Cannabis Client Alert – Week of October 30, 2023

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Cannabis Client Alert – Week of October 30, 2023

Cannabis Client Alert – Week of October 30, 2023

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October 30, 2023

In this week’s edition:

New House Speaker Historically Opposed to Cannabis Reform
HHS Releases Redacted Cannabis Rescheduling Recommendation Letter
Ohio Senate President Threatens Repeal of Portions of Upcoming Cannabis Ballot Measure if Approved by Voters
Trulieve Seeks Tax Refund for Section 280E Taxes
Study Finds Compounds Other Than Terpenes Contribute to Cannabis Aromas
Harvard University Launches Study of Psychedelics With $16 Million Gift

Federal

New Speaker of the House of Representatives Has Historically Opposed Cannabis Reform – The new speaker of the House of Representatives, Rep. Mike Johnson (R-LA), has voted consistently against modest bipartisan cannabis reform proposals since joining Congress in 2017. Most notably, Speaker Johnson voted against legislation in 2019 and 2021 that would have safeguarded banks working with state-licensed cannabis businesses and eased restrictions on researching cannabis. Despite this history, Rep. Earl Blumenauer (D-OR), co-chair of the Congressional Cannabis Caucus, said that Speaker Johnson’s “commitment to an open process and the growing support we have for SAFE Banking and the Veterans Equal Access Act makes [him] optimistic that progress can be made this Congress.”

HHS Releases Redacted Rescheduling Recommendation Letter – In response to a request under the Freedom of Information Act, the US Department of Health and Human Services (HHS) released a heavily redacted copy of its letter to the Drug Enforcement Administration regarding the rescheduling of cannabis. While it is believed that HHS recommended rescheduling cannabis to Schedule III, the redactions in the letter hide the substance of the message, including the scheduling recommendation and scientific review.

Legalization Legislation Filed With Bipartisan Support – A bipartisan group of House lawmakers, including Rep. Nancy Mace (R-SC), filed new legislation titled, “To amend the Controlled Substances Act regarding marihuana, and for other purposes.” While the text of the new legislation is not available yet, it likely builds off the States Reform Act, which was initially filed by Rep. Mace and four other Republican lawmakers in 2021. That act would have removed cannabis from the Controlled Substances Act and regulated cannabis similarly to alcohol.

Lobbying Efforts Continue for SAFER Banking Act – Bank of America, Mastercard and the National Rifle Association are among a few of the well-known entities that are lobbying on the Secure and Fair Enforcement Regulation (SAFER Banking Act). The SAFER Banking Act has reportedly garnered more congressional lobbying than any other proposed federal cannabis legislation.

Trulieve Seeks Tax Refund for Section 280E Taxes – Trulieve Cannabis Corp., a large multistate operator, filed amended tax returns seeking “a refund of $143 million from taxes paid which [Trulieve] believes it does not owe” based on its legal interpretation of Section 280E of the Internal Revenue Code. Section 280E prevents state-legal cannabis companies from deducting standard business expenses. It has been estimated that the cannabis industry overpaid its taxes by $1.8 billion in 2022 alone as a result of Section 280E.

Dentons is working with several clients on developing strategies relating to Section 280E tax liability. Please reach out if you would like to discuss further.

State

CA – Cultivators who previously obtained a mixed-light Tier 1 license and use no artificial light have until November 6 to request to change their license type to outdoor cultivation, which carries a reduced license fee.

GA – Select pharmacies launched medical cannabis sales in Georgia through partnerships with Botanical Sciences, one of two operators licensed to produce medical cannabis products in the state. Trulieve Cannabis Corp., the other licensed operator in Georgia, also announced partnerships with pharmacies to sell its products moving forward. Under Georgia’s medical cannabis laws, operators and pharmacists are limited to selling low-THC oil with up to five percent THC.

