Cannabis Project Newsletter - April 17th, 2020
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What Happened in April?
By Cole White
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The effects of the COVID-19 pandemic are beginning to be felt across the cannabis industry at large. Reform efforts in several states have
slowed or stopped altogether
as state and local governments grapple with how best to allocate time and resources during the crisis. A key issue for many states is ballot initiatives. Social distancing requirements have caused campaigns to suspended signature gathering initiatives in many states. This month, many of those campaigns across the country began asking courts and local governments to allow them to collect signatures via online platform's.
On the industry level, companies and industry lobbying groups also began asking their states for
creative funding methods
to aid the cannabis industry in absence of federal aid. As we discussed in the last issue, the Small Businesses Administration has stated that the cannabis industry will not have access to low interest loans offered as relief to small businesses through the CARES act enacted last month. While the industry as a whole saw an initial spike in sales as states began enacting stay-at-home orders, BDS Analytics reports that many cannabis stores are now seeing significant decreases in sales that could have dramatic effects on the industry over the coming months and years.
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Summaries by Cole White
Massachusetts Recreational Cannabis Companies File Suit Against Governor
A lawsuit has been filed against Governor Charlie Baker over his decision to deem recreational cannabis companies as non-essential businesses. The suit, brought by several recreational cannabis companies and one war veteran, alleges that the Governor violated the rights of recreational cannabis companies and consumers by requiring them to close down while other consumer sales businesses like restaurants and bars continue operating with strict safety measures in place. While the Governor argues that his actions are meant to restrict out of state travel to Massachusetts and maintain public safety, the lawsuit alleges that sales could easily be restricted to Massachusetts residents. Click
here
for more info.
Nebraska Medical Cannabis Signature Gathering Campaign Stalled
A signature gathering campaign for a medical cannabis petition has ground to a halt in Nebraska amid COVID-19. While Senator Anna Wishart, the primary sponsor of the petition, is optimistic that her team has enough time to gather the requisite signatures, Secretary of State Bob Evnen said that he will not extend the deadline. Click
here
for more info.
New York 2020 Budget Will Not Include Cannabis Reform
Early in April, Governor Cuomo announced that cannabis reform is “essentially over” for New York in 2020 due to COVID-19. While Cuomo clarified that he would not pursue cannabis through the state budget and that the decision would now be left to the legislature, the primary supporter of New York’s cannabis reform bill, Sen. Liz Krueger, seems to agree that now is not the time. Click
here
for more info.
Arizona Campaigns Ask for Access to State E-Signature Platform
A cannabis ballot initiative campaign has asked the Arizona Supreme Court to allow ballot campaigns to use the states electronic signature gathering platform. The group argues that restricting the online platform to political candidates, as it currently is restricted, is unconstitutional and that citizens should have access to the platform. The presiding judge, Dominic Lanza, seemed to show some initial
support
for the ballot campaign early this week. As of publication of this newsletter,
no states
allow the electronic collection of signatures for ballot initiatives. Click
here
for more info.
Washington Governor Signs Cannabis Social Equity Bill
On March 31st, Governor Jay Inslee signed HB 2870 into law in an effort to increase participation by minority communities in the cannabis industry. This new social equity program allows the State Liquor and Cannabis Board to issue unused retail cannabis licenses to qualified social equity applicants. To be qualified, an applicant must be located in a “disproportionately impacted area,” and must also submit a “social equity plan” to the state. Click
here
for more info.
Colorado Governor Asks for Federal Relief for Cannabis
Governor Jared Polis recently sent a letter to congress where he stressed the importance of federal aid to the cannabis industry during the COVID pandemic. As mentioned previously, the Small Business Administration continues to maintain that cannabis related businesses will not be granted access to relief, and this includes other secondary businesses that work with the cannabis industry. Gov. Polis argued that this would include hundreds of small businesses in Colorado and could have drastic effects on the local economy.
Several senators
have also raised the issue before congress, hoping to include relief for the cannabis industry in the next stimulus package. Click
here
for more info.
Virginia Governor Signs Cannabis Decriminalization Bill
This week, Governor Ralph Northam signed a criminal justice reform bill which included cannabis decriminalization. The bill reduces the fine for possession of one ounce or less of cannabis to $25, and includes a provision requiring the state to conduct a study on the effects of state-wide adult use legalization. However, the governor amended the bill to push back the deadline on the study, likely due to concerns over state resources amid COVID-19. Click
here
for more info.
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Summary by Cole White
Amazon Employee Fired for Medical Marijuana Use Files Suit in New Jersey
An Amazon employee who claims he was fired for medical marijuana use is filing suit against Amazon in New Jersey, and his chances of success have only improved over the past few months. Amazon, who is not based in New Jersey, initially filed to have the case removed to federal court where the employee’s chances were severely limited. After some procedural maneuvering, however, the employee was able to have the case sent back to the Superior Court of New Jersey, where recent precedent points to a decision in his favor.
In a ruling handed down from the New jersey Supreme Court last month, the court ruled that New Jersey corporations are required to provide workplace disability protections to medical cannabis patients. Those protections, the court said, include not being able to fire the employee for cannabis use if they are a participant in the state’s legal medical cannabis program. This decision runs counter to decisions in many other medical-legal states, which have ruled that companies do not have any obligation to provide protections to medical marijuana patients. Click
here
for more info.
