Cannabis: In Focus

  • Attorney General Garland Testifies Before Senate Judiciary Committee
  • Ninth Circuit Affirms Ruling that California County May Deny Licenses to Cultivate Cannabis
  • Oklahoma Recreational Cannabis Measure Fails
  • Medical Cannabis Patient Sues Arkansas Company for Inflating THC Levels
Continue Reading Cannabis Legal Report—Week of March 20, 2023

Our democracy is driven by both laws and fundamental freedoms. Americans expect governmental oversight that balances freedom of choice with protection of public health and safety. Sometimes these two imperatives that are emblematic of a free society do not align perfectly. In this op-ed published by Bloomberg Law, Perkins Coie Senior Counsel Andrew Kline and attorney Pamela Epstein of Terpene Belt call on Congress to modernize the 2023 Farm Bill to regulate all intoxicating cannabinoids and protect the safety of businesses and consumers.

To read the op-ed, please visit Bloomberg Law here.

Cannabis companies can find themselves in financial distress but are generally locked out of the federal bankruptcy courts. What are their options? Perkins Coie Associate Tommy Tobin sits down with Billy Organek, program fellow at Harvard Law School’s Bankruptcy Project, to discuss the importance of bankruptcy law and options companies can seek outside of the federal bankruptcy process.

Listen to “Distressed Cannabis Companies: Considering Options Amid Bankruptcy Limitations – Episode 20” on Spreaker.

Note that all episodes are available on AppleGoogle, and Spotify.

Cannabis: In Focus

  • DEA Classifies Two Lab-Derived Cannabinoids as Schedule I
  • Washington Federal Judge Dismisses Suit Challenging Residency Requirements

DEA Classifies Two Lab-Derived Cannabinoids as Schedule I

The U.S. Drug Enforcement Administration (DEA) determined that two lab-derived cannabinoids— delta-8 THC acetate ester (delta-8 THCO) and delta-9 acetate ester (delta-9 THCO)—do not meet the federal definition of “hemp” and are therefore considered controlled substances.

Delta-8 THCO and delta-9 THCO do not naturally occur in the cannabis plant. The DEA issued its letter in response to an inquiry received from a North Carolina law firm.

Because the DEA considers delta-8 THCO and delta-9 THCO controlled substances, these substances are subject to the same federal controls applicable to marijuana, which is classified as a Schedule I substance.

The cannabis industry took note because there has been significant debate about the legality of delta-8 THC. This response solidifies that the DEA does not consider hemp-derived delta-8 THC to be a controlled substance. Of course, the U.S. Food and Drug Administration (FDA) has taken a different view when the popular, yet unregulated, cannabinoid has been added to a food or beverage.

Washington Federal Judge Dismisses Suit Challenging Residency Requirement

In an order dated February 7, 2023, a Seattle federal court dismissed a suit brought by an investor attempting to enter Washington state’s cannabis market. At issue was whether the state’s residency requirements for commercial cannabis licenses violated the U.S. Constitution. Specifically, the Dormant Commerce Clause (DCC) would ordinarily prohibit a state from placing undue burdens on out-of-state residents to favor in-state residents.

Judge Benjamin Settle ordered that the Washington residency requirements did not violate the DCC because the DCC protects a national market for goods, and there was no interstate commerce of cannabis, given its federal illegality. According to the court, even though a state may have legalized cannabis, it remains a Schedule I controlled substance at the federal level.

Last year, the U.S. Court of Appeals for the First Circuit came to the opposite conclusion. The appellate panel struck down residency requirements applicable in Maine that were similar to those applicable in Washington. The panel reasoned that Maine’s residency requirements violated the DCC and were therefore unconstitutional. Perkins Coie lawyers have written about this issue here and here. Watch this space for further developments.

Cannabis: In Focus

  • Seattle Federal Court Dismisses Dormant Commerce Clause Challenge
  • Manhattan DA Attempts To Curb Illegal Cannabis Sales by Targeting Landlords
  • Australia Legalizes Prescriptions of Psilocybin and MDMA
Continue Reading Cannabis Legal Report—Week of February 13, 2023

Tough economic conditions are leaving cannabis businesses with fewer financing and transaction options. Chapter 11 bankruptcy, a tool which many businesses have used to reorganize or liquidate, has historically been inaccessible to cannabis and cannabis-adjacent businesses because potential (or actual) breaches of the Controlled Substances Act (CSA) were viewed as per se cause for dismissal. But the Los Angeles bankruptcy court presiding over The Hacienda Company, LLC recently denied a motion to dismiss the case of a debtor in the business of wholesale manufacturing and packaging of cannabis products.1 The decision gives hope that bankruptcy could be a viable path to maximize value for creditors and purchasers through a sale structured as one of intellectual property (IP), rather than one of an operating cannabis business.