MI – Michigan’s governor signed bipartisan legislation on October 19, effective immediately, that will allow state-licensed cannabis businesses to engage in commerce with tribal cannabis businesses. Previously, state-licensed cannabis businesses and cannabis businesses on tribal lands had operated within their own siloed programs. SB180 allows the state to enter into agreements with tribal governments over regulatory matters and makes it clear that state-licensed cannabis operators can legally deliver cannabis to cannabis businesses on tribal lands. The bill exempts tribal cannabis businesses operating on tribal lands from the state’s 10 percent cannabis excise tax under certain conditions, although tribes entering into agreements with state Cannabis Regulatory Authority will need to impose their own tax of at least 10 percent, with revenues retained by the tribe. SB 179, will grant a portion of state cannabis tax revenue to tribes based on sales attributable to retailers or microbusinesses located on that tribe’s lands.

MO – Two cannabis businesses in Missouri are suing to overturn local taxes they argue are unconstitutional. Under Missouri’s adult-use cannabis laws, municipalities are authorized to impose local taxes of up to three percent (on top of the six percent state tax) if voters approve the municipal tax through a ballot measure. However, according to the lawsuits, several counties in the state are allegedly violating state law by “stacking” a three percent county tax on top of the municipal tax. The first lawsuit, filed by Vertical Enterprise, is scheduled for a December 8 trial date.

NE – State Senator Carol Blood (D) has been encouraging voters through social media to sign petitions that would put medical cannabis initiatives on the 2024 ballot. The senator’s posts on X (formerly Twitter) underscore that Nebraska is one of only three states in the country where there is no access to medical cannabis through a state-legal program.

NJ – The City of Jersey City filed a federal lawsuit against the state for allowing off-duty officers to use cannabis. The case highlights that the Federal Gun Control Act prohibits cannabis users from possessing or receiving firearms and ammunition.

NY – The New York Cannabis Control Board voted unanimously to extend deadlines for the current round of adult use cannabis business license applications by two weeks. The general application window was extended to December 18, and the expedited review window for non-provisional retail and microbusiness applicants will now close on November 17.

OH – State Senate President Matt Huffman (R) stated on the Senate floor that he would push to review and repeal portions of a cannabis legalization measure on the November 7 ballot if voters approve it. Sen. Mark Romanchuk (R) and Rep. Terry Johnson (R), along with 14 other co-sponsors introduced Senate Resolution 216, which highlights potential harms of legalization. Meanwhile, a new poll shows that 57 percent of likely voters support the legalization measure, including majority backing from Republicans.

PA – The state’s House Health Subcommittee on Health Care plans to host cannabis experts on November 1 for a hearing on adult-use cannabis legalization. The subcommittee’s chairman, Rep. Dan Frankel (D), is reportedly considering, among a number of options, a state-run cannabis sales model. New Hampshire’s legislature is also actively looking into the possibility. A state-run cannabis sales model would be new to the US.

VA – The control of Virginia’s House and Senate is up for grabs in November. With all of the state’s 140 legislative districts in play, the fate of Virginia’s adult-use market remains in the balance. While Virginia legalized adult-use cannabis in 2021, commercial sale remains illegal pending statutory approval.

Hemp

MD – Earlier this month, a Maryland circuit court preliminarily enjoined the enforcement of portions of the state’s recently enacted adult-use cannabis law that limited the sale of THC products, including THCs (like delta-8 and delta-10) derived from hemp, to the state-legal cannabis market. The order will allow hemp businesses across the state to resume selling hemp intoxicating products while the lawsuit continues.

OK – The Oklahoma Medical Marijuana Authority is reportedly looking into imposing certain rules on the currently unregulated hemp intoxicating market, telling reporters that such products “are very similar to medical marijuana . . . and need to be regulated and tested like medical marijuana.”

NE – State Attorney General Mike Hilgers (R) announced last week a crackdown on retailers selling untested hemp intoxicating products that appeal to children, filing lawsuits in at least 10 county jurisdictions against specific retail shops. “Nebraskans expect and are entitled to have accurate labeling . . . [these products are] untested, mislabeled and dangerous, especially for children,” he said.

