One-Hit Wonders
You Can Go Your Own Way: Washington’s Cannabis License Residency Requirement Upheld, Breaking the Chain of Contrary Decisions
Published
2 years agoon
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admin
Oh Daddy! It’s not “Rumours” or one of your “Dreams” – although it may be “Second Hand News” to our most knowledgeable readers: A federal court in Washington recently upheld the state’s cannabis residency requirement for operators.
The Federal Government’s Current Position
If you’re reading this, you surely already know: Marijuana is a Schedule I drug under federal law, meaning that Americans (with extremely limited exceptions) may not grow, process, sell, or possess marijuana. At the same time, however, approximately 40 states and territories permit medical marijuana and more than half of those allow adult-use (i.e., “recreational”) marijuana.
We previously wrote about this dichotomy, suggesting its insanity. While the federal government has not legalized cannabis, it has not thwarted the states’ ability to do so. But this post has a narrower focus. There are approximately 40 medical cannabis regimes and approximately 40 different sets of rules. A common rule in cannabis legislation is to require that some portion of the licensee be owned by a resident of the state. There are a number of purported benefits of these so-called residency requirements, but the residency requirements have come under fire lately for allegedly violating the dormant Commerce Clause. Stick with us – it gets interesting.
WTH Is the Dormant Commerce Clause?
Generally speaking, the dormant Commerce Clause prohibits states from treating in-state business interests differently than out-of-state business interests in a discriminatory way. For example, in Tennessee Wine & Spirits Retailers Association v. Thomas, 139 S. Ct. 2449, the U.S. Supreme Court held that Tennessee’s residency requirement for retail liquor store licenses violated the dormant Commerce Clause. In that case, Tennessee required applicants for a retail liquor store license to reside within the state for at least two years prior to submitting the application. The Supreme Court found that “the residency requirement [was] not needed to enable the State [of Tennessee] to maintain oversight over liquor store operators.” Rather, the residency requirement was found to be discriminatory for no other reason but to prevent out-of-state competition. This kind of discrimination is not permitted under the dormant Commerce Clause.
Cannabis law jurisprudence has most often seen this clause applied to challenge residency requirements embedded in state cannabis laws. Let’s say a state with a medical cannabis program prevents a person who has not lawfully resided in the state for at least six months prior from obtaining a business license to produce, process, research, deliver, or sell cannabis. Litigants have argued that residency requirements such as this one treat in-state businesses differently than out-of-state businesses in a discriminatory way that violates the dormant Commerce Clause.
Federal courts in Maine, New York, Missouri, Michigan, and Illinois deciding this issue have agreed that certain residency requirements for a cannabis business license violate the dormant Commerce Clause. Most recently, the U.S. Court of Appeals for the First Circuit held that a Maine residency requirement violated the dormant Commerce Clause.
Just as a trend of finding in favor of out-of-state residents seemed to be developing, another federal court recently went the other direction and reminded those paying attention that the CSA continues to apply in this space.
A Brief Description of the New Washington Decision
Washington legalized adult-use cannabis in 2012. On February 7, 2023, in Brinkmeyer v. Washington State Liquor & Cannabis Bd.,a Washington federal court rejected an Idaho resident’s dormant Commerce Clause argument, finding no violation when his cannabis business license was denied based on Washington’s residency requirement.
Todd Brinkmeyer, an Idaho resident, sought to own a cannabis retail store in Washington. Brinkmeyer previously provided debt financing for his friend’s cannabis retail stores in Washington. His friend desired Brinkmeyer to become a partial owner of and to invest in his cannabis retail stores. In Washington, the Washington State Liquor and Cannabis Board (LCB) issues cannabis business licenses. The LCB confirmed that it would not issue Brinkmeyer a cannabis license because he was not a resident of Washington.
Brinkmeyer filed suit in Washington federal court arguing, among other things, that Washington’s residency requirement was “unconstitutional because [it] discriminates, without justification, against out-of-state citizens,” and therefore, violated the dormant Commerce Clause.
The court held that since Congress holds the power to “deem certain substances federally illegal” and that the there is “no legal interstate market” for cannabis, the dormant Commerce Clause did not apply. Thecourt also noted that “citizens do not have a legal interest in participating in a federally illegal market.” Consequently, the court granted the LCB’s motion for summary judgment and dismissed Brinkmeyer’s suit.
Why Does Any of This Matter?
The central question of the dormant Commerce Clause analysis in these cases – whether a state has the authority to impose residency requirements in its cannabis regime – is hugely consequential for the cannabis industry both within any given state and on a national level. On the one hand, states understandably want control of their cannabis programs, and voters and legislatures typically want to ensure their own people benefit from the program.
