One-Hit Wonders
Will the U.S. Supreme Court Make Marijuana Legal?
Published
2 years agoon
By
admin
By Whitt Steineker & Mason Kruse on
[Voice over for ESPN 30 for 30 series] What if we told you the United States Supreme Court would legalize medical marijuana? That the unlikely hero of the story was Clarence Thomas? And that he would work with the most liberal justices to make it happen. Sometimes you don’t know how high you can get until you really try. On the next 30 for 30: Highly Legal.
Hear us out, and no, we haven’t been using the product as we write this.
Congress Is Unlikely to Legalize Marijuana Any Time Soon
If you’ve been paying attention, you know that the current Congress is unlikely to legalize marijuana. Sure, late last year President Biden announced what he described as steps to “end” the federal government’s “failed approach” to marijuana. Specifically, he (1) issued mass pardons for federal convictions of simple marijuana possession and encouraged governors to do the same for state-level marijuana offenses, and (2) ordered Secretary of Health and Human Services Xavier Becerra “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.” We’ve expressed skepticism that the pre-election announcement was more of a political than substantive move by the president and is unlikely to yield an immediate change to the federal legal status of marijuana.
And while we’ve expressed some optimism that the House of Representatives may pass a comprehensive legalization bill, any such legislation seems dead on arrival in the closely divided and more conservative Senate.
Enter the High Court.
Supreme Court Previously Upheld the Prohibition on Marijuana
Nearly 20 years ago, that very issue came before the U.S. Supreme Court. In Gonzales v. Raich, 545 U. S. 1, 5 (2005), the Court held that Congress’ power to regulate interstate commerce authorized it “to prohibit the local cultivation and use of marijuana.”
In legal jargon, the Court rationalized that Congress had “enacted comprehensive legislation to regulate the interstate market in a fungible commodity” and that “exemption[s]” for local use could undermine this “comprehensive” regime. The Court stressed that Congress had decided “to prohibit entirely the possession or use of [marijuana]” and had “designate[d] marijuana as contraband for any purpose.” Prohibiting any intrastate use was thus, according to the Court, “‘necessary and proper’” to avoid a “gaping hole” in Congress’s “closed regulatory system.”
Translated to non-legal jargon: The Controlled Substances Act (and in particular, the prohibition on marijuana) was part of a comprehensive regime to ensure that marijuana would be illegal nationwide, and any exception to that rule threatened to defeat the entire purpose of the act. Maybe that was true, maybe not. But no reasonable person can dispute that federal marijuana policy has changed since 2005.
Two years ago, the Court declined to hear a case — Standing Akimbo, LLC v. United States — about 26 U.S.C. § 280E. Title 26, better known as the Internal Revenue Code, deals entirely with taxes and governs many Americans’ favorite federal agency — the IRS. Section 280E deals specifically with businesses that traffic in controlled substances prohibited by federal or state law. In theory, the law is meant to prevent illegal drug traffickers from claiming common tax deductions for business expenses. In practice, it creates massive tax burdens on state-legal cannabis operations. Standing Akimbo challenged the notion that such state-legal cannabis operations should be treated the same as illegal drug traffickers.
In short, the case was about whether a business that operates legally in Colorado should be saddled by excessive federal taxes simply because it was subject to unenforced federal laws.
In conjunction with the Court’s refusal to hear the case, Justice Thomas issued a non-binding statement in which he questioned whether the rationale of the Raich decision still held true. For starters, he noted:
Whatever the merits of Raich when it was decided, federal policies of the past 16 years have greatly undermined its reasoning. Once comprehensive, the Federal Government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana.
Despite what you think of federal marijuana policy or Justice Thomas, he ain’t wrong.
The Facts of the Standing Akimbo Case
The petitioners operated a medical-marijuana dispensary in Colorado, as state law permitted.
As the Court explained:
At issue in the case was a provision of the Tax Code that allows most businesses to calculate their taxable income by subtracting from their gross revenue the cost of goods sold and other ordinary and necessary business expenses, such as rent and employee salaries. But because of a public-policy provision in the Tax Code, companies that deal in controlled substances prohibited by federal law may subtract only the cost of goods sold, not the other ordinary and necessary business expenses. See 26 U. S. C. §280E.