International

Canada – Subject to certain conditions, Canadian cannabis cultivators and manufacturers are now eligible for funding under a new $2.6 billion Sustainable Canadian Agricultural Partnership (CAP) program. The CAP program is a joint federal-provincial initiative administered by Agriculture and Agri-Food Canada, the federal department charged with jurisdiction over agriculture. The initiative is being welcomed by many of the country’s struggling smaller growers and processors.

Colombia – Colombian President Gustavo Petro called out the “enormous hypocrisy” of the US-led “drug war” when recalling the widespread smell of cannabis he encountered while recently walking the streets of New York City. The president made the comments during an announcement of his country’s new national drug policy, which, among other things, will reportedly loosen criminal penalties and advance the legalization and regulation of adult-use cannabis.

Malta – The first licenses granted in the European Union that will allow nonprofits the right to legally cultivate and distribute cannabis were issued this month by the country’s Authority for Responsible Use of Cannabis (ARUC). ARUC Executive Chair Leonid McKay announced the operational licenses for two associations: KDD Society and Ta’ Zelli. Legal cannabis distribution is expected by this coming February.

Philippines – The House of Representatives recently began discussions on nine bills seeking to legalize cannabis for medical use. Among the proposed measures is HB 4208, which would create an agency to oversee the production and export of CBD.

Business

Trulieve Contributes Another $500K to Florida Cannabis Legalization Campaign – Trulieve, a multistate cannabis company, has contributed an additional $500,000 to Smart & Safe Florida, the leading campaign organization advocating for the legalization of adult-use cannabis in Florida. This brings Trulieve's total contributions to the campaign to $39.55 million, nearly all of the funds raised. The state's Supreme Court is set to hear legal challenges to the ballot measure next month, even as a recent poll indicated 60 percent of respondents support adult-use cannabis legalization in Florida.

Federal Reserve Report Highlights Economic Boost and Social Costs from Cannabis Legalization – A new report from researchers at the Federal Reserve Bank of Kansas City found that states experience economic improvement after cannabis legalization, including a three percent increase in average state income, a six percent rise in housing prices and a two percent increase in the population. The report also found that states that legalize cannabis also experience an increase in social costs, such as substance use disorders, chronic homelessness and arrests. While “the economic benefits of legalization are broadly distributed, . . . the social costs may be more concentrated among individuals who use cannabis heavily.”

Social Equity Capital Launches Cannabis Fund To Support Social Equity Licensees, Seeks Private Lenders – The Social Equity Capital Fund (SECF) has issued a request for proposal (RFP) to seek capital partners for launching the Cannabis Loan Fund, aiming to secure a total fund size of $100 million through private lenders. The fund's primary purpose is to provide affordable financing to social equity license holders in the cannabis industry, addressing the financial challenges faced by minority-owned businesses in this sector. SECF's President and CEO, Francis Kanneh, established the fund to promote the growth of the legal cannabis industry and rectify past discriminatory cannabis policies.

Medical

National Institutes of Health Awards Grant to Study Cannabis Impact on Cancer Treatment – The US National Institutes of Health’s National Cancer Institute awarded researchers at the University of Buffalo a $3.2 million grant to study the effects of cannabis on patients receiving immunotherapy for cancer treatment. According to the University of Buffalo, about 40 percent of cancer patients report using cannabis to reduce pain and improve sleep and mood. Despite this, there are “virtually no long-term studies evaluating [cannabis’] potential benefits and harms for persons treated with immunotherapy for cancer.”

Study: Cannabis Consumers See Reduced COVID Mortality and Better Outcomes Than Non-Consumers – A recent study published in the CHEST Journal indicates that cannabis consumers who contracted COVID-19 experienced reduced mortality and improved outcomes compared to non-consumers. The study, based on data from the National Inpatient Sample Database, suggests that the positive effects of cannabis use may be related to its potential to inhibit viral entry into cells and prevent the release of proinflammatory cytokines, thereby mitigating cytokine release syndrome. Among the findings, cannabis consumers with COVID-19 had lower rates of intubation, acute respiratory distress syndrome, acute respiratory failure, severe sepsis with multiorgan failure, in-hospital cardiac arrest and mortality compared to non-consumers.

