In this week’s edition:

• Politicians Tout Cannabis Policy Progress on 4/20 Amid Heightened Expectations About Federal Reform
• Congress Unlikely to Pass Cannabis Legislation by May 10
• DOJ Investigates Cannabis PPP Loans
• Polls Show Florida Ballot Measure Lacks Support for November Passage
• Kentucky Announces Lottery for Medical Cannabis Licenses
• Cannabis Industry Currently Supports More Than 440,000 Full-Time Jobs

Federal

Politicians Tout Cannabis Policy Progress on 4/20 Amid Heightened Expectations About Federal Reform –  Numerous public officials across the United States added to the chorus of voices calling for cannabis reform on April 20, leveraging the unofficial holiday’s visibility to talk about cannabis policy. (Indeed, President Joe Biden and Vice President Kamala Harris touted their support for cannabis law reform at exactly 4:20 p.m. on 4/20.) This year’s holiday comes amid heightened anticipation for cannabis reform, as the Drug Enforcement Administration (DEA) works to complete a review into cannabis scheduling.

Congress Unlikely to Pass Cannabis Legislation by May 10 – Last week, US senators discussed additions to legislation concerning the Federal Aviation Administration (FAA)—it must be reauthorized by law before May 10—that would allow state-licensed cannabis operations to use the federal banking system. While Senate Banking Committee Chair Sherrod Brown (D-OH) said he was open to attaching a cannabis bill to the FAA legislation, rumors are swirling that Senator Mitch McConnell (R-KY) intends to block SAFER being attached to the FAA. Additionally, cannabis banking legislation remains unlikely to pass in the House. Separately, Senator Jacky Rosen (D-NV) filed legislation to establish a federal grant program to help jurisdictions around the country facilitate cannabis clemency, mimicking a House version of the act reintroduced last year.

Cannabis Grow Busted in Maine as Feds Investigate Trend in 20 States – The Drug Enforcement Administration (DEA) seized nearly 40 pounds of processed cannabis from a rural Maine home in what authorities describe as a years-long trend of foreign nationals exploiting US state laws that have legalized cannabis for recreational or medical use to produce cannabis for the illicit markets in the US. The DEA is investigating international criminal organizations that are operating illegal cannabis grows in about 20 states, including Maine, Attorney General Merrick Garland told the Senate Appropriations Committee this last week.

New Mexico Governor Meets With Homeland Security Secretary to Push Back Recent Cannabis Product Seizures – Governor Michelle Lujan Grisham (D) spoke with Homeland Security Secretary Alejandro Mayorkas and expressed her concern about the federal seizure of cannabis from licensed distributors in New Mexico. Secretary Mayorkas reportedly reiterated that the seizures would continue, as federal cannabis laws haven’t changed. The conversation happened in response to recent reporting about US Customs and Border Protection seizing hundreds of thousands of dollars’ worth of cannabis from state-licensed cannabis businesses in New Mexico in recent weeks—detaining industry workers in what appears to be a localized escalation of national prohibition enforcement, even as the federal government has largely refrained from interfering with the implementation of state legalization laws in the past nine years.

State

AL – An Alabama Senate committee approved two bills aimed at restarting the state’s medical cannabis licensing process: SB 306, sponsored by Sen. Tim Melson (R-Florence), which would restart the licensing process and take away some of the powers of the Alabama Medical Cannabis Commission (AMCC); and SB 276, sponsored by Sen. David Sessions (R-Grand Bay), which would require the AMCC to issue 10 licenses for integrated facilities, or businesses that can grow, process and distribute medical cannabis. As originally filed, the AMCC would have had to issue 15 integrated facility licenses.