The decision in Hacienda builds on the other recent U.S. Court of Appeals for the Ninth Circuit decisions allowing narrow windows for cannabis-adjacent debtors to benefit from bankruptcy.

Continue Reading Distressed Cannabis: Growing Room for Bankruptcy in Ninth Circuit

The U.S. Food and Drug Administration (FDA) recently released new guidance on sourcing and product quality to companies conducting clinical research related to the development of human drugs involving cannabis or cannabis-derived compounds. The agency’s nonbinding recommendations highlight potential opportunities for clinical researchers and sponsors of investigational new drugs after the 2018 Farm Bill significantly altered the regulatory landscape applicable to cannabis products.

Continue Reading FDA Releases Guidance on Clinical Research into Cannabis-Derived Drugs

Cannabis: In Focus

  • FDA Rejects Citizen Petitions, Declines To Regulate CBD as a Dietary Supplement
  • Ninth Circuit Affirms Dismissal of Cannabis Company’s RICO Claims
  • Tenth Circuit Holds that 2018 Farm Bill Doesn’t Create Private Cause of Action for Hemp Farmers
  • US Virgin Islands Legalizes Recreational Cannabis
Continue Reading Cannabis Legal Report—Week of January 30, 2023

This blog series addresses common employment-related issues for cannabis industry professionals.

This post addresses overtime rate requirements that manufacturers and retailers of cannabis products should consider to ensure compliance with applicable state and federal law.

In addition to ensuring that employee time is accurately recorded, employers should be mindful of the applicable overtime requirements and the rate at which overtime must be paid under state and federal law. For example, California law generally requires employers to pay nonexempt employees an overtime rate of 1.5 times the employees’ regular rate after eight hours in a single workday, 40 hours in a single workweek, and for time worked on the seventh consecutive workday in a workweek. California law also generally requires employers to pay double time to nonexempt employees for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

While calculating overtime should be a relatively simple process with respect to individuals who work in a single role and at a set schedule each week, it can become more burdensome with respect to employees who: (1) work in dual roles across the operation, (2) work during shifts that span multiple days, or (3) are paid at multiple pay rates during the applicable period—including due to receipt of bonuses or commissions. Actively monitoring payroll practices can enable employers to identify and correct underpayment—or overpayment—of overtime.

Along those lines, employers should be careful to ensure overtime compensation is paid at the employees’ “regular rate” of pay under the Fair Labor Standards Act (FLSA) and applicable state law. The overtime rate should reflect a multiplier of both the employee’s standard hourly rate and any other remuneration for employment paid to, or on behalf of, the employee.

For example, nondiscretionary bonuses, such as bonuses for meeting attendance or performance goals, must be added to employees’ hourly wages prior to calculating overtime for the applicable workweek. However, other categories of payments are not included in the regular rate calculation, including discretionary bonuses, discounts on company products, free samples of products, expense reimbursements, and payments made for occasional periods when no work is performed due to vacation, holiday, illness, and other categories identified under federal and state law.

This is one example of the wage and hour issues that employers should consider in the cannabis industry. We will issue further guidance on these and related topics. Companies and organizations should work with experienced legal counsel to determine the best approach to ensure compliance with these requirements.

Earlier this month, the medical journal Pediatrics published a new study analyzing reports of accidental child exposure to cannabis edibles from 2017 – 2022, finding that the number of young children accidentally ingesting cannabis in the United States has increased consistently and significantly over the past five years. According to the study, children, especially those under age five, are at particular risk as they may not be able to distinguish between copycat tetrahydrocannabinol (THC) products and the well-known treats they resemble.

As we’ve written elsewhere, states impose strict restrictions on underage access to cannabis products in the licensed marketplace and generally prohibit marketing cannabis products to minors. The study’s findings emphasize the risks posed by copycat THC products and echo concerns raised by the U.S. Food and Drug Administration (FDA) in a 2022 consumer alert. The agency noted many “edible products are designed to mimic the appearance of well-known branded foods by using similar brand names, logos, or pictures on their packaging. These copycats are easily mistaken for popular, well-recognized foods that appeal to children.” As the FDA detailed, “accidental ingestion of these products can lead to serious adverse events, especially in children.”

Continue Reading Preventing Accidental Exposure of Illicit Cannabis Products to Underage Consumers