Study Finds Compounds Other Than Terpenes Contribute to Cannabis Aromas – A study published by the American Chemical Society challenges the conventional belief that terpenes are solely responsible for the distinct smells of different cannabis strains. The research suggests that terpenes, while contributing to the smell of cannabis, provide minimal information about the unique aromatic attributes of cannabis varieties. Instead, the study identifies previously undiscovered compounds called flavorants as the key differentiators in the aroma of different cannabis strains, providing new opportunities for classifying cannabis varieties based on their aroma attributes and improving the understanding of this plant's therapeutic potential.

Psychedelics

Psychedelics Researcher Roland Griffiths Passes Away - Griffiths’ groundbreaking work played a pivotal role in advancing our understanding of the therapeutic potential of psychedelics. Griffiths' research not only expanded our knowledge of these substances, but also opened new doors for the treatment of mental health conditions. His legacy in the realm of psychedelic science will continue to influence and inspire future generations of researchers and clinicians.

Church Merits Tax Break, Pro-Psychedelic Orgs Tell DC Circuit Court – Two pro-psychedelics organizations, the Chacruna Institute for Psychedelic Plant Medicines and the Sacred Plant Alliance, have asserted that the Iowaska Church of Healing, which uses the psychedelic ayahuasca in its religious practices, was wrongly denied tax-exempt status. The organizations argue that the denial violated the church's religious beliefs and religious protections, as it should have been recognized as a legitimate church conducting sincere religious practices despite the use of the schedule I drug. The organizations also challenge the notion that the exemption process established by the DEA carries the force of law, emphasizing the lack of clarity and legitimate process for obtaining religious exemptions for controlled substances. Dentons represents the Iowaska Church of Healing as a pro bono client.

DEA Explanation for Drug Rescheduling Denial Flawed, 9th Circ. Rules – A Ninth Circuit panel just ruled, on October 27, 2023, that the DEA failed to explain its reasoning when it originally denied the rescheduling petition, ordering the agency to provide a more complete justification. The panel had heard arguments challenging the DEA’s process for considering petitions to reclassify controlled substances, with the case particularly involving a rescheduling request denial regarding psilocybin. The physician and clinic behind the petition had argued that the DEA's denial was unlawful, as it did not adhere to federal law and prevented lawful access to a controlled substance for terminally ill patients who could benefit from it, emphasizing the need to send the petition to the US Food and Drug Administration for recommendations.

House Veterans' Affairs Subcommittee on Health Postpones Psychedelics Hearing – A congressional subcommittee hearing on the use of psychedelic-assisted treatments for mental health disorders, which was set to be the first formal hearing to discuss how entheogenic substances such as psilocybin and MDMA could help address veteran suicides, has been postponed. The hearing, organized by the House Veterans Affairs' Subcommittee on Health, aimed to explore the potential benefits of psychedelics like psilocybin and MDMA in treating mental health issues among veterans. The new date for the rescheduled event has not yet been announced. The hearing was to feature testimonies from various experts, including officials from the Department of Veterans Affairs and advocates for psychedelics reform. It is anticipated the hearing will provide insights into the future of psychedelic therapies in veterans' mental health care.

Harvard University Launches Study of Psychedelics With $16 Million Gift – Harvard University is set to create a "Study of Psychedelics in Society and Culture" with a $16 million gift from the Gracias Family Foundation. The interdisciplinary initiative, spanning Harvard's Faculty of Arts and Sciences, Harvard Law School and Harvard Divinity School, will conduct research on how psychedelics impact society and culture. It will explore a wide range of viewpoints, including law, policy, ethics, religion, consciousness and the arts. This initiative comes amid rising scientific and academic interest in psychedelics and their potential in treating various mental health disorders. The gift will also fund an endowed professorship, research support, public events, seminars and a world-class conference, fostering interdisciplinary discussions and debates. In addition, it establishes fellowships in Psychedelics, Transcendence and Consciousness Studies between Harvard and the University of California, Berkeley.