Under that rule, a business that is still in the red after it pays its workers and keeps the lights on might nonetheless owe substantial federal income tax. As things currently stand, the Internal Revenue Service is investigating whether petitioners deducted business expenses in violation of §280E, and petitioners are trying to prevent disclosure of relevant records held by the State. In other words, petitioners have found that the Government’s willingness to often look the other way on marijuana is more episodic than coherent. This disjuncture between the Government’s recent laissez-faire policies on marijuana and the actual operation of specific laws is not limited to the tax context. Many marijuana-related businesses operate entirely in cash because federal law prohibits certain financial institutions from knowingly accepting deposits from or providing other bank services to businesses that violate federal law. Cash-based operations are understandably enticing to burglars and robbers. But, if marijuana-related businesses, in recognition of this, hire armed guards for protection, the owners and the guards might run afoul of a federal law that imposes harsh penalties for using a firearm in furtherance of a drug trafficking crime. A marijuana user similarly can find himself a federal felon if he just possesses a firearm. Or petitioners and similar businesses may find themselves on the wrong side of a civil suit under the Racketeer Influenced and Corrupt Organizations Act.
Put simply, Justice Thomas expressed concern that “[t]his contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.”
Justice Thomas’s Problem with Raich in the Current Landscape
Justice Thomas then laid out all of the ways that marijuana is no longer the subject of a comprehensive nationwide prohibition and the various mixed signals sent by the federal government in recent years:
- In 2009 and 2013, the Department of Justice issued memoranda outlining a policy against intruding on state legalization schemes or prosecuting certain individuals who comply with state law.
- In 2009, Congress enabled the District of Columbia’s government to decriminalize medical marijuana under a local ordinance.
- In every fiscal year since 2015, Congress has prohibited the Department of Justice from “spending funds to prevent states’ implementation of their own medical marijuana laws.”
- Nearly 40 states allow medicinal marijuana use, and approximately 22 of those states (and D.C.) also allow recreational use.
Given all these developments, according to Justice Thomas, “one can certainly understand why an ordinary person might think that the Federal Government has retreated from its once-absolute ban on marijuana.” Further, “[o]ne can also perhaps understand why business owners in Colorado, like petitioners, may think that their intrastate marijuana operations will be treated like any other enterprise that is legal under state law.”
Justice Thomas concluded:
Yet, as petitioners recently discovered, legality under state law and the absence of federal criminal enforcement do not ensure equal treatment.
…
The federal government’s current approach to marijuana bears little resemblance to the watertight nationwide prohibition that a closely divided Court found necessary to justify the government’s blanket prohibition in Raich.
What, if Anything, Is the Significance of Justice Thomas’ Statement?
Let’s not bury the lede: Justice Thomas’ opinion does not have precedential value. It was not an opinion of a majority of the Court, nor was it joined by any other then-current justice. So, on the one hand, perhaps it was an aberration to be given the same attention as a number of other opinions by Justice Thomas that are unlikely to become the law of the land. Then again, it was simply a statement issued in conjunction with the denial to hear a case, and perhaps the other justices had little incentive to go along with, or offer any other opinions to, the statement.
In order to change the law, the Court will need to agree to hear and decide a case that calls the question of whether the federal government’s prohibition of marijuana is consistent with the Constitution. If that happens, there will need to be five justices that agree, on some grounds, that the Controlled Substances Act is unconstitutional as applied to the cultivation, processing, sale, and possession of marijuana.
What Is the Likelihood of the Supreme Court Overruling the Marijuana Prohibition?
Counting noses at the Supreme Court is always a difficult task. And, right or wrong, we believe it is particularly difficult when a case brings the Court to the intersection of deeply held doctrinal beliefs and deeply held policy choices.
Justice Thomas has already tipped his hand that he may be willing to overrule the marijuana provisions in Raich. Let’s assume that one other conservative justice would go along with that position; perhaps Justices Alito and/or Gorsuch. That provides two or three votes for overruling the federal ban on (at minimum) medical marijuana.