On the other hand, allowing non-residents to operate cannabis businesses has its benefits. For example, the amount of capital available is substantially greater if out-of-state operators are allowed to participate, and well-capitalized operators are more likely to have the wherewithal to survive during difficult market conditions and ensure that quality is not sacrificed to save money. In addition, out-of-state operators are almost by definition more experienced in the industry and best able to provide safe and effective product to patients.
State residency requirements aren’t the only ones in the dormant Commerce Clause’s crosshairs. For example, a licensee in Oregon’s cannabis program sued Oregon officials, seeking to use the dormant Commerce Clause to invalidate Oregon’s prohibition on in-state operators from exporting cannabis to other states.
And the case may impact California’s new Senate bill 1326, which creates a process for the interstate shipment of California-produced cannabis to other states, and more recent efforts by California officials to have the state’s attorney general weigh in on that effort.
What Now?
Brinkmeyer further muddies the already murky water as to how federal courts will employ constitutional doctrines in the cannabis space. From one perspective, the decision certainly provides ammunition for state officials seeking to uphold cannabis residency requirements. From another perspective, it is a single decision from a single federal court in Western Washington – one that represents a minority position when viewed against recent decisions nationwide.
Will the issue continue to divide federal courts, or will there be some judicial resolution? For the latter to occur, it is likely that the Ninth Circuit Court of Appeals (or some other federal appellate court) would have to side with the Brinkmeyer rationale and create a federal circuit court split that could be decided by the United States Supreme Court. We suspect that Court would be reluctant to wade into these waters, but it would certainly bring much-needed clarity.
In the meantime, the inconsistent and fascinating interplay between the federal government’s treatment of cannabis and its state-created legality across the country continues. We’ll continue to monitor the situation as it unfolds, and cannabis operators and investors around the country would be wise to do the same. Put another way, and with our thanks for sticking with all of the Fleetwood Mac references, “Don’t Stop Thinking About Tomorrow.”
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One-Hit Wonders
What ‘material’ about therapeutic goods is considered advertising?
Published
3 days 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.
One-Hit Wonders
Federal Appeals Court: Pay That Man His Money, Unless That Money Is Illegal Marijuana Money
Published
1 month agoon
September 12, 2024By
admin
Good news, bad news if you’re a cannabis operator that owes money to a creditor. But probably bad news for the rule of law.
A federal appellate court has ruled that a cannabis operator is obligated to repay his debts to an ex-business partner, but it raised questions about whether the money used to repay the debt could violate federal marijuana laws.
What does this mean for a cannabis operator and potential investors?
The Facts
As usual, our friends at Law360 set the stage:
A Tenth Circuit panel has rejected a cannabis entrepreneur’s attempt to undo a $6.4 million judgment in a dispute with an ex-business partner, but it ordered a district court to revisit an enforcement order that could require the entrepreneur to violate federal drug law to pay the damages.
A Maryland federal judge entered a $6.4 million damages award against Mackie A. Barch and his company Trellis Holdings Maryland Inc. for failing to restore David Joshua Bartch’s stake in a Maryland cannabis cultivation and dispensary business, Culta Inc.
When they failed to pay up, Bartch filed suit in the District of Colorado seeking an order that would require Barch and Trellis to sell off their equity in Culta to satisfy the judgment, which the court granted.
Barch and Trellis claimed that their ex-partner lacked standing to seek enforcement of the judgment because the order would require them to engage in conduct in violation of the Controlled Substances Act. Cultivating and selling marijuana is legal under Colorado and Maryland laws, but still prohibited under the federal Controlled Substances Act.
The Ruling
The three-judge panel sided, in a divided decision, against Barch and Trellis. According to the court, Barch and Trellis have no path for relief from the judgment because the law only allows a party to seek such relief for violations of due process.
The rift between the majority and the dissent came down to questions of enforceability and practicality. As Law360 wrote:
The dissent argued that Culta’s business practices – which are illegal under the Controlled Substances Act – should have doomed Bartch’s breach of contract suit from the start. By validating the parties’ contract, the majority has instead decided to “ignore the elephant in the room that is the federally illegitimate business enterprise known as Culta,” Judge Baldock wrote.
“Plaintiff’s cause of action is based entirely upon an illegal contract to establish Culta, notably an enterprise in which federal law recognizes no property interest. I simply do not understand why a federal court would lend legitimacy to any of this,” according to the dissent.
The majority recognized that the trial court’s order could potentially require the violation of federal law but were not willing to overturn the order based on that mere possibility. The majority reasoned that because the order did not specifically require Barch and Trellis to cultivate or sell marijuana, it was at least possible that the debt could be repaid without violating federal law. The case was remanded for further instructions and clarity from the trial court on this point.