CA – The California Department of Cannabis Control (DCC) recently published an announcement regarding recent cannabis taskforce seizures. As of April 11, the Unified Cannabis Enforcement Taskforce (UCETF) seized more than $53,620,600 in illegal cannabis during the first quarter of 2024. The UCETF was created by Governor Gavin Newsom (D) in October 2022, and since then it has seized $371,199,431 in unlicensed cannabis product from a total of 236 warrants. Gov. Newsom released a press statement regarding the Q1 seizures, and said the state would “continue to cultivate a legal marketplace, [and] tak[e] aggressive action to crack down on those still operating in the shadows.”

FL – A Florida ballot measure to legalize recreational cannabis does not have enough support to pass in November, according to the results of a recent poll. Florida voters will decide on Amendment 3, a constitutional initiative to legalize cannabis and regulate recreational weed sales, in this fall’s general election after the state Supreme Court cleared the way for it to appear on the ballot late last month. Under Florida state law, ballot initiatives must receive at least 60 percent of the votes to pass; a recent USA TODAY/Ipsos poll, however, shows that Amendment 3 currently has the support of only 49 percent of the state’s adult residents. Governor Ron DeSantis (R) attacked the proposal, warning it would not be “good for families” and “not good for [the] elderly.” US Representative Matt Gaetz (R-FL) stated he is undecided on whether he supports the measure and speculated that former President Trump would be against it.

HI – Governor Josh Green (D) announced a plan to vastly expand medical cannabis access by letting doctors recommend it to patients for any condition they see fit. The move came after lawmakers in the House decided to kill a Senate-passed adult-use cannabis legalization bill earlier this month.

IL – Lawmakers in Illinois introduced parallel bills (SB3922 and HB5809) that would allow for curbside pickup and drive-through pickup of adult-use cannabis and cannabis products. The state permanently authorized curbside pickup in the medical cannabis program in December 2023.

KY – Governor Andy Beshear (D) announced that officials will hold a lottery in October to award a the state’s first medical cannabis business licenses. The new emergency and proposed permanent regulations authorize the Cabinet for Health and Family Services to issue 10 tier I cultivation licenses, four tier II cultivation licenses, two tier III cultivation licenses and 10 processor licenses, as well as a total of 48 dispensary licenses that will be divided among 11 geographic zones. The governor also signed House Bill 829, which makes several updates to Kentucky’s medical cannabis law, including changes to the licensing timeline, opt-outs by local jurisdictions and school districts, inspections and provisional registrations for patients.

MN – The Minnesota House approved changes to the state’s cannabis licensing and social equity rules, although regulators and other stakeholders are still working through how to address certain issues. This includes how licenses will be distributed if demand exceeds the number of available licenses and whether to allow cultivators to begin operations before retail stores open in spring of 2025.

NC – The Eastern Band of Cherokee Indians began sales of medical cannabis on 4/20 at a 10,000-square-foot dispensary located on tribal lands near Asheville, NC. While cannabis sales are not yet legal in North Carolina, tribal nations are authorized to establish their own cannabis programs on tribal lands outside of the jurisdiction of state officials.

ND – A group of 27 North Dakota citizens filed a 2024 ballot measure petition to legalize adult-use cannabis sales in the state. The measure would allow adults 21 years of age and older to possess small amounts of cannabis and to purchase cannabis and cannabis products from registered establishments. In order to qualify for the November ballot, the group must collect 15,582 signatures from eligible North Dakota voters by July 8.

NH – New Hampshire House and Senate committees held hearings on a variety of bills to expand the state’s medical cannabis program, including measures to legalize home cultivation for patients and allow doctors to recommend cannabis to treat any condition. Governor Chris Sununu (R) signaled that he is opposed to a cannabis legalization bill that passed in the House, but could potentially offer his support if certain changes are made in the Senate.

NY – Governor Kathy Hochul (D) unveiled new initiatives to shut down illicit cannabis operations and support the legal cannabis marketplace in New York as part of the FY25 Enacted Budget. The plan gives New York’s Office of Cannabis Management and local municipalities new authority to take action against illicit storefronts and those who enable them.

