, it’s important to carefully address a few final points:

CBD regulations vary by state

For most intents and purposes, CBD can be considered federally legal. Each state has its own laws and regulations pertaining to CBD and other cannabinoids, however, some of which are more restrictive than others. CBD laws can be restrictive both in states that are firmly anti-cannabis and in those that have newer adult-use cannabis industries that suffer from direct competition with online CBD vendors.

No medical claims

CBD is certainly not legal when it is advertised as offering medical benefits. It’s fine to reference evidence that CBD might be useful for a particular ailment. To outright say that CBD treats or cures a medical condition, is tantamount to asking for the scrutiny of the federal government.

Professionalism first

The CBD companies that are currently succeeding are those that go above and beyond. Clean products, transparent communication, impeccable certification: these are the hallmarks of the future’s top CBD brands. Focusing on quality will make it less likely to flub regulations.

Respect CBD

CBD is a powerful compound, and it comes from a plant that has an amazing power to heal. Put CBD’s benefits first and foremost, and you’ll find that your company naturally begins to fit the parameters that both shoppers and regulators approve of most.



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California Cities: Prohibition Doesn’t Work

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California has a population of nearly 40 million, six years of cannabis licensing, but only has about 1,200 licensed dispensaries. These stores are mostly spread out in highly populated areas like Los Angeles, San Francisco, and so on. The problem is that many California cities still prohibit cannabis licensing, even in places where a majority of the locals approved the state’s recreational cannabis program in 2016. This is a massive problem and is one of the key reasons the illegal market thrives. Let’s look at why that is the case and what these cities can do to change it.

Why prohibition doesn’t work

When the government prohibits something, there is an existing market for that thing, and a fear on the part of the government (justifiable or otherwise) that failure to prohibit it would lead to some kind of societal harm. Because there is an existing market for the thing, there is necessarily some kind of demand for it. If the government bans the thing, some people will realize that the potential cost (prison, fines, stigma, etc.) outweighs the benefit, and demand will go down.

But others will find that the benefit outweighs the potential cost, no matter how high it is — which is why people still roll the dice in countries like Singapore that will execute drug traffickers. So while prohibition may decrease demand, it won’t end it. And so long as there is some demand, again, some people will roll the dice.

This is exactly what has happened in the decades since cannabis was prohibited. If prohibition were an effective deterrent, then you would expect there not to be a high level of use or incarceration. But we’ve seen the opposite. There have been millions of people arrested and incarcerated for violating the Controlled Substances Act and state-law counterparts. It’s pretty clear then that these laws don’t have their intended effects, which brings me to the next point.

What problems are California cities creating?

When California voters passed the state’s flagship recreational licensing law in 2016, California cities were given an immense amount of control over the new industry. Perhaps realizing the initiative would face strong opposition if it took power away from cities, the drafters included provisions that allowed California cities to completely ban cannabis activities within their limits. These provisions led to local bans in vast swathes of the state.

While cities have slowly “come online” over the years, there are still vast swathes of the state without legal access to cannabis. In fact, many cities even sued the state when it tried to officially sanction statewide delivery rules. What this means is that there are still many California cities that prohibit cannabis.

If those cities are trying to eliminate local cannabis markets, I’ve got a bridge to sell them. Prohibition didn’t work before the state legalized cannabis, and it certainly won’t work when the state won’t lift a finger on enforcement. California cities that keep their bans alive are only bolstering their illegal markets and making it more difficult for the legal market to survive.

What California cities should be doing to combat the illegal market

I recently corresponded with Hirsh Jain of Ananda Strategy, who believes that the state needs 4,000 to 5,000 dispensaries to carry the legal market. And those dispensaries shouldn’t just be in Los Angeles or San Diego. They’d need to be dispersed across the state so that people have access and the legal dispensaries could compete with the illegal ones (and ideally put them out of business). If more California cities don’t end prohibition, illegal dispensaries and delivery services will continue to operate whether they like it or not.

That said, there are other things that California cities can do to combat the illegal market without allowing brick-and-mortar sales. One big one would be to allow outside delivery services to deliver into their borders. While the state did pass a law attempting to expand statewide access to medical cannabis deliveries, that fails to include the much larger recreational market. It also likely excludes potential medical cannabis purchasers who don’t want to or don’t have the resources to obtain a physician’s recommendation or medical marijuana ID card (MMIC).

Expanding retail deliveries would be a win-win for the legal market and cities alike. Yet for some reason, California cities fought it tooth and nail. While those cities may have thought they won, the real victory belonged to the illegal market, which continues to grow and grow.


If the legal market is to survive, California cities are going to have to make compromises when it comes to cannabis prohibition. After all, cannabis is still being sold within their borders. For some of my thoughts on California’s problematic illegal market, check out these posts:





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The Good ‘Dirty Little Secret’ about Weed

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You may remember that Justin Timberlake once said, “Some people are just better on weed”. Well, if he was referring to people with ADHD or ADD, he may be right.  While many studies on marijuana for ADD or ADHD show great results to help people with “scatter” brain start to focus, UFC Sean O’Malley is the latest person to preach the plants’ benefits for focus.

Bantamweight champion Sean O’Malley breaks the stereotype associated with marijuana users. At 29, he incorporates marijuana into his training regimen to achieve a state of intense focus, which appears to yield positive results.

 

In an interview with Demetrious Johnson, O’Malley clarified misconceptions about his marijuana use: “Contrary to popular belief, I don’t consume as much as people assume.” Asserting his professionalism as an athlete, he claims to excel in managing his recovery compared to others in the UFC, attributing it to his disciplined habits and routines.