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Summaries by Cole White
Vaping Illness Less Prevalent in States with Recreational Cannabis
The American Medical Association recently released findings from a study on the E-cigarette or Vaping use Associated Lung Injury (EVALI) crisis which seem to confirm that individuals in states with legal recreational cannabis had a much lower chance of contracting the illness than individuals in states without legal recreational cannabis.
As we have mentioned in prior newsletters, the source of lung injury has been linked to a substance known as vitamin E acetate, which is used in the illicit market to dilute vape products and increase profits. In states with legal recreational marijuana, 1.7 people per million on average contracted EVALI, where states without legal recreational marijuana saw average rates of 8.1 cases per million. Interestingly, states with legal medical cannabis but without legal recreational saw similar rates, 8.8 cases per million people, indicating that recreational users are still turning to the illicit market in these states.
The results of the study do not come as a surprise to many industry experts, including Erik Altieri, the Executive Director of NORML. Many have drawn comparisons to the era of alcohol prohibition, when bootleggers used ethanol to make high potency alcohol which killed and blinded thousands of individuals at the time. In response to the results of the study, Altieri said that “just like alcohol prohibition gave rise to the illicit production of dangerous ‘bathtub gin,’ marijuana prohibition provides bad actors, not licensed businesses, the opportunity to fulfill consumers’ demand – sometimes with tragic results.” Click
here
for more info, and click the button below to read the study itself.
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Product Packaging & Child Safety
In Utah, an 11-year-old was hospitalized after consuming a high-potency THC infused candy that was donated to her family through a local food bank. Police say that more than 60 bags containing the candy were distributed to more than 60 different families in the area. The candy, which is visually similar to “Nerd Rope” candy both in physical appearance and packaging, contained 400mg of THC per rope. Police are reaching out to other families who received donations from the food bank, but this event highlights serious concerns about THC product packaging and child safety. Click
here
for more info.
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Managing Sales While Ensuring Employee & Consumer Safety
Summary by Cole White
As many states see dramatic fluctuations in cannabis sales amid the COVID-19 pandemic, medical and recreational cannabis businesses are struggling to meet demand while maintaining proper social distancing measures to protect their employees and consumers. Several companies are engaged in delivery services, either legally or illegally, under state orders deeming cannabis an essential business. Some companies are making customers use a “purchase-in-car” delivery method, where the customer must get in the delivery person’s car in order to complete the transaction. Others are handing credit card machines to customers through the window for them to swipe, and still others are physically delivering packages to the customer’s door. Even employees of stores who do not offer delivery services are at high risk of infection, since the increase in demand has some stores seeing hundreds of customers and orders per day.
In our previous newsletter, we highlighted steps that cannabis businesses can take to slow the spread of COVID-19, as outline by the
ICC’s international guidance to businesses
. This guidance, however, was not specific to state legal cannabis businesses and state-level guidance on delivery methodology is required for these businesses to continue to operate safely during this international health crisis. Click
here
for more info.
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Summaries by Cole White
Federal Judge Rules Cannabis Investor May Not Recover Under Unjust Enrichment
A federal judge in Nevada has ruled that an investor in several cannabis cultivation businesses may not recover under a theory of unjust enrichment for the businesses’ failure to pay back around $4.7M in loans. The judge was not able to determine if the contract was severable, and so remanded the case to the trial court for that determination. However, the judge stated that, “if the contract is unenforceable, it is because plaintiff invested in defendant’s marijuana cultivation business primarily to obtain a pathway to an equity investment” as opposed to, as the plaintiff argued, the funds being primarily a loan. The court said that the investor would have “unclean hands” were they to enforce his claim, since the claim depends on a finding that the contract was illegal and not capable of severance. Click
here
for more info.
IRS Considers Recommendations on Guidance to Cannabis Industry
In a report issued by the Treasury Inspector General for Tax Administration, the department highlighted the need for IRS guidance with respect to cannabis businesses and federal tax code 280E. As we have discussed previously, 280E prevents cannabis businesses from writing off deductions on their tax bills, resulting in significantly higher tax rates and confusion over how the provision should be applied.
The report found that in three cannabis legal states, the IRS missed around $45M in taxes from 2016 due to underreporting, and difficulty in complying with 280E cost taxpayers an additional $95M. Again, these figures are looking at only three legal states, meaning the national figures are significantly higher. The report included six primary recommendations that the IRS should follow to develop proper guidance for the industry. While the IRS has acknowledged the problems in the cannabis industry caused by 280E, they maintain that federal illegality limits their ability to develop proper guidance. Click
here
for more info.
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Last month we unveiled the Cannabis Litigation Blog and announced our partnership with Professor Rob Mikos of Vanderbilt School of Law for the month of April.
Professor Mikos has written a piece on a hemp seizure case in Idaho, and a piece on state residency requirements in Maine.
Check out his posts by clicking the button below, and stay tuned for more interesting discussions from Professor Mikos throughout April!
Interested in becoming a contributing author?
Contact Austin Bernstein at abernstein@agalliance.org
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ATTORNEYS GENERAL TISH JAMES AND
WAYNE STENEHJEM SET TO KICK OFF
CANNABIS LAW & POLICY VIRTUAL SUMMIT
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Virtual Summit
April 21, 2020
11:30am - 5pm (ET)
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We are excited to announce that Attorneys General Letitia "Tish" James (D-NY) and Wayne Stenehjem (R-ND) will join us as guest speakers for the April 21 Virtual Cannabis Summit!
The Cannabis Summit provides an opportunity for discussion of key issues in the cannabis policy realm to public and private officials spanning a variety of specializations and industries. Registration is free to all public officials, who can register by clicking the link below.
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