OH – In a recent speech, Governor Mike DeWine (R) once again called for legislation banning public cannabis consumption, asserting that Ohioans “don’t want to smell cannabis.” Gov. DeWine also encouraged the state legislature to pass legislation prohibiting the sale of intoxicating hemp-derived products.

SC – A recent poll found that 83 percent of registered voters in South Carolina support medical cannabis legalization. While the state’s Senate approved a medical cannabis legalization bill in February, a House committee just began considering the bill in late April. There are only three weeks left in the legislative session to get the bill passed.

VA – Following Governor Glenn Youngkin’s (R) veto of a retail cannabis bill in March, Democratic senators in Virginia warn that adult-use retail sales likely will not begin until 2027 or later in the state. According to Sen. Aaron Rouse (D), who sponsored the bill, “[t]here’s a really big mountain to climb with this government and his administration.”

Hemp

Hemp Market Grows in 2023 – A recent report from the US Department of Agriculture showed that the industrial hemp industry rebounded in 2023 after experiencing significant declines the year before. According to the report, the value of industrial hemp reached $291 million in 2023, representing an 18 percent increase from 2022. The increase was not consistent across the market. While the value for hemp grown for flower increased by 35 percent, the value of hemp grown for grain decreased 36 percent from 2022. 

US Cannabis Council Calls for Federal Prohibition of Intoxicating Hemp-Derived Products – In a letter sent to US House and Senate agriculture committees, the US Cannabis Council—a cannabis industry trade association—asked Congress to prohibit intoxicating hemp-derived products in the next Farm Bill. Specifically, the letter asks Congress to exempt from the definition of hemp those products intended for consumption or absorption in the body that are “[m]ade or derived from hemp or hemp biproducts” that “[c]ontain detectable quantities of total THC and any other intoxicant that can be derived from hemp including other forms of THC.”

IL – Lawmakers and cannabis industry lobbyists have introduced a new bill to enact restrictions on hemp-derived THC products, such as delta-8 THC. The proposed legislation, known as the Hemp Consumer Products Act, would establish a two milligram serving limit and prohibit chemically altering CBD to produce delta-8 THC. The legislation also proposes various requirements relating to licensing, marketing, sales, labeling, transporting and testing of hemp-derived THC products.

MO – Missouri’s Department of Health and Senior Services issued a health advisory setting out the health risks associated with intoxicating hemp-derived products and advising Missourians to “avoid these products” until “safety data is available for human consumption.” Just one day earlier, state Attorney General Andrew Bailey (R) launched an investigation into “the activities and representations of [certain sellers] in connection with the manufacturing, sale, marketing, advertisement, promotion, and/or distribution of products containing CBD, Delta-8, and Delta-9 THC.”

NE – A Nebraska bill proposing a 25 percent tax rate on hemp and CBD products failed to pass due to insufficient votes, as the legislative session for the year ends. The bill, initially suggesting a 100 percent tax rate, faced criticism from both sides of the aisle, with some advocating for lower rates and others suggesting the legalization of cannabis as an alternative revenue source.

Stiizy Sued in Illinois Over Delta-8 Products – A proposed class action lawsuit in Illinois federal court accuses California-based cannabis company Stiizy of selling hemp-derived products containing delta-8 THC levels surpassing the federally legal limit, effectively making them cannabis products. The plaintiffs allege that Stiiizy misrepresented its delta-8 products as compliant with federal hemp and state cannabis laws, seeking class certification, damages exceeding $5 million and injunctive relief. Stiizy also faces a separate lawsuit in Los Angeles state court over alleged misrepresentation of THC levels in its products.

Texas – Lieutenant Governor Dan Patrick (R) has issued 57 charges for Senate committees to investigate ahead of the 89th Legislature, reflecting issues “important to Texans,” including a ban on delta-8 and delta-9 products as part of the recommendations.