Is there some other basis on which the liberal justices may find that Congress’s prohibition on the use of medical marijuana is impermissible? Yes, maybe, although on entirely different grounds. They may be in favor of allowing states to permit marijuana regimes, but they may also be reluctant to reign in the federal government’s Commerce Clause authority. After all the Commerce Clause is the basis of a number of federal laws that the liberal justices would not want to upend.
We believe the three liberal justices on the Court, however, would be receptive to the idea that the use of marijuana for medical purposes is a fundamental right. Ironically, the Ninth Circuit’s 2007 opinion on remand after the Raich decision – even though it ultimately concluded that there was no fundamental right to the use of marijuana for medical purposes – provides a straightforward and remarkably prescient roadmap for the current liberal justices to conclude that such a right does now exist.
When examining the role of medical marijuana in American history, the Ninth Circuit noted:
It is beyond dispute that marijuana has a long history of use — medically and otherwise — in this country. Marijuana was not regulated under federal law until Congress passed the Marihuana Tax Act of 1937, and marijuana was not prohibited under federal law until Congress passed the Controlled Substances Act in 1970. There is considerable evidence that efforts to regulate marijuana use in the early-twentieth century targeted recreational use, but permitted medical use. By 1965, although possession of marijuana was a crime in all fifty states, almost all states had created exceptions for persons for whom the drug had been prescribed or to whom it had been given by an authorized medical person.
On the question of whether a right that may not have been recognized as fundamental in the past may nonetheless be recognized as a fundamental right, the Court used Lawrence v. Texas as an example:
The Lawrence Court noted that, when the Court had decided Bowers v. Hardwick, twenty-four States and the District of Columbia had sodomy laws. By the time a similar challenge to sodomy laws arose in Lawrence in 2004, only thirteen states had maintained their sodomy laws, and there was a noted “pattern of nonenforcement.” The Court observed that “times can blind us to certain truths and later generations can see that laws once thought necessary and proper in fact serve only to oppress.”
On the other hand, the Ninth Circuit was troubled by the fact that medical marijuana had not yet been adopted by a sufficient number of states:
Though the Lawrence framework might certainly apply to the instant case, the use of medical marijuana has not obtained the degree of recognition today that private sexual conduct had obtained by 2004 in Lawrence. Since 1996, ten states other than California have passed laws decriminalizing in varying degrees the use, possession, manufacture, and distribution of marijuana for the seriously ill.
But the court noted that it may have reached a different conclusion if medical marijuana had been permitted in more states and more popularly accepted:
We agree with Raich that medical and conventional wisdom that recognizes the use of marijuana for medical purposes is gaining traction in the law as well. But that legal recognition has not yet reached the point where a conclusion can be drawn that the right to use medical marijuana is “fundamental” and “implicit in the concept of ordered liberty.” For the time being, this issue remains in “the arena of public debate and legislative action.”
For now, federal law is blind to the wisdom of a future day when the right to use medical marijuana to alleviate excruciating pain may be deemed fundamental. Although that day has not yet dawned, considering that during the last ten years eleven states have legalized the use of medical marijuana, that day may be upon us sooner than expected. Until that day arrives, federal law does not recognize a fundamental right to use medical marijuana prescribed by a licensed physician to alleviate excruciating pain and human suffering.
Whether you agree with analysis of the Ninth Circuit, it would border on intellectual dishonesty to argue that the concerns of the Ninth Circuit in 2007 have – rightly or not – been allayed at this point, for all of the reasons listed above by Justice Thomas in his statement accompanying the Court’s refusal to hear the Standing Akimbo case. Put another way, everything that the Ninth Circuit stated had not yet occurred in 2007 has in fact occurred by 2023. It is extremely difficult to imagine that the same court would reach the same conclusion now.
Although conservative and liberal justices probably wouldn’t agree in the reasoning, a concurrence in the outcome using separate doctrinal rationales could lead to the legalization of medical marijuana at the federal level. In a win for both ideological camps, the decision could end with conservatives striking down Commerce Clause overreach and liberals championing fundamental rights – and America would end up with federally legal medical marijuana.
But Wouldn’t That Leave Marijuana Laws to the States?
Probably, but not necessarily. It depends on how the Court rules.