The Takeaway
Let’s start with one really obvious point and one just regularly obvious point. First, investors should be extremely cautious when providing funds to marijuana companies. This case illustrates how difficult it can be to recover funds when the source of repayments may largely be the result of federally illegal activity. Second, the marijuana industry is replete with unsavory characters. Sure, many marijuana companies are operated by upstanding businesspeople, but the very nature of the industry and its legal status over the decades make it ripe for those who might not feel compelled to follow the strict letter of the law.
Should you choose to invest in a marijuana company, you should do so with the advice of competent, experienced counsel and you should insist that there are legal methods of recovering your funds should that prove necessary. Doing so may seem a tall task, but with a little diligence you may be able to ensure that your funds are secured by assets that are not subject to the same types of challenges in this case.
And, as with any investment, trust but verify.
One-Hit Wonders
Banking On Buds: The Complex Interplay Between Cannabis And Commerce
Published
1 month agoon
September 3, 2024By
admin
In the ever-evolving landscape of American policy, the story of cannabis legalization unfolds as a testament to societal change and the complexities of governance. This narrative, however, is not without its dissonances, particularly in the realm of financial services.
Introduction
In a nation marked by its pioneering spirit and the relentless pursuit of progress, the cannabis industry emerges as a vibrant tableau of innovation, marred by the shadows of regulatory uncertainty. As states across the Union chart their own courses, legalizing cannabis for medical and recreational use, they weave a patchwork of policies that stand in stark contrast to the federal government’s steadfast classification of the plant. This discord at the heart of cannabis commerce sets the stage for a deeper exploration into an issue that transcends mere legality, touching upon the very fabric of economic integration and societal values.
The Current Legal and Regulatory Landscape
At the federal level, cannabis remains ensnared in the Schedule I category of the Controlled Substances Act, a classification that denotes a high potential for abuse and no accepted medical use. This designation, rooted in the drug policy of yesteryears, casts a long shadow over the burgeoning cannabis industry, constraining its access to essential financial services and stifling its growth potential. Banks and financial institutions, wary of the legal ramifications of servicing cannabis-related businesses (CRBs), find themselves at a crossroads, caught between the promise of a new market and the peril of federal reprisal.
Cannabis Banking and Legislation Timeline
The following timeline weaves together the historical context, pivotal moments, and potential future developments in cannabis banking and legislation, including the critical role of the SAFE Banking Act and the impact of reclassifying marijuana. It serves as a guide through the evolving relationship between the cannabis industry and the financial sector, highlighting the journey towards regulatory clarity and economic integration.
1970 – Controlled Substances Act (CSA) Enacted: Marijuana was classified as a Schedule I drug, indicating a high potential for abuse and no accepted medical use, severely limiting research, and banking capabilities.
1996 – California Legalizes Medical Marijuana: Marks the beginning of state-led initiatives diverging from federal law, creating a patchwork of regulations, and increasing the need for banking solutions for cannabis businesses.
2013 – Cole Memorandum Issued: Although not law, it provides some protection against federal enforcement in states that have legalized marijuana, signaling a slight shift in federal attitude but leaving financial institutions wary of engaging with cannabis businesses.
2014 – 2019 – Incremental Banking Guidance: The Financial Crimes Enforcement Network (FinCEN) issues guidance for banks on serving cannabis businesses in compliance with the Bank Secrecy Act, but the banking challenges persist due to the overarching federal prohibition.
2019 & 2021 – SAFE Banking Act Proposals: The Secure and Fair Enforcement (SAFE) Banking Act was introduced in Congress, aiming to protect financial institutions that service cannabis-related businesses in states where it has been legalized. Despite passing in the House, it stalls in the Senate.
2020 – Present – Growing Bipartisan Support for Cannabis Banking Reform: As more states legalize cannabis for medical or recreational use, there is increased bipartisan support for federal banking reforms, including the SAFE Banking Act, to provide a safe harbor for banks.
2024 (Not So Hypothetical Future) – Marijuana Rescheduled to Schedule III: In a landmark move, marijuana is reclassified as a Schedule III controlled substance, acknowledging its medical use and lowering barriers for banking and research. This hypothetical future event would significantly alter the cannabis industry landscape. This is happening now.
2024 – 2025 (Future Outlook) – Implementation of the SAFE Banking Act: Following the reclassification of marijuana, Congress passes the SAFE Banking Act, easing many of the remaining financial and banking challenges for cannabis businesses. Financial institutions begin openly serving the cannabis industry, supported by clear federal guidelines.
2025 and Beyond – Normalization and Expansion: With the barriers to banking and finance removed, the cannabis industry sees a period of significant growth and normalization. Financial products and services tailored to the cannabis industry become widespread, and cannabis businesses are integrated into the broader economy.