International

Germany – The cannabis legalization process has encountered numerous challenges, including legal disputes, regional variations and confusion and delays in licensing. Health Minister Karl Lauterbach's vision for reform faces uncertainty amid ongoing hurdles, raising questions about the policy's feasibility.

Canada – The Federal Budget 2024, just released, includes no changes to cannabis excise taxes. The tax rate of 10 percent or CA$1 per gram remains, causing challenges and a backlog in payments. The government's decision disappointed cannabis industry leaders, who had been advocating for tax reform for legal cannabis.

Business

DOJ Investigates Cannabis PPP Loans – The US Justice Department (DOJ) is investigating cannabis-related businesses for allegedly taking coronavirus relief loans under the Paycheck Protection Program (PPP) in violation of federal rules. Using a whistleblower policy, third-party actors can report on these businesses and receive a portion of settlement money. With up to 100 active cases reported, the trend affects not only companies directly involved in the cannabis industry, but also ancillary businesses. The DOJ's scrutiny highlights challenges for companies involved in the state-legal cannabis market, potentially impacting those that received PPP loans. The situation underscores the complexities arising from the federal-state cannabis disconnect, as the Drug Enforcement Agency considers rescheduling cannabis while federal prosecutors pursue cases based on current laws.

Cannabis Industry Employs More Than 400,000 – The 2024 Vangst Jobs Report, developed in collaboration with Whitney Economics, reveals that the cannabis industry now sustains 440,445 full-time equivalent jobs.  Showcasing a 5.4 percent year-over-year growth, 2023 saw the addition of 22,952 new jobs.

Truck Drivers Refuse Drug Tests in Record Numbers as More States Legalize Cannabis – A new report released by the Federal Motor Carrier Safety Administration highlights a decrease in positive drug tests among commercial truck drivers, from 57,597 in 2022 to 54,464 in 2023, coinciding with the increasing legalization of cannabis across the US. The number of drivers refusing to undergo screening surged by 39 percent during the same period, reaching record levels. The rise in refusals is attributed partly to the ongoing shortage of drivers in the transportation industry.

Medicine

Mixed Results in Meta-Analyses Regarding Relationship Between Cannabis and PTSD   – Two recent studies were reported to have explored the relationship between cannabis use and post-traumatic stress disorder (PTSD). One, from the University of California, San Diego, analyzed data comparing PTSD treatments with and without cannabis use, finding no difference in PTSD symptoms. Another meta-analysis, from the Temerty Faculty of Medicine, reviewed experimental and observational studies, which indicated mixed results for cannabis's impact on PTSD symptoms, but with evidence suggesting slower improvement in those with PTSD and cannabis use disorder.

Nearly 10 Percent of US Adults Report Regular Cannabis Use – According to a newly released Gallup poll, usage patterns vary based on education and income levels, with the highest rates observed among individuals with a high school education or less (13 percent) and those in households earning less than $24,000 annually (16 percent). In contrast, those with postgraduate education or degrees (five percent) and households earning $180,000 or more per year (five percent) report lower rates of regular cannabis use.

Study Shows Cannabis Legalization May Reduce Teen Cannabis Use – A recent study from Boston College, published in the journal Jama Pediatrics, indicates that legalization in the US has actually led to a decrease in cannabis use among youngsters. Analyzing data from 2011 to 2021, the study found that the opening of legal cannabis retail shops did not promote adolescent use; instead, it may have even contributed to discouraging it, with each year following legalization seeing an eight percent reduction in the probability of teenage consumption.

Psychedelics

Ayahuasca Church Reaches Settlement With Federal Government – A Phoenix-based church that uses ayahuasca in religious ceremonies entered into a settlement agreement with the Drug Enforcement Agency and other federal agencies to ensure its religious right to access the federally controlled substance. According to the April 12 settlement, the Church of the Eagle and Condor will be allowed to import and manufacture ayahuasca, which contains DMT (a Schedule I substance) in order to provide ceremonial tea containing the substance to its members.   