The Court could rule that the CSA is ineffective for cannabis, effectively decriminalizing cannabis federally. This would allow interstate cannabis markets to open immediately, and many issues with banking cannabis funds, moving cannabis intra- and interstate, and marketing cannabis would disappear. However, this would likely maintain cannabis regulation at the state level, meaning states would have the power to decide whether they wanted to legalize cannabis and in what forms. This would probably leave most marijuana laws to the states, like how most alcohol regulation is left up to states. As we’ve previously predicted, the post-Prohibition era in the 21st century would probably look a lot like the post-Prohibition era in the 20th.
Or the court could rule that marijuana has valid medical uses and the CSA is invalid as to the current scheduling. SCOTUS may force the FDA and DEA to reschedule cannabis, creating ripple effects if marijuana is treated as a federally regulated pharmaceutical product. These ripple effects would touch the entire cannabis life cycle and national market, including cultivation, transportation, marketing, sales, methods of ingestion, banking, and interstate trade. In this scenario, much of the regulation would be left up to the federal government. This would bring the medical marijuana industry into the complex web of federal prescription drug policy and would very well weed out all but the largest conglomerates from the industry — with one likely outcome being the cannabis industry being dominated by the existing pharmaceutical industry.
* * *
We acknowledge that the series of events we set out here would require the combination of the right Supreme Court at the right time hearing the right case. And it may seem as though it would require strange bedfellows, but we are reminded of the words of Marcel Achard: “The bedfellows politics made are never strange. It only seems that way to those who have not watched the courtship.”
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One-Hit Wonders
Minnesota Office of Cannabis Management Issues Rejections to Majority of Social Equity Applicants
Published
2 weeks agoon
November 21, 2024By
admin
The Minnesota Office of Cannabis Management (“OCM”) has begun issuing final denials to the overwhelming majority of previously qualified social equity applicants (“SEA”s) ahead of its first statewide cannabis lottery on December 2 for 280 available “preapproval” cannabis licenses.
Per reporting from MJ Biz Daily, “The applicants who are barred from the lottery failed to complete the application process or acted improperly by submitting multiple applications or disguising the true investors in their companies, according to [OCM].” Obviously applying for more licenses than is allowed and/or concealing owners or financial interests are clear grounds for SEA application rejection. Other alleged “deficiencies” though may not be so cut and dry.
While state law does not permit appeals from denied applicants (which is not uncommon for states with cannabis licensing programs), impacted SEAs can still secure a review of their records submitted to the OCM within seven days of the rejection decision (by logging into their Accela Citizen Portal and pulling the internal record there).
The main issue emerging as a result of these rejections is the fact that the OCM did not consistently issue deficiency notices to rejected applicants if there was a material problem with their submitted applications (although as of October 16, the OCM had sent out deficiency notices to over 300 SEAs). In turn, there are instances here where SEAs were rejected for minor, seemingly non-material deficiencies in their applications (things like submitting incorrect corporate documentation that still contained the same information the OCM sought, or re-submitting documents upon request by the OCM only to be rejected for lack of the same document after-the-fact, or even blank denials altogether with no stated reason for rejection).
In an interview with the Brainerd Dispatch, Charlene Briner, the interim director of the OCM, cast these denied SEA applications into four categories:
- Failure to meet the basic qualifying standards under state law (i.e., social equity applicant owning at least 65% of the business among others)
- Failure to provide the requisite verification documents (i.e., legitimate business plans, source of funds, ID, etc.)
- Hidden or inconsistent ownership or true parties of interest
- Fraudsters (i.e., those trying to game the system by flooding it with multiple applications via proxy or otherwise by using the same address or phone number tied to the same person on multiple applications)
The first and second bullet points above are going to be the ripest ground for rejected SEAs to try to stop the OCM prior to the December 2 lottery, but that’s only if those rejected SEAs can very quickly obtain copies of their submitted documents (within 7 days of the rejection) and start the administrative litigation process and/or seek injunctive relief at the same time against the OCM.
What was once more than 1800 qualified social equity applicants for the lottery has been winnowed down to around 640. The OCM rejected applicants for a multitude of reasons, some of which are clearly legitimate and some of which appear to be questionably enforceable from the perspective of complying with Minnesota’s state constitution and its administrative procedure act.