Navigating the Dissonance: The Case for Reform
Amid the thicket of regulatory challenges and banking quandaries, a beacon of consensus emerges from the legislative realms. On May 2, 2024, the National Conference of State Legislatures (NCSL) issued a compelling appeal to the Department of Justice, urging the reconsideration of cannabis’s Schedule I status. “Currently, a total of 47 inclusive of states, the District of Columbia, and all U.S. territories except American Samoa have legalized cannabis for medical and/or adult recreational use,” the NCSL articulated, highlighting the stark contrast between state-led initiatives and federal policy inertia. This plea for reclassification is not merely administrative; it is a clarion call for alignment, seeking to reconcile the federal stance with the lived realities of millions and the operational exigencies of a burgeoning industry.
Discussion Points
This moment of potential transformation invites a broader reflection on the implications of such a shift. The reclassification of cannabis and the enactment of measures like the SAFE Banking Act could herald a new era for not just the cannabis industry but for American society at large. It prompts us to question the role of federalism in drug policy, the dynamics of change in a conservative sector like banking, and the societal values that underpin our approach to regulation and commerce.
Furthermore, the push for reform illuminates the intricate dance between innovation and regulation. As we stand on the precipice of change, it is imperative to consider how financial institutions can navigate this evolving landscape. The integration of cannabis into mainstream commerce offers a unique opportunity to redefine the relationship between the state, the market, and the individual, challenging us to reimagine the boundaries of entrepreneurship, responsibility, and community in the 21st century.
So…Now What?
The conversation surrounding cannabis banking and federal reform is more than a policy debate; it is a reflection of our collective journey toward a more nuanced understanding of progress, governance, and the human experience. As we ponder the path forward, it is clear that the resolution of this dissonance will require not just legislative change but a reevaluation of societal norms and values. In this endeavor, entities like Ankura play a pivotal role, not as advocates for a particular outcome, but as navigators helping to chart a course through uncharted waters, ensuring that regardless of the direction we take, we move forward with insight, integrity, and an unwavering commitment to the common good.
Solutions: A Blueprint for Navigating the Green Wave Together
In the evolving narrative of cannabis legalization and its implications for the financial sector, the role of consultancy firms becomes not just relevant but indispensable. Amidst this backdrop, Ankura emerges not as a mere participant but as a guiding force, navigating the intricate interplay between regulation, commerce, and innovation. This section, far from a sales pitch, is a contemplation on the utility and insight that Ankura brings to a landscape at the cusp of transformation.
The Art of Navigation in Uncharted Waters
In the realm of cannabis banking, where the regulatory environment remains as fluid as the sea, Ankura stands as the seasoned navigator, charting a course through tumultuous waters. The firm’s approach, deeply rooted in expertise and foresight, transcends the conventional consultancy model. Ankura’s role is akin to that of a cartographer mapping the unknown, transforming the complexities of legislation and market dynamics into a navigable blueprint for its clients.
Crafting Compliance Amid Complexity
The crux of Ankura’s value lies in its nuanced understanding of compliance within the cannabis sector—a field where the ground beneath one’s feet shifts with regulatory whims. The firm’s expertise illuminates the path forward for financial institutions entangled in the Gordian knot of federal and state regulations. Through a bespoke blend of strategic advisory, Ankura empowers these institutions to not only meet the current compliance benchmarks but to anticipate and adapt to the regulatory evolutions on the horizon.
Fostering Growth Through Insight
Beyond the minutiae of compliance, the Ankura vision extends to the broader horizons of growth and sustainability for both financial institutions and cannabis-related businesses. The consultancy’s insights into market trends, consumer behavior, and legislative forecasts act as a beacon for clients navigating the competitive landscape of the cannabis industry. In this capacity, Ankura is more than a guide; it is a partner in cultivation, helping to sow the seeds of long-term success in the fertile ground of opportunity.
A Convergence of Expertise and Innovation
At the heart of the Ankura methodology is a commitment to innovation, a principle that resonates deeply within the cannabis sector. The firm leverages cutting-edge technologies and data analytics to provide solutions that are not only effective but forward-thinking. This approach reflects a broader philosophy: that the challenges of today’s cannabis industry are not roadblocks but catalysts for innovation, driving the development of more sophisticated, transparent, and efficient financial services.
And Finally: A Partnership for Progress
Ankura’s role exemplifies the partnership between expertise and ambition. This narrative is an acknowledgment of the critical role that insight, foresight, and strategic guidance play in navigating the complexities of cannabis banking. As cannabis legislation evolves, Ankura’s contributions are a testament to the power of collaboration and knowledge in shaping the future of industries and economies alike.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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