House Veterans’ Affairs Health Subcommittee Approves GOP Psychedelics Bill for Veterans – The bill (HR 7347),  proposed by Rep. Derrick Van Orden (R-WI), would require the Department of Veterans Affairs to notify Congress if any psychedelics are added to its formulary of covered prescription drugs. No psychedelic drugs are currently federally approved for medicinal use. The bill now sits before the full Veterans’ Affairs Committee.

Psilocybin's Therapeutic Benefits Possibly Linked to Increased “Psychological Flexibility” – A recent pilot study, published in the Journal of Psychedelic Studies, investigated the impact of psilocybin administered in a retreat setting on various aspects of psychological flexibility. Nine participants attended a 7-day psilocybin retreat and completed assessments at baseline, two-month and six-month follow-ups. The participants demonstrated, among other things, significant improvements in cognitive defusion, valued living and self-compassion.

Dentons Speaks

IRC 280E Tax Mitigation Strategies for Cannabis Businesses

The application of Section 280E of the Internal Revenue Code (IRC 280E) to state-legal cannabis businesses has been extremely costly and, in some instances, has driven otherwise profitable operations out of business. In 2022, according to the Green Market Report, 10 publicly traded multistate cannabis companies collectively owed the Internal Revenue Service more than half a billion dollars in federal tax debts. For that same year, Whitney Economics reported that, under IRC 280E, state-legal cannabis companies had paid more than $1.8 billion in excess taxes compared to non-cannabis businesses.

It is not surprising, then, that cannabis companies have heavily focused on strategies to mitigate their tax liability. Several of these companies have recently made headlines for large tax returns, presumably a result of these strategies.  Dentons has leveraged its combined strength in tax and cannabis law to develop a unique tax mitigation strategy based on a statutory (rather than constitutional) argument. Both recreational-use and medical-use cannabis businesses can take advantage of this innovative approach.

Tax practice partner Mark Loyd and Cannabis practice partners Hannah King and Kelly Fair have been working with clients and their tax professionals on implementing this strategy. Please contact Mark Loyd if you are interested in learning more about the work that Dentons has been doing in this space.

In the Trade Press

Partners Hannah King and Arin Aragona published an article in Cannabis Business Executive, “Kentucky’s Medical Cannabis Program Undergoes Dramatic Transformation: Navigating HB 829 and the Emergency Licensing Regulations.”

Presenting at Cannabis Conferences

Partners Joanne Caceres and Eric Berlin presented at 1871’s Cannabis Innovation Summit in Chicago. They discussed the landscape of cannabis law reforms at the federal level and in statehouses throughout the US.

Chicago partner Amy Rubenstein moderated a panel at Benzinga’s Cannabis Capital Conference, “Diversify And Conquer: Why Cannabis Companies Shouldn't Plant All Their Buds in One Pot.” The program discussed how diversifying into sectors like agriculture and apparel can bolster cannabis companies’ cash flow.

An Industry Reception

The Dentons US Cannabis group co-hosted a cocktail reception with Baker Tilly and Big Plan Holdings while at Benzinga’s Cannabis Capital Conference in Florida. Partners Eric Berlin, Amy Rubenstein, Joanne Caceres, Hannah King, Kelly Fair, Adam Dunst and Jackson Hwu were joined by more than 150 guests, including representatives of Ascend Wellness, Belushi Farms, Open Book Extracts and Sunstream.

Delivering a CLE Webinar

Partners Amy Rubenstein, Robin Thomerson and Julia Pfeil presented “The PFAS Puzzle: Understanding regulatory risk across your supply chain” as part of Dentons’ In-House Counsel CLE Webinar Series.

Please click here for more information on the Dentons US Cannabis group.

Authored by associates Malina Dumas, Lauren Estevez, Seena Forouzan, Jacob Raver and Margo Wilkinson Smith.