If you’ve been impacted by an OCM rejection, you do not have much time to act ahead of the December 2 lottery. If you have questions about your potential civil or administrative claims against OCM due to a questionable SEA rejection, contact Jeffrey O’Brien, Hilary Bricken, or Nick Morgan.
Minnesota Office of Cannabis Management Issues Rejections to Majority of Social Equity Applicants
One-Hit Wonders
Wait? My CBD Business May Be Racketeering? A Potential Existential Crisis We Have Been Warning About
Published
1 month agoon
October 23, 2024By
admin
Even the most responsible hemp operator should understand that it operates in a world full of risk. But I doubt many of them believe they might be accused of racketeering. Last week, the U.S. Supreme Court heard arguments about whether to sanction a commercial trucker’s attempt to bring a racketeering claim against CBD companies, whose allegedly mislabeled products the trucker claims led to his firing.
As always, Sam Reisman at Law360 distills the issue nicely:
The case concerns an allegation that companies sold CBD products with detectable amounts of THC, purportedly costing plaintiff Douglas J. Horn his job as a commercial trucker after he tested positive on a drug test. Oral arguments on Tuesday hinged largely on whether Horn’s claims stemmed from a personal injury — which would be excluded from the Racketeer Influenced and Corrupt Organizations Act, or RICO — or whether his firing was an economic injury and therefore redressable under RICO.
In taking the case, the U.S. Supreme Court could resolve a 3-2 circuit split over whether the civil prongs of the RICO statute allow a plaintiff to seek damages for economic harms stemming from injuries to their person.
Again, from Reisman:
During oral arguments on Tuesday, the liberal wing of the high court expressed skepticism with the CBD companies’ rendering of the case, which they said foregrounded Horn’s ingestion of the product as the source of the injury, as opposed to his firing for a positive drug test.
…
Lisa Blatt, an attorney for the CBD companies, told the justices that agreeing with Horn’s interpretation of the statute would open the door for virtually limitless personal injury cases under civil RICO, as long as plaintiffs could allege some connection between their ingestion of a product and a loss to their business or property: “Respondent’s rule also leaves the personal exclusion [in civil RICO] toothless, since virtually all personal injuries result in monetary loss,” Blatt said. “It is utterly implausible that Congress federalized every slip-and-fall involving RICO predicates. Personal injuries are serious and may support state tort claims, but they are not the stuff of RICO.”
On the other side, conservative justices attempted to discern how to draw a line between bona fide economic claims and personal injury claims pleaded as economic claims.
Easha Anand, arguing on behalf of Horn, said the vast majority of personal injury claims, such as those alleging pain and suffering or emotional distress, would still be excluded even if Horn was permitted to pursue his RICO claim against the CBD companies: “In your average slip-and-fall case, you’re not going to be able to prove a predicate act, let alone a pattern of predicate acts, let alone a pattern carried on through a racketeering enterprise,” Anand said.
…
Justice Neil Gorsuch observed, “There’s a failure to warn that this product contains ingredients that your client didn’t know about and should have known about and had a right to know about. I would have thought that that would have been kind of a classic personal injury.”
The Takeaway
This is pretty scary stuff for CBD and other hemp operators. RICO is no joke and carries very serious penalties (both civil and criminal depending on who is bringing the suit).
From the perspective of a CBD manufacturer, it seems unfair to hold the manufacturer responsible to control how its products are used and, as in this case, the implications of that use (here, an alleged economic injury).
If the Court rules that CBD and other hemp manufacturers are subject to RICO charges simply by selling their products to people who do things outside of the manufacturers’ control, it could pose an existential crisis to the industry with potentially unlimited civil (and maybe even criminal) liability. We have warned about this before.
That said, while it’s always difficult to predict how the Supreme Court will vote on any issue, I do not believe the Court will push the hemp industry to the brink. I suspect the Court will either rule that the claims in the present case are personal injury claims excluded from RICO and/or provide guidance for how lower courts should examine such “mixed” claims.
We’ll of course provide additional information once we hear from the Court. Stay tuned.