 

Recognizing the potential drawbacks of smoking on lung health and conditioning, O’Malley adopts measures to safeguard his fitness standards. He opts for vaporizing marijuana, particularly during training camps, using a high-quality vaporizer once daily instead of traditional methods like joints, bongs, pipes, or dabbing.

 

O’Malley reveals that during specific training sessions, such as longer, lower-intensity workouts lasting up to 60 minutes, he trains while under the influence, leveraging marijuana to enhance his focus. However, he acknowledges the importance of using it as a tool responsibly, cautioning against falling into unproductive habits like aimlessly watching YouTube while high.

 

The upcoming UFC 299 main event on March 9 sees O’Malley defending his 135-pound championship title for the first time against his rival, Marlon “Chito” Vera. Seeking redemption for his only career loss, which Vera inflicted upon him at UFC 252 in August 2020, O’Malley is determined to emerge victorious.

 

The Science Behind O’Malley’s Approach

 

Sean O’Malley’s use of cannabis to increase concentration during training begs interesting concerns concerning the relationship between marijuana use and athletics. Cannabis includes chemicals like THC and CBD that interact with the brain’s endocannabinoid system to influence a variety of physiological activities, despite being frequently linked to relaxation and altered perception.

 

Studies suggest that low to moderate doses of THC may improve focus, creativity, and cognitive performance in some individuals, potentially explaining O’Malley’s reported ability to “hyper-focus” during workouts. Additionally, CBD, another prominent compound in cannabis, has been linked to reduced anxiety and improved recovery, which could complement O’Malley’s training regimen.

 

However, the effects of cannabis on athletic performance remain complex and multifaceted. While some athletes may experience benefits in terms of concentration and relaxation, others may encounter impairments in coordination, reaction time, and cardiovascular function. Furthermore, individual responses to cannabis can vary widely based on factors such as dosage, method of consumption, and personal tolerance levels.

 

Experts caution that while cannabis may have its place as a performance-enhancing tool for certain athletes, careful consideration must be given to its potential drawbacks, including the risk of dependence, negative effects on lung health, and legal implications, particularly in professional sports settings.

 

O’Malley’s method offers as an engaging case study for negotiating the complex link between cannabis use and sports performance as researchers continue to investigate the physiological and psychological impacts of cannabis. O’Malley starts a wider discussion about the place of cannabis in contemporary sports training and competition by illuminating the science underlying his unorthodox training techniques.

 

Managing Marijuana Use in Professional Athletics

 

Navigating the use of marijuana in professional athletics involves a delicate balance between personal choice, regulatory compliance, and performance optimization. Despite evolving attitudes toward cannabis, organizations like the UFC maintain stringent anti-doping policies, prohibiting its use above specified thresholds during competition periods. Athletes such as Sean O’Malley must therefore carefully manage their marijuana consumption to ensure adherence to these guidelines while still leveraging its potential benefits for training and recovery.

 

For O’Malley and others incorporating cannabis into their routines, managing marijuana use requires strategic planning and adherence to regulatory standards. This involves selecting consumption methods and timing consumption to minimize the risk of exceeding allowable THC thresholds during testing. O’Malley’s transparency about his usage patterns and advocacy for responsible consumption practices set a precedent for athletes navigating the complex landscape of drug policy in professional sports.

 

Professional sports may see more changes in policies and attitudes as talks about decriminalizing and legalizing cannabis continue. Athletes who are willing to share their personal stories and advocate for more nuanced approaches to drug policy, such as O’Malley, are vital in influencing this conversation. Going forward, managing the changing link between cannabis usage and sports performance will need constant communication and cooperation between players, coaches, and regulating authorities.

 

O’Malley’s Training Rituals: Balancing Intensity and Recovery

 

Gain insight into Sean O’Malley’s methodical strategy to integrating cannabis into his routine while striking a balance between intensity and recuperation by learning about his training rituals. To maximize effectiveness in the octagon, O’Malley’s training regimen combines focused rest times with intense sessions in a calculated manner.

 

The understanding that efficient recuperation is equally as important as intense exercise is at the heart of O’Malley’s training philosophy. O’Malley makes sure that his body can adjust and get stronger in response to the demands of his training routine by using restorative habits like healthy eating, drinking enough of water, and getting enough sleep. When utilized responsibly, cannabis is another weapon in O’Malley’s toolbox that he can employ to improve concentrate during longer, lower-intensity sessions without jeopardizing his recuperation.

 

O’Malley is a perfect example of the value of an all-encompassing approach to sports training as he strikes a balance between effort and recuperation. O’Malley reduces the chance of injury and fatigue while simultaneously optimizing his performance capacity by placing equal emphasis on restorative techniques and physical activity. O’Malley’s training regimens are always being improved, and his techniques are proof of the need of smart, individualized approaches to physical preparation for success in the UFC and other competitions.

 

Bottom Line

 

Sean O’Malley’s pioneering approach to incorporating cannabis into his training regimen challenges stereotypes and opens up discussions about its potential benefits and drawbacks in professional athletics. His transparency and advocacy for responsible usage set a precedent for athletes navigating complex drug policies while seeking performance optimization. As attitudes toward cannabis continue to evolve, ongoing dialogue and collaboration among athletes, coaches, and governing bodies will be crucial in shaping policies that balance regulatory compliance with individual health and performance goals. O’Malley’s dedication to balancing intensity and recovery underscores the importance of personalized, holistic approaches to training, serving as a blueprint for athletes striving for success in high-level competitions like the UFC.

 

CANNABIS AND ADD/ADHD, READ ON…

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