One-Hit Wonders
What ‘material’ about therapeutic goods is considered advertising?
Published
2 months agoon
October 10, 2024By
admin
It is important to note that advertising health services is subject to different regulations than advertising therapeutic products. Consequently, advertisers, manufacturers and sponsors must evaluate whether their business name could be interpreted as an advertisement for therapeutic goods. If so, they should consider whether the business name, including company or trading names, could be viewed as a ‘reference’ that draws the audience’s attention to medicinal cannabis, as any mention or similar terms to ‘cannabis’ are likely to have that effect. It is essential to recognise that the impact of promoting the use or supply of medicinal cannabis does not depend on a single promotional element but rather on the overall promotion. This includes all components of the promotional information and materials that accompany the name or branding. Advertising can result from the combination of separate statements, images or designs that collectively promote the use or supply of therapeutic goods.
Advertising
The prohibition on advertising medicinal cannabis to the public is determined by the context in which the material is perceived. When evaluating whether information about therapeutic goods qualifies as advertising, it is essential to consider the broader context of the material’s presentation. This encompasses various factors that influence the conveyed message, including the context of the information or activity, the intended audience and their likely interpretation of the message, as well as the presence of non-verbal and unwritten cues, such as visual elements. These factors can significantly affect communication and may alter the message perceived by consumers.
For example, if an advertisement for a health service, such as a pain treatment service, includes references to medicinal cannabis, even in the company name or trading name, a reasonable consumer may conclude that the advertisement seeks to promote both the use of medicinal cannabis for pain relief and the pain treatment service itself. Including a disclaimer, such as advising the consumer to consult a health professional regarding suitable treatment options, does not exempt the advertiser from complying with legislative requirements.
The distinction between promoting a health service and the therapeutic product utilised in its delivery can be nuanced. Therefore, it is crucial for advertisers to consider how a typical consumer might perceive their advertisement in relation to the promotion of the therapeutic product.
Legal Compliance
To ensure legal compliance in promoting a business or service, advertisers should focus on the health services they provide and avoid referencing medicinal cannabis. For instance, stating “Our clinic offers consultations related to pain management” is a more compliant approach. The Therapeutic Goods Administration’s interpretation of advertising for medicinal cannabis is broad, covering all methods of promoting its use or supply. This includes company names, product names, abbreviations such as CBD and THC, colloquial terms, and any imagery related to cannabis. Any combination of statements or images that implies medicinal cannabis can be considered advertising, even in the absence of explicit promotional language.
Summary
In summary, it is prohibited to mention prescription medications in advertisements for therapeutic goods. If content discusses health conditions and consumers can reasonably infer, either from the context or through direct or indirect references, that medicinal cannabis or any other prescription medication is intended for use concerning these conditions, the content may be deemed an unlawful advertisement for therapeutic goods. Not all information related to therapeutic goods is classified as advertising. However, if the content aligns with the definition of ‘advertise’ as outlined in the Therapeutic Goods Act 1989 (Cth)—which includes anything that is directly or indirectly intended to promote the use or supply of therapeutic goods—then the relevant legislative requirements for advertising such goods must be complied with.
“Indirect intent” in this context does not refer to the explicit intention of the party responsible for the content, but rather to what a reasonable consumer might infer as the intent behind the content. Terms such as “plant-based medicine,” “plant medicine,” “cannabidiol” and “CBD oil,” which relate to medical cannabis products, may be considered promotional if they suggest a connection to medicinal cannabis. Businesses promoting a health service must ensure they do not inadvertently advertise a prescription medicine in their marketing materials. If the consumer is encouraged to seek out a health service based on the therapeutic goods available, the content is likely to be regarded as an advertisement for those therapeutic goods.
For additional information, the Therapeutic Goods Administration has established the Medicinal Cannabis Hub, accessible at https://www.tga.gov.au/products/unapproved-therapeutic-goods/medicinal-cannabis-hub, and has also provided advertising guidance for businesses involved in the medicinal cannabis sector, which can be found at https://www.tga.gov.au/sites/default/files/advertising-guidance-businesses-involved-medicinal-cannabis-products.pdf. These resources are designed to assist both consumers and industry professionals in understanding their obligations.
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